LINCOLN PARK BANCORP - SB-2 - 20040618 - THE_OFFERING
OUR REORGANIZATION INTO A MUTUAL HOLDING COMPANY AND THE STOCK OFFERING
We do not have stockholders in our current mutual form of ownership. Our
depositors currently have the right to vote on certain matters such as the
mutual holding company reorganization. The reorganization is a series of
transactions by which we will convert our corporate structure from our current
status as a mutual savings bank to the mutual holding company form of ownership.
Following the reorganization, Lincoln Park Savings will become a New Jersey
stock savings bank subsidiary of Lincoln Park Bancorp. Lincoln Park Bancorp will
be a majority-owned subsidiary of Lincoln Park Bancorp, MHC. Our depositors will
continue to have the same liquidation and other rights in Lincoln Park Bancorp,
MHC as they have in Lincoln Park Savings Bank. As a New Jersey stock savings
bank, we will continue to be subject to the regulation and supervision of the
Commissioner of Banking and Insurance of the State of New Jersey and the Federal
Deposit Insurance Corporation. Upon consummation of the reorganization and
offering, Lincoln Park Bancorp, MHC and Lincoln Park Bancorp will be registered
with the Office of Thrift Supervision as savings and loan holding companies, and
will be subject to Office of Thrift Supervision regulations, supervision and
reporting requirements.
As part of the stock offering, we are offering between 420,325 and
568,675 shares of Lincoln Park Bancorp common stock. The purchase price will be
$10.00 per share. All investors will pay the same price per share in the
offering. We may increase the amount of stock to be sold to 653,976 shares
without any further notice to you.
The primary reasons for our decision to reorganize into a mutual holding
company and conduct the offering are to establish an organizational structure
that will enable us to (1) compete more effectively in the financial services
marketplace, (2) offer our depositors, employees, management and directors an
equity ownership interest in Lincoln Park Bancorp and thereby obtain an economic
interest in its future success, and (3) increase our capital to support future
growth and profitability. Our new structure will permit us to issue capital
stock, which is a source of capital not available to a mutual savings bank.
The reorganization and the capital raised in the offering are expected
to:
o increase our lending capacity by providing us with additional
capital to support new loans and higher lending limits;
o support the introduction of new financial products and services;
o increase our capital base and allow us to grow and enhance our
profitability; and
o improve our ability to manage capital, including paying cash
dividends and repurchasing shares of our common stock.
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The reorganization and offering also will allow us to establish stock benefit
plans for management and employees which will permit us to attract and retain
qualified personnel.
Unlike a standard conversion transaction in which all of the common
stock issued by the converting savings institution is sold to the public, in a
mutual holding company reorganization only a minority of the converting
institution's stock is sold to the public. A majority of the outstanding common
stock must be held by the mutual holding company. Consequently, the shares that
we are permitted to sell in the offering represent a minority of our outstanding
shares. Based on these restrictions, our board of directors has decided to offer
46% of our outstanding shares of common stock for sale in the offering, and 54%
of our shares will be retained by Lincoln Park Bancorp, MHC.
The following chart shows our corporate structure following the
reorganization and offering:
----------------------------------
Lincoln Park Bancorp, MHC Public Stockholders
----------------------------------
54% 46%
of of
common common
stock stock
-----------------------------------------------------
Lincoln Park Bancorp
-----------------------------------------------------
100% of common stock
-----------------------------------------------------
Lincoln Park Savings Bank
BUSINESS STRATEGY
Our business strategy is to grow and improve our profitability by:
o Emphasizing one- to four-family residential real estate lending,
while continuing to originate multi-family and commercial real
estate loans and consumer loans;
o Increasing our assets and deposits;
o Utilizing effective asset/liability management to improve our
profitability while managing our interest rate risk;
o Offering new products and services to our customers; and
o Maintaining high asset quality.
A full description of our products and services begins on page 50 of
this prospectus.
TERMS OF THE OFFERING
We are offering between 420,325 and 568,675 shares of common stock of
Lincoln Park Bancorp to qualified depositors, tax-qualified employee plans and
to the public to the extent shares remain available. The maximum number of
shares that we sell in the offering may
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increase by up to 15%, to 653,976 shares, as a result of regulatory
considerations, strong demand for the shares of common stock in the offering, or
positive changes in financial markets in general and with respect to financial
institution stocks in particular. Unless the pro forma market value of Lincoln
Park Bancorp decreases below $9,137,500 or increases above $14,216,875, you will
not have the opportunity to change or cancel your stock order. The offering
price of the shares of common stock is $10.00 per share. Sandler O'Neill &
Partners, L.P., our marketing advisor in connection with the reorganization and
offering, will use its best efforts to assist us in selling our shares of common
stock, but Sandler O'Neill & Partners, L.P. is not obligated to purchase any
shares in the offering.
PERSONS WHO MAY ORDER STOCK IN THE OFFERING
We are offering the shares of common stock of Lincoln Park Bancorp in a
"subscription offering" in the following descending order of priority:
(1) Depositors who had accounts at Lincoln Park Savings with
aggregate balances of at least $50 on March 31, 2003;
(2) The tax-qualified employee benefit plans of Lincoln Park Savings
(including our employee stock ownership plan);
(3) Depositors who had accounts at Lincoln Park Savings with
aggregate balances of at least $50 on June 30, 2004; and
(4) Depositors of Lincoln Park Savings on ____________, 2004 who do
not already have subscription rights in the above priorities.
If any shares of our common stock remain unsold in the subscription
offering, we will offer such shares for sale in a community offering. Natural
persons residing in the Borough of Lincoln Park, Pequannock Township, Montville
Township and Wayne Township, New Jersey will have a purchase preference in any
community offering. Shares also may be offered to the general public. The
community offering, if any, may commence concurrently with, during or promptly
after, the subscription offering. We also may offer shares of common stock not
purchased in the subscription offering or the community offering through a
syndicate of brokers in what is referred to as a syndicated community offering.
The syndicated community offering, if necessary, would be managed by Sandler
O'Neill & Partners, L.P. We have the right to accept or reject, in our sole
discretion, any orders received in the community offering and the syndicated
community offering.
HOW WE DETERMINED TO OFFER BETWEEN 420,325 SHARES AND 568,675 SHARES AND THE
$10.00 PRICE PER SHARE
The decision to offer between 420,325 shares and 568,675 shares, which
is our offering range, is based on an independent appraisal of our pro forma
market value prepared by RP Financial, LC., a firm experienced in appraisals of
financial institutions. RP Financial, LC. is of the opinion that as of June 9,
2004, the estimated pro forma market value of the common stock of Lincoln Park
Bancorp on a fully converted basis was between $9,137,500 and $12,362,500, with
a midpoint of $10,750,000.
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In preparing its appraisal, RP Financial, LC. considered the information
contained in this prospectus, including Lincoln Park Savings' consolidated
financial statements. RP Financial, LC. also considered the following factors,
among others:
o the present and projected operating results and financial
condition of Lincoln Park Bancorp and Lincoln Park Savings, and
the economic and demographic conditions in Lincoln Park Savings'
existing marketing areas;
o certain historical, financial and other information relating to
Lincoln Park Savings;
o a comparative evaluation of the operating and financial
statistics of Lincoln Park Savings with those of other similarly
situated publicly traded thrifts and mutual holding companies;
o the aggregate size of the common stock offering;
o the impact of the stock offering on Lincoln Park Bancorp's
consolidated net worth and earnings potential; and
o the trading market for securities of comparable institutions and
general conditions in the market for such securities.
In reviewing the appraisal prepared by RP Financial, LC., the board of
directors considered the methodologies and the appropriateness of the
assumptions used by RP Financial, LC. in addition to the factors listed above,
and the board of directors believes that these assumptions were reasonable.
The board of directors determined that the common stock should be sold
at $10.00 per share and that 46% of the shares of Lincoln Park Bancorp common
stock should be offered for sale in the offering, and 54% should be held by
Lincoln Park Bancorp, MHC. Based on the estimated valuation range and the
purchase price, the number of shares of Lincoln Park Bancorp common stock that
will be outstanding upon completion of the stock offering will range from
913,750 to 1,236,250, and the number of shares of Lincoln Park Bancorp common
stock that will be sold in the stock offering will range from 420,325 shares to
568,675 shares, with a midpoint of 494,500 shares. The number of shares that
Lincoln Park Bancorp, MHC will own after the offering will range from 493,425 to
667,575. The estimated valuation range may be amended with the approval of the
Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the
Commissioner of Banking and Insurance of the State of New Jersey, as applicable,
or if necessitated by subsequent developments in the financial condition of
Lincoln Park Savings or market conditions generally, or if permitted, to fill
the order of the employee stock ownership plan. We may be required to increase
the amount of common stock offered for sale by up to 15%, up to a total of
653,976 shares.
The appraisal will be updated before we complete the reorganization and
stock offering. If the pro forma market value of the common stock at that time
is either below $9,137,500 or above $14,216,875, then Lincoln Park Bancorp,
after consulting with the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation and the Commissioner of Banking and
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Insurance of the State of New Jersey, as applicable, may terminate the plan of
reorganization and return all funds promptly; extend or hold a new subscription
or community offering, or both; establish a new offering range and commence a
resolicitation of subscribers; or take such other actions as may be permitted by
regulatory authorities. Under such circumstances, we will notify you, and you
will have the opportunity to change or cancel your order.
Two measures investors use to analyze an issuer's stock are the ratio of
the offering price to the issuer's book value and the ratio of the offering
price to the issuer's annual net income. RP Financial, LC. considered these
ratios, among other factors, in preparing its appraisal. Book value is the same
as total equity, and represents the difference between the issuer's assets and
liabilities. The following table presents the ratio of the offering price to
Lincoln Park Bancorp's pro forma book value and earnings per share for the
periods indicated. See "Pro Forma Data" for a description of the assumptions we
used in making these calculations.
AT AND FOR THE THREE MONTHS ENDED MARCH 31, 2004
----------------------------------------------------------
420,325 494,500 568,675 653,976
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
------------ ------------ ------------ ------------
Pro forma price to book value ratio............. 106.27% 115.87% 124.53% 132.63%
============ ============ ============ ============
Pro forma price to earnings ratio............... 15.63x 19.23x 20.83x 25.00x
============ ============ ============ ============
AT AND FOR THE YEAR ENDED DECEMBER 31, 2003
----------------------------------------------------------
420,325 494,500 568,675 653,976
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
------------ ------------ ------------ ------------
Pro forma price to book value ratio............. 108.46% 118.06% 126.58% 134.77%
============ ============ ============ ============
Pro forma price to earnings ratio............... 24.39x 28.57x 32.26x 37.04x
============ ============ ============ ============
The following table presents a summary of selected pricing ratios for
the peer group companies, with such ratios adjusted to their fully converted
equivalent basis, and the resulting pricing ratios for Lincoln Park Bancorp on a
fully-converted equivalent basis (i.e., the pro forma market value of Lincoln
Park Savings assuming that 100% of the shares of Lincoln Park Savings were sold
in a public offering). Compared to the average fully converted pricing ratios of
the peer group, Lincoln Park Bancorp's pro forma fully converted pricing ratios
at the maximum of the offering range indicates a discount of 12% on a
price-to-earnings basis and a discount of 20% on a price-to-book basis. At the
minimum and maximum of the valuation range a share of common stock is priced at
20.14 times and 27.21 times Lincoln Park Bancorp's earnings. By comparison, the
peer group companies traded on average at 31.09 times earnings as of June 9,
2004. The median trading price of the peer group common stock was at 32.82 times
earnings. At the minimum and maximum of the valuation range, the common stock is
valued at 69.46% and 77.61%, respectively, of Lincoln Park Bancorp's pro forma
book value. This represents a discount to the average trading price to book
value of peer group companies, which as of June 9, 2004 averaged 96.71% on a pro
forma fully converted basis. As of June 9, 2004, the median trading price of
peer group companies was 94.09% of the book value of these companies. The
estimated appraised value and the resulting ratios took into consideration the
potential financial impact of the reorganization.
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FULLY CONVERTED FULLY CONVERTED
EQUIVALENT PRO FORMA EQUIVALENT PRO FORMA
PRICE TO PRICE TO BOOK
EARNINGS MULTIPLE VALUE RATIO
----------------- -----------
LINCOLN PARK BANCORP
Maximum 27.21x 77.61%
Minimum 20.14 69.46
VALUATION OF PEER GROUP COMPANIES
AS OF JUNE 9, 2004
Averages 31.09x 96.71%
Medians 32.82 94.09
THE INDEPENDENT APPRAISAL DOES NOT INDICATE MARKET VALUE. DO NOT ASSUME
OR EXPECT THAT LINCOLN PARK BANCORP'S VALUATION AS INDICATED ABOVE MEANS THAT
THE COMMON STOCK WILL TRADE AT OR ABOVE THE $10.00 PURCHASE PRICE AFTER THE
STOCK OFFERING.
LINCOLN PARK BANCORP DOES NOT INITIALLY INTEND TO PAY CASH DIVIDENDS ON ITS
COMMON STOCK
We do not initially intend to pay dividends on the common stock. Any
future payment of dividends will depend upon the board of directors'
consideration of a number of factors, including the amount of net proceeds
retained by us in the offering, investment opportunities available to us,
capital requirements, our financial condition and results of operations, tax
considerations, statutory and regulatory limitations, and general economic
conditions. No assurances can be given that any dividends will be paid, or that
if paid, they will not be reduced or eliminated in future periods.
LIMITS ON YOUR PURCHASE OF SHARES OF COMMON STOCK
The minimum purchase is 25 shares of common stock. Generally, no
individual, or individuals through a single account, may purchase more than
$75,000 (7,500 shares of common stock). If any of the following persons purchase
shares of common stock, their purchases when combined with your purchases cannot
exceed $150,000 (15,000 shares):
o your spouse, or relatives of you or your spouse living in your
house;
o companies, trusts or other entities in which you have an
interest or hold a position; or
o other persons who may be acting together with you.
A detailed discussion of the limitations on purchases of common stock by
an individual and persons acting together is set forth under the caption "The
Reorganization and the Stock Offering--Limitations on Purchase of Shares."
Subject to applicable regulatory approval, we may increase or decrease
the purchase limitations in the offering at any time. Our employee stock
ownership plan is authorized to purchase up to 8% of the shares sold in the
offering without regard to these purchase limitations, although it is expected
that our employee stock ownership plan will purchase 4% of the shares sold in
the offering. Therefore, our employee stock ownership plan expects to purchase
up to
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16,813 and 22,747 shares of common stock, respectively, at the minimum and
maximum of the offering range.
HOW YOU MAY PAY FOR YOUR SHARES
In the subscription offering and the community offering you may pay for
your shares only by:
(1) personal check, bank check or money order; or
(2) authorizing us to withdraw money from your deposit account(s)
maintained with Lincoln Park Savings.
If you wish to use your Lincoln Park Savings individual retirement
account to pay for your shares, please be aware that federal law requires that
such funds first be transferred to a self-directed retirement account with a
trustee other than Lincoln Park Savings. The transfer of such funds to a new
trustee takes time, so please make arrangements as soon as possible. Also,
please be aware that Lincoln Park Savings is not permitted to lend funds to
anyone for the purpose of purchasing shares of common stock in the offering.
You can subscribe for shares of common stock in the offering by
delivering to Lincoln Park Savings a signed and completed original stock order
form, together with full payment, provided we receive the stock order form
before the end of the offering. We will pay interest at Lincoln Park Savings'
passbook rate from the date funds are received until completion or termination
of the offering. Withdrawals from certificates of deposit at Lincoln Park
Savings for the purpose of purchasing common stock in the offering may be made
without incurring an early withdrawal penalty. All funds authorized for
withdrawal from deposit accounts with Lincoln Park Savings must be in the
deposit accounts at the time the stock order form is received. However, funds
will not be withdrawn from the accounts until the offering is completed and will
continue to earn interest at the applicable deposit account rate until the
completion of the offering. A hold will be placed on those funds when your stock
order is received, making the designated funds unavailable to you. After we
receive an order, the order cannot be revoked or changed, except with our
consent. Payment may not be made by wire transfer or any other electronic
transfer of funds. In addition, we are not required to accept copies or
facsimiles of order forms.
YOU MAY NOT SELL OR TRANSFER YOUR SUBSCRIPTION RIGHTS
If you order shares of common stock in the subscription offering, you
will be required to state that you are purchasing the shares of common stock for
yourself and that you have no agreement or understanding to sell or transfer
your subscription rights. We intend to take legal action, including reporting
persons to federal or state regulatory agencies, against anyone who we believe
sells or gives away his or her subscription rights. We will not accept your
stock order if we have reason to believe that you sold or transferred your
subscription rights. In addition, joint stock registration will only be allowed
if the qualified account is so registered.
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DEADLINE FOR ORDERS OF COMMON STOCK
If you wish to purchase shares of common stock, we must receive your
properly completed stock order form, together with payment for the shares, no
later than ___:___ p.m., New Jersey time, on September __, 2004, unless we
extend this deadline. You may submit your stock order form by mail using the
return envelope provided, by overnight courier to the indicated address on the
stock order form, or by bringing your stock order form to our main office. Once
submitted, your stock order is irrevocable unless the offering is terminated or
extended beyond November ___, 2004.
TERMINATION OF THE OFFERING
The subscription offering will terminate at ___:___ p.m., New Jersey
time, on September __, 2004. We expect that the community offering would
terminate at the same time. We may extend this expiration date without notice to
you, until November ___, 2004, unless regulators approve a later date. If the
subscription offering and/or community offerings extend beyond November ___,
2004, we will be required to resolicit subscriptions before proceeding with the
offering. All further extensions, in the aggregate, may not last beyond
September ___, 2006, which is two years after the special meeting of members of
Lincoln Park Savings to be held on September ___, 2004 to vote on the Plan of
Reorganization.
STEPS WE MAY TAKE IF WE DO NOT RECEIVE ORDERS FOR THE MINIMUM NUMBER OF SHARES
If we do not receive orders for at least 420,325 shares of common stock,
we may take several steps in order to sell the minimum number of shares of
common stock in the offering range. Specifically, we may increase the purchase
limitations and/or seek regulatory approval to extend the offering beyond the
November ___, 2004 expiration date, provided that any such extension will
require us to resolicit subscriptions received in the offering.
MARKET FOR THE COMMON STOCK
We anticipate that the common stock sold in the offering will be traded
and quoted on the OTC Electronic Bulletin Board. Sandler O'Neill & Partners,
L.P. currently intends to make a market in the shares of common stock, but it is
under no obligation to do so.
HOW WE INTEND TO USE THE PROCEEDS WE RAISE FROM THE OFFERING
Assuming we sell 568,675 shares of common stock in the offering, and we
have net proceeds of $5.2 million, we intend to distribute the net proceeds as
follows:
o $2.6 million (50% of the net proceeds) will be contributed to
Lincoln Park Savings;
o $227,000 (4.4% of the net proceeds) will be loaned to our
employee stock ownership plan to fund its purchase of shares of
common stock; and
o $2.4 million (45.6% of the net proceeds) will be retained by us.
We may use the net proceeds of the offering to invest in securities, to
finance the possible acquisition of other financial institutions or financial
service businesses, to pay dividends or for
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other general corporate purposes, including repurchasing shares of our common
stock. Lincoln Park Savings may use the proceeds it receives to make loans, to
purchase securities, to expand its banking franchise internally, through
branching or through acquisitions, and for general corporate purposes. See "How
We Intend to Use the Proceeds from the Offering." Neither Lincoln Park Savings
nor Lincoln Park Bancorp is considering any specific acquisition transaction at
this time.
OUR OFFICERS, DIRECTORS AND EMPLOYEES WILL RECEIVE ADDITIONAL COMPENSATION AND
BENEFIT PROGRAMS AFTER THE REORGANIZATION AND OFFERING
We intend to establish an employee stock ownership plan, and we may
implement a stock option plan and a recognition and retention plan, each of
which will use our shares of common stock as compensation. The board of
directors of Lincoln Park Savings intends to adopt an employee stock ownership
plan. The board of directors of Lincoln Park Bancorp will, at the completion of
the reorganization and offering, ratify the action to make the employee stock
ownership plan loan and to issue the common stock to the employee stock
ownership plan. The employee stock ownership plan may purchase up to 8% of the
shares sold in the offering. It is expected that our employee stock ownership
plan will purchase 4% of the shares sold in the offering, unless additional
purchases are required to complete the stock offering at the minimum of the
offering range. Moreover, in addition to shares purchased by the employee stock
ownership plan, under the plan of reorganization we may grant awards under one
or more stock benefit plans, including stock option plans and recognition and
retention plans, in an aggregate amount up to 25% of the number of shares of
common stock held by persons other than Lincoln Park Bancorp, MHC. The
recognition and retention plan and stock option plan cannot be established
sooner than six months after the reorganization and offering and would require
the approval of our stockholders. The number of options granted or shares
awarded under any initial stock option plan or recognition and retention plan
may not exceed 10% and 4%, respectively, of the shares sold in the offering, if
such plans are adopted within one year from the date of completion of the
offering. If adopted within one year, the stock option plan and the recognition
and retention plan would be subject to such other limitations as may be imposed
by the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation. If the stock option plan or recognition and retention plan is
adopted after one year from the date of the completion of the reorganization and
offering, such plans would be permitted to grant or award a greater number of
options and shares of common stock, subject to stockholder approval and the
overall limitations provided for in the plan of reorganization.
The employee stock ownership plan and the recognition and retention plan
will increase our future compensation costs, thereby reducing our earnings. The
Financial Accounting Standards Board, ("FASB"), has proposed that beginning in
2005 it will require companies to expense the cost of stock options granted to
officers, directors and employees. Based upon FASB's final rules for the
accounting of stock options, we may have to expense the cost of stock options,
and this will increase our compensation costs. Additionally, stockholders will
experience a reduction in their ownership interest if newly issued shares of
common stock are used to fund stock options and the recognition and retention
plan. See "Risk Factors--Our Stock Benefit Plans Will Increase Our Costs, Which
Will Reduce Our Income" and "Management--Future Stock Benefit Plans."
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The following table summarizes the stock benefits that our officers,
directors and employees may receive following the reorganization and offering,
at the maximum of the offering range and assuming that we initially implement a
stock option plan granting options to purchase 10% of the shares sold in the
offering and a recognition and retention plan awarding shares of common stock
equal to 4% of the shares sold in the offering:
VALUE OF BENEFITS
INDIVIDUALS ELIGIBLE % OF BASED ON MAXIMUM
PLAN TO RECEIVE AWARDS SHARES SOLD OF OFFERING RANGE
---------------------- ----------------------- ----------- -------------------
Employee stock ownership plan All employees 4% $ 227,470
Recognition and retention plan Directors, officers 4% $ 227,470
and employees
Stock option plan Directors, officers 10% --(1)
and employees
(1) Stock options will be granted with a per share exercise price at least
equal to the market price of our common stock on the date of grant. The
value of a stock option will depend upon increases, if any, in the price
of our common stock during the period in which the stock option may be
exercised.
ONCE SUBMITTED, YOUR PURCHASE ORDER MAY NOT BE REVOKED UNLESS THE OFFERING IS
TERMINATED OR EXTENDED BEYOND NOVEMBER ___, 2004.
Funds that you use to purchase shares of our common stock in the
offering will be held in an interest bearing account until the termination or
completion of the offering, including any extension of the expiration date.
Regulatory approval of the reorganization was received on August ___, 2004;
however, because completion of the reorganization and offering will be subject
to an update of the independent appraisal, among other factors, there may be one
or more delays in the completion of the reorganization. Any orders that you
submit to purchase shares of our common stock in the offering are irrevocable,
and you will not have access to subscription funds unless the stock offering is
terminated, or extended beyond November ___, 2004.
HOW YOU MAY OBTAIN ADDITIONAL INFORMATION REGARDING THE REORGANIZATION AND
OFFERING
If you have any questions regarding the reorganization and offering,
please call the Stock Information Center at (____) ____-_______, Monday through
Friday between 10:00 a.m. and 4:00 p.m., New Jersey time.
RESTRICTIONS ON THE ACQUISITION OF LINCOLN PARK BANCORP AND LINCOLN PARK SAVINGS
Federal regulations, as well as provisions contained in the charter and
bylaws of Lincoln Park Savings, restrict the ability of any person, firm or
entity to acquire Lincoln Park Bancorp, Lincoln Park Savings, or their
respective capital stock. These restrictions include the requirement that a
potential acquirer of common stock obtain the prior approval of the Office of
Thrift Supervision before acquiring in excess of 10% or 25% of the stock of
Lincoln Park Bancorp or Lincoln Park Savings. In addition, the charter of
Lincoln Park Savings includes a provision that would, for a period of five years
from the completion of the stock issuance, restrict the ability of any person
other than Lincoln Park Bancorp, MHC or Lincoln Park Bancorp from
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acquiring or offering to acquire, directly or indirectly, the beneficial
ownership of more than 10% of any class of equity security of Lincoln Park
Savings. Because a majority of the shares of outstanding common stock of Lincoln
Park Bancorp must be owned by Lincoln Park Bancorp, MHC, any acquisition of
Lincoln Park Bancorp must be approved by Lincoln Park Bancorp, MHC, and Lincoln
Park Bancorp, MHC would not be required to pursue or approve a sale of Lincoln
Park Bancorp even if such sale were favored by a majority of Lincoln Park
Bancorp's public stockholders.
POSSIBLE CONVERSION OF LINCOLN PARK BANCORP, MHC TO STOCK FORM
In the future, Lincoln Park Bancorp, MHC may convert from the mutual to
capital stock form in a transaction commonly known as a "second-step
conversion." In a second-step conversion, members of Lincoln Park Bancorp, MHC
would have subscription rights to purchase common stock of Lincoln Park Bancorp
or its successor, and the public stockholders of Lincoln Park Bancorp would be
entitled to exchange their shares of common stock for an equal percentage of
shares of the converted Lincoln Park Bancorp, MHC. This percentage may be
adjusted to reflect any assets owned by Lincoln Park Bancorp, MHC. Lincoln Park
Bancorp's public stockholders, therefore, would own approximately the same
percentage of the resulting entity as they owned prior to the second-step
conversion. The board of directors has no current plan to undertake a
second-step conversion transaction.
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SELECTED FINANCIAL AND OTHER DATA
The summary information presented below at or for each of the periods
presented is derived in part from the financial statements of Lincoln Park
Savings. The information at December 31, 2003 and 2002, and for the years then
ended is derived from the audited financial statements of Lincoln Park Savings.
The information at March 31, 2004 and for the three months ended March 31, 2004
and 2003 is unaudited. In the opinion of management, all adjustments necessary
for a fair presentation, consisting only of normal recurring adjustments, have
been included in the information at and for the three months ended March 31,
2004 and 2003. The following information is only a summary, and should be read
in conjunction with our financial statements and notes beginning on page F-1 of
this prospectus.
AT DECEMBER 31,
AT MARCH 31, ---------------------------
2004 2003 2002
------------ ------------ ------------
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets................................... $ 75,347 $ 74,281 $ 62,560
Loans receivable, net (1)...................... 49,541 48,913 34,410
Cash and cash equivalents...................... 3,980 3,082 3,561
Term deposits.................................. 665 1,060 2,838
Securities available for sale.................. 5,629 5,811 3,652
Securities held to maturity.................... 13,560 13,507 16,378
Deposits....................................... 57,044 57,290 53,365
FHLB advances.................................. 12,347 11,389 4,000
Retained earnings - substantially restricted... 5,297 5,130 4,776
--------------
(1) Net of loans in process, allowance for loan losses and deferred loan
fees.
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------------------- ----------------------------
2004 2003 2003 2002
------------ ------------ ------------ ------------
SELECTED OPERATIONS DATA: (IN THOUSANDS)
Total interest income........................ $ 892 $ 789 $ 3,262 $ 3,230
Total interest expense....................... 310 330 1,215 1,311
------------ ------------ ------------ ------------
Net interest income....................... 582 459 2,047 1,919
Provision for (recovery of) loan losses...... (16) 10 35 9
------------ ------------ ------------ ------------
Net interest income after provision for
(recovery of) loan losses................. 598 449 2,012 1,910
Non-interest income.......................... 29 32 156 (14)
Non-interest expenses........................ 392 385 1,549 1,447
Income taxes................................. 94 35 248 173
------------ ------------ ------------ ------------
Net income................................... $ 141 $ 61 $ 371 $ 276
============ ============ ============ ============
16
AT OR FOR THE THREE MONTHS AT OR FOR THE YEARS
ENDED MARCH 31,(1) ENDED DECEMBER 31,
----------------------------- -----------------------------
2004 2003 2003 2002
------------ ------------ ------------ ------------
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (2).............. 0.77% 0.39% 0.55% 0.50%
Return on average retained earnings (3)... 11.04 5.09 7.53 6.13
Average retained earnings to average assets 6.94 7.56 7.27 8.08
Net interest rate spread (4).............. 3.17 2.92 3.04 3.48
Net interest margin (5)................... 3.27 3.04 3.15 3.62
Average interest-earning assets to average
interest-bearing liabilities........... 105.83 105.83 105.77 105.75
Non-interest expense to average assets.... 2.13 2.43 2.28 2.60
Efficiency ratio (6)...................... 64.16 78.41 70.31 75.96
CAPITAL RATIOS:
Tier 1 leverage ratio..................... 6.97 7.62 6.88 7.58
Tier 1 risk-based ratio................... 13.24 14.23 12.84 14.61
Total risk-based capital ratio............ 12.97 13.94 12.53 14.33
ASSET QUALITY RATIOS:
Net charge-offs to average nonperforming
assets................................. 0.00% 0.00% 0.00% 0.00%
Net charge-offs to average loans outstanding 0.00 0.00 0.00 0.00
Allowance for loan losses to gross loans
outstanding............................ 0.22 0.27 0.26 0.26
Nonperforming loans to total assets....... 0.17 0.39 0.48 0.41
Nonperforming assets to total assets...... 0.17 0.39 0.48 0.41
OTHER DATA:
Number of full-service offices............ 1 1 1 1
(1) Ratios for the three-month periods have been annualized.
(2) Net income divided by average assets.
(3) Net income divided by average retained earnings.
(4) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(5) Net interest income as a percentage of interest-earning assets.
(6) The efficiency ratio represents the ratio of non-interest expenses
divided by the sum of net interest income and non-interest income.
17
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK
CHANGES IN INTEREST RATES COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
Our results of operations and financial condition are significantly
affected by changes in interest rates. Our results of operations are affected
substantially by our net interest income, which is the difference between the
interest income we earn on our interest-earning assets and the interest expense
we pay on our interest-bearing liabilities. Changes in interest rates could have
an adverse affect on our net interest income because, as a general matter, our
interest-bearing liabilities reprice or mature more quickly than our
interest-earning assets. An increase in interest rates generally would result in
a decrease in our average interest rate spread and net interest income, which
would have a negative effect on our profitability. In the event of an immediate
and sustained 200 basis point increase in interest rates, we are projecting that
our net portfolio value would decrease by approximately $3.1 million, or 38%.
Our policy is to originate for retention in our portfolio fixed-rate
mortgage loans with maturities of up to 30 years. At March 31, 2004, $31.0
million, or 62.5% of our total loan portfolio, consisted of fixed-rate mortgage
loans and home equity loans with original maturities of 15 years or more. This
investment in fixed rate mortgage loans exposes Lincoln Park Savings to
increased levels of interest rate risk, and could result in decreased net
interest income during periods of rising interest rates.
Changes in interest rates also affect the value of our interest-earning
assets, and in particular our securities portfolio. Generally, the value of
securities fluctuates inversely with changes in interest rates. At March 31,
2004, our available for sale securities portfolio totaled $5.6 million.
Unrealized gains and losses on securities available for sale are reported as a
separate component of equity. Decreases in the fair value of securities
available for sale resulting from increases in interest rates, therefore, would
have an adverse effect on stockholders' equity. For additional information, see
"Business of Lincoln Park Savings Bank--Investments."
We are also subject to prepayment and reinvestment risk relating to
interest rate movements. Changes in interest rates can affect the average life
of loans and mortgage related securities. Decreases in interest rates can result
in increased prepayments of loans and mortgage related securities, as borrowers
refinance to reduce borrowing costs. Under these circumstances, we are subject
to reinvestment risk to the extent that we are unable to reinvest such
prepayments at rates that are comparable to the rates on existing loans or
securities.
COMMERCIAL REAL ESTATE AND CONSUMER LOANS CARRY GREATER RISK OF LOSS THAN ONE-TO
FOUR-FAMILY RESIDENTIAL LOANS.
Although we strive to maintain high asset quality and follow policies
that are consistent with safe and sound practices of the industry, there are
inherent risks associated with certain types of loans we originate. In
particular, a significant portion of our loan portfolio consists of
18
commercial real estate loans and consumer loans, consisting primarily of home
equity loans and lines of credit. At March 31, 2004, commercial real estate
loans totaled $2.0 million, or 4.1% of total loans, and consumer loans totaled
$11.9 million, or 24.1% of total loans. Commercial real estate and consumer
loans generally have greater credit risks than loans secured by first liens on
one- to four-family real estate. Should the local real estate market or economy
weaken, we may begin to experience higher levels of non-performing loans. For
additional information see "Business of Lincoln Park Savings Bank--Lending
Activities."
STRONG COMPETITION WITHIN OUR MARKET AREA MAY LIMIT OUR GROWTH AND
PROFITABILITY.
Competition in the banking and financial services industry is intense.
In our market area, we compete with commercial banks, savings institutions,
mortgage brokerage firms, credit unions, finance companies, mutual funds,
insurance companies, and brokerage and investment banking firms operating
locally and elsewhere. Most of these competitors have substantially greater
resources and lending limits than we have and offer certain services that we do
not or cannot provide. Our profitability depends upon our continued ability to
successfully compete in our market area. The greater resources and deposit and
loan products offered by our competition may limit our ability to increase our
interest earning assets. For additional information see "Business of Lincoln
Park Savings Bank-Competition."
THE FUTURE PRICE OF THE COMMON STOCK MAY BE LESS THAN THE PURCHASE PRICE IN THE
OFFERING.
We cannot assure you that if you purchase shares of common stock in the
offering you will later be able to sell them at or above the purchase price in
the offering. The final aggregate purchase price of the shares of common stock
in the offering will be based on an independent appraisal. The appraisal is not
intended, and should not be construed, as a recommendation of any kind as to the
advisability of purchasing shares of common stock. The valuation is based on
estimates and projections of a number of matters, all of which are subject to
change from time to time. In addition, Office of Thrift Supervision regulations
permit mutual institutions to acquire mutual holding companies in so-called
"remutualization" transactions. The possibility of such a transaction has
resulted in some takeover speculation which may be reflected in the market price
of mutual holding companies' common stock. The Office of Thrift Supervision has
issued a policy statement indicating that it views remutualization transactions
as raising significant issues concerning disparate treatment of minority
stockholders and mutual members. The Office of Thrift Supervision intends to
give these issues special scrutiny and reject applications providing for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the Office of Thrift Supervision's concerns are not warranted
in the particular case. Should the Office of Thrift Supervision prohibit or
otherwise restrict these transactions in the future our per share stock price
may be adversely affected.
THERE WILL BE A LIMITED TRADING MARKET IN OUR COMMON STOCK, WHICH WILL HINDER
YOUR ABILITY TO SELL OUR COMMON STOCK AND MAY LOWER THE MARKET PRICE OF THE
STOCK.
Lincoln Park Bancorp has never issued stock and, therefore, there is no
current trading market for the shares of common stock. We expect that our common
stock will trade in the over the counter market with quotations available
through the OTC Electronic Bulletin Board. Because of the small size of the
offering, it is not likely that an active and liquid trading market
19
in shares of our common stock will develop. Persons purchasing shares may not be
able to sell their shares when they desire if a liquid trading market does not
develop or sell them at a price equal to or above the initial purchase price of
$10.00 per share even if a liquid trading market develops. This limited trading
market for our common stock may reduce the market value of the common stock and
make it difficult to buy or sell our shares on short notice. For additional
information see "Market for the Common Stock."
IF ECONOMIC CONDITIONS DETERIORATE, OUR RESULTS OF OPERATIONS AND FINANCIAL
CONDITION COULD BE ADVERSELY AFFECTED AS BORROWERS' ABILITY TO REPAY LOANS
DECLINES AND THE VALUE OF THE COLLATERAL SECURING OUR LOANS DECREASES.
Our financial results may be adversely affected by changes in prevailing
economic conditions, including decreases in real estate values, changes in
interest rates which may cause a decrease in interest rate spreads, adverse
employment conditions, the monetary and fiscal policies of the federal
government and other significant external events. Because we have a significant
amount of real estate loans, decreases in real estate values could adversely
affect the value of property used as collateral for these loans. At March 31,
2004, loans secured by real estate, including home equity loans and lines of
credit, represented 99.2% of our total loans. Adverse changes in the economy
also may have a negative effect on the ability of our borrowers to make timely
repayments of their loans, which would have an adverse impact on our earnings.
As of March 2004, the unemployment rate in Morris and Passaic Counties, New
Jersey was 3.8%, which is lower than the national average, while the
unemployment rate in Passaic County was 7.1%, which is above the national
average.
WE ARE DEPENDENT ON THE VIABILITY OF THE REGIONAL ECONOMY.
Substantially all of our loans are to individuals and businesses located
in Morris and Passaic Counties, New Jersey. Consequently, any decline in the
regional economy could have an adverse impact on our earnings.
IF OUR ALLOWANCE FOR LOAN LOSSES IS NOT SUFFICIENT TO COVER ACTUAL LOAN LOSSES,
OUR EARNINGS COULD DECREASE.
We make various assumptions and judgments about the collectibility of
our loan portfolio, including the creditworthiness of our borrowers and the
value of the real estate and other assets serving as collateral for the
repayment of many of our loans. In determining the amount of the allowance for
loan losses, we review our loans and our loss and delinquency experience, and we
evaluate economic conditions. If our assumptions are incorrect, our allowance
for loan losses may not be sufficient to cover losses inherent in our loan
portfolio, resulting in additions to our allowance. Material additions to our
allowance would materially decrease our net income.
In addition, bank regulators periodically review our allowance for loan
losses and may require us to increase our provision for loan losses or recognize
further loan charge-offs. Any increase in our allowance for loan losses or loan
charge-offs as required by these regulatory authorities may have a material
adverse effect on our financial condition and results of operations.
20
OUR RETURN ON EQUITY WILL BE LOW COMPARED TO OTHER FINANCIAL INSTITUTIONS. THIS
COULD NEGATIVELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
Net income divided by average equity, known as "return on equity," is a
ratio many investors use to compare the performance of a financial institution
to its peers. We expect our return on equity to remain below the industry
average until we are able to leverage our increased equity from the offering.
Our return on equity will be reduced by the capital raised in the offering,
higher expenses from the costs of being a public company, and added expenses
associated with our employee stock ownership plan and any recognition and
retention plan. Until we can increase our net interest income and non-interest
income, we expect our return on equity to be below the industry average, which
may reduce the value of our common stock. For the three months ended March 31,
2004, our return on average equity was 11.04%. This compares to a return on
average equity of 9.14% for all publicly traded savings institutions. Following
the offering we expect our consolidated equity to increase from between $3.3
million at the minimum and $5.4 million at the adjusted maximum of the offering
range.
OUR STOCK BENEFIT PLANS WILL INCREASE OUR COSTS, WHICH WILL REDUCE OUR INCOME.
We anticipate that our employee stock ownership plan will purchase 4% of
the shares of common stock sold in the offering with funds borrowed from Lincoln
Park Bancorp. The cost of acquiring the shares of common stock for the employee
stock ownership plan will be between $168,130 at the minimum of the offering
range and $261,590 at the adjusted maximum of the offering range. We will record
annual employee stock ownership plan expenses in an amount equal to the fair
value of shares of common stock committed to be released to employees. If shares
of common stock appreciate in value over time, compensation expense relating to
the employee stock ownership plan will increase.
We also intend to adopt a recognition and retention plan and a stock
option plan after the reorganization and offering. Under the plan of
reorganization we are authorized to grant awards under one or more stock benefit
plans, including the recognition and retention plan and stock option plan, in an
amount up to 25% of the number of shares of common stock held by persons other
than Lincoln Park Bancorp, MHC. The recognition and retention plan and stock
option plan cannot be implemented until at least six months after the
reorganization and offering, and if they are adopted within twelve months after
the reorganization, they will be subject to certain Office of Thrift Supervision
regulations regarding vesting, allocation of awards and size of plans. In the
event that a portion of the shares used to (i) fund the recognition and
retention plan or (ii) satisfy the exercise of options from our stock option
plan, is obtained from authorized but unissued shares, the issuance of
additional shares will decrease our net income per share and stockholders'
equity per share.
THE IMPLEMENTATION OF STOCK-BASED BENEFIT PLANS MAY DILUTE YOUR OWNERSHIP
INTEREST.
We intend to adopt a stock option plan and recognition and retention
plan following the reorganization and offering. These stock benefit plans will
be funded through either open market purchases, if permitted, or from the
issuance of authorized but unissued shares. Stockholders would experience a
reduction in ownership interest (including shares held by Lincoln Park Bancorp,
MHC) totaling 6.1% in the event newly issued shares are used to fund stock
options
21
under the stock option plan and awards made under the recognition and retention
plan in an amount equal to 10% and 4%, respectively, of the shares issued in the
offering.
WE HAVE BROAD DISCRETION IN ALLOCATING THE PROCEEDS OF THE OFFERING. OUR FAILURE
TO EFFECTIVELY UTILIZE SUCH PROCEEDS COULD HURT OUR PROFITS.
Lincoln Park Bancorp intends to retain 50% of the net proceeds from the
offering and contribute the remainder of the net proceeds of the offering to
Lincoln Park Savings. Lincoln Park Bancorp will use a portion of the net
proceeds to fund the employee stock ownership plan and may use the remaining net
proceeds to pay dividends to stockholders, repurchase shares of common stock,
purchase investment securities, acquire other financial services companies or
for other general corporate purposes. Lincoln Park Savings may use the proceeds
it receives to fund new loans, establish or acquire new branches, purchase
investment securities, or for general corporate purposes. We have not, however,
allocated specific amounts of proceeds for any of these purposes and we will
have significant flexibility in determining the amount of net proceeds we apply
to different uses and the timing of such applications. Our failure to utilize
these funds effectively could reduce our profitability.
PERSONS WHO PURCHASE STOCK IN THE OFFERING WILL OWN A MINORITY OF LINCOLN PARK
BANCORP'S COMMON STOCK AND WILL NOT BE ABLE TO EXERCISE VOTING CONTROL OVER MOST
MATTERS PUT TO A VOTE OF STOCKHOLDERS.
Public stockholders will own a minority of the outstanding shares of
Lincoln Park Bancorp's common stock. As a result, stockholders other than
Lincoln Park Bancorp, MHC will not be able to exercise voting control over most
matters put to a vote of stockholders. Lincoln Park Bancorp, MHC, will own a
majority of Lincoln Park Bancorp's common stock after the offering and, through
its board of directors, will be able to exercise voting control over most
matters put to a vote of stockholders. The same directors and officers who
manage Lincoln Park Bancorp and Lincoln Park Savings also manage Lincoln Park
Bancorp, MHC. The only matters as to which stockholders other than Lincoln Park
Bancorp, MHC will be able to exercise voting control include any proposal to
implement a stock recognition and retention plan or stock option plan after the
completion of the offering. In addition, Lincoln Park Bancorp, MHC may exercise
its voting control to prevent a sale or merger transaction in which stockholders
could receive a premium for their shares.
WE OPERATE IN A HIGHLY REGULATED ENVIRONMENT AND MAY BE ADVERSELY AFFECTED BY
CHANGES IN LAWS AND REGULATIONS.
We are subject to extensive regulation, supervision and examination by
the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and
the New Jersey Commissioner of Banking and Insurance of the State of New Jersey.
Such regulation and supervision govern the activities in which a financial
institution and its holding company may engage and are intended primarily for
the protection of the insurance fund and depositors. Regulatory authorities have
extensive discretion in connection with their supervisory and enforcement
activities, including the imposition of restrictions on the operation of an
institution, the classification of assets by the institution and the adequacy of
an institution's allowance for loan losses. Any change in such regulation and
oversight, whether in the form of regulatory policy, regulations, or
legislation, may have a material impact on our operations.
22
OUR STOCK VALUE MAY BE NEGATIVELY AFFECTED BY FEDERAL REGULATIONS RESTRICTING
TAKEOVERS AND OUR MUTUAL HOLDING COMPANY STRUCTURE.
FEDERAL REGULATIONS RESTRICTING TAKEOVERS. For three years following the
offering, Office of Thrift Supervision regulations prohibit any person from
acquiring or offering to acquire more than 10% of our common stock without the
prior written approval of the Office of Thrift Supervision. Moreover, current
Office of Thrift Supervision policy prohibits the acquisition of a mutual
holding company subsidiary by any person or entity other than a mutual holding
company or a mutual institution. See "Restrictions on the Acquisition of Lincoln
Park Bancorp and Lincoln Park Savings" on page ___ for a discussion of
applicable Office of Thrift Supervision regulations regarding acquisitions.
MUTUAL HOLDING COMPANY STRUCTURE MAY IMPEDE TAKEOVERS. Lincoln Park
Bancorp, MHC, as the majority stockholder of Lincoln Park Bancorp, will be able
to control the outcome of virtually all matters presented to stockholders for
their approval, including a proposal to acquire Lincoln Park Bancorp.
Accordingly, Lincoln Park Bancorp, MHC may prevent the sale of control or merger
of Lincoln Park Bancorp or its subsidiaries even if such a transaction were
favored by a majority of the public stockholders of Lincoln Park Bancorp.
FORWARD LOOKING STATEMENTS
This prospectus contains forward-looking statements, which can be
identified by the use of such words as estimate, project, believe, intend,
anticipate, plan, seek, expect and similar expressions. These forward-looking
statements include:
o statements of our goals, intentions and expectations;
o statements regarding our business plans and prospects and growth
and operating strategies;
o statements regarding the asset quality of our loan and
investment portfolios; and
o estimates of our risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors that could affect the actual outcome of future events:
o significantly increased competition among depository and other
financial institutions;
o inflation and changes in the interest rate environment that
reduce our margins or reduce the fair value of financial
instruments;
o general economic conditions, either nationally or in our market
areas, that are worse than expected;
o adverse changes in the securities markets;
o legislative or regulatory changes that adversely affect our
business;
23
o our ability to enter new markets successfully and take advantage
of growth opportunities;
o changes in consumer spending, borrowing and savings habits;
o changes in accounting policies and practices, as may be adopted
by the bank regulatory agencies and the Financial Accounting
Standards Board; and
o changes in our organization, compensation and benefit plans.
Because of these and other uncertainties, our actual future results may
be materially different from the results indicated by these forward-looking
statements. We discuss these and other uncertainties in "Risk Factors" beginning
on page 18.
HOW WE INTEND TO USE THE PROCEEDS FROM THE OFFERING
Although we will not be able to determine the amount of actual net
proceeds we will receive from the sale of shares of common stock until the
offering is completed, we anticipate that the net proceeds will be between $3.7
million and $5.2 million, or $6.0 million if the offering is increased by 15%.
Lincoln Park Bancorp intends to distribute the net proceeds from the
offering as follows:
MINIMUM MIDPOINT MAXIMUM ADJUSTED MAXIMUM
------------------- ------------------- ------------------- -------------------
PERCENT PERCENT PERCENT PERCENT
OF NET OF NET OF NET OF NET
AMOUNT PROCEEDS AMOUNT PROCEEDS AMOUNT PROCEEDS AMOUNT PROCEEDS
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Offering proceeds................... $ 4,203 112.7% $ 4,945 110.9% $ 5,687 109.7% $ 6,540 108.6%
Less: offering expenses............. 473 12.7 488 10.9 502 9.7 518 8.6
-------- -------- -------- -------- -------- -------- -------- --------
Net offering proceeds............... 3,730 100.0% 4,457 100.0% 5,185 100.0% 6,022 100.0%
Less:
Proceeds contributed to Lincoln
Park Savings.................... 1,865 50.0% 2,229 50.0% 2,592 50.0% 3,011 50.0%
Proceeds used for loan to
employee stock ownership plan... 168 4.5% 198 4.4% 227 4.4% 262 4.3%
-------- -------- -------- -------- -------- -------- -------- --------
Proceeds retained by Lincoln Park
Bancorp............................ $ 1,697 45.5% $ 2,030 45.6% $ 2,366 45.6% $ 2,749 45.7%
======== ======== ======== ========
The net proceeds may vary because total expenses relating to the
reorganization and offering may be more or less than our estimates. For example,
our expenses would increase if a syndicated community offering were used to sell
shares of common stock not purchased in the subscription offering and any
community offering. Payments for shares made through withdrawals from existing
deposit accounts will not result in the receipt of new funds for investment but
will result in a reduction of Lincoln Park Savings' deposits. In all instances,
Lincoln Park Savings will receive at least 50% of the net proceeds of the
offering.
We are undertaking the reorganization and offering at this time in order
to increase our capital and have the capital resources available to expand and
diversify our business. For further information, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Business
Strategy." The offering proceeds will increase our capital resources and the
amount of funds available to us for lending and investment purposes. The
proceeds will also give us greater flexibility to diversify operations and
expand the products and services we offer to our customers.
24
LINCOLN PARK BANCORP MAY USE THE PROCEEDS IT RETAINS FROM THE OFFERING:
o to invest in securities;
o to repurchase its shares of common stock;
o to pay dividends to our stockholders, although we do not
initially intend to pay cash dividends;
o to finance acquisitions of financial institutions or branches
and other financial services businesses, although no specific
transactions are being considered at this time; and
o for general corporate purposes.
Under current Office of Thrift Supervision and Federal Deposit Insurance
Corporation regulations, we may not repurchase shares of our common stock during
the first year following the reorganization and offering, except when
extraordinary circumstances exist and with prior regulatory approval.
LINCOLN PARK SAVINGS MAY USE THE PROCEEDS IT RECEIVES FROM THE OFFERING:
o to fund new loans, including one- to four-family mortgage loans,
commercial real estate loans and consumer loans;
o to support new products and services;
o to invest in securities;
o to expand its retail banking franchise, by establishing or
acquiring new branches or by acquiring other financial
institutions, or other financial services companies, although no
transactions are specifically being considered at this time; and
o for general corporate purposes.
The use of the proceeds outlined above may change based on changes in
interest rates, equity markets, laws and regulations affecting the financial
services industry, our relative position in the financial services industry, the
attractiveness of potential acquisitions to expand our operations, and overall
market conditions.
OUR POLICY REGARDING DIVIDENDS
We do not initially intend to pay dividends on the shares of common
stock. Any future payment of dividends will depend upon a number of factors,
including the amount of net proceeds retained by us following the offering,
investment opportunities available to us, regulatory capital requirements, our
financial condition and results of operations, tax considerations, statutory and
regulatory limitations, and general economic conditions.
We cannot assure you that we will pay dividends, or that if paid, we
will not reduce or eliminate dividends in the future.
If Lincoln Park Bancorp pays dividends to its stockholders, it also will
be required to pay dividends to Lincoln Park Bancorp, MHC, unless Lincoln Park
Bancorp, MHC elects to waive
25
the receipt of dividends. We anticipate that Lincoln Park Bancorp, MHC will
waive dividends paid by Lincoln Park Bancorp. Any decision to waive dividends
will be subject to regulatory approval. Under Office of Thrift Supervision
regulations, public stockholders would not be diluted for any dividends waived
by Lincoln Park Bancorp, MHC in the event Lincoln Park Bancorp, MHC converts to
stock form. See "Regulation - Holding Company Regulation."
Dividends from Lincoln Park Bancorp will depend, in large part, upon
receipt of dividends from Lincoln Park Savings, because Lincoln Park Bancorp
initially will have no source of income other than dividends from Lincoln Park
Savings, earnings from the investment of proceeds it retains from the sale of
shares of common stock, and interest payments with respect to Lincoln Park
Bancorp's loan to the employee stock ownership plan. Lincoln Park Savings will
not be permitted to pay cash dividends to Lincoln Park Bancorp, if its surplus
and reserves would thereby be reduced below the amount required by applicable
regulatory capital requirements. See "Regulation--Federal Banking
Regulation--Capital Requirements." Under New Jersey law, Lincoln Park Savings
may not pay a cash dividend unless, after the payment of such dividend, its
capital stock will not be impaired and either it will have a statutory surplus
of not less than 50% of its capital stock, or the payment of such dividend will
not reduce its statutory surplus. Lincoln Park Savings' certificate of
incorporation requires a capital surplus of $150,000, which is unavailable for
the payment of dividends. Lincoln Park Bancorp, however, will not be subject to
Office of Thrift Supervision regulatory restrictions on the payment of
dividends.
Additionally, we have committed to the Office of Thrift Supervision that
during the one-year period following the completion of the reorganization and
offering, we will not take any action to declare an extraordinary dividend to
our stockholders that would be treated by such stockholders as a tax-free return
of capital for federal income tax purposes, without prior approval of the Office
of Thrift Supervision.
MARKET FOR THE COMMON STOCK
Lincoln Park Bancorp is a newly formed company and has never issued
capital stock. Lincoln Park Savings, as a mutual institution, has never issued
capital stock. Lincoln Park Bancorp anticipates that its common stock will be
traded on the OTC Electronic Bulletin Board. Sandler O'Neill & Partners, L. P.
has indicated its intention to register with the National Association of
Securities Dealers, Inc. to be able to trade our common stock. This may include
the solicitation of potential buyers and sellers in order to match buy and sell
orders. However, Sandler O'Neill & Partners, L. P. will not be subject to any
obligation with respect to these efforts.
The development of an active trading market depends on the existence of
willing buyers and sellers, the presence of which is not within our control, or
that of any market maker. The number of active buyers and sellers of the shares
of common stock at any particular time may be limited. Under such circumstances,
you could have difficulty selling your shares of common stock on short notice
and, therefore, you should not view the shares of common stock as a short-term
investment. We cannot assure you that an active trading market for the common
stock will develop or that, if it develops, it will continue. Nor can we assure
you that, if you purchase shares of common stock, you will be able to sell them
at or above $10.00 per share.
26
REGULATORY CAPITAL COMPLIANCE
At March 31, 2004, Lincoln Park Savings exceeded all regulatory capital
requirements. The following table sets forth our compliance, as of March 31,
2004, with the regulatory capital standards of the Federal Deposit Insurance
Corporation, on a historical and pro forma basis assuming that the indicated
number of shares of common stock were sold as of such date at $10.00 per share,
and Lincoln Park Savings received the estimated net proceeds after adjustment
for stock benefit plans and the capitalization of Lincoln Park Bancorp, MHC,
less 50% of the net proceeds retained by Lincoln Park Bancorp. Accordingly,
proceeds received by Lincoln Park Savings have been assumed to equal $1,865,000,
$2,229,000, $2,592,000 and $3,011,000 at the minimum, midpoint, maximum and
adjusted maximum of the offering range, respectively. For a discussion of the
applicable capital requirements, see "Supervision and Regulation--Federal
Banking Regulation--Capital Requirements."
PRO FORMA AT MARCH 31, 2004, BASED UPON THE SALE OF
------------------------------------------------------------------------------------------------------
653,976 SHARES
420,325 SHARES 494,500 SHARES 568,675 SHARES AT AT ADJUSTED
HISTORICAL AT AT MINIMUM OF AT MIDPOINT OF MAXIMUM OF MAXIMUM OF
MARCH 31, 2004 OFFERING RANGE OFFERING RANGE OFFERING RANGE OFFERING RANGE (1)
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF OF OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(DOLLARS IN THOUSANDS)
GAAP capital........... $ 5,297 7.03% $ 6,725 8.74% $ 7,030 9.10% $ 7,334 9.45% $ 7,684 9.85%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Leverage capital:
Capital level(3)..... $ 5,247 6.97% $ 6,675 8.68% $ 6,979 9.04% $ 7,284 9.39% $ 7,634 9.80%
Requirement(4)....... 3,011 4.00 3,075 4.00 3,088 4.00 3,101 4.00 3,117 4.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess.............. $ 2,236 2.97% $ 3,600 4.68% $ 3,891 5.04% $ 4,183 5.39% $ 4,517 5.80%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Risk-based capital:
Tier 1 capital level(3) $ 5,247 12.97% $ 6,675 16.37% $ 6,980 17.09% $ 7,285 17.80% $ 7,635 18.62%
Requirement(5)....... 1,619 4.00 1,631 4.00 1,634 4.00 1,637 4.00 1,640 4.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess.............. $ 3,628 8.97% $ 5,044 12.37% $ 5,346 13.09% $ 5,648 13.80% $ 5,995 14.62%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Total capital level(3) $ 5,357 13.24% $ 6,785 16.64% $ 7,090 17.35% $ 7,395 18.07% $ 7,745 18.89%
Requirement(5)....... 3,237 8.00 3,263 8.00 3,268 8.00 3,273 8.00 3,280 8.00
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Excess.............. $ 2,120 5.24% $ 3,523 8.64% $ 3,822 9.35% $ 4,121 10.07% $ 4,465 10.89%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
(1) As adjusted to give effect to a 15% increase in the number of shares of
common stock outstanding after the offering which could occur due to an
increase in the maximum of the independent valuation as a result of
regulatory considerations, demand for the shares, or changes in market
conditions or general economic conditions following the commencement of
the offering.
(2) Leverage capital levels are shown as a percentage of tangible assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) Pro forma capital levels assume funding of the recognition and a
retention plan equal to 4% of the common stock sold in the offering
through purchases in the open market, or $168,130, $197,800, $227,470 or
$261,590 at the minimum, midpoint, maximum and maximum adjusted, of the
estimated price range, respectively, the repayment of Lincoln Park
Bancorp's loan to the ESOP to enable the ESOP to purchase 4% of the
common stock sold in the offering, or $168,130, $197,800, $227,470 or
$261,590 at the minimum, midpoint, maximum and maximum adjusted, of the
estimated price range, respectively.
(4) The current leverage capital requirement is 4% of total adjusted assets
for banks that receive the highest supervisory rating for safety and
soundness and that are not experiencing or anticipating significant
growth. The current leverage capital ratio applicable to all other banks
is 5%.
(5) Assumes net proceeds are initially invested in assets that carry a
risk-weighting equal to 20%.
27
CAPITALIZATION
The following table presents the historical consolidated capitalization
of Lincoln Park Savings at March 31, 2004, and the pro forma consolidated
capitalization of Lincoln Park Bancorp after giving effect to the offering,
based upon the sale of the number of shares of common stock indicated in the
table and the other assumptions set forth under "Pro Forma Data."
PRO FORMA CONSOLIDATED CAPITALIZATION OF
LINCOLN PARK BANCORP
BASED UPON THE SALE FOR $10.00 PER SHARE OF
-------------------------------------------------
494,500 653,976
LINCOLN 420,325 SHARES AT 568,675 SHARES AT
PARK SHARES AT MIDPOINT SHARES AT ADJUSTED
SAVINGS MINIMUM OF OF MAXIMUM OF MAXIMUM OF
HISTORICAL OFFERING OFFERING OFFERING OFFERING
CAPITALIZATION RANGE RANGE RANGE RANGE (1)
-------------- --------- ---------- ---------- ---------
(DOLLARS IN THOUSANDS)
Deposits (2).................................. $ 57,044 $ 57,044 $ 57,044 $ 57,044 $ 57,044
---------- --------- ---------- ---------- ---------
Borrowings.................................... $ 12,347 $ 12,347 $ 12,347 $ 12,347 $ 12,347
---------- --------- ---------- ---------- ---------
Total Deposits and Borrowings................. $ 69,391 $ 69,391 $ 69,391 $ 69,391 $ 69,391
========== ========= ========== ========== =========
Stockholders' equity:
Preferred Stock, $0.01 par value per share,
1,000,000 shares authorized; none to be issued $ -- $ -- $ -- $ -- $ --
Common Stock, $0.01 par value per share:
5,000,000 shares authorized; shares to be
issued as reflected....................... -- 9 11 12 14
Additional paid-in capital (3).............. -- 3,721 4,446 5,173 6,008
Retained earnings (4)....................... 5,247 5,147 5,147 5,147 5,147
Accumulated other comprehensive income...... 50 50 50 50 50
Less:
Common Stock acquired by employee stock
ownership plan (5)........................ -- (168) (198) (228) (262)
Common Stock acquired by recognition and
retention plan (6)....................... -- (168) (198) (228) (262)
---------- ---------- ----------- ----------- ----------
Total stockholders' equity (7).......... $ 5,297 $ 8,591 $ 9,258 $ 9,926 $ 10,695
========== ========= ========== ========== =========
Pro forma shares outstanding:
Total shares outstanding................... 913,750 1,075,000 1,236,250 1,421,688
Shares issued to Lincoln Park Bancorp, MHC. 493,425 580,500 667,575 767,711
Shares offered for sale.................... 420,325 494,500 568,675 653,976
Total stockholders' equity as a percentage of
pro forma total assets...................... 7.03% 10.92% 11.67% 12.41% 13.25%
(1) As adjusted to give effect to a 15% increase in the number of shares of
common stock outstanding after the offering which could occur due to an
increase in the maximum of the independent valuation as a result of
regulatory considerations, demand for the shares of common stock, or
changes in market conditions or general financial and economic
conditions following the commencement of the offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
shares of common stock in the offering. Such withdrawals would reduce
pro forma deposits by the amount of such withdrawals.
(3) The sum of the par value and additional paid-in capital equals the net
conversion proceeds. No effect has been given to the issuance of
additional shares of common stock pursuant to the stock option plan that
Lincoln Park Bancorp expects to adopt. The plan of reorganization
permits Lincoln Park Bancorp to adopt one or more stock benefit plans,
subject to stockholder approval, that may award stock or stock options
in an aggregate amount up to 25% of the number of shares of common stock
held by persons other than Lincoln Park Bancorp, MHC.
(4) Pro forma retained earnings reflect a $100,000 initial capitalization of
Lincoln Park Bancorp, MHC.
(5) Assumes that 4% of the shares of common stock sold in the offering will
be purchased by the employee stock ownership plan and that the funds
used to acquire the employee stock ownership plan shares will be
borrowed from Lincoln Park Bancorp. The common stock acquired by the
employee stock ownership plan is reflected as a reduction of
stockholders' equity. Lincoln Park Savings will provide the funds to
repay the employee stock ownership plan loan. See "Management--Benefit
Plans."
(6) Assumes that subsequent to the offering, 4% of the shares of common
stock sold in the offering are purchased with funds provided by Lincoln
Park Bancorp by the recognition and retention plan in the open market at
a price equal to the price for which the shares are sold in the
offering. The shares of common stock to be purchased by the recognition
and retention plan is reflected as a reduction of stockholders' equity.
See "Pro Forma Data" and "Management." The plan of reorganization
permits Lincoln Park Bancorp to adopt one or more stock benefit plans
that award stock or stock options, in an aggregate amount up to 25% of
the number of shares of common stock held by persons other than Lincoln
Park Bancorp, MHC. The recognition and retention plan will not be
implemented for at least six months after the reorganization and
offering and until it has been approved by stockholders.
28
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of the common
stock until the offering is completed. However, we estimate that net proceeds
will be between $3.7 million and $5.2 million or $6.0 million if the offering
range is increased by 15%, based upon the following assumptions:
o we will sell all shares of common stock in the subscription
offering;
o our employee stock ownership plan will purchase 4% of the shares
of common stock sold in the offering with a loan from Lincoln
Park Bancorp. The loan will be repaid in substantially equal
principal payments over a period of 20 years;
o expenses of the offering, other than fees to be paid to Sandler
O'Neill & Partners, L.P., are estimated to be $360,400;
o 38,300 shares of common stock will be purchased by our executive
officers and directors, and their immediate families; and
o Sandler O'Neill & Partners, L.P. will receive fees equal to 2.0%
of the aggregate purchase price of the shares sold in the
offering, excluding any shares purchased by any employee benefit
plans, and any of our directors, officers or employees or
members of their immediate families.
We calculated the pro forma consolidated net income and stockholders'
equity of Lincoln Park Bancorp for the three months ended March 31, 2004 and the
year ended December 31, 2003, as if the shares of common stock had been sold at
the beginning of those periods and the net proceeds had been invested at 1.20%
and 1.20% for the three months ended March 31, 2004 and fiscal year ended
December 31, 2003, respectively, which assumes reinvestment of the net proceeds
at a rate equal to the one year United States Treasury yield for the respective
periods. We believe these rates more accurately reflect pro forma reinvestment
rates than the arithmetic average method, which assumes reinvestment of the net
proceeds at a rate equal to the average of the yield on interest-earning assets
and the cost of deposits for these periods. We assumed a tax rate of 39.94% for
both periods. This results in an annualized after-tax yield of 0.72% and 0.72%
for the three months ended March 31, 2004 and year ended December 31, 2003,
respectively.
We calculated historical and pro forma per share amounts by dividing
historical and pro forma amounts of consolidated net income and stockholders'
equity by the indicated number of shares of common stock. We adjusted these
figures to give effect to the shares of common stock purchased by the employee
stock ownership plan. We computed per share amounts for each period as if the
common stock was outstanding at the beginning of the periods, but we did not
adjust per share historical or pro forma stockholders' equity to reflect the
earnings on the estimated net proceeds.
The pro forma table gives effect to the implementation of a recognition
and retention plan. Subject to the receipt of stockholder approvals, we have
assumed that the recognition and
29
retention plan will acquire an amount of common stock equal to 4% of the shares
of common stock sold in the offering. In preparing the table below, we assumed
that stockholder approval has been obtained and that the recognition and
retention plan purchases in the open market a number of shares equal to 4% of
the shares sold in the offering at the same price for which they were sold in
the stock offering. We assume that shares of common stock are granted under the
plan in awards that vest over a five year period. The plan of reorganization
provides that we may grant awards under one or more stock benefit plans in an
aggregate amount up to 25% of the number of shares of common stock held by
persons other than Lincoln Park Bancorp, MHC. Accordingly, we may establish a
recognition and retention plan providing for the award of more than 4% of the
shares of common stock sold in the offering, if implemented after one year
following the reorganization.
As discussed under "How We Intend to Use the Proceeds from the
Offering," Lincoln Park Bancorp intends to retain up to 50% of the net proceeds
from the offering (a portion of which will be used to make a loan to the
employee stock ownership plan) and to contribute the remaining net proceeds from
the offering to Lincoln Park Savings. Lincoln Park Bancorp will use a portion of
the proceeds it retains to make a loan to the employee stock ownership plan, and
retain the rest of the proceeds for future use.
The pro forma table does not give effect to:
o shares of common stock to be reserved for issuance under the
stock option plan;
o withdrawals from deposit accounts for the purpose of purchasing
shares of common stock in the offering;
o Lincoln Park Bancorp's results of operations after the
reorganization and offering; or
o changes in the market price of the common stock after the
reorganization and offering.
The following pro forma information may not represent the financial
effects of the offering at the date on which the offering actually occurs and
you should not use the table to indicate future results of operations. Pro forma
stockholders' equity represents the difference between the stated amount of
assets and liabilities of Lincoln Park Savings computed in accordance with
generally accepted accounting principles. We did not increase or decrease
stockholders' equity to reflect the difference between the carrying value of
loans and other assets and their market value. Pro forma stockholders' equity is
not intended to represent the fair market value of the common stock, and may be
different than the amounts that would be available for distribution to
stockholders if we liquidated. Pro forma stockholders' equity does not give
effect to the liquidation account or to the impact of tax bad debt reserves in
the event we are liquidated.
30
AT OR FOR THE THREE MONTHS ENDED MARCH 31, 2004
BASED UPON THE SALE AT $10.00 PER SHARE OF
-----------------------------------------------------------------
494,500 653,976
420,325 SHARES 568,675 SHARES
SHARES MIDPOINT SHARES 15% ABOVE
MINIMUM OF OF MAXIMUM OF MAXIMUM OF
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
OFFERING OFFERING OFFERING OFFERING
RANGE RANGE RANGE RANGE(1)
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds ...................................... $ 4,203 $ 4,945 $ 5,687 $ 6,540
Expenses ............................................ 473 488 502 518
----------- ----------- ----------- -----------
Estimated net proceeds ........................... 3,730 4,457 5,185 6,022
Common stock acquired by employee stock ownership
plan (2) ......................................... (168) (198) (227) (262)
Common stock acquired by recognition and retention
plan (3) ......................................... (168) (198) (227) (262)
----------- ----------- ----------- -----------
Estimated net proceeds after adjustment for stock
benefit plans .................................... $ 3,394 $ 4,061 $ 4,730 $ 5,499
=========== =========== =========== ===========
FOR THE THREE MONTHS ENDED MARCH 31, 2004
Net income:
Historical ....................................... $ 141 $ 141 $ 141 $ 141
Pro forma adjustments:
Income on adjusted net proceeds .................. 6 7 9 10
Employee stock ownership plan (2) ................ (1) (1) (2) (2)
Recognition and retention plan (3) ............... (5) (6) (7) (8)
----------- ----------- ----------- -----------
Pro forma net income ........................... $ 141 $ 141 $ 141 $ 141
=========== =========== =========== ===========
Net Income per share:
Historical ....................................... $ 0.16 $ 0.13 $ 0.12 $ 0.10
Pro forma adjustments:
Income on net proceeds ........................... 0.01 0.01 0.01 0.01
Employee stock ownership plan (2) ................ 0.00 0.00 0.00 0.00
Recognition and retention plan (3) ............... (0.01) (0.01) (0.01) (0.01)
----------- ----------- -----------
Pro forma net income per share (2) (3) (4) ..... $ 0.16 $ 0.13 $ 0.12 $ 0.10
=========== =========== =========== ===========
Offering price to pro forma net income per share .... 15.63x 19.23x 20.83x 25.00x
Shares considered outstanding in calculating pro
forma net income per share ....................... 897,147 1,055,467 1,213,787 1,395,855
=========== =========== =========== ===========
AT MARCH 31, 2004
Stockholders' equity:
Historical ....................................... $ 5,297 $ 5,297 $ 5,297 $ 5,297
Estimated net proceeds ........................... 3,730 4,457 5,185 6,022
Less: Capitalization of MHC ...................... (100) (100) (100) (100)
Common stock acquired by employee stock
ownership plan (2) ....................... (168) (198) (227) (262)
Common stock acquired by recognition
and retention plan (3) ................... (168) (198) (227) (262)
----------- ----------- ----------- -----------
Pro forma stockholders' equity (5) ........... $ 8,591 $ 9,258 $ 9,927 $ 10,696
=========== =========== =========== ===========
Stockholders' equity per share:
Historical ....................................... $ 5.80 $ 4.93 $ 4.28 $ 3.73
Estimated net proceeds ........................... 4.08 4.14 4.19 4.23
Less: Capitalization of MHC ..................... (0.11) (0.09) (0.08) (0.07)
Common stock acquired by employee stock
ownership plan (2) ...................... (0.18) (0.18) (0.18) (0.18)
Common stock acquired by recognition and
retention plan (3) ...................... (0.18) (0.18) (0.18) (0.18)
----------- ----------- ----------- -----------
Pro forma stockholders' equity per share
(3) (4) (5) ............................... $ 9.41 $ 8.62 $ 8.03 $ 7.53
=========== =========== =========== ===========
Offering price as percentage of pro forma
stockholders' equity per share ................... 106.27% 116.01% 124.53% 132.80%
Shares considered outstanding in calculating
offering price as a percentage of pro forma
stockholders' equity per share ...................... 913,750 1,075,000 1,236,250 1,421,688
Minority ownership .................................. 46% 46% 46% 46%
(FOOTNOTES BEGIN ON PAGE 33)
31
AT OR FOR THE YEAR ENDED DECEMBER 31, 2003
BASED UPON THE SALE AT $10.00 PER SHARE OF
-----------------------------------------------------------------
494,500 653,976
420,325 SHARES 568,675 SHARES
SHARES MIDPOINT SHARES 15% ABOVE
MINIMUM OF OF MAXIMUM OF MAXIMUM OF
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
OFFERING OFFERING OFFERING OFFERING
RANGE RANGE RANGE RANGE(1)
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds ...................................... $ 4,203 $ 4,945 $ 5,687 $ 6,540
Expenses ............................................ 473 488 502 518
----------- ----------- ----------- -----------
Estimated net proceeds ........................... 3,730 4,457 5,185 6,022
Common stock acquired by employee stock ownership
plan (2) ......................................... (168) (198) (227) (262)
Common stock acquired by recognition and retention
plan (3) ......................................... (168) (198) (227) (262)
----------- ----------- ----------- -----------
Estimated net proceeds after adjustment for stock
benefit plans ................................. $ 3,394 $ 4,061 $ 4,730 $ 5,499
=========== =========== =========== ===========
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
Net income:
Historical ....................................... $ 371 $ 371 $ 371 $ 371
Pro forma adjustments:
Income on adjusted net proceeds .................. 24 29 33 39
Employee stock ownership plan (2) ................ (5) (6) (7) (8)
Recognition and retention plan (3) ............... (20) (24) (27) (31)
----------- ----------- ----------- -----------
Pro forma net income ........................... $ 370 $ 370 $ 370 $ 371
=========== =========== =========== ===========
Net Income per share:
Historical ....................................... $ 0.41 $ 0.35 $ 0.30 $ 0.27
Pro forma adjustments:
Income on net proceeds ........................... 0.03 0.03 0.03 0.03
Employee stock ownership plan (2) ................ (0.01) (0.01) (0.01) (0.01)
Recognition and retention plan (3) ............... (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share (2) (3) (4) ..... $ 0.41 $ 0.35 $ 0.30 $ 0.27
=========== =========== =========== ===========
Offering price to pro forma net income per share .... 24.39x 28.57x 33.33x 37.04x
Shares considered outstanding in calculating pro
forma net income per share ....................... 897,778 1,056,209 1,214,640 1,396,836
=========== =========== =========== ===========
AT DECEMBER 31, 2003
Stockholders' equity:
Historical ....................................... $ 5,130 $ 5,130 $ 5,130 $ 5,130
Estimated net proceeds ........................... 3,730 4,457 5,185 6,022
Less: Capitalization of MHC ...................... (100) (100) (100) (100)
Common stock acquired by employee stock
ownership plan (2) ...................... (168) (198) (227) (262)
Common stock acquired by recognition
and retention plan (3) .................. (168) (198) (227) (262)
----------- ----------- ----------- -----------
Pro forma stockholders' equity (5) ........... $ 8,424 $ 9,091 $ 9,760 $ 10,529
=========== =========== =========== ===========
Stockholders' equity per share (6):
Historical ....................................... $ 5.61 $ 4.77 $ 4.15 $ 3.61
Estimated net proceeds ........................... 4.08 4.14 4.19 4.23
Less: Capitalization of MHC ...................... (0.11) (0.09) (0.08) (0.07)
Common stock acquired by employee stock
ownership plan (2) ...................... (0.18) (0.18) (0.18) (0.18)
Common stock acquired by recognition
and retention plan (3) .................. (0.18) (0.18) (0.18) (0.18)
----------- ----------- ----------- -----------
Pro forma stockholders' equity per share
(3) (4) (5) ............................... $ 9.22 $ 8.46 $ 7.90 $ 7.41
=========== =========== =========== ===========
Offering price as percentage of pro forma
stockholders' equity per share ................... 108.46% 118.20% 126.58% 134.95%
Shares considered outstanding in calculating
offering price as a percentage of pro forma
stockholders' equity per share ...................... 913,750 1,075,000 1,236,250 1,421,688
Minority ownership .................................. 46% 46% 46% 46%
(FOOTNOTES BEGIN ON FOLLOWING PAGE)
32
(1) As adjusted to give effect to a 15% increase in the number of shares
outstanding after the offering which could occur due to an increase in
the maximum of the independent valuation as a result of regulatory
considerations, demand for the shares, or changes in market conditions
or general financial and economic conditions following the commencement
of the offering.
(2) It is assumed that 4% of the shares sold in the stock offering will be
purchased by the employee stock ownership plan. For purposes of this
table, the funds used to acquire such shares are assumed to have been
borrowed by the employee stock ownership plan from Lincoln Park Bancorp.
The amount to be borrowed is reflected as a reduction of stockholders'
equity. Lincoln Park Savings intends to make annual contributions to the
employee stock ownership plan in an amount at least equal to the
principal and interest requirement of the debt. Lincoln Park Savings'
total annual payment of the employee stock ownership plan debt is based
upon 20 equal annual installments of principal, with an assumed interest
rate of 4%. The pro forma net earnings information makes the following
assumptions: (i) Lincoln Park Savings' contribution to the employee
stock ownership plan is equivalent to the debt service requirement for
the period presented and was made at the end of the period; (ii) 210,
247, 284 and 327 shares at the minimum, midpoint, maximum and adjusted
maximum of the offering range, respectively, (based upon a 20-year loan
term) were committed to be released during the three months ended March
31, 2004, at an average fair value equal to the price for which the
shares are sold in the stock offering in accordance with Statement of
Position ("SOP") 93-6; (iii) 841, 989, 1,137 and 1,308 shares at the
minimum, midpoint, maximum and adjusted maximum of the offering range,
respectively, were committed to be released during the year ended
December 31, 2003, at an average fair value equal to the price for which
the shares are sold in the stock offering in accordance with SOP 93-6;
and (iv) only the employee stock ownership plan shares committed to be
released were considered outstanding for purposes of the net earnings
per share calculations.
(3) Gives effect to the recognition and retention plan expected to be
adopted following the stock offering. We have assumed that this plan
acquires a number of shares of common stock equal to 4% of the shares
sold in the stock offering either through open market purchases or from
authorized but unissued shares of common stock or treasury stock of
Lincoln Park Bancorp, if any. Funds used by the recognition and
retention plan to purchase the shares will be contributed to the plan by
Lincoln Park Bancorp. In calculating the pro forma effect of the
recognition and retention plan, it is assumed that the shares were
acquired by the plan in open market purchases at the beginning of the
period presented for a purchase price equal to the price for which the
shares are sold in the stock offering, and that 5% and 20% of the amount
contributed were an amortized expense (based upon a five-year vesting
period) during the three months ended March 31, 2004, and the fiscal
year ended December 31, 2003, respectively. There can be no assurance
that the actual purchase price of the shares granted under the
recognition and retention plan will be equal to the $10.00 subscription
price. If shares are acquired from authorized but unissued shares of
common stock or from treasury shares of Lincoln Park Bancorp, there will
be a dilutive effect of approximately 1.81% (at the maximum of the
offering range) on the ownership interest of stockholders.
(4) No effect has been given to the issuance of additional shares of common
stock pursuant to the stock option plan, which is expected to be adopted
by Lincoln Park Bancorp following the offering and presented to
stockholders for approval not earlier than six months after the
completion of the offering. If the stock option plan is approved by
stockholders, a number of shares up to 10% of the shares sold in the
offering may be reserved for future issuance upon the exercise of
options to be granted under the stock option plan. The issuance of
authorized but previously unissued shares of common stock or treasury
stock pursuant to the exercise of options under such plan would dilute
existing stockholders' ownership and voting interests by approximately
4.4% at the maximum of the offering range.
(5) The retained earnings of Lincoln Park Savings will continue to be
substantially restricted after the stock offering. See "Supervision and
Regulation--Federal Banking Regulation."
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis reflects Lincoln Park Savings' financial
statements and other relevant statistical data, and is intended to enhance your
understanding of our financial condition and results of operations. The
information in this section has been derived from the audited financial
statements, which appear beginning on page F-1 of this prospectus. You should
read the information in this section in conjunction with the business and
financial information regarding Lincoln Park Savings provided in this
prospectus.
GENERAL
Our results of operations depend primarily on our net interest income.
Net interest income is the difference between the interest income we earn on our
interest-earning assets, consisting primarily of loans, investment securities,
mortgage-backed securities and other interest-earning assets (primarily cash and
cash equivalents), and the interest we pay on our interest-bearing liabilities,
consisting of NOW accounts, money market accounts, savings and club accounts,
time deposits and borrowings. Our results of operations also are affected by our
provisions for loan losses, non-interest income and non-interest expense.
Non-interest income consists primarily of fees and service charges, gains on the
sale of securities and miscellaneous other income. Non-interest expense consists
primarily of salaries and employee benefits, equipment and data processing,
occupancy, advertising, deposit insurance premiums, and other operating expenses
(consisting of stationery and printing, regulatory assessments, professional
fees, directors fees and other operational expenses). Our results of operations
also may be affected significantly by general and local economic and competitive
conditions, changes in market interest rates, governmental policies and actions
of regulatory authorities.
BUSINESS STRATEGY
Our business plan is to operate as a well-capitalized and profitable
community bank dedicated to providing quality customer service. Our business
strategy has been to emphasize one- to four-family residential mortgage lending
and other loans secured by real estate, including commercial real estate loans
and home equity lending, and we will continue to emphasize these types of loans.
While we intend to introduce additional products and services, such as on-line
banking and commercial business lines of credit, we expect that our primary
focus will continue to be real estate-based lending. There can be no assurances
that we will successfully implement our business strategy.
Highlights of our business strategy are as follows:
o REMAINING A COMMUNITY ORIENTED INSTITUTION. We were established
in Lincoln Park, New Jersey in 1923 and we have been operating
continuously since that time. We have been, and continue to be,
committed to meeting the financial needs of the communities in
which we operate, and we are dedicated to providing quality
personal service to our customers.
o CONTINUING TO EMPHASIZE REAL ESTATE LENDING. Historically, we
have emphasized one- to four-family residential lending within
our market area. As of March 31,
34
2004, $35.2 million, or 70.9%, of our total loan portfolio
consisted of one- to four-family residential mortgage loans.
During the three months ended March 31, 2004 and year ended
December 31, 2003, we originated $1.9 million and $19.7 million,
respectively, of one- to four-family residential mortgage loans.
In addition, we originate home equity loans and lines of credit
and, to a lesser extent, commercial real estate loans. We intend
to continue to emphasize real estate based lending, although we
will also originate other types of loans.
o INCREASING OUR REAL ESTATE LENDING CAPACITY. The additional
capital raised in the offering will increase our lending
capacity by enabling us to originate more loans and loans with
larger balances. This will permit us to serve borrowers with
larger lending needs and to originate larger loans than we have
in the past.
o MANAGING INTEREST RATE RISK. We have sought to maximize our net
interest income by emphasizing investment in higher yielding
fixed-rate mortgage loans. We believe that the higher yields
available from such investments offset the increased exposure to
interest rate fluctuations associated with investments in such
assets. We have sought to manage our exposure to interest rate
volatility by maintaining high levels of short-term liquidity,
by increasing the maturity of our liabilities as market
conditions allow, and by investing in securities which have
"step-up" rate features. We intend to continue to invest in
higher yielding fixed-rate mortgage loans following the
completion of the reorganization and stock offering. As a
result, we will continue to be subject to interest rate risk.
o OFFERING NEW PRODUCTS AND SERVICES. We are currently developing
new products for our customers, two of which are on-line banking
and secured and unsecured commercial business lines of credit.
We expect to begin offering these new products and services in
2005. We expect that these new products will help to maintain
and increase our deposit base and will attract business
customers.
o MAINTAINING HIGH ASSET QUALITY. We have focused on maintaining
strong asset quality by following conservative underwriting
criteria, and primarily originating loans secured by real estate
in our market area. Our ratio of non-performing assets to total
assets was 0.17%, 0.48% and 0.41% at March 31, 2004, December
31, 2003 and December 31, 2002, respectively.
o PURSUING MANAGED GROWTH. In recent years, we have pursued a
strategy of managed growth of our banking franchise. Our assets
have increased from $62.6 million at December 31, 2002, to $75.3
million at March 31, 2004. We expect to continue our strategy of
managed growth in the future. Moreover, the capital raised in
the offering will enable us to support increased asset levels,
including expected growth in our loan and investment portfolios.
This asset growth is expected to be funded through increased
deposits, and additional FHLB advances or other borrowings
depending on interest rate levels and other market
considerations.
35
CRITICAL ACCOUNTING POLICIES
We consider accounting policies involving significant judgments and
assumptions by management that have, or could have, a material impact on the
carrying value of certain assets or on income to be critical accounting
policies. We consider our critical accounting policies to be those related to
our allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is the
estimated amount considered necessary to cover credit losses inherent in the
loan portfolio at the balance sheet date. The allowance is established through
the provision for loan losses which is charged against income. In determining
the allowance for loan losses, management makes significant estimates and has
identified this policy as one of the most critical for Lincoln Park Savings.
Management performs a quarterly evaluation of the adequacy of the
allowance for loan losses. Consideration is give to a variety of factors in
establishing this estimate including, but not limited to, current economic
conditions, delinquency statistics, geographic and industry concentrations, the
adequacy of the underlying collateral, the financial strength of the borrower,
results of internal loan reviews and other relevant factors. This evaluation is
inherently subjective as it requires material estimates that may be susceptible
to significant change.
The analysis has two components: specific and general allocations.
Specific allocations are made for loans that are determined to be impaired.
Impairment is measured by determining the present value of expected future cash
flows or, for collateral-dependent loans, the fair value of the collateral
adjusted for market conditions and selling expenses. The general allocation is
determined by segregating the remaining loans by type of loan. We also analyze
historical loss experience, delinquency trends, general economic conditions and
geographic and industry concentrations. This analysis establishes factors that
are applied to the loan groups to determine the amount of the general reserve.
Actual loan losses may be significantly more than the reserves we have
established which could have a material negative effect on our financial
results.
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2004 AND DECEMBER 31, 2003
Our total assets increased by $1.0 million, or 1.4%, to $75.3 million at
March 31, 2004 from $74.3 million at December 31, 2003. Cash and cash
equivalents increased by $898,000, or 29.1%, to $4.0 million at March 31, 2004
from $3.1 million at December 31, 2003. Term deposits decreased $395,000, or
37.3%, to $665,000 at March 31, 2004 compared to $1.1 million at December 31,
2003 as maturing term deposits more than offset new investments in such
instruments. Securities available for sale decreased $182,000, or 3.1%, to $5.6
million at March 31, 2004 compared to $5.8 million at December 31, 2003. The
decrease in securities available for sale during the 2004 period resulted
primarily from maturities and repayments of such securities. Securities held to
maturity increased $53,000, or 0.4%, to $13.56 million at March 31, 2004
compared to $13.51 million at December 31, 2003. During the three months ended
March 31, 2004, purchases of securities held to maturity totaled $1.5 million,
which offset maturities and repayments of $1.4 million. Loans receivable were
$49.5 million and $48.9 million at March 31, 2004 and December 31, 2003,
respectively, representing a slight increase of $628,000, or 1.3%.
36
Total deposits decreased $246,000, or 0.4%, to $57.0 million at March
31, 2004 from $57.3 million at December 31, 2003. Advances from the Federal Home
Loan Bank of New York ("FHLB") increased $958,000, or 8.4%, to $12.3 million at
March 31, 2004 compared to $11.4 million at December 31, 2003. FHLB advances
increased to offset the decrease in deposits and to fund our lending and
investment activities.
Retained earnings totaled $5.3 million and $5.1 million at March 31,
2004 and December 31, 2003, respectively. The increase resulted primarily from
net income of $141,000 during the three months ended March 31, 2004.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2003 AND 2002
Our total assets increased by $11.7 million, or 18.7%, to $74.3 million
at December 31, 2003 from $62.6 million at December 31, 2002. Cash and cash
equivalents decreased by $479,000, or 13.5%, to $3.1 million at December 31,
2003 from $3.6 million at December 31, 2002. Term deposits decreased $1.7,
million or 60.7%, to $1.1 million at December 31, 2003 compared to $2.8 million
at December 31, 2002. The decrease in term deposits resulted from the maturing
of $2.6 million of term deposits, versus the investing of only $792,000 in new
term deposits. Securities available for sale increased $2.1 million, or 56.8%,
to $5.8 million at December 31, 2003 compared to $3.7 million at December 31,
2002. The increase in securities available for sale resulted primarily from
security purchases of $3.8 million partially offset by maturities, calls, sales
and repayments totaling $1.9 million. Securities held to maturity decreased $2.9
million, or 17.7%, to $13.5 million at December 31, 2003 compared to $16.4
million at December 31, 2002. During the year ended December 31, 2003, purchases
of securities held to maturity amounted to $7.9 million, which was not
sufficient to offset maturities, calls, sales and repayments of $10.5 million of
such securities. Loans receivable amounted to $48.9 million and $34.4 million at
December 31, 2003 and 2002, respectively, representing an increase of $14.5
million, or 42.2%. Such increase was primarily the result of loan originations
totaling $31.2 million, which significantly exceeded repayments totaling $16.9
million.
Total deposits increased $3.9 million, or 7.3%, to $57.3 million at
December 31, 2003 from $53.4 million at December 31, 2002. Advances from the
FHLB increased $7.4 million to $11.4 million at December 31, 2003 compared to
$4.0 million at December 31, 2002. The new FHLB advances were used to repay
older, higher cost advances and to fund loan originations and purchases of
securities.
Retained earnings totaled $5.1 million and $4.8 million at December 31,
2003 and December 31, 2002, respectively, resulting primarily from net income of
$371,000 during the year ended December 31, 2003.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND
2003
GENERAL. Net income increased $80,000, or 131.1%, to $141,000 for the
three months ended March 31, 2004, from $61,000 for the three months ended March
31, 2003. The increase in net income reflects an increase in net interest income
and decrease in provision for loan losses, partially offset by a decrease in
non-interest income along with increases in non-interest expenses and income
taxes.
37
INTEREST INCOME. Interest income increased $103,000, or 13.1%, to
$892,000 for the three months ended March 31, 2004, from $789,000 for the three
months ended March 31, 2003. The increase in interest income is due to a
$147,000 increase in interest income from loans, which was partially offset by
decreases of $21,000 in interest income on securities and $23,000 in interest
income on other interest-earning assets. The increase in interest income was due
to a $10.7 million, or 17.8%, increase, in average interest-earning assets to
$71.1 million for the three months ended March 31, 2004, compared to $60.4
million for the three months ended March 31, 2003, partially offset by a 21
basis point decrease in the average yield on interest earning assets to 5.02%
for the three months ended March 31, 2004, from 5.23% for the comparable period
in 2003. The decrease in the average yield reflects the significant decline in
market interest rates during 2004 and 2003.
Interest income from loans receivable increased by $147,000, or 28.4%,
to $664,000 for the three months ended March 31, 2004, from $517,000 for the
three months ended March 31, 2003. The increase was due to a $13.4 million or
37.9% increase in the average balance of loans to $48.8 million in the 2004
period from $35.4 million in the 2003 period, which was partially offset by a
decrease in the average yield to 5.44% from 5.84%. Interest income from
securities, including available for sale and held to maturity, decreased
$21,000, or 8.7%, to $220,000 for the three months ended March 31, 2004, from
$241,000 for the three months ended March 31, 2003. The decrease in interest
income from securities was due to a decrease in the average yield to 4.44% in
the 2004 period from 5.06% in the 2003 period, which offset an increase of
$779,000, or 4.1%, in the average balance of securities to $19.8 million in the
2004 period from $19.1 million in the 2003 period. Interest income on other
interest-earning assets decreased $23,000, or 74.2%, to $8,000 for the three
months ended March 31, 2004, from $31,000 for the three months ended March 31,
2003. The decrease in interest income on other interest-earning assets was due
to a decline in the average yield to 1.30% in the 2004 period from 2.10% in the
2003 period, as well as a decrease in the average balance to $2.5 million in the
2004 period from $5.9 million in the 2003 period.
INTEREST EXPENSE. Total interest expense decreased $20,000, or 6.1%, to
$310,000 for the three months ended March 31, 2004, from $330,000 for the three
months ended March 31, 2003. Interest expense on interest-bearing deposits
decreased by $39,000, or 14.8%, to $224,000 in the 2004 period compared to
$263,000 in the comparable 2003 period. The decrease in interest expense
resulted from a decrease in the average cost of interest-bearing deposits to
1.62% from 1.98%, reflecting the declining market interest rates between the
periods. Partially offsetting this decrease was an increase in the average
balance of interest-bearing deposits to $55.4 million in the 2004 period from
$53.1 million in the 2003 period. The average balance of interest-bearing demand
deposits increased $230,000, or 1.8%, to $12.7 million in the 2004 period from
$12.4 million in the 2003 period. The average balance of savings and club
accounts increased $2.5 million, or 17.6%, to $16.9 million for the three months
ended March 31, 2004 from $14.4 million for the comparable period in 2003. The
average balance of certificates of deposit decreased $443,000, or 1.7%, to $25.8
million for the three months ended March 31, 2004 from $26.2 million for the
comparable period in 2003. Interest expense on borrowed money increased $19,000,
or 28.4%, to $86,000 in the 2004 period from $67,000 in the comparable 2003
period. The expense for the 2003 period includes $38,000 in prepayment penalties
related to the early payoff of FHLB advances. The increase resulted from an
increase of $7.8 million in the average balance of borrowed money, which was
partially offset by a 381 basis point decrease in the cost of borrowed money to
2.91% in the 2004 period from 6.72% in the 2003 period. The average cost in the
2003 period would have been 2.91% if the aforementioned prepayment penalties
were excluded.
38
NET INTEREST INCOME. Net interest income increased $123,000, or 26.8%,
to $582,000 for the three months ended March 31, 2004 from $459,000 for the
three months ended March 31, 2003. The primary reason for the improvement in our
net interest income was the increase in our interest rate spread to 3.17% from
2.92%, which reflected a larger decline in our cost of funds versus the decline
in our asset yield. Our net interest margin increased to 3.27% from 3.04%.
(RECOVERY OF) PROVISION FOR LOAN LOSSES. We establish provisions for
loan losses, which are charged to operations, at a level necessary to absorb
known and inherent losses that are both probable and reasonably estimable at the
date of the financial statements. In evaluating the level of the allowance for
loan losses, management considers historical loss experience, the types of loans
and the amount of loans in the loan portfolio, adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, and prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant revision
as more information becomes available or as future events change. Based on our
evaluation of these factors, management recorded a recovery of provision of
$16,000 for the three months ended March 31, 2004, compared to a provision of
$10,000 for the three months ended March 31, 2003. We had no charge-offs during
the three-month periods ended March 31, 2004 and 2003. We used the same
methodology and generally similar assumptions in assessing the allowance for
both periods. The allowance for loan losses was $110,000, or 0.22% of loans
outstanding at March 31, 2004, compared to $101,000, or 0.27% of loans
outstanding at March 31, 2003. The level of the allowance is based on estimates,
and the actual losses may vary from the estimates.
Determining the amount of the allowance for loan losses necessarily
involves a high degree of judgment. Management reviews the level of the
allowance on a quarterly basis, at a minimum, and establishes the provision for
loan losses based on the composition of the loan portfolio, delinquency levels,
loss experience, economic conditions, and other factors related to the
collectibility of the loan portfolio. We have allocated the allowance among
categories of loan types as well as classification status at each period-end
date. Assumptions and allocation percentages based on loan types and
classification status have been consistently applied. Non-performing loans are
assigned a higher percentage of allowance allocation. However, due to the low
percentage of such loans, the balance in the allowance over the period has
remained relatively stable.
Although we believe that we use the best information available to
establish the allowance for loan losses, future additions to the allowance may
be necessary based on estimates that are susceptible to change as a result of
changes in economic conditions and other factors. In addition, the regulatory
agencies, as an integral part of their examination process, periodically review
our allowance for loan losses. Such agencies may require us to recognize
adjustments to the allowance based on their judgments about information
available at the time of their examinations.
NON-INTEREST INCOME. Non-interest income decreased $3,000, or 9.4%, to
$29,000 for the three months ended March 31, 2004, compared to $32,000 for the
three months ended March 31, 2003. The decrease in non-interest income reflected
a decrease in gains on security transactions of $3,000.
NON-INTEREST EXPENSES. Non-interest expenses were $392,000 and $385,000
for the three months ended March 31, 2004 and 2003, respectively. Salaries and
employee benefits increased $17,000, occupancy expense decreased $3,000,
equipment decreased $4,000, advertising increased $5,000 and other expenses
decreased $7,000.
39
Following completion of the reorganization and offering, non-interest
expense is likely to increase as a result of added expenses associated with
being a public company, such as preparing the financial and business reports
required to be filed with regulatory agencies and provided to stockholders. In
addition, assuming implementation of the various stock based benefit programs
mentioned elsewhere herein, compensation expense would increase.
INCOME TAX EXPENSE. The provision for income taxes increased to $94,000
for the three months ended March 31, 2004 from $35,000 for the three months
ended March 31, 2003. The increase in the provision for income taxes is
primarily due to an increase in income before income taxes of $139,000 to
$235,000 for the three months ended March 31, 2004, compared to $96,000 for the
three months ended March 31, 2003.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
GENERAL. Net income increased $95,000, or 34.4%, to $371,000 for the
year ended December 31, 2003, from $276,000 for the year ended December 31,
2002. The increase in net income reflects increases in net interest income and
non-interest income that were sufficient to offset increases in provision for
loan losses, non-interest expense and income taxes.
INTEREST INCOME. Interest income increased by $32,000 to $3.26 million
for the year ended December 31, 2003, from $3.23 million for the year ended
December 31, 2002. The increase in interest income resulted primarily from
increases of $165,000 in interest income from loans, which was offset in part by
decreases of $68,000 and $65,000, respectively, in interest income on securities
and other interest-earning assets. The increase in interest income resulted from
an increase of $12.0 million, or 22.6%, in the average balance of
interest-earning assets to $65.0 million during the year ended December 31, 2003
compared to $53.0 million during 2002, which offset a 108 basis point decline in
yield on interest-earning assets to 5.02% in 2003 from 6.10% in 2002. The
decrease in the yield reflects a decrease in market interest rates generally.
Interest income from loans receivable increased $165,000, or 7.5%, to
$2.4 million for the year ended December 31, 2003, from $2.2 million for the
year ended December 31, 2002. The increase was due to a $10.1 million, or 30.9%,
increase in the average balance of loans receivable to $42.8 million during 2003
from $32.7 million in 2002, which was only partially offset by a decrease in the
average yield to 5.52 % in 2003 from 6.72% in 2002. Interest income on
securities, including available for sale and held to maturity, decreased
$68,000, or 7.7%, to $819,000 for the year ended December 31, 2003, from
$887,000 for the year ended December 31, 2002. The decrease resulted from a
decrease in the average yield on securities to 4.69% in 2003 from 5.91% in 2002,
which offset an increase of $2.5 million, or 16.4%, in the average balance of
securities to $17.5 million in 2003 from $15.0 million in 2002. Interest income
on other interest-earning assets decreased $65,000, or 45.1%, to $79,000 for
2003 from $144,000 for 2002. The decrease resulted from a decrease in the
average balance of other interest earning assets to $4.7 million in 2003 from
$5.3 million in 2002, along with a decrease in the average yield on other
interest-earning assets to 1.69% in 2003 from 2.74% in 2002.
INTEREST EXPENSE. Total interest expense decreased $96,000, or 7.3%, to
$1.2 million for 2003 from $1.3 million for 2002. The decrease in interest
expense resulted from a decrease in the average cost of interest-bearing
deposits to 1.79% in 2003 from 2.59% in 2002, reflecting lower market interest
rates during 2003, which was partially offset by a $6.1 million increase in the
average balance of interest-bearing deposits. The average balance of
interest-bearing demand accounts increased $1.4 million, or 12.4%, to $12.7
million in 2003 from $11.3 million in 2002 period. The
40
average balance of savings and club accounts increased $2.6 million, or 20.2%,
to $15.5 million for the year ended December 31, 2003 from $12.9 million for the
year ended December 31, 2002. The average balance of certificates of deposit
increased $2.1 million, or 8.5%, to $26.7 million for the year ended December
31, 2003 from $24.6 million for the year ended December 31, 2002. Interest
expense on borrowed money increased $183,000 to $230,000 in 2003 from $47,000 in
2002. The increase during 2003 resulted from an increase of $5.2 million in the
average balance of borrowed money to $6.5 million in 2003 from $1.3 million in
2002, which offset the decrease in the average cost of borrowed money to 3.53%
in 2003 from 3.63% in 2002.
NET INTEREST INCOME. Net interest income increased $128,000, or 6.7%, to
$2.0 million for 2003 from $1.9 million for 2002. The increase in net interest
income resulted from an improvement in our net interest rate spread to 3.48% for
the year ended December 31, 2003 from 3.04% for the year ended December 31,
2002.
PROVISION FOR LOAN LOSSES. We established a provision for loan losses of
$35,000 for the year ended December 31, 2003, compared to a provision of $9,000
for the year ended December 31, 2002. Our provision for loan losses was
established to address probable and estimable losses in our loan portfolio. We
used the same methodology and generally similar assumptions in assessing the
allowance for both years. The allowance for loan losses was $126,000, or 0.26%
of total loans outstanding at December 31, 2003, compared to $91,000, or 0.26%
of total loans outstanding at December 31, 2002. The level of the allowance is
based on estimates, and the ultimate losses may vary from the estimates.
NON-INTEREST INCOME. Non-interest income totaled $156,000 for the year
ended December 31, 2003, compared to a negative $14,000 for the year ended
December 31, 2002. Fees and service charges totaled $87,000 and $76,000 during
the years ended December 31, 2003 and 2002, respectively, reflecting an increase
of $11,000, or 14.5%. During the year ended December 31, 2003, we had gains on
securities transactions of $45,000 compared to losses of $112,000 during the
year ended December 31, 2002. The losses during 2002 were primarily attributable
to an impairment loss of $85,000 on a corporate bond issued by a company that
filed for bankruptcy. In addition, in 2002, we incurred a $17,000 loss on the
disposition of another impaired corporate bond, and a $10,000 loss on callable
zero coupon agency bonds, which were called in advance of their final maturity
dates.
NON-INTEREST EXPENSES. Non-interest expenses for the year ended December
31, 2003 increased by $102,000, or 7.0%, to $1.5 million from $1.4 million for
the year ended December 31, 2002. Salaries and employee benefits increased
$32,000 to $745,000 from $713,000, occupancy expense increased $17,000 to
$121,000 from $104,000, equipment expense increased $17,000 to $207,000 from
$190,000, advertising expense decreased $3,000 to $35,000 from $38,000, and
miscellaneous non-interest expenses increased $38,000 to $432,000 from $394,000.
INCOME TAX EXPENSE. The provision for income taxes increased to $248,000
in 2003 compared to $173,000 in 2002. The increase in the provision for income
taxes is primarily due to our higher level of income before taxes of $619,000 in
2003 compared with $449,000 in 2002.
41
AVERAGE BALANCE SHEET
The following table presents for the periods indicated the total dollar
amount of interest income from average interest earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly average balances. Non-accruing loans have been
included in the table as loans carrying a zero yield. The amortization of loan
fees is included in computing interest income; however, such fees are not
material.
(1) Loans receivable are net of the allowance for loan losses.
(2) Includes both available for sale and held to maturity securities.
(3) Includes stock in Federal Home Loan Bank of New York.
(4) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
interest earning assets.
42
RATE/VOLUME ANALYSIS
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
changes in outstanding balances and those due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------------------------- -------------------------------------
2004 VS. 2003 2003 VS. 2002
------------------------------------- -------------------------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO TOTAL DUE TO TOTAL
---------------------- INCREASE ---------------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- -------- ---------- -------- -------- ----------
(IN THOUSANDS)
INTEREST INCOME:
Loans receivable $ 184 $ (37) $ 147 $ 602 $(437) $ 165
Securities 10 (31) (21) 132 (200) (68)
Other interest-earning assets (14) (9) (23) (14) (51) (65)
----- ----- ----- ----- ----- -----
Total interest income 180 (77) 103 720 (688) 32
----- ----- ----- ----- ----- -----
INTEREST EXPENSE:
Interest-bearing deposits:
Demand 1 (7) (6) 21 (69) (48)
Savings and club accounts 129 (130) (1) 38 (85) (47)
Certificates of deposits (3) (29) (32) 70 (254) (184)
Borrowed money 74 (55) 19 184 (1) 183
----- ----- ----- ----- ----- -----
Total interest expense 201 (221) (20) 313 (409) (96)
----- ----- ----- ----- ----- -----
Net interest income $ (21) $ 144 $ 123 $ 407 $(279) $ 128
===== ===== ===== ===== ===== =====
MANAGEMENT OF MARKET RISK
GENERAL. The majority of our assets and liabilities are monetary in
nature. Consequently, our most significant form of market risk is interest rate
risk. Our assets, consisting primarily of mortgage loans, have longer maturities
than our liabilities, consisting primarily of deposits. As a result, a principal
part of our business strategy is to manage interest rate risk and reduce the
exposure of our net interest income to changes in market interest rates. Our
full board of directors is responsible for evaluating the interest rate risk
inherent in our assets and liabilities, for determining the level of risk that
is appropriate given our business strategy, operating environment, capital,
liquidity and performance objectives, and for managing this risk consistent with
the guidelines approved by the board of directors. Senior management monitors
the level of interest rate risk and reports to the board of directors on a
regular basis with respect to our asset/liability policies and interest rate
risk position.
We have emphasized the origination of fixed-rate mortgage loans for
retention in our portfolio in order to maximize our net interest income. We
accept increased exposure to interest
43
rate fluctuations as a result of our investment in such loans. However, we have
sought to manage and mitigate our exposure to interest rate risks in the
following ways:
o We maintain moderate levels of short-term liquid assets. At
March 31, 2004, our short-term liquid assets totaled $4.0
million;
o We originate for portfolio adjustable-rate mortgage loans. At
March 31, 2004, our adjustable-rate mortgage loans totaled $4.1
million;
o We attempt to increase the maturity of our liabilities as market
conditions allow. In particular, in 2003 and the first quarter
of 2004, we have emphasized intermediate - to long-term FHLB
advances as a source of funds. At March 31, 2004, we had $8.6
million of FHLB advances with terms to maturity of between four
and ten years; and
o We invest in securities with step-up rate features providing for
increased interest rates prior to maturity according to a
pre-determined schedule and formula. However, these step-up
rates may not keep pace with rising interest rates in the event
of a rapidly rising rate environment. In addition, these
investments may be callable at the option of the issuer.
NET PORTFOLIO VALUE. In past years, many savings associations have
measured interest rate sensitivity by computing the "gap" between the assets and
liabilities which are expected to mature or reprice within certain time periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the Office of Thrift Supervision. However, the Office of Thrift
Supervision now requires the computation of amounts by which the net present
value of an institution's cash flow from assets, liabilities and off balance
sheet items (the institution's net portfolio value or "NPV") would change in the
event of a range of assumed changes in market interest rates. The Office of
Thrift Supervision provides all institutions that file a Consolidated
Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with
an interest rate sensitivity report of net portfolio value. The Office of Thrift
Supervision simulation model uses a discounted cash flow analysis and an
option-based pricing approach to measuring the interest rate sensitivity of net
portfolio value. Historically, the Office of Thrift Supervision model estimated
the economic value of each type of asset, liability and off-balance sheet
contract under the assumption that the United States Treasury yield curve
increases or decreases instantaneously by 100 to 300 basis points in 100 basis
point increments. However, given the current low level of market interest rates,
we did not receive an NPV calculation for an interest rate decrease of greater
than 100 basis points. A basis point equals one-hundredth of one percent, and
100 basis points equals one percent. An increase in interest rates from 3% to 4%
would mean, for example, a 100 basis point increase in the "Change in Interest
Rates" column below. The Office of Thrift Supervision provides us the results of
the interest rate sensitivity model, which is based on information we provide to
the Office of Thrift Supervision to estimate the sensitivity of our net
portfolio value.
44
The table below sets forth, as of March 31, 2004, the latest date for
which the Office of Thrift Supervision has provided Lincoln Park Savings an
interest rate sensitivity report of net portfolio value and the estimated
changes in our net portfolio value that would result from the designated
instantaneous changes in the United States Treasury yield curve.
NET PORTFOLIO VALUE AS A PERCENTAGE
NET PORTFOLIO VALUE OF PRESENT VALUE OF ASSETS
CHANGE IN ----------------------------------------- -----------------------------------
INCREASE RATES ESTIMATED AMOUNT OF PERCENT OF CHANGE IN BASIS
(BASIS POINTS) NPV CHANGE CHANGE NPV RATIO POINTS
------------------- ----------- ----------- ------------ ----------- -------------------
(DOLLARS IN THOUSANDS)
+300 $ 4,418 $ (3,893) (47)% 6.06% (451) basis points
+200 5,180 (3,131) (38) 6.98 (360) basis points
+100 7,272 (1,039) (12) 9.45 (112) basis points
0 8,311 -- -- 10.58 -- basis points
-100 8,099 (212) (3) 10.24 (33) basis points
The table above indicates that at March 31, 2004, in the event of a 100
basis point decrease in interest rates, we would experience a 3% decrease in net
portfolio value. In the event of a 200 basis point increase in interest rates,
we would experience a 38% decrease in net portfolio value.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the net portfolio value table presented assumes that the composition of
our interest-sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net portfolio value table provides an
indication of our interest rate risk exposure at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of
the effect of changes in market interest rates on its net interest income and
will differ from actual results.
Upon completion of our charter conversion to a New Jersey savings bank,
Lincoln Park Savings will no longer be subject to the Office of Thrift
Supervision net portfolio value analysis. In the future, Lincoln Park Savings
expects to analyze its interest rate risk using an alternative methodology
currently under development by Lincoln Park Savings.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability to meet current and future financial
obligations of a short-term nature. Our primary sources of funds consist of
deposit inflows, loan repayments and maturities and sales of securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition.
We regularly adjust our investments in liquid assets based upon our
assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields
available on interest-earning
45
deposits and securities, and (4) the objectives of our asset/liability
management program. Excess liquid assets are invested generally in
interest-earning deposits and short- and intermediate-term securities.
Our most liquid assets are cash and cash equivalents. The levels of
these assets are dependent on our operating, financing, lending and investing
activities during any given period. At March 31, 2004, cash and cash equivalents
totaled $4.0 million. Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $5.6 million at March 31, 2004. In
addition, at March 31, 2004, we had the ability to borrow a total of
approximately $27.0 million from the Federal Home Loan Bank of New York. On that
date, we had $12.3 million in advances outstanding.
At March 31, 2004, we had $1.6 million in loan commitments outstanding.
In addition to commitments to originate loans, we had $7.2 million in funding
commitments under borrowers' unused lines of credit and $850,000 in commitments
to purchase securities that settled in April 2004. Certificates of deposit due
within one year of March 31, 2004 totaled $18.9 million, or 33.1% of total
deposits. If these deposits do not remain with us, we will be required to seek
other sources of funds, including other certificates of deposit and FHLB
advances. Depending on market conditions, we may be required to pay higher rates
on such deposits or other borrowings than we currently pay on the certificates
of deposit due on or before March 31, 2005. We believe, however, based on past
experience, that a significant portion of our certificates of deposit will
remain with us. We have the ability to attract and retain deposits by adjusting
the interest rates offered.
We have no material commitments or demands that are likely to affect our
liquidity other than set forth below. In the event loan demand were to increase
at a pace greater than expected, or any unforeseen demand or commitment were to
occur, we would access our line of credit with the Federal Home Loan Bank of New
York.
Our primary investing activities are the origination of loans and the
purchase of securities. For the three months ended March 31, 2004 we originated
$4.9 million of loans and purchased $1.5 million of securities. In fiscal 2003,
we originated $31.3 million of loans and purchased $11.7 million of securities.
In fiscal 2002, we originated $16.0 million of loans and purchased $13.5 million
of securities.
Financing activities consist primarily of activity in deposit accounts
and FHLB advances. We experienced a net (decrease) increase in total deposits of
$(246,000), $3.9 million and $6.7 million for the three months ended March 31,
2004 and the years ended December 31, 2003 and 2002, respectively. Deposit flows
are affected by the overall level of interest rates, the interest rates and
products offered by us and our local competitors and other factors. We generally
manage the pricing of our deposits to be competitive and to increase core
deposit relationships. Occasionally, we offer promotional rates on certain
deposit products in order to attract deposits. FHLB advances reflected net
increases of $958,000, $7.4 million, and $3.0 million during the three months
ended March 31, 2004, and the years ended December 31, 2003 and 2002,
respectively. FHLB advances have primarily been used to fund loan demand and
purchase securities.
46
Prior to completion of our charter conversion to a New jersey savings
bank charter, we were subject to various regulatory capital requirements
administered by the Office of Thrift Supervision, including a risk-based capital
measure. The risk-based capital guidelines include both a definition of capital
and a framework for calculating risk-weighted assets by assigning balance sheet
assets and off-balance sheet items to broad risk categories. At March 31, 2004,
we exceeded all of the Office of Thrift Supervisions regulatory capital
requirements. We are considered "well capitalized" under regulatory guidelines.
See "Regulation--Federal Banking Regulation--Capital Requirements" and note 10
of the notes to the financial statements. At March 31, 2004, we also exceeded
all of the regulatory capital requirements applicable under Federal Deposit
Insurance Corporation regulations.
The capital from the reorganization will significantly increase our
liquidity and capital resources. Over time, the initial level of liquidity will
be reduced as net proceeds from the stock offering are used for general
corporate purposes, including the funding of lending activities. Our financial
condition and results of operations will be enhanced by the capital from the
reorganization, resulting in increased net interest-earning assets and net
income. However, due to the increase in equity resulting from the capital raised
in the offering, return on equity will be adversely impacted following the
reorganization.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." This statement provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effects of the method used on reported
results. We have not completed an analysis of the potential effects of this
statement on our financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. The amendments set forth in SFAS No. 149 improve financial reporting by
requiring that contracts with comparable characteristics be accounted for
similarly. In particular, this statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
as discussed in SFAS No. 133. In addition, it clarifies when a derivative
contains a financing component that warrants special reporting in the statement
of cash flows. SFAS No. 149 amends certain other existing pronouncements. Those
changes will result in more consistent reporting of contracts that are
derivatives in their entirety or that contain embedded derivatives that warrant
separate accounting. This statement is effective for contracts entered into or
modified after September 30, 2003, and for hedging relationships designated
after September 30, 2003. The guidance should be applied prospectively. The
provisions of this statement that relate to SFAS No. 133,
47
"Implementation Issues," that have been effective for fiscal quarters that began
prior to September 15, 2003, should continue to be applied in accordance with
their respective effective dates. In addition, certain provisions relating to
forward purchases or sales of when-issued securities or other securities that do
not yet exist should be applied to existing contracts as well as new contracts
entered into after September 30, 2003. The adoption of this statement did not
have a material effect on our financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Such
instruments may have been previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after September 15, 2003. The adoption of this statement did not have
a material effect on our reported equity.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
This interpretation clarifies that a guarantor is required to disclose: the
nature of the guarantee, including the approximate term of the guarantee, how
the guarantee arose, and the events or circumstances that would require the
guarantor to perform under the guarantee; the maximum potential amount of future
payments under the guarantee; the carrying amount of the liability, if any, for
the guarantor's obligations under the guarantee; and the nature and extent of
any recourse provisions or available collateral that would enable the guarantor
to recover the amounts paid under the guarantee. This interpretation also
clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the obligations it has undertaken in issuing the
guarantee, including its ongoing obligation to stand ready to perform over the
term of the guarantee in the event that the specified triggering events or
conditions occur. The objective of the initial measurement of that liability is
the fair value of the guarantee at its inception. The initial recognition and
initial measurement provisions of this interpretation are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year-end. The disclosure requirements in
this interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The adoption of this interpretation did
not have a material effect on our financial position or results of operations.
In December 2003, the FASB issued a revision to Interpretation 46,
"Consolidation of Variable Interest Entities," which established standards for
identifying a variable interest entity ("VIE") and for determining under what
circumstances a VIE should be consolidated with its primary beneficiary.
Application of this Interpretation is required in financial statements of public
entities that have interests in special-purpose entities for periods ending
after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of VIEs is required in financial
statements for periods ending after March 15, 2004. Small business
48
issuers must apply this Interpretation to all other types of VIEs at the end of
the first reporting period ending after December 15, 2004. The adoption of this
Interpretation has not and is not expected to have a material effect on our
financial position or results of operations.
On March 31, 2004, the FASB published an Exposure Draft, "Share-Based
Payment", an Amendment of FASB Statements No. 123 and 95 (the "Exposure Draft").
The FASB is proposing, among other things, amendments to SFAS No. 123 and thus,
the manner in which share-based compensation, such as stock options, will be
accounted for by both public and non-public companies. For public companies, the
cost of employee services received in exchange for equity instruments including
options and restricted stock awards generally would be measured at fair value at
the grant date. The grant-date fair value would be estimated using
option-pricing models adjusted for the unique characteristics of those options
and instruments, unless observable market prices for the same or similar options
are available. The cost would be recognized over the requisite service period,
often the vesting period. The cost of employee services received in exchange for
liabilities would be measured initially at the fair value, rather than the
previously allowed intrinsic value under APB Opinion No. 25, Accounting for
Stock Issued to Employees, of the liabilities and would be remeasured
subsequently at each reporting date through settlement date.
The proposed changes in accounting would replace existing requirements
under SFAS No. 123, "Accounting for Stock-Based Compensation", and would
eliminate the ability to account for share-based compensation transactions using
APB Opinion No. 25, which did not require companies to expense options. Under
the terms of the Exposure Draft, the accounting for similar transactions
involving parties other than employees or the accounting for employee stock
ownership plans that are subject to American Institute of Certified Public
Accountants ("AICPA") Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans", would remain unchanged.
The Exposure Draft provides that the proposed statement would be applied
to public entities prospectively for fiscal years beginning after December 15,
2004, as if all share-based compensation awards vesting, granted, modified, or
settled after December 15, 1994 had been accounted for using the fair
value-based method of accounting.
The FASB is soliciting comments on the Exposure Draft through June 30,
2004 and is expected to issue the final statement in the fourth quarter of 2004.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related notes of Lincoln Park Savings have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). GAAP generally requires the measurement of
financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. Unlike industrial companies, our assets and liabilities are
primarily monetary in nature. As a result, changes in market interest rates have
a greater impact on performance than the effects of inflation.
49
BUSINESS OF LINCOLN PARK BANCORP
We have not engaged in any business to date. Upon completion of the
reorganization and offering, we will own all of the issued and outstanding
common stock of Lincoln Park Savings. We will retain up to 50% of the net
proceeds from the offering. A portion of the net proceeds we retain will be used
to make a loan to fund the purchase of our shares of common stock by the Lincoln
Park Savings employee stock ownership plan. We will contribute the remaining net
proceeds to Lincoln Park Savings as additional capital. We intend to invest our
capital as discussed in "How We Intend to Use the Proceeds from the Offering."
In the future, Lincoln Park Bancorp, as the holding company of Lincoln
Park Savings, will be authorized to pursue other business activities permitted
by applicable laws and regulations for savings and loan holding companies, which
may include the acquisition of banking and financial services companies. We have
no plans for any mergers or acquisitions, or other diversification of the
activities of Lincoln Park Bancorp at the present time.
Our cash flow will depend on earnings from the investment of the net
proceeds we retain, and any dividends received from Lincoln Park Savings.
Initially, Lincoln Park Bancorp will neither own nor lease any property, but
will instead use the premises, equipment and furniture of Lincoln Park Savings.
At the present time, we intend to employ only persons who are officers of
Lincoln Park Savings to serve as officers of Lincoln Park Bancorp We will
however, use the support staff of Lincoln Park Savings from time to time. These
persons will not be separately compensated by Lincoln Park Bancorp Lincoln Park
Bancorp may hire additional employees, as appropriate, to the extent it expands
its business in the future.
BUSINESS OF LINCOLN PARK SAVINGS BANK
GENERAL
Our principal business consists of attracting retail deposits from the
general public in the areas surrounding our main office in Lincoln Park, New
Jersey and investing those deposits, together with funds generated from
operations, primarily in one- to four-family residential mortgage loans,
multi-family and commercial real estate loans, consumer loans, and investment
securities. Our revenues are derived principally from interest on loans and
securities. We also generate revenues from fees and service charges and other
income. Our primary sources of funds are deposits, borrowings and principal and
interest payments on loans and securities.
MARKET AREA
We primarily serve communities located in Morris and Passaic Counties,
New Jersey. Our primary market area is concentrated in the Borough of Lincoln
Park and in contiguous towns in Morris and Passaic Counties. During the past
several years, the population and number of households in Morris and Passaic
Counties have increased moderately. In 2003, median household income for Morris
and Passaic Counties was approximately $85,000 and $54,000, respectively,
compared to $61,000 for the State of New Jersey. Our market area is
characterized by a high proportion of single family and two- to four-family
houses. This market has a diverse economy with a large number of small and
medium-size business establishments as well as
50
corporate headquarters for Fortune 500 companies. The market area also serves as
a bedroom community for nearby New York City as well as other nearby suburban
areas in northern New Jersey and downstate New York. As of March 2004, the
unemployment rates in Morris and Passaic Counties were 3.8% and 7.1%,
respectively, compared to an unemployment rate of 5.2% for the State of New
Jersey.
COMPETITION
We face intense competition within our market area both in making loans
and attracting deposits. Morris and Passaic Counties have a high concentration
of financial institutions including large money center and regional banks,
community banks and credit unions. Some of our competitors offer products and
services that we currently do not offer, such as trust services and private
banking. As of June 30, 2003, our market share of deposits represented less than
1% of deposits in each of Morris and Passaic Counties.
Our competition for loans and deposits comes principally from commercial
banks, savings institutions, mortgage banking firms and credit unions. We face
additional competition for deposits from short-term money market funds,
brokerage firms, mutual funds and insurance companies. Our primary focus is to
build and develop profitable customer relationships across all lines of business
while maintaining our role as a community bank.
LENDING ACTIVITIES
Our principal lending activity has been the origination of first
mortgage loans for the purchase or refinancing of one- to four-family
residential real property. We have historically retained all loans that we
originate, although we will occasionally enter into loan participations. One- to
four-family residential real estate mortgage loans represented $35.2 million, or
70.9% of our total loan portfolio at March 31, 2004. Consumer loans totaled
$11.9 million, or 24.1% of the total loan portfolio at March 31, 2004, and
consisted primarily of home equity loans and home equity lines of credit. We
also offer multi-family and commercial real estate loans and to a lesser extent
construction loans. Commercial real estate loans totaled $2.0 million, or 4.1%
of the total loan portfolio at March 31, 2004. On a limited basis, we originate
consumer loans that are not secured by real estate, including automobile loans,
deposit account loans and unsecured personal loans and lines of credit.
51
LOAN PORTFOLIO COMPOSITION. The following table sets forth the
composition of our loan portfolio by type of loan as of the dates indicated.
MATURITY OF LOAN PORTFOLIO. The following table shows the remaining
contractual maturity of our loans at December 31, 2003. Mortgages which have
adjustable interest rates or that have balloon repayment features are shown as
maturing in the periods during which the contract is due. The table does not
include the effect of possible prepayments or due on sale clauses.
ONE- TO FOUR- COMMERCIAL
FAMILY MULTI-FAMILY REAL ESTATE CONSTRUCTION CONSUMER TOTAL
---------- ------------ ----------- ------------ ---------- ----------
(IN THOUSANDS)
One year or less................... $ -- $ -- $ -- $ 380 $ 117 $ 497
---------- ---------- ---------- ---------- ---------- ----------
After one year:
More than one to three years..... 292 -- -- -- 740 1,032
More than three to five years.... 45 -- 214 -- 1,898 2,157
More than five to ten years...... 1,036 -- 246 -- 1,820 3,102
More than ten to twenty years.... 16,510 323 675 -- 8,130 25,638
More than twenty years........... 15,671 -- 925 -- 33 16,629
---------- ---------- ---------- ---------- ---------- ----------
Total due after one year........... 33,554 323 2,060 -- 12,621 48,558
---------- ---------- ---------- ---------- ---------- ----------
Total due.......................... $ 33,554 $ 323 $ 2,060 $ 380 $ 12,738 $ 49,055
========== ========== ========== ========== ========== ==========
FIXED- AND ADJUSTABLE-RATE LOAN SCHEDULE. The following table sets forth
at December 31, 2003, the dollar amount of all fixed-rate and adjustable-rate
loans due after December 31, 2004. Adjustable- and floating-rate loans are
included based on contractual maturities.
DUE AFTER DECEMBER 31, 2004
----------------------------------------------
FIXED ADJUSTABLE TOTAL
------------ ------------ ------------
(IN THOUSANDS)
One- to four-family......... $ 28,284 $ 5,270 $ 33,554
Multi-family................ 233 90 323
Commercial real estate...... 246 1,814 2,060
Construction................ -- -- --
Consumer.................... 7,983 4,638 12,621
------------ ------------ ------------
Total loans............ $ 36,746 $ 11,812 $ 48,558
============ ============ ============
53
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans
that are primarily secured by properties located in Morris and Passaic Counties.
At March 31, 2004, approximately $35.2 million, or 70.9% of our loan portfolio,
consisted of one- to-four family residential loans. Generally, one- to
four-family residential mortgage loans are originated in amounts up to 80% of
the appraised value of the property. However, we make first mortgage loans and
second mortgage loans, when we are the first lien holder with a loan-to-value
ratio up to 89% for properties secured by one- to four-family residences located
in our community reinvestment designated area. Private mortgage insurance is not
required on loans with a loan-to-value ratio in excess of 80% in conjunction
with this program. Fixed-rate loans are originated for terms of 15, 20 and 30
years. At March 31, 2004, our largest loan secured by one- to four-family real
estate had a principal balance of $538,000 and was secured by a single-family
residence. This loan was performing in accordance with its terms.
We originate our fixed-rate loans in conformity with Freddie Mac
guidelines. However, our policy has been to retain in portfolio the fixed-rate
loans we originate.
We also offer adjustable-rate mortgage loans for one-to four-family
properties with an interest rate based on the United States Treasury index. The
interest rates on these loans adjust annually or every three years from the
outset of the loan or adjust annually after a five-or ten-year initial fixed
rate period. We originated $598,000 and $3.2 million of adjustable-rate one- to
four-family residential loans during the three months ended March 31, 2004 and
the year ended December 31, 2003, respectively. Our adjustable rate-mortgage
loans provide for maximum rate adjustments of 200 basis points per adjustment,
with a lifetime maximum rate of 12%. Our adjustable rate mortgage loans amortize
over terms of up to 40 years.
Adjustable-rate mortgage loans decrease the risk associated with changes
in market interest rates by periodically repricing, but involve other risks
because, as interest rates increase, the underlying payments by the borrower
increase, thus increasing the potential for default by the borrower. At the same
time, the marketability of the underlying collateral may be adversely affected
by higher interest rates. Upward adjustment of the contractual interest rate is
also limited by the maximum periodic and lifetime interest rate adjustments
permitted by our loan documents, and therefore, is potentially limited in
effectiveness during periods of rapidly rising interest rates. At March 31,
2004, $5.3 million, or 15.7% of our one- to four-family residential loans had
adjustable rates of interest.
All one- to four-family residential mortgage loans that we originate
include "due-on-sale" clauses, which give us the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
Regulations limit the amount that a savings institution may lend
relative to the appraised value of the real estate securing the loan, as
determined by an appraisal of the property at the time the loan is originated.
For all loans, we utilize outside independent appraisers approved by the board
of directors. All borrowers are required to obtain title insurance. We also
require homeowner's insurance and fire and casualty insurance and, where
circumstances warrant, flood insurance on properties securing real estate loans.
54
COMMERCIAL AND MULTI-FAMILY REAL ESTATE LOANS. At March 31, 2004, $2.0
million, or 4.1% of our total loan portfolio consisted of commercial real estate
loans secured by mixed use properties (properties combining residential and
commercial space), office buildings and other commercial properties. We
generally originate adjustable rate commercial real estate loans with interest
rates that adjust every five years based upon the five year Federal Home Loan
Bank of New York advance rate, and which amortize over periods of 25 years. The
maximum loan-to-value ratio of our commercial real estate loans is 75%. At March
31, 2004, we had eight commercial real estate loans with an average outstanding
balance of $253,000. At March 31, 2004, our largest loan secured by commercial
real estate consisted of a $507,000 loan secured by a 7-unit office building. At
March 31, 2004 this loan was performing in accordance with its terms. At March
31, 2004 all of our loans secured by commercial real estate were performing in
accordance with their terms. All commercial real estate loans are secured by
properties located within our lending area or contiguous areas.
Loans secured by multi-family real estate (other then mixed use
properties listed above) totaled approximately $321,000, or 0.6%, of the total
loan portfolio at March 31, 2004. Multi-family real estate loans generally are
secured by rental properties, including walk-up apartments. At March 31, 2004,
we had three multi-family loans with an average principal balance of $107,000,
and the largest multi-family real estate loan had a principal balance of
$118,000. Two of our multi-family loans represent participation interests in
loans originated by the New Jersey Thrift Institutions Community Investment
Corporation. These participation interests are secured by low and moderate
income multi-family properties located in Wayne Township and in Paterson, New
Jersey. As of March 31, 2004, all of our loans secured by multi-family real
estate loans are performing in accordance with their terms. Multi-family real
estate loans generally are offered with adjustable interest rates that adjust
after five years. Multi-family loans are originated for terms of up to 25 years.
Multi-family real estate loan adjustments are tied to the five year FHLB of New
York advance rate.
We consider a number of factors in originating commercial and
multi-family real estate loans. We evaluate the qualifications and financial
condition of the borrower (including credit history), profitability and
expertise, as well as the value and condition of the mortgaged property securing
the loan. When evaluating the qualifications of the borrower, we consider the
financial resources of the borrower, the borrower's experience in owning or
managing similar property and the borrower's payment history with us and other
financial institutions. In evaluating the property securing the loan, the
factors we consider include the net operating income of the mortgaged property
before debt service and depreciation, the debt service coverage ratio (the ratio
of net operating income to debt service) to ensure that it is at least 130% of
the monthly debt service, and the ratio of the loan amount to the appraised
value of the mortgaged property. Commercial and multi-family real estate loans
are originated in amounts up to 75% of the appraised value of the mortgaged
property securing the loan. All commercial and multi-family real estate loans
are appraised by outside independent appraisers approved by the board of
directors. Personal guarantees are often obtained from commercial and
multi-family real estate borrowers. We generally do not originate commercial and
multi-family real estate loans secured by industrial properties.
Loans secured by commercial and multi-family real estate generally are
larger than one- to four-family residential loans and involve greater credit
risk. Commercial and multi-family real estate loans often involve large loan
balances to single borrowers or groups of related
55
borrowers. Repayment of these loans depends to a large degree on the results of
operations and management of the properties securing the loans or the businesses
conducted on such property, and may be affected to a greater extent by adverse
conditions in the real estate market or the economy in general. Accordingly, the
nature of these loans makes them more difficult for management to monitor and
evaluate.
CONSUMER LOANS. We are authorized to make loans for a variety of
personal and consumer purposes. As of March 31, 2004, consumer loans totaled
$11.9 million, or 24.1% of our total loan portfolio. Our consumer loans consist
primarily of home equity loans and home equity lines of credit. Our procedure
for underwriting consumer loans includes an assessment of the applicant's credit
history and ability to meet existing obligations and payments of the proposed
loan, as well as an evaluation of the value of the collateral security, if any.
The largest component of our consumer loans consists of home equity
loans and home equity lines of credit which totaled $11.5 million, or 23.2% of
our total loan portfolio, as of March 31, 2004. Home equity loans and home
equity lines of credit are generally made for owner-occupied homes, and are
secured by first or second mortgages on residences. Home equity loans may have a
term of up to 20 years, and are originated at a fixed rate of interest. Home
equity lines of credit are revolving lines of credit and have adjustable rates
of interest. We offer home equity loans and lines of credit up to $350,000. At
March 31, 2004, our home equity loans had an average balance of $65,000 and our
home equity lines of credit had an average credit limit of $74,000. Generally
home equity loans and lines of credit have a maximum loan to value ratio of 80%
(including any senior lien on the collateral property), although we will
originate such loans with a loan to value ratio up to 89% within our community
reinvestment designated area, provided Lincoln Park Savings has the first lien
on the property securing the loan. We currently offer home equity lines of
credit for a period of up to 20 years, and generally at rates tied to the prime
interest rate as published in THE WALL STREET JOURNAL.
Automobile loans accounted for $233,000 of our consumer loans at March
31, 2004. Our automobile loans generally have terms that do not exceed five
years and carry a fixed rate of interest. Generally, automobile loans are made
in amounts up to 85% of the purchase price on new vehicles, and up to 80% of the
National Automobile Dealers Association retail value on used vehicles. Collision
and comprehensive insurance is required on all automobile loans. We require a
lien on the title to the vehicle securing the loan.
We make loans secured by deposit accounts up to 90% of the amount of the
available deposit balance. We also make personal loans and lines of credit that
are not secured by any collateral. We have the authority to make other consumer
loans that may or may not be secured.
Consumer loans generally entail greater risk than residential loans,
particularly in the case of loans that are unsecured or are secured by assets
that tend to depreciate in value, such as automobiles. In these cases,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan, and the remaining value often does
not warrant further substantial collection efforts against the borrower.
CONSTRUCTION LOANS. At March 31, 2004, we had one construction loan
outstanding in the amount of $150,000, or 0.3% of our total loan portfolio. We
currently offer adjustable- rate and fixed-rate residential construction loans
for the construction of owner-occupied, single-
56
family residences. These loans generally are offered to borrowers who have a
contract for construction of a single family residence on property they own at
the time of the loan origination. Construction loans generally have terms of
nine months to one year, but typically are structured to become permanent
mortgage loans once construction is completed. During the construction period,
construction loans require the payment of interest only. Construction loans will
generally be made in amounts up to 80% of the appraisal value of the property.
Funds are disbursed in accordance with a schedule reflecting the completion of
portions of the project.
Construction loans generally have greater credit risk than one- to
four-family residential mortgage loans. The risk of loss on a construction loan
depends upon the accuracy of the initial estimate of the value of the property
at completion of construction compared to the estimated cost of construction. If
the estimated cost of construction is inaccurate we may have to advance funds
beyond the original amount committed in order to protect the value of the
property.
OTHER LOANS. We have authority to make secured and unsecured commercial
business loans, but have not made any loans to date. We expect to begin to offer
commercial business lines of credit in 2005.
ORIGINATION AND SERVICING OF LOANS. Loan origination activities are
concentrated in our primary market area of Morris and Passaic Counties, New
Jersey. New loans are generated primarily from walk-in customers, customer
referrals, and other parties with whom we do business, and from the efforts of
directors and employees and advertising. Loan applications are underwritten and
processed at our main office. We service all loans that we originate.
We have not been an active purchaser or seller of loans. In 2003 we sold
a participation interest in a portion of a loan where the total loan principal
exceeded our loans to one borrower limit. We retained the servicing of the loan.
Similarly, we will occasionally purchase a participation interest in loans
originated by other financial institutions.
57
The following table shows our loan origination purchases, sales and
repayment activities for the periods indicated.
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- -------------------------
2004 2003 2003 2002
----------- ----------- ----------- -----------
(IN THOUSANDS)
Beginning of period................... $ 48,913 $ 34,410 $ 34,410 $ 32,198
----------- ----------- ----------- -----------
ORIGINATIONS BY TYPE:
Real estate mortgage:
One- to four-family.............. 1,946 4,278 19,721 5,555
Multi-family..................... -- -- 153 --
Commercial....................... 788 -- -- 828
Construction..................... -- -- 200 --
Consumer:
Passbook or certificate.......... -- 39 113 131
Home equity lines of credit...... 1,540 925 5,173 5,648
Home equity...................... 539 742 5,738 3,526
Automobile....................... 32 78 155 293
Personal unsecured............... 15 6 50 32
Unsecured line of credit......... 3 7 17 18
----------- ----------- ----------- -----------
Total loans originated......... 4,863 6,075 31,320 16,031
----------- ----------- ----------- -----------
PURCHASES:
Real estate mortgage:
Multi-family..................... -- -- 115 --
----------- ----------- ----------- -----------
Total purchases................ -- -- 115 --
----------- ----------- ----------- -----------
SALES:
Real estate mortgage:
Commercial....................... -- -- 225 --
----------- ----------- ----------- -----------
Total sales.................... -- -- 225 --
----------- ----------- ----------- -----------
Principal repayments............... 4,220 3,043 16,720 13,822
----------- ----------- ----------- -----------
Total reductions............... 4,220 3,043 16,945 13,822
----------- ----------- ----------- -----------
Increase (decrease) in other items, net (15) 18 13 3
----------- ----------- ----------- -----------
Net increase................... 628 3,050 14,503 2,212
----------- ----------- ----------- -----------
Ending balance................. $ 49,541 $ 37,460 $ 48,913 $ 34,410
=========== =========== =========== ===========
LOAN APPROVAL PROCEDURES AND AUTHORITY. The loan approval process is
intended to assess the borrower's ability to repay the loan, the viability of
the loan, and the adequacy of the value of the property that will secure the
loan. To assess the borrower's ability to repay, we review the employment and
credit history and information on the historical and projected income and
expenses of mortgagors. All loans up to $200,000 may be approved by certain of
our officers pursuant to delegated loan approval authority or by our Loan
Committee. Our Loan Committee consists of two directors, the President, and the
Vice President of Lending. The President and Vice President of Lending have a
combined lending authority up to $100,000. The Vice President of Lending and
another Vice President have a combined lending authority of up to $25,000. The
Loan Committee may approve loans up to $200,000. All loans in excess of $200,000
must be approved by the board of directors. In addition, the board of directors
ratifies all loans approved by management.
We require appraisals of all real property securing loans. Appraisals
are performed by independent licensed appraisers. All appraisers are approved by
the board of directors annually. We require fire and extended coverage insurance
in amounts at least equal to the principal amount of the loan.
58
NON-PERFORMING AND PROBLEM ASSETS
Lincoln Park Savings commences collection efforts when a loan becomes 11
days past due with system generated reminder notices. Subsequent late charge and
delinquent notices are issued and the account is monitored on a regular basis
thereafter. Personal, direct contact with the borrower is attempted early in the
collection process as a courtesy reminder and later to determine the reason for
the delinquency and to safeguard Lincoln Park Savings' collateral. When a loan
is more than 60 days past due, the credit file is reviewed and, if deemed
necessary, information is updated or confirmed and collateral re-evaluated. We
make every effort to contact the borrower and develop a plan of repayment to
cure the delinquency. All loans 90 days past due are reported to the board of
directors. Upon direction of the board of directors, if no repayment plan is in
process, the file is referred to counsel for the commencement of foreclosure or
other collection efforts.
Loans are placed on non-accrual status when they are 90 days or more
delinquent. When loans are placed on a non-accrual status, unpaid accrued
interest is fully reserved, and further income is recognized only to the extent
received.
NON-PERFORMING LOANS. At March 31, 2004, $131,000 or 0.26% of our total
loans were non-performing loans.
NON-PERFORMING ASSETS. The table below sets forth the amounts and
categories of our non-performing assets at the dates indicated. Delinquent loans
that are 90 days or more past due are generally considered non-performing
assets. During the periods presented, we did not have any troubled debt
restructurings.
One- to Four-Family.................. -- -- --
Multi-family......................... -- -- --
Commercial real estate............... -- -- --
Construction......................... -- -- --
Consumer............................. -- -- 11
--------- --------- ---------
Total.............................. -- -- 11
--------- --------- ---------
Foreclosed assets....................... -- -- --
--------- --------- ---------
Total non-performing assets............. 131 356 256
========= ========= =========
Total as a percentage of total assets... 0.17% 0.48% 0.41%
========= ========= =========
Total as a percent of total loans....... 0.26% 0.73% 0.74%
========= ========= =========
For the three months ended March 31, 2004 and the year ended December
31, 2003, gross interest income which would have been recorded had our
non-accruing loans been current in accordance with their original terms amounted
to $3,000, and $25,000, respectively. Interest
59
income recognized on such loans for the three months ended March 31, 2004 and
the year ended December 31, 2003 was $1,000 and $15,000, respectively.
OTHER LOANS OF CONCERN. At March 31, 2004, we had three loans with an
aggregate balance of $764,000, with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have some doubts as to the ability of the
borrowers to comply with repayment terms of the loans and which may result in
such loans being classified as non-performing. These loans are placed on Lincoln
Park Savings' watch list and are closely monitored.
60
DELINQUENT LOANS. The following table sets forth our loan delinquencies
by type, by amount and by percentage of type at the dates indicated.
AT MARCH 31, 2004 AT DECEMBER 31, 2003
-------------------------------------------- --------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- -------------------- -------------------- --------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
REAL ESTATE MORTGAGE:
One- to four-family.......... -- $ -- 3 $ 131 -- $ -- 3 $ 171
Multi- family................ -- -- -- -- -- -- -- --
Commercial................... -- -- -- -- -- -- -- --
Construction................. -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total real estate loans.... -- -- 3 131 -- -- 3 171
------- ------- ------- ------- ------- ------- ------- -------
CONSUMER:
Passbook or certificate...... -- -- -- -- -- -- -- --
Home equity lines of credit.. -- -- -- -- -- -- 3 185
Home equity.................. -- -- -- -- -- -- -- --
Automobile................... -- -- -- -- -- -- -- --
Personal unsecured........... -- -- -- -- -- -- -- --
Unsecured line of credit..... -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total other loans.......... -- -- -- -- -- -- 3 185
------- ------- ------- ------- ------- ------- ------- -------
Total delinquent loans... -- $ -- 3 $ 131 -- $ -- 6 $ 356
======= ======= ======= ======= ======= ======= ======= =======
Delinquent loans to total loans. . --% 0.26% --% 0.73%
======= ======= ======= =======
(continued)
AT DECEMBER 31, 2002
--------------------------------------------
60-89 DAYS 90 DAYS OR MORE
-------------------- --------------------
PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS
-------- -------- -------- --------
REAL ESTATE MORTGAGE:
One- to four-family.......... 1 $ 92 3 $ 197
Multi- family................ -- -- -- --
Commercial................... -- -- -- --
Construction................. -- -- -- --
------- ------- ------- -------
Total real estate loans.... 1 92 3 197
------- ------- ------- -------
CONSUMER:
Passbook or certificate...... 1 18 4 11
Home equity lines of credit.. 2 188 1 48
Home equity.................. -- -- -- --
Automobile................... -- -- -- --
Personal unsecured........... -- -- -- --
Unsecured line of credit..... -- -- -- --
------- ------- ------- -------
Total other loans.......... 3 206 5 59
------- ------- ------- -------
Total delinquent loans... 4 $ 298 8 $ 256
======= ======= ======= =======
Delinquent loans to total loans. 0.86% 0.74%
======= =======
61
CLASSIFIED ASSETS. Federal and state regulations and our Asset
Classification Policy provide that loans and other assets of lesser quality
should be classified as "substandard," "doubtful" or "loss" assets. An asset is
considered "substandard" if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that we will sustain "some loss" if the deficiencies are not corrected. Assets
classified as "doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted. We classify an asset as "special mention" if the asset has a
potential weakness that warrants management's close attention. While such assets
are not impaired, management has concluded that if the potential weakness in the
asset is not addressed, the value of the asset may deteriorate, adversely
affecting the repayment of the asset.
We are required to establish general allowances for loan losses in an
amount deemed prudent by management for loans classified substandard or
doubtful, as well as for other problem loans. General allowances represent loss
allowances which have been established to recognize the inherent losses
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When we classify problem assets
as "loss," we are required either to establish a specific allowance for losses
equal to 100% of the amount of the asset so classified or to charge off such
amount. Our determination as to the classification of our assets and the amount
of our valuation allowances is subject to review by federal and state regulators
which can order the establishment of additional general or specific loss
allowances.
On the basis of management's review of our assets, at March 31, 2004 we
had classified $331,000 of our assets as substandard (which consisted of three
non-accruing loans totaling $131,000 secured by single family residential
properties and two corporate bonds with sub-investment grade ratings totaling
$200,000). At March 31, 2004, none of our assets were classified as special
mention, doubtful or loss.
The loan portfolio is reviewed on a regular basis to determine whether
any loans require classification in accordance with applicable regulations. Not
all classified assets constitute non-performing assets.
ALLOWANCE FOR LOAN LOSSES
Our allowance for loan losses is maintained at a level necessary to
absorb loan losses which are both probable and reasonably estimable. Management,
in determining the allowance for loan losses, considers the losses inherent in
its loan portfolio and changes in the nature and volume of loan activities,
along with the general economic and real estate market conditions. We utilize a
two-tier approach: (1) identification of impaired loans and establishment of
specific loss allowances on such loans; and (2) establishment of general
valuation allowances on the remainder of our loan portfolio. We maintain a loan
review system, which allows for a periodic review of our loan portfolio and the
early identification of potential impaired loans. Such system
62
takes into consideration, among other things, delinquency status, size of loans,
type and market value of collateral and financial condition of the borrowers.
Specific loan loss allowances are established for identified losses based on a
review of such information. A loan evaluated for impairment is considered to be
impaired when, based on current information and events, it is probable that we
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. All loans identified as impaired are evaluated
independently. We do not aggregate such loans for evaluation purposes. Loan
impairment is measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
at the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. General loan loss allowances are based upon a
combination of factors including, but not limited to, actual loan loss
experience, composition of the loan portfolio, current economic conditions and
management's judgment. The allowance is increased through provisions charged
against current earnings and recoveries of previously charged-off loans. Loans
which are determined to be uncollectible are charged against the allowance.
While management uses available information to recognize probable and reasonably
estimable loan losses, future loss provisions may be necessary based on changing
economic conditions. Payments received on impaired loans are applied first to
accrued interest receivable and then to principal. The allowance for loan losses
as of March 31, 2004 is maintained at a level that represents management's best
estimate of losses inherent in the loan portfolio, and such losses were both
probable and reasonably estimable. This estimation is inherently subjective as
it requires estimates and assumptions that are susceptible to significant
revisions as more information becomes available. Although we believe that we
have established the allowance at a level to absorb probable and estimable
losses, future additions to the allowance for loan losses may be necessary if
economic and other conditions in the future differ substantially from the
current operating environment.
In addition, federal and state regulators, as an integral part of their
examination process, periodically review our allowance for loan losses. Such
agencies may require that we recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
63
ALLOWANCE FOR LOAN LOSSES. The following table analyzes changes in the
allowance for the periods presented. We had no charge-offs or recoveries during
the periods presented.
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------------- -----------------------
2004 2003 2003 2002
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Balance at beginning of period................... $ 126 $ 91 $ 91 $ 83
---------- ---------- ---------- ----------
Total charge-offs................................ -- -- -- --
Total recoveries................................. -- -- -- --
---------- ---------- ---------- ----------
Net charge-offs.................................. -- -- -- --
(Recovery credited) additions charged to
operations (16) 10 35 8
---------- ---------- ---------- ----------
Ending balance................................... $ 110 $ 101 $ 126 $ 91
========== ========== ========== ==========
Ratio of non-performing assets to total assets
at the end of period........................... 0.17% 0.39% 0.48% 0.41%
========== ========== ========== ==========
Ratio of net charge-offs during the period to
loans outstanding during the period........... --% --% --% --%
========== ========== ========== ==========
Ratio of net charge-offs during the period to
non-performing assets......................... --% --% --% --%
========== ========== ========== ==========
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table presents an
analysis of the allocation of the allowance for loan losses at the dates
indicated. The allocation of the allowance to each category is not necessarily
indicative of future loss in any particular category and does not restrict the
use of the allowance to absorb losses in other categories.
AT DECEMBER 31,
------------------------------------------------------------------
AT MARCH 31, 2004 2003 2002
------------------------------- ------------------------------- -------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH LOAN IN EACH
AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY
LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS ALLOWANCE CATEGORY LOANS
--------- -------- ------- --------- -------- ------- --------- -------- -------
(DOLLARS IN THOUSANDS)
One- to Four-Family..... $ 66 $ 35,171 70.91% $ 86 $ 33,554 68.40% $ 56 $ 21,466 62.15%
Multi- family........... 1 321 0.65 1 323 0.66 1 216 0.63
Commercial real estate.. 10 2,026 4.08 10 2,060 4.20 11 2,188 6.33
Construction............ 1 150 0.30 2 380 0.77 1 180 0.52
Consumer................ 32 11,933 24.06 27 12,738 25.97 22 10,492 30.37
-------- -------- ------ -------- -------- ------ -------- -------- ------
Total.............. $ 110 $ 49,601 100.00% $ 126 $ 49,055 100.00% $ 91 $ 34,542 100.00%
======== ======== ====== ======== ======== ====== ======== ======== ======
64
Each quarter, management evaluates the total balance of the allowance
for loan losses based on several factors that are not loan specific, but are
reflective of the inherent losses in the loan portfolio. This process includes,
but is not limited to, a periodic review of loan collectibility in light of
historical experience, the nature and volume of loan activity, conditions that
may affect the ability of the borrower to repay, underlying value of collateral,
if applicable, and economic conditions in our immediate market area. First, we
group loans by delinquency status. All loans 90 days or more delinquent are
evaluated individually, based primarily on the value of the collateral securing
the loan. Specific loss allowances are established as required by this analysis.
All loans for which a specific loss allowance has not been assigned are
segregated by type and a loss allowance is established by using loss experience
data and management's judgment concerning other matters it considers
significant. The allowance is allocated to each category of loan based on the
results of the above analysis.
INVESTMENTS
Our investment portfolio at March 31, 2004 consisted of $12.8 million in
United States Government and agency securities, $3.6 million of corporate bonds,
$854,000 of municipal bonds, $617,000 in Federal Home Loan Bank of New York
stock and $3.3 million in other interest-earning assets, consisting of deposits
at other financial institutions, federal funds sold and term deposits with the
Federal Home Loan Bank of New York. Our investment policy objectives are to
maintain liquidity within the guidelines established by the board of directors.
Our policy is to invest only in securities with an investment grade rating at
the time of purchase. At March 31, 2004, two of our corporate bonds in the
aggregate amount of $200,000, had been downgraded to non-investment grade
ratings.
We also invest in mortgage-backed securities, all of which are
guaranteed by the United States Government or agencies or government sponsored
enterprises. At March 31, 2004, our mortgage-backed securities portfolio totaled
$1.8 million, or 2.5% of total assets, and consisted of $1.2 million in
fixed-rate securities, and $668,000 in adjustable rate securities guaranteed by
Ginnie Mae, Fannie Mae or Freddie Mac.
65
The following table sets forth the carrying value of our securities
portfolio at the dates indicated.
AT MARCH 31, AT DECEMBER 31,
------------------------ ---------------------------------------------------
2004 2003 2002
------------------------ ------------------------ ------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
Investment securities available for
sale:
U.S. government agencies......... $ 3,739 16.19% $ 3,691 16.33% $ 502 1.97%
Corporate bonds.................. 1,298 5.62 1,512 6.69 2,456 9.65
Municipal bonds.................. 363 1.57 356 1.57 199 0.78
Mortgage-backed securities....... 229 0.99 252 1.11 495 1.95
Collateralized mortgage
obligations.................... -- -- -- -- -- --
----------- ---------- ----------- ----------- ----------- ----------
Total.......................... 5,629 24.37 5,811 25.70 3,652 14.36
----------- ---------- ----------- ---------- ----------- ----------
Investment securities held to
maturity:
U.S. government agencies......... 9,108 39.43 8,818 39.00 9,812 38.57
Corporate bonds.................. 2,341 10.13 2,541 11.24 2,290 9.00
Municipal bonds.................. 491 2.13 391 1.73 642 2.52
Mortgage-backed securities....... 1,620 7.01 1,758 7.78 2,959 11.63
Collateralized mortgage
obligations.................... -- -- -- -- 675 2.65
----------- ---------- ----------- ----------- ----------- ----------
Total.......................... 13,560 58.70 13,508 59.75 16,378 64.38
----------- ---------- ----------- ---------- ----------- ----------
Other interest-earning assets:
Interest-earning deposits........ 2,630 11.38 1,659 7.34 1,326 5.21
Federal funds sold............... -- -- -- -- 900 3.54
Term deposits.................... 665 2.88 1,060 4.69 2,838 11.16
FHLB stock....................... 617 2.67 570 2.52 345 1.36
----------- ---------- ----------- ---------- ----------- ----------
3,912 16.93 3,289 14.55 5,409 21.26
----------- ---------- ----------- ---------- ----------- ----------
Total.......................... $ 23,101 100.00% $ 22,608 100.00% $ 25,439 100.00%
=========== ========== =========== ========== =========== ==========
The following table sets forth the composition of our mortgage-backed
securities at the dates indicated.
AT MARCH 31, AT DECEMBER 31,
------------------------ ---------------------------------------------------
2004 2003 2002
------------------------ ------------------------ ------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
Mortgage-backed securities held to
maturity:...........................
Ginnie Mae....................... $ 1,298 80.12% $ 1,405 79.92% $ 2,373 80.20%
Fannie Mae....................... 40 2.47 44 2.50 89 3.01
Freddie Mac...................... 282 17.41 309 17.58 497 16.80
----------- ---------- ----------- ---------- ----------- ----------
Total:...................... $ 1,620 100.00% $ 1,758 100.00% $ 2,959 100.00%
=========== ========== =========== ========== =========== ==========
AT MARCH 31, AT DECEMBER 31,
------------------------ ---------------------------------------------------
2004 2003 2002
------------------------ ------------------------ ------------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS)
Mortgage-backed securities available
for sale:...........................
Ginnie Mae....................... $ 229 100.00% $ 252 100.00% $ 495 100.00%
Fannie Mae....................... -- -- -- -- -- --
Freddie Mac...................... -- -- -- -- -- --
----------- ---------- ----------- ---------- ----------- ----------
Total:...................... $ 229 100.00% $ 252 100.00% $ 495 100.00%
=========== ========== =========== ========== =========== ==========
66
The composition and maturities of the investment securities portfolio as
of March 31, 2004, excluding Federal Home Loan Bank of New York stock, are
indicated in the following table. Maturities are based upon on the final
contractual payment dates, and do not reflect the impact of prepayments or early
redemptions that may occur. State and municipal securities yields have not been
adjusted to a tax-equivalent basis.
AT MARCH 31, 2004
----------------------------------------------
LESS THAN 1 TO 5 5 TO 10 OVER 10 TOTAL INVESTMENT
1 YEAR YEARS YEARS YEARS SECURITIES
--------- --------- --------- --------- ---------------------
BOOK BOOK BOOK BOOK BOOK MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
AVAILABLE FOR SALE:
U.S. government agencies.................... $ -- $ 501 $ 1,007 $ 2,231 $ 3,739 $ 3,739
Corporate bonds............................. 506 643 -- 149 1,298 1,298
Municipal bonds............................. -- -- 363 -- 363 363
Mortgage-backed securities.................. -- -- -- 229 229 229
--------- --------- --------- --------- --------- ---------
Total available for sale.................... $ 506 $ 1,144 $ 1,370 $ 2,609 $ 5,629 $ 5,629
========= ========= ========= ========= ========= =========
HELD TO MATURITY:
U.S. government agencies.................... $ -- $ -- $ 2,961 $ 6,147 $ 9,108 $ 9,170
Corporate bonds............................. 300 484 1,057 500 2,341 2,394
Municipal bonds............................. -- -- -- 491 491 504
Mortgage-backed securities.................. -- 12 1 1,607 1,620 1,635
--------- --------- --------- --------- --------- ---------
Total held to maturity...................... $ 300 $ 496 $ 4,019 $ 8,745 $ 13,560 $ 13,703
========= ========= ========= ========= ========= =========
Total securities............................ $ 806 $ 1,640 $ 5,389 $ 11,354 $ 19,189 $ 19,332
========= ========= ========= ========= ========= =========
At May 31, 2004, the market value of the available for sale portfolio
had been adversely affected by the recent increase in interest rates. At that
date, the unrealized loss on that portfolio totaled $43,000, compared to an
unrealized gain of approximately $84,000 at March 31, 2004. At May 31, 2004, the
market value of the held to maturity portfolio had an unrealized loss of
$372,000 compared to an unrealized gain of approximately $143,000 at March 31,
2004.
The following table shows securities purchase, sale and repayment
activities of Lincoln Park Savings for the periods indicated.
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------
2004 2003 2003 2002
----------- ----------- ----------- -----------
(IN THOUSANDS)
AVAILABLE FOR SALE:
PURCHASES:
Adjustable-rate............. $ -- $ -- $ 3,700 $ 500
Fixed-rate.................. -- -- 100 201
----------- ----------- ----------- -----------
Total purchases........... -- -- 3,800 701
----------- ----------- ----------- -----------
SALES:
Adjustable-rate............. -- -- -- --
Fixed-rate.................. -- (100) (719) (100)
----------- ----------- ----------- -----------
Total sales............... -- (100) (719) (100)
----------- ------------ ------------ ------------
Principal repayments........... (222) (619) (1,133) (302)
Other items, net............... 40 248 211 (55)
----------- ----------- ----------- ------------
Net increase (decrease)... $ (182) $ (471) $ 2,159 $ 244
=========== =========== =========== ===========
67
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------------------- --------------------------
2004 2003 2003 2002
----------- ----------- ----------- -----------
(IN THOUSANDS)
HELD TO MATURITY:
PURCHASES:
Adjustable-rate............. $ 1,388 $ 1,500 $ 6,709 $ 11,506
Fixed-rate.................. 100 500 1,210 1,308
----------- ----------- ----------- -----------
Total purchases........... 1,488 2,000 7,919 12,814
----------- ----------- ----------- -----------
SALES:
Adjustable-rate............. -- -- -- --
Fixed-rate.................. -- (99) (99) --
----------- ----------- ----------- -----------
Total sales............... -- (99) (99) --
----------- ----------- ----------- -----------
Principal repayments........... (1,438) (3,831) (10,434) (4,105)
Other items, net............... 3 (251) (257) 28
----------- ----------- ----------- -----------
Net increase (decrease)... $ 53 $ (2,181) $ (2,871) $ 8,737
=========== =========== =========== ===========
SOURCES OF FUNDS
GENERAL. Deposits have traditionally been the primary source of funds
for use in lending and investment activities. We also use borrowings, primarily
FHLB advances, to supplement cash flow needs, lengthen the maturities of
liabilities for interest rate risk purposes and to manage the cost of funds. In
addition, funds are derived from scheduled loan payments, investment maturities,
loan prepayments, retained earnings and income on earning assets. While
scheduled loan payments and income on earning assets are relatively stable
sources of funds, deposit inflows and outflows can vary widely and are
influenced by prevailing interest rates, market conditions and levels of
competition.
DEPOSITS. Our deposits are generated primarily from residents within our
primary market area. We offer a selection of deposit instruments, including
demand deposits consisting of non-interest bearing and NOW accounts, passbook
savings, statement savings and club accounts, and fixed-term certificates of
deposit. Deposit account terms vary, with the principal differences being the
minimum balance required, the amount of time the funds must remain on deposit
and the interest rate. We do not accept brokered deposits.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established on a periodic basis. Deposit rates and terms are based
primarily on current operating strategies and market rates, liquidity
requirements, rates paid by competitors and growth goals. Personalized customer
service and long-standing relationships with customers are relied upon to
attract and retain deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and other prevailing interest rates and
competition. The variety of deposit accounts offered allows us to be competitive
in obtaining funds and responding to changes in consumer demand. Based on
experience, we believe that our deposits are relatively stable. However, the
ability to attract and maintain deposits, and the rates paid on these deposits,
have been and will continue to be significantly affected by market conditions.
At March 31, 2004,
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$26.1 million, or 45.7% of our deposit accounts were certificates of deposit, of
which $18.9 million have maturities of one year or less.
DEPOSITS. The following table sets forth the dollar amount of deposits
in the various types of deposit programs we offered as of the dates indicated.
The following table sets forth the deposit activities for the periods
indicated.
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------- -----------------------------
2004 2003 2003 2002
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Beginning of period..................... $ 57,290 $ 53,365 $ 53,365 $ 46,659
Net deposits (withdrawals).............. (469) 913 2,939 5,443
Interest credited on deposit accounts... 223 263 986 1,263
--------- --------- --------- ---------
Ending balance.......................... $ 57,044 $ 54,541 $ 57,290 $ 53,365
========= ========= ========= =========
Percent increase (decrease) from beginning
of period............................. (0.43)% 2.20% 7.36% 14.37%
The following table indicates the amount of certificates of deposit as
of March 31, 2004, by time remaining until maturity.
OVER THREE OVER SIX OVER NINE
THREE MONTHS MONTHS TO SIX MONTHS TO MONTHS TO OVER TWELVE
OR LESS MONTHS NINE MONTHS TWELVE MONTHS MONTHS TOTAL
------------ ------------- ----------- ------------- ----------- -------------
(IN THOUSANDS)
Certificate of deposit:
Less than $100,00....... $ 6,018 $ 5,311 $ 3,052 $ 2,371 $ 6,047 $ 22,799
$100,000 or more........ 690 428 613 406 1,160 3,297
------------ ------------- ----------- ------------- ----------- -------------
Total.............. $ 6,708 $ 5,739 $ 3,665 $ 2,777 $ 7,207 $ 26,096
============ ============= =========== ============= =========== =============
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The following table presents, by rate category, our certificate of
deposit accounts as of the dates indicated.
The following table presents, by rate category, the remaining period to
maturity of certificate of deposit accounts outstanding as of March 31, 2004.
MATURITY DATE
------------------------------------------------------------
1 YEAR OVER 1 OVER 2 OVER
OR LESS TO 2 YEARS TO 3 YEARS 3 YEARS TOTAL
--------- ---------- ---------- --------- ---------
(IN THOUSANDS)
Interest rate:
1.00% - 1.99%.................................. $ 14,202 $ 998 $ -- $ -- $ 15,200
2.00% - 2.99%.................................. 1,676 2,420 112 15 4,223
3.00% - 3.99%.................................. 2,355 108 62 2,026 4,551
4.00% - 4.99%.................................. 4 218 410 599 1,231
5.00% - 5.99%.................................. 61 201 1 -- 263
6.00% - 6.99%.................................. 591 37 -- -- 628
--------- ---------- ---------- --------- ---------
Total....................................... $ 18,889 $ 3,982 $ 585 $ 2,640 $ 26,096
========= ========== ========== ========= =========
BORROWINGS. We may obtain advances from the Federal Home Loan Bank of
New York upon the security of the common stock we own in the Federal Home Loan
Bank and our qualifying residential mortgage loans and mortgage-backed
securities, provided certain standards related to creditworthiness are met.
These advances are made pursuant to several credit programs, each of which has
its own interest rate and range of maturities. Federal Home Loan Bank advances
are generally available to meet seasonal and other withdrawals of deposit
accounts and to permit increased lending. Using FHLB advances are a significant
part of our operating strategy. As of March 31, 2004, we had FHLB advances in
the amount of $12.3 million, which represented 17.6% of total liabilities. As a
member of the Federal Home Loan Bank of New York, Lincoln Park Savings can
currently borrow up to approximately $27.0 million from the Federal Home Loan
Bank.
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The following table sets forth certain information regarding FHLB
advances for the periods indicated. We had no other material borrowings during
the periods.
AT OR FOR THE
THREE MONTHS AT OR FOR THE
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- ------------------------
2004 2003 2003 2002
---------- ---------- ------------ -----------
(DOLLARS IN THOUSANDS)
MAXIMUM BALANCE:
FHLB advances.............................. $ 12,596 $ 4,000 $ 11,389 $ 4,000
FHLB line of credit........................ -- -- -- --
Other borrowings........................... -- -- -- --
AVERAGE BALANCE:
FHLB advances.............................. $ 11,815 $ 3,989 $ 6,509 $ 1,293
FHLB line of credit........................ -- -- -- --
Other borrowings........................... -- -- -- --
WEIGHTED AVERAGE INTEREST RATE:
FHLB advances.............................. 2.91% 6.72%(1) 3.53% 3.63%
FHLB line of credit........................ -- -- -- --
Other borrowings........................... -- -- -- --
(1) Rate reflects prepayment penalty of $38,000 related to the early payoff
of FHLB advances.
The contractual maturities of FHLB advances at March 31, 2004, are as
follows:
WEIGHTED
AMOUNT AVERAGE RATE
------------ --------------
(DOLLARS IN THOUSANDS)
Within one year........................... $ 250 2.26%
After one through five years.............. 10,397 2.86
After five through ten years.............. 1,700 3.74
------------ --------------
Total................................... $ 12,347 2.97%
============ ==============
PROPERTIES
The following table provides certain information with respect to our
office as of March 31, 2004:
LEASED NET BOOK VALUE OF REAL
LOCATION OR OWNED YEAR ACQUIRED PROPERTY
------------------------- ------------ ----------------- ----------------------
(IN THOUSANDS)
Main Office: Owned 1963 $ 829,000
31 Boonton Turnpike
Lincoln Park, NJ 07035
The net book value of our premises, land and equipment was approximately
$932,000 at March 31, 2004.
SUBSIDIARY ACTIVITIES
Lincoln Park Savings has no subsidiaries.
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LEGAL PROCEEDINGS
We are not involved in any pending legal proceedings as a defendant
other than routine legal proceedings occurring in the ordinary course of
business. At March 31, 2004, we were not involved in any legal proceedings, the
outcome of which would be material to our financial condition or results of
operations.
PERSONNEL
As of March 31, 2004, we had 14 full-time employees and six part-time
employees. Our employees are not represented by any collective bargaining group.
Management believes that we have good relations with our employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. Lincoln Park Bancorp and Lincoln Park Savings will be subject
to federal income taxation in the same general manner as other corporations,
with some exceptions discussed below. Lincoln Park Savings' tax returns have not
been audited during the past five years. The following discussion of federal
taxation is intended only to summarize certain pertinent federal income tax
matters and is not a comprehensive description of the tax rules applicable to
Lincoln Park Bancorp or Lincoln Park Savings.
METHOD OF ACCOUNTING. For Federal income tax purposes, Lincoln Park
Savings currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31 for filing its federal income
tax returns.
BAD DEBT RESERVES. Prior to the Small Business Protection Act of 1996
(the "1996 Act"), Lincoln Park Savings was permitted to establish a reserve for
bad debts and to make annual additions to the reserve. These additions could,
within specified formula limits, be deducted in arriving at our taxable income.
Lincoln Park Savings was required to use the specific charge off method in
computing its bad debt deduction beginning with its 1996 federal tax return.
Savings institutions were required to recapture any excess reserves over those
established as of December 31, 1987 (base year reserve). Lincoln Park Savings
had approximately $730,000 of reserves subject to recapture.
TAXABLE DISTRIBUTIONS AND RECAPTURE. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should Lincoln Park Savings fail to meet certain thrift asset and
definitional tests. Federal legislation has eliminated these thrift related
recapture rules.
At March 31, 2004, our total federal pre-1988 base year reserve was
approximately $730,000. However, under current law, pre-1988 base year reserves
remain subject to recapture should Lincoln Park Savings make certain
non-dividend distributions, repurchase any of its stock, pay dividends in excess
of tax earnings and profits, or cease to maintain a bank charter.
72
ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as amended
(the "Code") imposes an alternative minimum tax ("AMT") at a rate of 20% on a
base of regular taxable income plus certain tax preferences ("alternative
minimum taxable income" or "AMTI"). The AMT is payable to the extent such AMTI
is in excess of an exemption amount and the AMT exceeds the regular income tax.
Net operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. Lincoln Park Savings has not been subject to the alternative
minimum tax and has no such amounts available as credits for carryover.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. At March 31, 2004, Lincoln Park Savings had no net
operating loss carryforwards for federal income tax purposes.
CORPORATE DIVIDENDS-RECEIVED DEDUCTION. Lincoln Park Bancorp may exclude
from its income 100% of dividends received from Lincoln Park Savings as a member
of the same affiliated group of corporations. The corporate dividends-received
deduction is 80% in the case of dividends received from corporations with which
a corporate recipient does not file a consolidated return, and corporations
which own less than 20% of the stock of a corporation distributing a dividend
may deduct only 70% of dividends received or accrued on their behalf.
STATE TAXATION
NEW JERSEY STATE TAXATION. Lincoln Park Savings files New Jersey
Corporation Business tax returns. Generally, the income of savings institutions
in New Jersey, which is calculated based on federal taxable income, subject to
certain adjustments, is subject to the New Jersey Corporation Business tax.
Lincoln Park Savings is not currently under audit with respect to its New Jersey
income tax returns and Lincoln Park Savings' state tax returns have not been
audited for the past five years.
Under New Jersey legislation, a taxpayer, including Lincoln Park
Savings, will pay the greater of 9% of its taxable income or the Alternate
Minimum Assessment (AMA). There are two methods of calculating the AMA, the
gross profits method and the gross receipts method. The taxpayer has the option
of choosing either of these methods, but once an election is made, the taxpayer
must use the same method for the next four years. Under the gross receipts
method, the tax is calculated by multiplying the gross receipts by the
applicable factor, which ranges from 0.139% to 0.4%. Under the gross profits
method, the tax is calculated by multiplying the gross profits by the applicable
factor, which ranges from 0.28% to 0.8%. The AMA for an affiliated group
consisting of five or more members may not exceed $20.0 million. The AMA for tax
years beginning after June 30, 2006, shall be zero.
New Jersey income tax law does not allow for a taxpayer to file a tax
return on a combined or consolidated basis with another member of the affiliated
group where there is common ownership. However, if the taxpayer cannot
demonstrate by clear and convincing evidence that the tax filing discloses the
true earnings of the taxpayer on its business carried on in the State of New
Jersey, the New Jersey Director of the Division of Taxation may, at the
73
director's discretion, require the taxpayer to file a consolidated return of the
entire operations of the affiliated group or controlled group, including its own
operations and income.
REGULATION
GENERAL
Lincoln Park Savings is a New Jersey chartered savings bank, and its
deposit accounts are insured up to applicable limits by the Federal Deposit
Insurance Corporation under the Savings Association Insurance Fund (the "SAIF").
Lincoln Park Savings is subject to extensive regulation, examination and
supervision by the Commissioner of the New Jersey Department of Banking and
Insurance as the issuer of its charter, and by the Federal Deposit Insurance
Corporation as the deposit insurer. Lincoln Park Savings must file reports with
the New Jersey Commissioner and the Federal Deposit Insurance Corporation
concerning its activities and financial condition, and it must obtain regulatory
approval prior to entering into certain transactions, such as mergers with, or
acquisitions of, other depository institutions and opening or acquiring branch
offices. The New Jersey Commissioner and the Federal Deposit Insurance
Corporation conduct periodic examinations to assess Lincoln Park Savings'
compliance with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which a savings bank can
engage and is intended primarily for the protection of the deposit insurance
fund and depositors and not for the purpose of protecting stockholders. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Prior
to July ___, 2004, the date Lincoln Park Savings converted from a New Jersey
savings and loan association to a New Jersey savings bank, Lincoln Park Savings
was subject to examination and supervision by the Office of Thrift Supervision.
Lincoln Park Bancorp is a Federal corporation, and Lincoln Park Bancorp,
MHC is a Federal mutual holding company. Lincoln Park Bancorp and Lincoln Park
Bancorp, MHC are required to file certain reports with, and otherwise comply
with the rules and regulations of the Office of Thrift Supervision.
Any change in such laws and regulations, whether by the New Jersey
Commissioner, the Federal Deposit Insurance Corporation, the Office of Thrift
Supervision or through legislation, could have a material adverse impact on
Lincoln Park Savings and Lincoln Park Bancorp and their operations and
stockholders.
74
Certain of the laws and regulations applicable to Lincoln Park Savings and
Lincoln Park Bancorp are summarized below or elsewhere in this prospectus. These
summaries do not purport to be complete and are qualified in their entirety by
reference to such laws and regulations.
NEW JERSEY BANKING REGULATION
ACTIVITY POWERS. Lincoln Park Savings derives its lending, investment
and other activity powers primarily from the applicable provisions of the New
Jersey Banking Act and its related regulations. Under these laws and
regulations, savings banks, including Lincoln Park Savings, generally may invest
in:
(1) real estate mortgages;
(2) consumer and commercial loans;
(3) specific types of debt securities, including certain corporate
debt securities and obligations of federal, state and local
governments and agencies;
(4) certain types of corporate equity securities; and
(5) certain other assets.
A savings bank may also invest pursuant to a "leeway" power that permits
investments not otherwise permitted by the New Jersey Banking Act. "Leeway"
investments must comply with a number of limitations on the individual and
aggregate amounts of "leeway" investments. A savings bank may also exercise
trust powers upon approval of the New Jersey Commissioner. Lincoln Park Savings
currently does not have trust powers. New Jersey savings banks may exercise
those powers, rights, benefits or privileges authorized for national banks or
out-of-state banks or for federal or out-of-state savings banks or savings
associations, provided that before exercising any such power, right, benefit or
privilege, prior approval by the New Jersey Commissioner by regulation or by
specific authorization is required. The exercise of these lending, investment
and activity powers are limited by federal law and the related regulations. See
"--Federal Banking Regulation--Activity Restrictions on State-Chartered Banks"
below.
LOANS-TO-ONE-BORROWER LIMITATIONS. With certain specified exceptions, a
New Jersey chartered savings bank may not make loans or extend credit to a
single borrower and to entities related to the borrower in an aggregate amount
that would exceed 15% of the bank's capital funds. A savings bank may lend an
additional 10% of the bank's capital funds if secured by collateral meeting the
requirements of the New Jersey Banking Act. Lincoln Park Savings currently
complies with applicable loans-to-one-borrower limitations.
DIVIDENDS. Under the New Jersey Banking Act, a stock savings bank may
declare and pay a dividend on its capital stock only to the extent that the
payment of the dividend would not impair the capital stock of the savings bank.
In addition, a stock savings bank may not pay a dividend unless the savings bank
would, after the payment of the dividend, have a surplus of not less than 50% of
its capital stock, or the payment of the dividend would not reduce the surplus.
75
Federal law may also limit the amount of dividends that may be paid by Lincoln
Park Savings. See "--Federal Banking Regulation--Prompt Corrective Action"
below.
MINIMUM CAPITAL REQUIREMENTS. Regulations of the New Jersey Commissioner
impose on New Jersey chartered depository institutions, including Lincoln Park
Savings, minimum capital requirements similar to those imposed by the Federal
Deposit Insurance Corporation on insured state banks. See "--Federal Banking
Regulation--Capital Requirements."
EXAMINATION AND ENFORCEMENT. The New Jersey Department of Banking and
Insurance may examine Lincoln Park Savings whenever it deems an examination
advisable. The Department examines Lincoln Park Savings at least every two
years. The New Jersey Commissioner may order any savings bank to discontinue any
violation of law or unsafe or unsound business practice and may direct any
director, officer, attorney or employee of a savings bank engaged in an
objectionable activity, after the Commissioner has ordered the activity to be
terminated, to show cause at a hearing before the Commissioner why such person
should not be removed.
FEDERAL BANKING REGULATION
CAPITAL REQUIREMENTS. Federal Deposit Insurance Corporation regulations
require banks to maintain minimum levels of capital. The Federal Deposit
Insurance Corporation regulations define two tiers, or classes, of capital.
Tier 1 capital is comprised of the sum of:
o common stockholders' equity, excluding the unrealized
appreciation or depreciation, net of tax, from available for
sale securities;
o non-cumulative perpetual preferred stock, including any related
retained earnings; and
o minority interests in consolidated subsidiaries minus all
intangible assets, other than qualifying servicing rights and
any net unrealized loss on marketable equity securities.
The components of Tier 2 capital currently include:
o cumulative perpetual preferred stock;
o certain perpetual preferred stock for which the dividend rate
may be reset periodically;
o hybrid capital instruments, including mandatory convertible
securities;
o term subordinated debt;
o intermediate term preferred stock;
76
o allowance for possible loan losses; and
o up to 45% of pretax net unrealized holding gains on available
for sale equity securities with readily determinable fair market
values.
Allowance for possible loan losses includible in Tier 2 capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, the amount of Tier 2 capital
that may be included in total capital cannot exceed 100% of Tier 1 capital. The
Federal Deposit Insurance Corporation regulations establish a minimum leverage
capital requirement for banks in the strongest financial and managerial
condition, with a rating of 1 (the highest examination rating of the Federal
Deposit Insurance Corporation for banks) under the Uniform Financial
Institutions Rating System, of not less than a ratio of 3.0% of Tier 1 capital
to total assets. For all other banks, the minimum leverage capital requirement
is 4.0%, unless a higher leverage capital ratio is warranted by the particular
circumstances or risk profile of the depository institution.
The Federal Deposit Insurance Corporation regulations also require that
banks meet a risk-based capital standard. The risk-based capital standard
requires the maintenance of a ratio of total capital, which is defined as the
sum of Tier 1 capital and Tier 2 capital, to risk-weighted assets of at least 8%
and a ratio of Tier 1 capital to risk-weighted assets of at least 4%. In
determining the amount of risk-weighted assets, all assets, plus certain off
balance sheet items, are multiplied by a risk-weight of 0% to 100%, based on the
risks the Federal Deposit Insurance Corporation believes are inherent in the
type of asset or item.
The federal banking agencies, including the Federal Deposit Insurance
Corporation, have also adopted regulations to require an assessment of an
institution's exposure to declines in the economic value of a bank's capital due
to changes in interest rates when assessing the bank's capital adequacy. Under
such a risk assessment, examiners will evaluate a bank's capital for interest
rate risk on a case-by-case basis, with consideration of both quantitative and
qualitative factors. According to the agencies, applicable considerations
include:
o the quality of the bank's interest rate risk management process;
o the overall financial condition of the bank; and
o the level of other risks at the bank for which capital is
needed.
Institutions with significant interest rate risk may be required to hold
additional capital. The agencies also issued a joint policy statement providing
guidance on interest rate risk management, including a discussion of the
critical factors affecting the agencies' evaluation of interest rate risk in
connection with capital adequacy.
The Federal Deposit Insurance Corporation adopted regulations, effective
April 1, 2002, establishing minimum regulatory capital requirements for equity
investments in non-financial companies. The regulations apply a series of
marginal capital charges that range from 8% to 25% depending upon the size of
the aggregate equity investment portfolio of the banking organization relative
to its Tier 1 capital. The capital charge would be applied by making a
deduction, which would be based on the adjusted carrying value of the equity
investment from
77
the organization's Tier 1 capital. We do not believe this capital requirement
will have a material adverse effect upon our operations. However, we will have
to take this requirement into consideration should we, at some point in the
future, decide to invest in non-financial companies.
The following table shows our leverage ratio, our Tier 1 risk-based
capital ratio, and our total risk-based capital ratio, at March 31, 2004 under
the Federal Deposit Insurance Corporation capital requirements:
AS OF MARCH 31, 2004
------------------------
HISTORICAL PERCENT OF
CAPITAL ASSETS(1)
----------- -----------
(DOLLARS IN THOUSANDS)
Regulatory Tier 1 leverage capital......... $ 5,247 6.97%
Tier 1 risk-based capital.................. 5,247 12.97
Total risk-based capital................... 5,357 13.24
--------------
(1) For purposes of calculating Regulatory Tier 1 leverage capital, assets
are based on adjusted total leverage assets. In calculating Tier 1 risk
based capital and total risk-based capital, assets are based on total
risk-weighted assets.
As the table shows, as of March 31, 2004, Lincoln Park Savings was
considered "well capitalized" under Federal Deposit Insurance Corporation
guidelines.
ACTIVITY RESTRICTIONS ON STATE-CHARTERED BANKS. Section 24 of the
Federal Deposit Insurance Act, as amended, ("FDIA") which was added by the FDIC
Improvement Act of 1991 ("FDIC Improvement Act"), generally limits the
activities and investments of state-chartered Federal Deposit Insurance
Corporation insured banks and their subsidiaries to those permissible for
national banks and their subsidiaries, unless such activities and investments
are specifically exempted by Section 24 or consented to by the Federal Deposit
Insurance Corporation.
Section 24 provides an exception for investments by a bank in common and
preferred stocks listed on a national securities exchange or the shares of
registered investment companies if:
o the bank held such types of investments during the 14 month
period from September 30, 1990 through November 26, 1991;
o the state in which the bank is chartered permitted such
investments as of September 30, 1991; and
o the bank notifies the Federal Deposit Insurance Corporation and
obtains approval from the Federal Deposit Insurance Corporation
to make or retain such investments. Upon receiving such Federal
Deposit Insurance Corporation approval, an institution's
investment in such equity securities will be subject to an
aggregate limit up to the amount of its Tier 1 capital.
Section 24 provides an exception for majority owned subsidiaries of a
bank, but Section 24 limits the activities of such subsidiaries to those
permissible for a national bank, permissible under Section 24 of the FDIA and
the related Federal Deposit Insurance Corporation regulations, or as approved by
the Federal Deposit Insurance Corporation.
78
Before making a new investment or engaging in a new activity that is not
permissible for a national bank or otherwise permissible under Section 24 of the
Federal Deposit Insurance Corporation regulations, an insured bank must seek
approval from the Federal Deposit Insurance Corporation to make such investment
or engage in such activity. The Federal Deposit Insurance Corporation will not
approve the activity unless the bank meets its minimum capital requirements and
the Federal Deposit Insurance Corporation determines that the activity does not
present a significant risk to the Federal Deposit Insurance Corporation
insurance funds. Certain activities of subsidiaries that are engaged in
activities permitted for national banks only through a "financial subsidiary"
are subject to additional restrictions.
The Gramm-Leach-Bliley Act ("Gramm-Leach") permits a state-chartered
savings bank to engage, through financial subsidiaries, in any activity in which
a national bank may engage through a financial subsidiary and on substantially
the same terms and conditions. In general, Gramm-Leach permits a national bank
that is well-capitalized and well-managed to conduct, through a financial
subsidiary, any activity permitted for a financial holding company other than
insurance underwriting, insurance investments, real estate investment or
development or merchant banking. The total assets of all such financial
subsidiaries may not exceed the lesser of 45% of the bank's total assets or $50
billion. The bank must have policies and procedures to assess the financial
subsidiary's risk and protect the bank from such risk and potential liability,
must not consolidate the financial subsidiary's assets with the bank's and must
exclude from its own assets and equity all equity investments, including
retained earnings, in the financial subsidiary. State chartered savings banks
may retain subsidiaries in existence as of March 11, 2000 and may engage in
activities that are not authorized under Gramm-Leach; otherwise, Gramm-Leach
will preempt all state laws regarding the permissibility of certain activities
for state chartered banks if such state law is in conflict with the provisions
of Gramm-Leach (with the exception of certain insurance activities), regardless
of whether the state law would authorize broader or more restrictive activities.
Although Lincoln Park Savings meets all conditions necessary to establish and
engage in permitted activities through financial subsidiaries, it has not yet
determined whether or the extent to which it will seek to engage in such
activities.
FEDERAL HOME LOAN BANK SYSTEM. Lincoln Park Savings is a member of the
FHLB system, which consists of twelve regional FHLBs, each subject to
supervision and regulation by the Federal Housing Finance Board ("FHFB"). The
FHLB provides a central credit facility primarily for member thrift institutions
as well as other entities involved in home mortgage lending. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLBs. It makes loans to members (i.e., advances) in accordance with policies
and procedures, including collateral requirements, established by the respective
boards of directors of the FHLBs. These policies and procedures are subject to
the regulation and oversight of the FHFB. All long-term advances are required to
provide funds for residential home financing. The FHFB has also established
standards of community or investment service that members must meet to maintain
access to such long term advances. Lincoln Park Savings, as a member of the FHLB
of New York, is required to purchase and hold shares of capital stock in that
FHLB in an amount at least equal to the greater of (i) 1% of the aggregate
principal amount of its unpaid mortgage loans, home purchase contracts and
similar obligations at the beginning of each year; (ii) 0.3% of its assets; or
(iii) 5% (or such greater fraction as established by the FHLB) of its advances
from the FHLB as of December 31, 2003. Pursuant to Gramm-Leach, the foregoing
minimum share ownership requirements will be replaced by regulations to be
promulgated by the
79
FHFB. Gramm-Leach specifically provides that the minimum requirements in
existence immediately prior to adoption of Gramm-Leach shall remain in effect
until such regulations are adopted. Lincoln Park Savings is in compliance with
these requirements.
ENFORCEMENT. The Federal Deposit Insurance Corporation has extensive
enforcement authority over insured savings banks, including Lincoln Park
Savings. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease and desist orders and to remove
directors and officers. In general, these enforcement actions may be initiated
in response to violations of laws and regulations and to unsafe or unsound
practices.
The Federal Deposit Insurance Corporation is required, with some
exceptions, to appoint a receiver or conservator for an insured state bank if
that bank is "critically undercapitalized." For this purpose, "critically
undercapitalized" means having a ratio of tangible capital to total assets of
less than 2%. The Federal Deposit Insurance Corporation may also appoint a
conservator or receiver for a state bank on the basis of the institution's
financial condition or upon the occurrence of certain events, including:
o insolvency, or when the assets of the bank are less than its
liabilities to depositors and others;
o substantial dissipation of assets or earnings through violations
of law or unsafe or unsound practices;
o existence of an unsafe or unsound condition to transact
business;
o likelihood that the bank will be unable to meet the demands of
its depositors or to pay its obligations in the normal course of
business; and
o insufficient capital, or the incurring or likely incurring of
losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital
without federal assistance.
DEPOSIT INSURANCE. Pursuant to FDIC Improvement Act, the Federal Deposit
Insurance Corporation established a system for setting deposit insurance
premiums based upon the risks a particular bank or savings association posed to
its deposit insurance funds. Under the risk-based deposit insurance assessment
system, the Federal Deposit Insurance Corporation assigns an institution to one
of three capital categories based on the institution's financial information, as
of the reporting period ending six months before the assessment period. The
three capital categories are (1) well capitalized, (2) adequately capitalized
and (3) undercapitalized. With respect to the capital ratios, institutions are
classified as well capitalized, adequately capitalized or undercapitalized using
ratios that are substantially similar to the prompt corrective action capital
ratios discussed below. The Federal Deposit Insurance Corporation also assigns
an institution to supervisory subgroups based on a supervisory evaluation
provided to the Federal Deposit Insurance Corporation by the institution's
primary federal regulator and information that the Federal Deposit Insurance
Corporation determines to be relevant to the institution's financial
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condition and the risk posed to the deposit insurance funds, which may include
information provided by the institution's state supervisor.
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the final risk-based
assessment system, there are nine assessment risk classifications, or
combinations of capital groups and supervisory subgroups, to which different
assessment rates are applied. Assessment rates for deposit insurance currently
range from 0 basis points to 27 basis points. The capital and supervisory
subgroup to which an institution is assigned by the Federal Deposit Insurance
Corporation is confidential and may not be disclosed. A bank's rate of deposit
insurance assessments will depend upon the category and subcategory to which the
bank is assigned by the Federal Deposit Insurance Corporation. Any increase in
insurance assessments could have an adverse effect on the earnings of insured
institutions, including Lincoln Park Savings.
Under the Deposit Insurance Funds Act of 1996, the assessment base for
the payments on the bonds issued in the late 1980's by the Financing Corporation
to recapitalize the now defunct Federal Savings and Loan Insurance Corporation
was expanded to include, beginning January 1, 1997, the deposits of institutions
insured by the Bank Insurance Fund. The annual rate of assessments for the
payments on the Financing Corporation bonds for the quarterly period beginning
on January 1, 2002 was 0.0182% for both BIF-assessable deposits and
SAIF-assessable deposits.
Under the FDIA, the Federal Deposit Insurance Corporation may terminate
the insurance of an institution's deposits upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the Federal Deposit Insurance Corporation. The
management of Lincoln Park Savings does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
TRANSACTIONS WITH AFFILIATES OF LINCOLN PARK SAVINGS. Transactions
between an insured bank, such as Lincoln Park Savings, and any of its affiliates
is governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate of
a bank is any company or entity that controls, is controlled by or is under
common control with the bank. Currently, a subsidiary of a bank that is not also
a depository institution generally is not treated as an affiliate of the bank
for purposes of Sections 23A and 23B, but the Federal Reserve Board has proposed
a comprehensive regulation implementing Sections 23A and 23B, which would
establish certain exceptions to this policy.
Section 23A:
o limits the extent to which the bank or its subsidiaries may
engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such bank's capital stock and retained
earnings, and limits all such transactions with all affiliates
to an amount equal to 20% of such capital stock and retained
earnings; and
o requires that all such transactions be on terms that are
consistent with safe and sound banking practices.
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The term "covered transaction" includes the making of loans, purchase of
assets, issuance of guarantees and other similar types of transactions. Further,
most loans by a bank to any of its affiliates must be secured by collateral in
amounts ranging from 100 to 130 percent of the loan amounts. In addition, any
covered transaction by a bank with an affiliate and any purchase of assets or
services by a bank from an affiliate must be on terms that are substantially the
same, or at least as favorable to the bank, as those that would be provided to a
non-affiliate.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
PROHIBITIONS AGAINST TYING ARRANGEMENTS. Banks are subject to the
prohibitions of 12 U.S.C. Section 1972 on certain tying arrangements. A
depository institution is prohibited, subject to some exceptions, from extending
credit to or offering any other service, or fixing or varying the consideration
for such extension of credit or service, on the condition that the customer
obtain some additional service from the institution or its affiliates or not
obtain services of a competitor of the institution.
PRIVACY STANDARDS. Effective July 1, 2001, financial institutions, such
as Lincoln Park Bancorp and Lincoln Park Savings, became subject to Federal
Deposit Insurance Corporation regulations implementing the privacy protection
provisions of Gramm-Leach. These regulations require Lincoln Park Bancorp and
Lincoln Park Savings to disclose their privacy policy, including identifying
with whom they share "non-public personnel information" to customers at the time
of establishing the customer relationship and annually thereafter.
The regulations also require Lincoln Park Bancorp and Lincoln Park
Savings to provide their customers with initial and annual notices that
accurately reflect its privacy policies and practices. In addition, Lincoln Park
Bancorp and Lincoln Park Savings are required to provide their customers with
the ability to "opt-out" of having Lincoln Park Bancorp and Lincoln Park Savings
share their non-public personal information with unaffiliated third parties
before they can disclose such information, subject to certain exceptions. The
implementation of these regulations did not have a material adverse effect on
Lincoln Park Bancorp and Lincoln Park Savings. Gramm-Leach also provides for the
ability of each state to enact legislation that is more protective of consumers'
personal information. Currently there are a number of privacy bills pending in
the New Jersey legislature. No action has been taken on any of these bills, and
we cannot predict whether any of them will become law or what impact, if any,
these bills will have if enacted into law.
On February 1, 2001, the Federal Deposit Insurance Corporation and other
federal banking agencies adopted guidelines establishing standards for
safeguarding customer information to implement certain provisions of
Gramm-Leach. The guidelines describe the agencies' expectations for the
creation, implementation and maintenance of an information security program,
which would include administrative, technical and physical safeguards
appropriate to the size and complexity of the institution and the nature and
scope of its activities. The standards set forth in the guidelines are intended
to insure the security and confidentiality of
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customer records and information, protect against any anticipated threats or
hazards to the security or integrity of such records and protect against
unauthorized access to or use of such records or information that could result
in substantial harm or inconvenience to any customer. We implemented the
guidelines prior to their effective date of July 1, 2001 and such implementation
did not have a material adverse effect on our operations.
UNIFORM REAL ESTATE LENDING STANDARDS. Under the FDIA, the federal
banking agencies adopted uniform regulations prescribing standards for
extensions of credit that are secured by liens on interests in real estate or
made for the purpose of financing the construction of a building or other
improvements to real estate. Under the joint regulations adopted by the federal
banking agencies, all insured depository institutions must adopt and maintain
written policies that establish appropriate limits and standards for extensions
of credit that are secured by liens or interests in real estate or are made for
the purpose of financing permanent improvements to real estate. These policies
must establish loan portfolio diversification standards, prudent underwriting
standards, including loan-to-value limits, that are clear and measurable, loan
administration procedures, and documentation, approval and reporting
requirements. The real estate lending policies must reflect consideration of the
Interagency Guidelines for Real Estate Lending Policies that have been adopted
by the federal bank regulators.
The Interagency Guidelines, among other things, require a depository
institution to establish internal loan-to-value limits for real estate loans
that are not in excess of the following supervisory limits:
o for loans secured by raw land, the supervisory loan-to-value
limit is 65% of the value of the collateral;
o for land development loans, or loans for the purpose of
improving unimproved property prior to the erection of
structures, the supervisory limit is 75%;
o for loans for the construction of commercial, multi-family or
other non-residential property, the supervisory limit is 80%;
o for loans for the construction of one- to four-family
residential properties, the supervisory limit is 85%; and
o for loans secured by other improved property, for example,
farmland, completed commercial property and other
income-producing property including non-owner occupied, one-to
four-family property, the limit is 85%.
Although no supervisory loan-to-value limit has been established for
owner-occupied, one-to four-family and home equity loans, the Interagency
Guidelines state that for any such loan with a loan-to-value ratio that equals
or exceeds 90% at origination, an institution should require appropriate credit
enhancement in the form of either mortgage insurance or readily marketable
collateral.
Lincoln Park Savings has established, however, internal loan-to-value
limits for real estate loans that are more stringent than the maximum limits
currently imposed under federal law.
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COMMUNITY REINVESTMENT ACT AND FAIR LENDING LAWS. All Federal Deposit
Insurance Corporation insured institutions have a responsibility under the
Community Reinvestment Act and related regulations to help meet the credit needs
of their communities, including low- and moderate-income neighborhoods. In
connection with its examination of a state chartered savings bank, the Federal
Deposit Insurance Corporation is required to assess the institution's record of
compliance with the Community Reinvestment Act. Among other things, the current
Community Reinvestment Act regulations replace the prior process-based
assessment factors with a new evaluation system that rates an institution based
on its actual performance in meeting community needs. In particular, the current
evaluation system focuses on three tests:
o a lending test, to evaluate the institution's record of making
loans in its service areas;
o an investment test, to evaluate the institution's record of
investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and
businesses; and
o a service test, to evaluate the institution's delivery of
services through its branches, ATMs and other offices.
An institution's failure to comply with the provisions of the Community
Reinvestment Act could, at a minimum, result in regulatory restrictions on its
activities. We received a outstanding Community Reinvestment Act rating in our
most recently completed federal examination, which was conducted by the Office
of Thrift Supervision in March 2004.
In addition, the Equal Credit Opportunity Act and the Fair Housing Act
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. The failure to comply with the
Equal Credit Opportunity Act and the Fair Housing Act could result in
enforcement actions by the Federal Deposit Insurance Corporation, as well as
other federal regulatory agencies and the Department of Justice.
SAFETY AND SOUNDNESS STANDARDS. Pursuant to the requirements of FDIA, as
amended by the Riegle Community Development and Regulatory Improvement Act of
1994, each federal banking agency, including the Federal Deposit Insurance
Corporation, has adopted guidelines establishing general standards relating to
internal controls, information and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth, asset quality,
earnings, compensation, fees and benefits. In general, the guidelines require,
among other things, appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe
compensation as excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive officer, employee,
director, or principal stockholder.
In addition, the Federal Deposit Insurance Corporation adopted
regulations to require a bank that is given notice by the Federal Deposit
Insurance Corporation that it is not satisfying any of such safety and soundness
standards to submit a compliance plan to the Federal Deposit Insurance
Corporation. If, after being so notified, a bank fails to submit an acceptable
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compliance plan or fails in any material respect to implement an accepted
compliance plan, the Federal Deposit Insurance Corporation may issue an order
directing corrective and other actions of the types to which a significantly
undercapitalized institution is subject under the "prompt corrective action"
provisions of FDIA. If a bank fails to comply with such an order, the Federal
Deposit Insurance Corporation may seek to enforce such an order in judicial
proceedings and to impose civil monetary penalties.
PROMPT CORRECTIVE ACTION. The FDIC Improvement Act also established a
system of prompt corrective action to resolve the problems of undercapitalized
institutions. The Federal Deposit Insurance Corporation, as well as the other
federal banking regulators, adopted regulations governing the supervisory
actions that may be taken against undercapitalized institutions. The regulations
establish five categories, consisting of "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." The Federal Deposit Insurance Corporation's
regulations define the five capital categories as follows:
An institution will be treated as "well capitalized" if:
o its ratio of total capital to risk-weighted assets is at least
10%;
o its ratio of Tier 1 capital to risk-weighted assets is at least
6%; and
o its ratio of Tier 1 capital to total assets is at least 5%, and
it is not subject to any order or directive by the Federal
Deposit Insurance Corporation to meet a specific capital level.
An institution will be treated as "adequately capitalized" if:
o its ratio of total capital to risk-weighted assets is at least
8%; or
o its ratio of Tier 1 capital to risk-weighted assets is at least
4%; and
o its ratio of Tier 1 capital to total assets is at least 4% (3%
if the bank receives the highest rating under the Uniform
Financial Institutions Rating System) and it is not a
well-capitalized institution.
An institution will be treated as "undercapitalized" if:
o its total risk-based capital is less than 8%; or
o its Tier 1 risk-based-capital is less than 4%; and
o its leverage ratio is less than 4% (or less than 3% if the
institution receives the highest rating under the Uniform
Financial Institutions Rating System).
An institution will be treated as "significantly undercapitalized" if:
o its total risk-based capital is less than 6%;
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o its Tier 1 capital is less than 3%; or
o its leverage ratio is less than 3%.
An institution that has a tangible capital to total assets ratio equal
to or less than 2% would be deemed to be "critically undercapitalized."
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as a bank's capital decreases
within the three undercapitalized categories. All banks are prohibited from
paying dividends or other capital distributions or paying management fees to any
controlling person if, following such distribution, the bank would be
undercapitalized. The Federal Deposit Insurance Corporation is required to
monitor closely the condition of an undercapitalized bank and to restrict the
growth of its assets. An undercapitalized bank is required to file a capital
restoration plan within 45 days of the date the bank receives notice that it is
within any of the three undercapitalized categories, and the plan must be
guaranteed by any parent holding company. The aggregate liability of a parent
holding company is limited to the lesser of:
o an amount equal to five percent of the bank's total assets at
the time it became "undercapitalized," or
o the amount that is necessary (or would have been necessary) to
bring the bank into compliance with all capital standards
applicable with respect to such bank as of the time it fails to
comply with the plan.
If a bank fails to submit an acceptable plan, it is treated as if it
were "significantly undercapitalized." Banks that are significantly or
critically undercapitalized are subject to a wider range of regulatory
requirements and restrictions.
The Federal Deposit Insurance Corporation has a broad range of grounds
under which it may appoint a receiver or conservator for an insured depository
bank. If one or more grounds exist for appointing a conservator or receiver for
a bank, the Federal Deposit Insurance Corporation may require the bank to issue
additional debt or stock, sell assets, be acquired by a depository bank holding
company or combine with another depository bank. Under the FDIA, the Federal
Deposit Insurance Corporation is required to appoint a receiver or a conservator
for a critically undercapitalized bank within 90 days after the bank becomes
critically undercapitalized or to take such other action that would better
achieve the purposes of the prompt corrective action provisions. Such
alternative action can be renewed for successive 90-day periods. However, if the
bank continues to be critically undercapitalized on average during the quarter
that begins 270 days after it first became critically undercapitalized, a
receiver must be appointed, unless the Federal Deposit Insurance Corporation
makes certain findings, including that the bank is viable.
LOANS TO A BANK'S INSIDERS
FEDERAL REGULATION. A bank's loans to its executive officers, directors,
any owner of 10% or more of its stock (each, an insider) and any of certain
entities affiliated with any such
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person (an insider's related interest) are subject to the conditions and
limitations imposed by Section 22(h) of the Federal Reserve Act and the Federal
Reserve Board's Regulation O thereunder. Under these restrictions, the aggregate
amount of the loans to any insider and the insider's related interests may not
exceed the loans-to-one-borrower limit applicable to national banks, which is
comparable to the loans-to-one-borrower limit applicable to Lincoln Park
Savings' loans. See "--New Jersey Banking Regulation--Loans-to-One Borrower
Limitations." All loans by a bank to all insiders and insiders' related
interests in the aggregate may not exceed the bank's unimpaired capital and
unimpaired surplus. With certain exceptions, loans to an executive officer,
other than loans for the education of the officer's children and certain loans
secured by the officer's residence, may not exceed the lesser of (1) $100,000 or
(2) the greater of $25,000 or 2.5% of the bank's unimpaired capital and surplus.
Regulation O also requires that any proposed loan to an insider or a related
interest of that insider be approved in advance by a majority of the board of
directors of the bank, with any interested directors not participating in the
voting, if such loan, when aggregated with any existing loans to that insider
and the insider's related interests, would exceed either (1) $500,000 or (2) the
greater of $25,000 or 5% of the bank's unimpaired capital and surplus.
Generally, such loans must be made on substantially the same terms as, and
follow credit underwriting procedures that are not less stringent than, those
that are prevailing at the time for comparable transactions with other persons.
An exception is made for extensions of credit made pursuant to a benefit
or compensation plan of a bank that is widely available to employees of the bank
and that does not give any preference to insiders of the bank over other
employees of the bank.
In addition, provisions of the BHCA prohibit extensions of credit to a
bank's insiders and their related interests by any other institution that has a
correspondent banking relationship with the bank, unless such extension of
credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
NEW JERSEY REGULATION. Provisions of the New Jersey Banking Act impose
conditions and limitations on the liabilities to a savings bank of its directors
and executive officers and of corporations and partnerships controlled by such
persons that are comparable in many respects to the conditions and limitations
imposed on the loans and extensions of credit to insiders and their related
interests under Regulation O, as discussed above. The New Jersey Banking Act
also provides that a savings bank that is in compliance with Regulation O is
deemed to be in compliance with such provisions of the New Jersey Banking Act.
FEDERAL RESERVE SYSTEM
Under Federal Reserve Board regulations, Lincoln Park Savings is
required to maintain noninterest-earning reserves against its transaction
accounts. Lincoln Park Savings is in compliance with these requirements. Because
required reserves must be maintained in the form of either vault cash, a
noninterest-bearing account at a Federal Reserve Bank or a pass-through account
as defined by the Federal Reserve Board, the effect of this reserve requirement
is to reduce Lincoln Park Savings' interest-earning assets.
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INTERNET BANKING
Technological developments are significantly altering the ways in which
most companies, including financial institutions, conduct their business. The
growth of the Internet is prompting banks to reconsider business strategies and
adopt alternative distribution and marketing systems. The federal bank
regulatory agencies have conducted seminars and published materials targeted to
various aspects of internet banking, and have indicated their intention to
reevaluate their regulations to ensure that they encourage banks' efficiency and
competitiveness consistent with safe and sound banking practices. We cannot
assure you that the bank regulatory agencies will adopt new regulations that
will not materially affect any of our internet operations or restrict any such
further operations.
THE USA PATRIOT ACT
In response to the events of September 11th, the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, was signed into law on
October 26, 2001. The USA PATRIOT Act gives the federal government new powers to
address terrorist threats through enhanced domestic security measures, expanded
surveillance powers, increased information sharing, and broadened anti-money
laundering requirements. By way of amendments to the Bank Secrecy Act, Title III
of the USA PATRIOT Act takes measures intended to encourage information sharing
among bank regulatory agencies and law enforcement bodies. Further, certain
provisions of Title III impose affirmative obligations on a broad range of
financial institutions, including banks, thrifts, brokers, dealers, credit
unions, money transfer agents and parties registered under the Commodity
Exchange Act.
Among other requirements, Title III of the USA PATRIOT Act imposes the
following requirements with respect to financial institutions:
o Pursuant to Section 352, all financial institutions must
establish anti-money laundering programs that include, at
minimum: (i) internal policies, procedures, and controls; (ii)
specific designation of an anti-money laundering compliance
officer; (iii) ongoing employee training programs; and (iv) an
independent audit function to test the anti-money laundering
program.
o Section 326 of the Act authorizes the Secretary of the
Department of Treasury, in conjunction with other bank
regulators, to issue regulations that provide for minimum
standards with respect to customer identification at the time
new accounts are opened.
o Section 312 of the Act requires financial institutions that
establish, maintain, administer, or manage private banking
accounts or correspondence accounts in the United States for
non-United States persons or their representatives (including
foreign individuals visiting the United States) to establish
appropriate, specific, and, where necessary, enhanced due
diligence policies, procedures, and controls designed to detect
and report money laundering.
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o Effective December 25, 2001, financial institutions are
prohibited from establishing, maintaining, administering or
managing correspondent accounts for foreign shell banks (foreign
banks that do not have a physical presence in any country), and
will be subject to certain record keeping obligations with
respect to correspondent accounts of foreign banks.
o Bank regulators are directed to consider a holding company's
effectiveness in combating money laundering when ruling on
Federal Reserve Act and Bank Merger Act applications.
The federal banking agencies have begun to propose and implement
regulations pursuant to the USA PATRIOT Act. These proposed and interim
regulations would require financial institutions to adopt the policies and
procedures contemplated by the USA PATRIOT Act.
SARBANES-OXLEY ACT OF 2002
On July 30, 2002, the President signed into law the Sarbanes-Oxley Act
of 2002 (the "Act"), which implemented legislative reforms intended to address
corporate and accounting fraud. In addition to the establishment of a new
accounting oversight board that will enforce auditing, quality control and
independence standards and will be funded by fees from all publicly traded
companies, the Act places certain restrictions on the scope of services that may
be provided by accounting firms to their public company audit clients. Any
non-audit services being provided to a public company audit client will require
preapproval by the company's audit committee. In addition, the Act makes certain
changes to the requirements for partner rotation after a period of time. The Act
requires chief executive officers and chief financial officers, or their
equivalent, to certify to the accuracy of periodic reports filed with the
Securities and Exchange Commission, subject to civil and criminal penalties if
they knowingly or willingly violate this certification requirement. In addition,
under the Act, counsel will be required to report evidence of a material
violation of the securities laws or a breach of fiduciary duty by a company to
its chief executive officer or its chief legal officer, and, if such officer
does not appropriately respond, to report such evidence to the audit committee
or other similar committee of the board of directors or the board itself.
Under the Act, longer prison terms will apply to corporate executives
who violate federal securities laws; the period during which certain types of
suits can be brought against a company or its officers is extended; and bonuses
issued to top executives prior to restatement of a company's financial
statements are now subject to disgorgement if such restatement was due to
corporate misconduct. Executives are also prohibited from insider trading during
retirement plan "blackout" periods, and loans to company executives (other than
loans by financial institutions permitted by federal rules and regulations) are
restricted. In addition, a provision directs that civil penalties levied by the
Securities and Exchange Commission as a result of any judicial or administrative
action under the Act be deposited to a fund for the benefit of harmed investors.
The Federal Accounts for Investor Restitution provision also requires the
Securities and Exchange Commission to develop methods of improving collection
rates. The legislation accelerates the time frame for disclosures by public
companies, as they must immediately disclose any material changes in their
financial condition or operations. Directors and executive
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officers must also provide information for most changes in ownership in a
company's securities within two business days of the change.
The Act also increases the oversight of, and codifies certain
requirements relating to audit committees of public companies and how they
interact with the company's "registered public accounting firm." Audit Committee
members must be independent and are absolutely barred from accepting consulting,
advisory or other compensatory fees from the issuer. In addition, companies must
disclose whether at least one member of the committee is a "financial expert"
(as such term is defined by the Securities and Exchange Commission) and if not,
why not. Under the Act, a company's registered public accounting firm is
prohibited from performing statutorily mandated audit services for a company if
such company's chief executive officer, chief financial officer, comptroller,
chief accounting officer or any person serving in equivalent positions had been
employed by such firm and participated in the audit of such company during the
one-year period preceding the audit initiation date. The Act also prohibits any
officer or director of a company or any other person acting under their
direction from taking any action to fraudulently influence, coerce, manipulate
or mislead any independent accountant engaged in the audit of the company's
financial statements for the purpose of rendering the financial statements
materially misleading. The Act also requires the Securities and Exchange
Commission to prescribe rules requiring inclusion of any internal control report
and assessment by management in the annual report to shareholders. The Act
requires the company's registered public accounting firm that issues the audit
report to attest to and report on management's assessment of the company's
internal controls.
Although we anticipate that we will incur additional expense in
complying with the provisions of the Act and the regulations that have been
promulgated to implement the Act, management does not expect that such
compliance will have a material impact on our results of operations or financial
condition.
HOLDING COMPANY REGULATION
GENERAL. Federal law allows a state savings bank, such as Lincoln Park
Savings, that qualifies as a "Qualified Thrift Lender," discussed below, to
elect to be treated as a savings association for purposes of the savings and
loan company provisions of the Home Owners' Loan Act. Such election results in
its holding company being regulated as a savings and loan holding company by the
Office of Thrift Supervision rather than as a bank holding company by the
Federal Reserve Board. Lincoln Park Bancorp and Lincoln Park Bancorp, MHC have
made such election.
Lincoln Park Bancorp, MHC and Lincoln Park Bancorp are nondiversified
savings and loan holding companies within the meaning of the Home Owners' Loan
Act. As such, Lincoln Park Bancorp, MHC and Lincoln Park Bancorp are registered
with the Office of Thrift Supervision and are subject to Office of Thrift
Supervision regulations, examinations, supervision and reporting requirements.
In addition, the Office of Thrift Supervision has enforcement authority over
Lincoln Park Bancorp and Lincoln Park Bancorp MHC, and their subsidiaries. Among
other things, this authority permits the Office of Thrift Supervision to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings
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institution. As federal corporations, Lincoln Park Bancorp and Lincoln Park
Bancorp, MHC are generally not subject to state business organization laws.
PERMITTED ACTIVITIES. Pursuant to Section 10(o) of the Home Owners' Loan
Act and Office of Thrift Supervision regulations and policy, a mutual holding
company and a federally chartered mid-tier holding company such as Lincoln Park
Bancorp may engage in the following activities: (i) investing in the stock of a
savings association; (ii) acquiring a mutual association through the merger of
such association into a savings association subsidiary of such holding company
or an interim savings association subsidiary of such holding company; (iii)
merging with or acquiring another holding company, one of whose subsidiaries is
a savings association; (iv) investing in a corporation, the capital stock of
which is available for purchase by a savings association under federal law or
under the law of any state where the subsidiary savings association or
associations share their home offices; (v) furnishing or performing management
services for a savings association subsidiary of such company; (vi) holding,
managing or liquidating assets owned or acquired from a savings subsidiary of
such company; (vii) holding or managing properties used or occupied by a savings
association subsidiary of such company; (viii) acting as trustee under deeds of
trust; (ix) any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
Section 4(c) of the Bank Holding Company Act of 1956, unless the Director, by
regulation, prohibits or limits any such activity for savings and loan holding
companies; or (B) in which multiple savings and loan holding companies were
authorized (by regulation) to directly engage on March 5, 1987; (x) any activity
permissible for financial holding companies under Section 4(k) of the Bank
Holding Company Act, including securities and insurance underwriting; and (xi)
purchasing, holding, or disposing of stock acquired in connection with a
qualified stock issuance if the purchase of such stock by such savings and loan
holding company is approved by the Director. If a mutual holding company
acquires or merges with another holding company, the holding company acquired or
the holding company resulting from such merger or acquisition may only invest in
assets and engage in activities listed in (i) through (xi) above, and has a
period of two years to cease any nonconforming activities and divest of any
nonconforming investments.
The Home Owners' Loan Act prohibits a savings and loan holding company,
including Lincoln Park Bancorp and Lincoln Park Bancorp, MHC, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
another savings institution or holding company thereof, without prior written
approval of the Office of Thrift Supervision. It also prohibits the acquisition
or retention of, with certain exceptions, more than 5% of a nonsubsidiary
company engaged in activities other than those permitted by the Home Owners'
Loan Act; or acquiring or retaining control of an institution that is not
federally insured. In evaluating applications by holding companies to acquire
savings institutions, the Office of Thrift Supervision must consider the
financial and managerial resources, future prospects of the company and
institution involved, the effect of the acquisition on the risk to the insurance
fund, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, subject to two
exceptions: (i) the approval of interstate supervisory acquisitions
91
by savings and loan holding companies, and (ii) the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions. The states vary in the extent
to which they permit interstate savings and loan holding company acquisitions.
WAIVERS OF DIVIDENDS BY LINCOLN PARK BANCORP, MHC. Office of Thrift
Supervision regulations require Lincoln Park Bancorp, MHC to notify the Office
of Thrift Supervision of any proposed waiver of its receipt of dividends from
Lincoln Park Bancorp. The Office of Thrift Supervision reviews dividend waiver
notices on a case-by-case basis, and, in general, does not object to any such
waiver if: (i) the mutual holding company's board of directors determines that
such waiver is consistent with such directors' fiduciary duties to the mutual
holding company's members; (ii) for as long as the savings association
subsidiary is controlled by the mutual holding company, the dollar amount of
dividends waived by the mutual holding company is considered as a restriction on
the retained earnings of the savings association, which restriction, if
material, is disclosed in the public financial statements of the savings
association as a note to the financial statements; (iii) the amount of any
dividend waived by the mutual holding company is available for declaration as a
dividend solely to the mutual holding company, and, in accordance with SFAS 5,
where the savings association determines that the payment of such dividend to
the mutual holding company is probable, an appropriate dollar amount is recorded
as a liability; and (iv) the amount of any waived dividend is considered as
having been paid by the savings association in evaluating any proposed dividend
under Office of Thrift Supervision capital distribution regulations. We
anticipate that Lincoln Park Bancorp, MHC will waive dividends paid by Lincoln
Park Bancorp. Under Office of Thrift Supervision regulations, our public
stockholders would not be diluted because of any dividends waived by Lincoln
Park Bancorp, MHC (and waived dividends would not be considered in determining
an appropriate exchange ratio) in the event Lincoln Park Bancorp, MHC converts
to stock form.
CONVERSION OF LINCOLN PARK BANCORP, MHC TO STOCK FORM. Office of Thrift
Supervision regulations permit Lincoln Park Bancorp, MHC to convert from the
mutual form of organization to the capital stock form of organization (a
"Conversion Transaction"). There can be no assurance when, if ever, a Conversion
Transaction will occur, and the Board of Directors has no current intention or
plan to undertake a Conversion Transaction. In a Conversion Transaction a new
holding company would be formed as the successor to Lincoln Park Bancorp (the
"New Holding Company"), Lincoln Park Bancorp, MHC's corporate existence would
end, and certain depositors of Lincoln Park Savings would receive the right to
subscribe for additional shares of the New Holding Company. In a Conversion
Transaction, each share of common stock held by stockholders other than Lincoln
Park Bancorp, MHC ("Minority Stockholders") would be automatically converted
into a number of shares of common stock of the New Holding Company determined
pursuant an exchange ratio that ensures that Minority Stockholders own the same
percentage of common stock in the New Holding Company as they owned in Lincoln
Park Bancorp immediately prior to the Conversion Transaction. Under Office of
Thrift Supervision regulations, Minority Stockholders would not be diluted
because of any dividends waived by Lincoln Park Bancorp, MHC (and waived
dividends would not be considered in determining an appropriate exchange ratio),
in the event Lincoln Park Bancorp, MHC converts to stock form. The total number
of shares held by Minority Stockholders after a Conversion
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Transaction also would be increased by any purchases by Minority Stockholders in
the stock offering conducted as part of the Conversion Transaction.
FEDERAL SECURITIES LAWS
Lincoln Park Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933 for the
registration of the shares of common stock to be issued pursuant to the
offering. Upon completion of the offering, Lincoln Park Bancorp common stock
will be registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. Lincoln Park Bancorp will be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of common
stock to be issued in the offering does not cover the resale of those shares.
Shares of common stock purchased by persons who are not affiliates of Lincoln
Park Bancorp may be resold without registration. Shares purchased by an
affiliate of Lincoln Park Bancorp will be subject to the resale restrictions of
Rule 144 under the Securities Act of 1933. If Lincoln Park Bancorp meets the
current public information requirements of Rule 144 under the Securities Act of
1933, each affiliate of Lincoln Park Bancorp that complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of other persons, would be able to sell in the public
market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares of Lincoln Park
Bancorp, or the average weekly volume of trading in the shares during the
preceding four calendar weeks. In the future, Lincoln Park Bancorp may permit
affiliates to have their shares registered for sale under the Securities Act of
1933.
MANAGEMENT
SHARED MANAGEMENT STRUCTURE
The directors of Lincoln Park Bancorp will be those same persons who are
the directors of Lincoln Park Savings. In addition, each executive officer of
Lincoln Park Bancorp will also be an executive officer of Lincoln Park Savings.
Under Lincoln Park Savings' current form of organization, we are governed by a
Board of Managers, which is equivalent to a Board of Directors. After the
reorganization and offering, Lincoln Park Savings and Lincoln Park Bancorp each
will be governed by a Board of Directors. For ease of reference, we sometimes
use the term "directors" instead of "managers" when referring to members of our
Board of Managers.
Although there are no present plans to do so, both Lincoln Park Bancorp
and Lincoln Park Savings may choose to appoint additional or different persons
as directors and executive officers in the future. We expect that Lincoln Park
Bancorp and Lincoln Park Savings will continue to have common executive officers
until there is a business reason to establish separate management structures. To
date, directors and executive officers have been compensated for their services
to Lincoln Park Savings. These individuals may receive additional compensation
for their services to Lincoln Park Bancorp. Following the reorganization and
stock offering, it is
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expected that Lincoln Park Bancorp will establish a policy of paying its
directors a fee of $500 for each board meeting.
DIRECTORS OF LINCOLN PARK BANCORP
The Board of Directors of Lincoln Park Bancorp will initially consist of
six members. Directors will serve three-year staggered terms so that
approximately one-third of the directors will be elected at each annual meeting
of stockholders. The class of directors whose term of office expires at the
first annual meeting of stockholders following completion of the reorganization
and offering will consist of Directors Stoller and Higgins. The class of
directors whose term expires at the second annual meeting of stockholders
following completion of the reorganization and offering will consist of
Directors Baker and Feeney. The class of directors whose term of office expires
at the third annual meeting of stockholders following the completion of the
reorganization and offering will consist of Directors Weisbrod and Perrotti.
EXECUTIVE OFFICERS OF LINCOLN PARK BANCORP
The following individuals will be the executive officers of Lincoln Park
Bancorp and will hold the offices set forth below opposite their names.
NAME AGE(1) POSITION
------------------------ --------- ----------------------------------------
Donald S. Hom 49 President and Chief Executive Officer
Nandini Mallya 51 Vice President and Treasurer
Nancy M. Shaw 46 Vice President and Corporate Secretary
--------------------------
(1) As of March 31, 2004.
The executive officers of Lincoln Park Bancorp will be elected annually
and will hold office until their respective successors have been elected or
until death, resignation, retirement or removal by the Board of Directors.
DIRECTORS OF LINCOLN PARK SAVINGS
COMPOSITION OF OUR BOARD. Lincoln Park Savings has six directors.
Directors will serve three year staggered terms so that approximately one-third
of the directors will be elected at each annual meeting. Directors of Lincoln
Park Savings will be elected by Lincoln Park Bancorp as its sole stockholder.
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The following table states our directors' names, their ages as of March
31, 2004, and the years when they began serving as directors and when their
current term expires:
DIRECTORS AGE POSITION DIRECTOR SINCE TERM EXPIRES
-------------------------- ------- ------------------------------- ------------------ --------------
Stanford Stoller 58 Chairman of the Board 2001 2005
William H. Weisbrod 52 Vice Chairman of the Board 1981 2007
David G. Baker 48 Director 2002 2006
John F. Feeney 64 Director 1971 2006
Ronald M. Higgins 68 Director 2004 2005
Edith M. Perrotti 64 Director 1996 2007
THE BUSINESS BACKGROUND OF OUR DIRECTORS AND EXECUTIVE OFFICERS. The
business experience for the past five years of each of our directors and
executive officers is set forth below. Unless otherwise indicated, directors and
executive officers have held their positions for the past five years.
DIRECTORS:
STANFORD STOLLER is the Chairman of the Board of Directors. He has been
employed by the IBM Corporation since 1968 in various capacities. He is
currently a principal consultant in the insurance industry sector of IBM.
WILLIAM H. WEISBROD is the Vice Chairman of the Board. Mr. Weisbrod has
been a Senior Vice President/Financial Consultant with Smith Barney, Wayne, New
Jersey office, since 1998. Prior to that time, Mr. Weisbrod was a Senior Vice
President/Financial Consultant with Merrill Lynch.
DAVID G. BAKER is a part owner and an operator of Lincoln Park Hardware,
a family owned hardware store located in Lincoln Park. Mr. Baker has been the
Mayor/Chief Administrative Official of the Borough of Lincoln Park since 1994.
Prior to being elected Mayor, Mr. Baker was elected to the governing Council
from 1987 to 1994 and appointed to the Board of Adjustment from 1985 to 1986 of
the Borough of Lincoln Park.
JOHN F. FEENEY is a partner in the law firm of Scangarella, Feeney &
Dixon, L.L.P. located in Pompton Plains, New Jersey. Mr. Feeney's law firm
serves as counsel for Lincoln Park Savings.
RONALD M. HIGGINS is the owner and president of Century 21 Vision, a
real estate brokerage firm located in West Milford, New Jersey. Mr. Higgins is
also a 50 percent owner and vice president of RLM Agency, Inc., an insurance
brokerage firm located in Pompton Lakes, New Jersey. In addition, Mr. Higgins
served as a director from 1985 to 1998 of Wayne Savings Bank located in Wayne,
New Jersey.
EDITH M. PERROTTI is retired. She served as Senior Vice President of
Lincoln Park Savings from 1986 until 1999. Prior to that time, Ms. Perrotti
served for Orange Savings Bank for 27 years in various positions with increasing
levels of responsibilities in branch operations.
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EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
DONALD S. HOM is the President and Chief Executive Officer of Lincoln
Park Savings. Prior to joining Lincoln Park Savings in August 2000, Mr. Hom
served for 23 years as a bank examiner, financial analyst and corporate
activities/applications analyst for the Office of Thrift Supervision and its
predecessor, the Federal Home Loan Bank Board, and the Federal Home Loan Bank of
New York. He is also a member of the Lincoln Park Lions Club and the Pequannock
Valley Rotary Club.
NANDINI MALLYA has served as Vice President and Treasurer in charge of
the accounting department of Lincoln Park Savings since March 1997. Previously,
Ms. Mallya worked from 1986 to 1997 in controller/accounting manager positions
for Panasia Bank in Fort Lee, New Jersey, Urban National Bank in Franklin Lakes,
New Jersey and Alexander Hamilton Savings and Loan Association in Pompton
Plains, New Jersey.
DEBORAH CORVELLI SHAHIN has been employed by Lincoln Park Savings in
various capacities since 1981. She has served as Vice President responsible for
operations, security and compliance and Assistant Secretary of Lincoln Park
Savings since 1986.
NANCY M. SHAW has served as Vice President responsible for lending,
marketing and compliance of Lincoln Park Savings since April 2000. Ms. Shaw was
appointed Corporate Secretary of Lincoln Park Savings in May 2004, and
previously served as Assistant Secretary. Prior to joining Lincoln Park Savings
in April 2000, Ms. Shaw was a Vice President-Consumer Loan Officer with Lakeland
Bank of Oak Ridge, New Jersey and Metropolitan State Bank of Montville, New
Jersey from 1992 to 2000. In addition, Ms. Shaw served in various lending
positions in two other banks from 1978 to 1992.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
Our Board of Directors meets twice monthly and may hold additional
special meetings as necessary. During the year ended December 31, 2003, the
Board of Directors of Lincoln Park Savings held 24 regular meetings and three
special meetings.
Lincoln Park Bancorp was not incorporated in 2003 and, therefore, no
board or committee meetings were held during 2003. Following the offering, the
Board of Directors of Lincoln Park Bancorp is expected to meet quarterly, or
more often as may be necessary.
COMMITTEES OF THE BOARD OF DIRECTORS OF LINCOLN PARK BANCORP
Lincoln Park Bancorp does not currently maintain any board committees
although we intend to establish standing Audit, Nominating and Compensation
Committees following the offering.
The Audit Committee will review audit reports and related matters to
ensure effective compliance with regulations and internal policies and
procedures. This committee also will act on the appointment of an accounting
firm to perform Lincoln Park Bancorp's annual audit, and
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will act as a liaison between the auditors and the Board of Directors. The Audit
Committee will be comprised of directors who are "independent" under the current
Nasdaq listing standards.
The Nominating Committee will meet annually in order to nominate
candidates for membership on the Board of Directors. This committee is expected
to be comprised of directors who are independent under the current Nasdaq
listing standards.
The Compensation Committee will establish Lincoln Park Bancorp's
compensation policies and will review compensation matters. It is expected that
the Compensation Committee will consist of directors who are independent under
the current Nasdaq listing standards.
DIRECTOR COMPENSATION
DIRECTOR FEES. Lincoln Park Savings pays each non-employee director
$1,000 for each board meeting held except for Director Higgins who, as a new
director, receives $500 for each board meeting held, in each case subject to
forfeiture of a portion of board fees of any director who is absent from more
than six meetings.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the year
ended December 31, 2003, certain information as to the total remuneration paid
by Lincoln Park Savings to its Chief Executive Officer. No other executive
officer of Lincoln Park Savings received salary and bonus for 2003 in excess of
$100,000.
ANNUAL COMPENSATION(1)
-------------------------------------------------------
OTHER ANNUAL
COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(2) LTIP PAYOUTS COMPENSATION
------------------------------------- ------ ---------- --------- ------------ ------------ ------------
Donald S. Hom, President
and Chief Executive Officer.... 2003 $ 103,000 $ 5,000 -- -- $ 7,100(3)
(1) Summary compensation information is excluded for the fiscal years ended
December 31, 2002 and 2001, as Lincoln Park Savings was not a public
company during those periods.
(2) Lincoln Park Savings provides certain of its executive officers with
non-cash benefits and perquisites. Management believes that the
aggregate value of these benefits for fiscal 2003 did not, in the case
of the named executive officer, exceed $50,000 or 10% of the aggregate
salary and annual bonus reported for him in the Summary Compensation
Table.
(3) Represents profit sharing contribution under Lincoln Park Savings'
profit sharing plan.
FUTURE STOCK BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. We intend to implement an
employee stock ownership plan in connection with the reorganization and
offering. The board of directors of Lincoln Park Savings intends to adopt the
employee stock ownership plan, and the board of directors of Lincoln Park
Bancorp will, at the completion of the reorganization and offering, ratify the
action to make the employee stock ownership loan. Employees who are at least 21
years old with at least one year of employment with Lincoln Park Savings are
eligible to participate. As part of the reorganization and offering, the
employee stock ownership plan trust intends to borrow funds from us and use
those funds to purchase a number of shares equal to 4% of the common stock sold
in the offering. Collateral for the loan will be the common stock
97
purchased by the employee stock ownership plan. The loan will be repaid
principally from Lincoln Park Savings discretionary contributions to the
employee stock ownership plan over a period of up to 20 years. The loan
documents will provide that the loan may be repaid over a shorter period,
without penalty for prepayments. It is anticipated that the interest rate for
the loan will be a floating rate equal to the prime rate. Shares purchased by
the employee stock ownership plan will be held in a suspense account for
allocation among participants as the loan is repaid.
Contributions to the employee stock ownership plan and shares released
from the suspense account in an amount proportional to the repayment of the
employee stock ownership plan loan will be allocated among employee stock
ownership plan participants on the basis of compensation in the year of
allocation. Benefits under the plan will become vested at the rate of 20% per
year, starting upon completion of three years of credited service, and will be
fully vested upon completion of seven years of credited service, with credit
given to participants for years of credited service with Lincoln Park Savings
mutual predecessor prior to the adoption of the plan. A participant's interest
in his account under the plan will also fully vest in the event of termination
of service due to a participant's early or normal retirement, death, disability,
or upon a change in control (as defined in the plan). Vested benefits will be
payable in the form of common stock and/or cash. Lincoln Park Savings'
contributions to the employee stock ownership plan are discretionary, subject to
the loan terms and tax law limits. Therefore, benefits payable under the
employee stock ownership plan cannot be estimated. Pursuant to SOP 93-6, we will
be required to record compensation expense each year in an amount equal to the
fair market value of the shares released from the suspense account. In the event
of a change in control, the employee stock ownership plan will terminate.
STOCK OPTION PLAN. We may implement a stock option plan for our
directors, officers and employees of Lincoln Park Bancorp and Lincoln Park
Savings after the reorganization. Office of Thrift Supervision regulations
prohibit us from implementing this plan until six months after the
reorganization and offering. If the stock option plan is implemented within the
first 12 months after the reorganization, Office of Thrift Supervision
regulations require that the plan be approved by a majority of the outstanding
votes of Lincoln Park Bancorp eligible to be cast (excluding votes eligible to
be cast by Lincoln Park Bancorp, MHC). Pursuant to our plan of reorganization
and Office of Thrift Supervision regulations, we may grant awards under one or
more stock benefit plans, including the stock option plan, in an aggregate
amount up to 25% of the common stock held by persons other than Lincoln Park
Bancorp, MHC.
The stock option plan would authorize a committee of non-employee
directors, or the full board, to grant options to purchase up to 10% of the
shares sold in the offering, although we may decide to adopt a stock option plan
providing for greater or fewer stock option grants, if adopted after one year
from the date of completion of the reorganization. The stock option plan will
have a term of 10 years. The committee will decide which directors, officers and
employees will receive options and the terms of those options. Generally, no
stock option will permit its recipient to purchase shares at a price that is
less than the fair market value of a share on the date the option is granted,
and no option will have a term that is longer than 10 years. If we implement a
stock option plan before the first anniversary of the reorganization, current
regulations will require that:
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o non-employee directors in the aggregate may not receive more
than 30% of the options authorized under the plan;
o any one non-employee director may not receive more than 5% of
the options authorized under the plan;
o any officer or employee may not receive more than 25% of the
options authorized under the plan;
o the options may not vest more rapidly than 20% per year,
beginning on the first anniversary of stockholder approval of
the plan; and
o accelerated vesting is not permitted except for death,
disability or upon a change in control of Lincoln Park Savings
or Lincoln Park Bancorp.
Lincoln Park Bancorp may obtain the shares needed for this plan by
issuing additional shares of common stock or through stock repurchases.
RECOGNITION AND RETENTION PLAN. We may implement a recognition and
retention plan for the directors, officers and employees of Lincoln Park Savings
and Lincoln Park Bancorp after the reorganization. Office of Thrift Supervision
regulations prohibit us from implementing this plan until six months after the
reorganization. If the recognition plan is implemented within the first 12
months after the reorganization, Office of Thrift Supervision regulations
require that the plan be approved by a majority of the outstanding votes of
Lincoln Park Bancorp (excluding votes eligible to be cast by Lincoln Park
Bancorp, MHC). Pursuant to our plan of reorganization and Office of Thrift
Supervision regulations, we may grant awards under one or more stock benefit
plans, including the recognition and retention plan, in an amount up to 25% of
the common stock held by persons other than Lincoln Park Bancorp, MHC. If
adopted within one year from the date of completion of the reorganization, the
initial recognition and retention plan would authorize awards of our common
stock in an aggregate amount up to 4% of the shares sold in the offering, and
would be subject to such other limitations as may be imposed by the Office of
Thrift Supervision. The recognition and retention plan may authorize awards of
more than 4% of the shares sold in the offering, if it is adopted after one year
from the date of the completion of the reorganization
The committee will decide which directors, officers and employees will
receive restricted stock and the terms of those awards. We may obtain the shares
of common stock needed for this plan by issuing additional shares of common
stock or through stock repurchases. If we implement a recognition and retention
plan before the first anniversary of the reorganization, current regulations
will require that:
o all non-employee directors in the aggregate may not receive more
than 30% of the shares authorized under the plan;
o no non-employee director may receive more than 5% of the shares
authorized under the plan;
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o no officer or employee may receive more than 25% of the shares
authorized under the plan;
o the awards may not vest more rapidly than 20% per year,
beginning on the first anniversary of stockholder approval of
the plan;
o accelerated vesting is not permitted except for death,
disability or upon a change of control of Lincoln Park Savings
or Lincoln Park Bancorp.
Restricted stock awards under this plan may contain restrictions that
require continued employment for a period of time for the award to be vested.
Awards are not vested unless the specified employment requirements are
satisfied. However, pending vesting, the award recipient may have voting and
dividend rights. When an award becomes vested, the recipient must include the
current fair market value of the vested shares in his or her income for federal
income tax purposes. We will be allowed a federal income tax deduction in the
same amount. We will have to recognize compensation expense for accounting
purposes ratably over the vesting period, equal to the fair market value of the
shares on the original award date.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
In the ordinary course of business, Lincoln Park Savings makes loans
available to its directors, officers and employees. These loans are made in the
ordinary course of business on substantially the same terms (other than interest
rates on loans to employees), including collateral, as comparable loans to other
borrowers. Management believes that these loans neither involve more than the
normal risk of collectibility nor present other unfavorable features. Federal
regulations permit executive officers and directors to participate in loan
programs that are available to other employees, as long as the director or
executive officer is not given preferential treatment compared to other
participating employees. Loans made to directors or executive officers,
including any modification of such loans, must be approved by a majority of
disinterested members of the board of directors. The interest rate on loans to
directors and officers is the same as that offered to other borrowers.
PARTICIPATION BY MANAGEMENT IN THE OFFERING
The following table sets forth information regarding intended common
stock purchases by each of the directors and executive officers of Lincoln Park
Savings and their associates, and by all directors and executive officers as a
group. In the event the individual maximum purchase limitation is increased,
persons subscribing for the maximum amount may increase their purchase order.
Directors and executive officers will purchase shares of common stock at the
same $10.00 purchase price per share and on the same terms as other purchasers
in the offering. This table excludes shares of common stock to be purchased by
the employee stock ownership plan, as well as any recognition and retention plan
awards or stock option grants that may be made no earlier than six months after
the completion of the reorganization and offering. The directors and officers
have indicated their intention to purchase in the offering an aggregate of
$383,000 of common stock, equal to 9.1%, 7.7%, 6.7% and 5.9% of the number of
shares of common stock to be sold in the offering, at the minimum, midpoint,
maximum and adjusted maximum of the estimated valuation range, respectively.
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AGGREGATE
PURCHASE NUMBER OF PERCENT AT
NAME PRICE(1) SHARES(1) MIDPOINT
--------------------------------------------------- ------------- ------------- ----------
David G. Baker $ 35,000 3,500 0.71%
John F. Feeney 30,000 3,000 0.61
Ronald M. Higgins 75,000 7,500 1.52
Edith M. Perrotti 50,000 5,000 1.01
Stanford Stoller 50,000 5,000 1.01
William H. Weisbrod 50,000 5,000 1.01
Donald S. Hom 75,000 7,500 1.52
Nandini Mallya 5,000 500 0.10
Deborah Corvelli Shahin 5,000 500 0.10
Nancy M. Shaw 8,000 800 0.16
------------- ------------- --------
All directors and executive officers as a group.... $ 383,000 38,300 7.75 %
============= ============= =========
(1) Includes purchases by the individual's spouse and other relatives of the
named individual living in the same household. The above named
individuals are not aware of any other purchases by a person who, or
entity which would be considered an associate of the named individuals
under the Plan of Reorganization.
THE REORGANIZATION AND THE STOCK OFFERING
The Board of Directors OF LINCOLN PARK SAVINGS, THE COMMISSIONER OF
BANKING AND INSURANCE OF THE STATE OF NEW JERSEY AND THE OFFICE OF THRIFT
SUPERVISION HAVE APPROVED THE PLAN SUBJECT TO THE PLAN'S APPROVAL BY MEMBERS AT
A SPECIAL MEETING OF MEMBERS, AND SUBJECT TO THE SATISFACTION OF CERTAIN OTHER
CONDITIONS IMPOSED BY THE REGULATORY AUTHORITIES. THE FEDERAL DEPOSIT INSURANCE
CORPORATION HAS ISSUED ITS CONDITIONAL NON-OBJECTION TO THE PLAN. REGULATORY
APPROVAL OR NON-OBJECTION DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN BY REGULATORY AUTHORITIES.
GENERAL
On May 13, 2004, the Board of Directors unanimously adopted the plan,
pursuant to which we will reorganize from a New Jersey chartered mutual savings
bank into a two-tier federal mutual holding company structure. The plan has been
approved by the Office of Thrift Supervision and the New Jersey Commissioner,
and not objected to by the Federal Deposit Insurance Corporation, subject to,
among other things, approval of the plan by our depositors as of the voting
record date. A special meeting of depositors has been called for this purpose,
to be held on September ___, 2004. The reorganization will be completed as
follows, or in any other manner approved by the regulatory authorities that is
consistent with the purposes of the plan and applicable laws and regulations:
(i) Lincoln Park Savings will organize an interim stock association
as a wholly-owned subsidiary ("Interim One");
(ii) Interim One will organize an interim stock association as a
wholly-owned subsidiary ("Interim Two");
(iii) Interim One will organize Lincoln Park Bancorp as a wholly-owned
subsidiary;
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(iv) Lincoln Park Savings will amend its charter to be in the form of
a New Jersey stock savings bank charter, at which time we will
become a stock savings bank (the "Stock Bank"), and Interim One
will exchange its charter for a federal mutual holding company
charter to become Lincoln Park Bancorp, MHC;
(v) simultaneously with step (iv), Interim Two will merge with and
into the Stock Bank, and the Stock Bank will be the surviving
institution;
(vi) all of the stock constructively issued by the Stock Bank will be
transferred to Lincoln Park Bancorp, MHC in exchange for
liquidation rights and other interests in Lincoln Park Bancorp,
MHC; and
(vii) Lincoln Park Bancorp, MHC will contribute the Stock Bank's stock
to Lincoln Park Bancorp, and the Stock Bank will become a wholly
owned subsidiary of Lincoln Park Bancorp.
Concurrently with the reorganization, Lincoln Park Bancorp will offer
for sale up to 46% of its common stock representing up to 46% of the pro forma
market value of Lincoln Park Bancorp and Lincoln Park Savings.
We have mailed to each person eligible to vote at the special meeting a
proxy statement containing information concerning the business purposes of the
reorganization and the effects of the reorganization on liquidation rights,
voting rights, , existing savings accounts, deposit insurance, loans and Lincoln
Park Savings' business. The proxy statement also describes the manner in which
the plan may be amended or terminated. Included with the proxy statement is a
proxy card which can be used to vote on the plan.
The following is a summary of the material aspects of the plan, the
subscription offering, and the community offering. The plan should be consulted
for a more detailed description of its terms.
REASONS FOR THE REORGANIZATION
The primary purpose of the reorganization is to establish a holding
company and to convert Lincoln Park Savings to the stock form of ownership in
order to compete and expand more effectively in the financial services
marketplace. The stock form of ownership is the corporate form used by
commercial banks, most major businesses and a large number of savings
institutions. The reorganization also will enable customers, employees,
management and directors to have an equity ownership interest in our company.
Management believes that this will enhance the long-term growth and performance
of Lincoln Park Savings and Lincoln Park Bancorp by enabling us to attract and
retain qualified employees who have a direct interest in our financial success.
The reorganization will permit us to issue and sell capital stock, which is a
source of capital not available to mutual savings institutions. Since we will
not be offering all of our common stock for sale in the offering, the
reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion. The reorganization, however, also will allow us to
raise additional capital in the future because a majority of our common stock
will be
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available for sale in the event of a conversion of Lincoln Park Bancorp, MHC to
stock form. The reorganization also will give us greater flexibility to
structure and finance the expansion of our operations, including the potential
acquisition of other financial institutions, and to diversify into other
financial services, to the extent permissible by applicable law and regulation.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, we will be in a position after the
reorganization, subject to regulatory limitations and our financial condition,
to take advantage of any such opportunities that may arise. Lastly, the
reorganization will enable us to better manage our capital by providing broader
investment opportunities through the holding company structure and by enabling
us to repurchase our common stock as market conditions permit. Although the
reorganization and offering will create a stock association and stock holding
company, only a minority of the common stock will be offered for sale in the
offering. As a result, our mutual form of ownership and its ability to provide
community-oriented financial services will be preserved through the mutual
holding company structure.
The board of directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure to minority
stockholders, which may include: (i) the inability of stockholders other than
Lincoln Park Bancorp, MHC to obtain majority ownership of Lincoln Park Bancorp
and Lincoln Park Savings, which may result in the perpetuation of our management
and board of directors; and (ii) that new form of corporate ownership, and new
regulatory policies relating to the mutual holding company structure may be
adopted from time to time may have an adverse impact on stockholders other than
the mutual holding company. A majority of our voting stock will be owned by
Lincoln Park Bancorp, MHC, which will be controlled by its board of directors.
While this structure will permit management to focus on our long-term business
strategy for growth and capital redeployment without undue pressure from
stockholders, it will also serve to perpetuate our existing management and
directors. Lincoln Park Bancorp, MHC will be able to elect all the members of
Lincoln Park Bancorp's board of directors, and will be able to control the
outcome of all matters presented to our stockholders for resolution by vote. No
assurance can be given that Lincoln Park Bancorp, MHC will not take action
adverse to the interests of stockholders, other than the mutual holding company.
For example, Lincoln Park Bancorp, MHC could prevent the sale of control of
Lincoln Park Bancorp, or defeat a candidate for the board of directors of
Lincoln Park Bancorp or other proposals put forth by stockholders.
The reorganization does not preclude the conversion of Lincoln Park
Bancorp, MHC from the mutual to stock form of organization in the future. No
assurance can be given when, if ever, Lincoln Park Bancorp, MHC will convert to
stock form or what conditions the Office of Thrift Supervision or other
regulatory agencies may impose on such a transaction. See "Risk Factors" and
"Summary--Possible Conversion of Lincoln Park Bancorp, MHC to Stock Form."
EFFECTS OF THE REORGANIZATION AND OFFERING ON DEPOSITORS AND BORROWERS OF
LINCOLN PARK SAVINGS
CONTINUITY. While the reorganization is being accomplished, and after
its completion, our routine business of accepting deposits and making loans will
continue without interruption. We will continue to be subject to regulation by
the Office of Thrift Supervision, the Federal Deposit
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Insurance Corporation and the New Jersey Commissioner. After the reorganization,
we will continue to provide services for depositors and borrowers under current
policies by our management and staff.
LIQUIDATION RIGHTS. Following the completion of the reorganization, all
depositors who had liquidation rights with respect to Lincoln Park Savings as of
the effective date of the reorganization will continue to have such rights
solely with respect to Lincoln Park Bancorp, MHC so long as they continue to
hold deposit accounts with Lincoln Park Savings. In addition, all persons who
become depositors of Lincoln Park Savings subsequent to the reorganization will
have such liquidation rights with respect to Lincoln Park Bancorp, MHC.
DEPOSIT ACCOUNTS AND LOANS. Under the plan, each depositor of Lincoln
Park Savings at the time of the reorganization will automatically continue as a
depositor after the reorganization, and each such deposit account will remain
the same with respect to deposit balance, interest rate and other terms, except
to the extent such deposit is reduced by withdrawals to purchase common stock in
the offering. All insured deposit accounts of Lincoln Park Savings will continue
to be federally insured by the Federal Deposit Insurance Corporation up to the
legal maximum limit in the same manner as deposit accounts existing in Lincoln
Park Savings immediately prior to the reorganization. Furthermore, no loan
outstanding will be affected by the reorganization, and the amounts, interest
rates, maturity and security for each loan will remain the same as they were
prior to the reorganization.
VOTING RIGHTS OF DEPOSITORS. Voting rights and control of Lincoln Park
Savings, as a mutual savings bank, are vested in the Board of Managers. After
the reorganization and offering, direction of Lincoln Park Savings will be under
the control of the Board of Directors of Lincoln Park Savings. Lincoln Park
Bancorp, as the holder of all of the outstanding common stock of Lincoln Park
Savings, will have exclusive voting rights with respect to any matters
concerning Lincoln Park Savings requiring stockholder approval, including the
election of directors of Lincoln Park Savings.
Following the completion of the reorganization and offering, voting
rights in Lincoln Park Bancorp will be held exclusively by its stockholders.
Each share of outstanding common stock held by a stockholder will entitle the
stockholder to one vote on matters considered by Lincoln Park Bancorp
stockholders. Although Lincoln Park Bancorp will have the power to issue shares
of capital stock to persons other than Lincoln Park Bancorp, MHC, as long as
Lincoln Park Bancorp, MHC is in existence, Lincoln Park Bancorp, MHC will be
required to own a majority of the voting stock of Lincoln Park Bancorp, and
consequently will be able to control the outcome of matters put to a vote of
stockholders. Lincoln Park Bancorp may issue any amount of non-voting stock to
persons other than Lincoln Park Bancorp, MHC, and Lincoln Park Bancorp must own
100% of the voting stock of Lincoln Park Savings.
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TAX EFFECTS OF THE REORGANIZATION
We intend to proceed with the reorganization on the basis of an opinion
from our special counsel, Luse Gorman Pomerenk & Schick, P.C., Washington, D.C.,
as to tax matters that are material to the reorganization. The opinion is based,
among other things, on factual representations made by us, including the
representation that the exercise price of the subscription rights to purchase
the common stock will be approximately equal to the fair market value of the
stock at the time of the completion of the reorganization. Luse Gorman Pomerenk
& Schick, P.C.'s opinion provides as follows:
1. The conversion of Lincoln Park Savings' charter from a mutual
savings bank charter to a stock bank charter will qualify as a
reorganization under section 368(a)(1)(F) of the Internal
Revenue Code of 1986 (the "Code"), and no gain or loss will be
recognized by Lincoln Park Savings in either its mutual form
("Mutual Bank") or stock form (as the "Stock Bank") as a result.
2 No gain or loss will be recognized by Lincoln Park Savings upon
the transfer of its assets to Stock Bank solely in exchange for
shares of Stock Bank common stock and the assumption by Stock
Bank of the liabilities of Mutual Bank.
3. No gain or loss will be recognized by Stock Bank upon the
receipt of Lincoln Park Savings' assets in exchange for shares
of Stock Bank common stock.
4. Stock Bank's holding period in the assets received from Lincoln
Park Savings will include the period during which such assets
were held by Mutual Bank.
5. The Stock Bank's basis in the assets of Lincoln Park Savings
will be the same as the basis of such assets in the hands of
Lincoln Park Savings immediately prior to the reorganization.
6. Depositors will recognize no gain or loss upon the constructive
receipt of solely Stock Bank common stock in exchange for their
liquidation and other interests.
7. The Stock Bank will succeed to and take into account Lincoln
Park Savings' earnings and profits or deficit in earnings and
profits, as of the date of the reorganization.
8. For purposes of Section 381, Stock Bank will be treated the same
as Mutual Bank, and therefore, Mutual Bank's tax year will not
end merely as a result of the conversion of Lincoln Park Savings
to stock form and Stock Bank will not be required to obtain a
new employee identification number.
9. No gain or loss will be recognized by eligible account holders
and supplemental eligible account holders of Mutual Bank on the
issuance to them of withdrawable deposit accounts in Stock Bank
plus liquidation rights with respect to Lincoln
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Park Bancorp, MHC, in exchange for their deposit accounts in
Mutual Bank or to the other depositors on the issuance to them
of withdrawable deposit accounts.
10. It is more likely than not that the fair market value of the
subscription rights to purchase common stock is zero.
Accordingly, no gain or loss will be recognized by eligible
account holders and supplemental eligible account holders upon
the distribution to them of the nontransferable subscription
rights to purchase shares of stock in Lincoln Park Bancorp. Gain
realized, if any, by the eligible account holders and
supplemental eligible account holders on the distribution to
them of the nontransferable subscription rights to purchase
shares of common stock will be recognized but only in an amount
not in excess of the fair market value of such subscription
rights. Eligible account holders and supplemental eligible
account holders will not realize any taxable income as a result
of the exercise by them of the nontransferable subscription
rights.
11. The basis of the deposit accounts in Stock Bank to be received
by the eligible account holders, supplemental eligible account
holders and other depositors of Mutual Bank will be the same as
the basis of their deposit accounts in Mutual Bank surrendered
in exchange therefor. The basis of the interests in the
liquidation rights in the Lincoln Park Bancorp, MHC to be
received by the eligible account holders and supplemental
eligible account holders of Mutual Bank will be zero.
12. The exchange of Stock Bank common stock constructively received
by eligible account holders, supplemental eligible account
holders and other depositors for liquidation and other interests
in Lincoln Park Bancorp, MHC will constitute a tax-free exchange
of property solely for "stock."
13. Eligible account holders, supplemental eligible account holders
and other depositors will recognize no gain or loss upon the
transfer of Stock Bank common stock they constructively received
in the conversion of Lincoln Park Savings to stock form to
Lincoln Park Bancorp, MHC solely in exchange for liquidation and
other interests in Lincoln Park Bancorp, MHC.
14. Eligible account holders, supplemental eligible account holders
and other depositors' basis in the Lincoln Park Bancorp, MHC for
liquidation and other interests received in the transaction
(which basis is zero) will be the same as the basis of the
property transferred in exchange for such interests.
15. Lincoln Park Savings Bancorp, MHC will recognize no gain or loss
upon receipt of property from eligible account holders,
supplemental eligible account holders and other depositors in
exchange for liquidation and other interests in Lincoln Park
Bancorp, MHC.
16. Lincoln Park Bancorp, MHC's basis in the property received from
eligible account holders, supplemental eligible account holders
and other depositors
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(which basis is zero) will be the same as the basis of such
property in the hands of eligible account holders, supplemental
eligible account holders and other depositors.
17. Lincoln Park Bancorp, MHC's holding period for the property
received from eligible account holders, supplemental account
holders and other depositors will include the period during
which such property was held by such persons.
18. Lincoln Park Bancorp, MHC and the persons who purchased common
stock of Lincoln Park Bancorp in the subscription and community
offering ("minority stockholders") will recognize no gain or
loss upon the transfer of Stock Bank common stock and cash,
respectively, to Lincoln Park Bancorp in exchange for common
stock in Lincoln Park Bancorp.
19. Lincoln Park Bancorp will recognize no gain or loss on its
receipt of Stock Bank common stock and cash in exchange for
Lincoln Park Bancorp common stock.
20. Lincoln Park Bancorp, MHC's basis in the Lincoln Park Bancorp
common stock will be the same as its basis in the Lincoln Park
Savings stock exchanged for such stock.
21. Lincoln Park Bancorp, MHC's holding period in the Lincoln Park
Bancorp common stock received will include the period during
which it held the Stock Bank common stock, provided that such
property was a capital asset on the date of the exchange.
22. Lincoln Park Bancorp's basis in the Stock Bank stock received
from Lincoln Park Bancorp, MHC will be the same as the basis of
such property in the hands of Lincoln Park Bancorp, MHC.
23. Lincoln Park Bancorp's holding period for the Stock Bank stock
received from Lincoln Park Bancorp, MHC will include the period
during which such property was held by Lincoln Park Bancorp,
MHC.
24. It is more likely than not that the basis of the Lincoln Park
Bancorp common stock to its minority stockholders will be the
purchase price thereof. The holding period of the Lincoln Park
Bancorp common stock purchased pursuant to the exercise of
subscription rights will commence on the date on which the right
to acquire such stock was exercised.
The opinion addresses all material federal income tax consequences of
the reorganization. The tax opinion as to items 10 and 24 above is based on the
position that subscription rights to be received by eligible account holders and
supplemental eligible account holders do not have any economic value at the time
of distribution or the time the subscription rights are exercised. In this
regard, Luse Gorman Pomerenk & Schick, P.C. noted that the subscription rights
will be granted at no cost to the recipients, are legally non-transferable and
of short duration, and will
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provide the recipient with the right only to purchase shares of common stock at
the same price to be paid by members of the general public in any community
offering. The firm also noted that the Internal Revenue Service has not in the
past concluded that subscription rights have value. Based on the foregoing, Luse
Gorman Pomerenk & Schick, P.C. believes that it is more likely than not that the
nontransferable subscription rights to purchase shares of common stock have no
value. However, the issue of whether or not the nontransferable subscription
rights have value is based on all the facts and circumstances. If the
nontransferable subscription rights granted to eligible subscribers are
subsequently found to have an ascertainable value greater than zero, income may
be recognized by various recipients of the nontransferable subscription rights
(in certain cases, whether or not the rights are exercised) and we could
recognize gain on the distribution of the nontransferable subscription rights.
The opinions of Luse Gorman Pomerenk & Schick, P.C., unlike a letter
ruling issued by the Internal Revenue Service, are not binding on the Internal
Revenue Service and the conclusions expressed therein may be challenged at a
future date. The Internal Revenue Service has issued favorable rulings for
transactions substantially similar to the proposed reorganization, but any such
ruling may not be cited as precedent by any taxpayer other than the taxpayer to
whom the ruling is addressed. We do not plan to apply for a letter ruling
concerning the transactions described herein.
We also have received an opinion from Radics & Co., LLC that the New
Jersey State income tax consequences of the proposed transaction are consistent
with the federal income tax consequences.
The federal and state tax opinions referred to in this prospectus are
filed as exhibits to the registration statement. See "Where You Can Find More
Information."
OFFERING OF COMMON STOCK
Under the plan of reorganization, up to 568,675 shares of Lincoln Park
Bancorp common stock will be offered for sale, subject to certain restrictions
described below, through a subscription and community offering.
SUBSCRIPTION OFFERING. The subscription offering will expire at ___:___
__.m., New Jersey time, on September __, 2004, unless otherwise extended by
Lincoln Park Savings and Lincoln Park Bancorp. Regulations of the Office of
Thrift Supervision require that all shares to be offered in the offering be sold
within a period ending not more than 90 days after Office of Thrift Supervision
approval of the use of the prospectus or a longer period as may be approved by
the Office of Thrift Supervision or, despite approval of the plan of
reorganization by our members, the reorganization and offering will not be
effected. This period expires on November ___, 2004, unless extended with the
approval of the Office of Thrift Supervision and, if applicable, the Federal
Deposit Insurance Corporation and the New Jersey Commissioner. If the offering
is not completed by November ___, 2004, all subscribers will have the right to
modify or rescind their subscriptions and to have their subscription funds
returned promptly with interest. In the event of an extension of this type, all
subscribers will be notified in writing of the time period within which
subscribers must notify Lincoln Park Savings of their intention to
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maintain, modify or rescind their subscriptions. If the subscriber rescinds or
does not respond in any manner to Lincoln Park Savings' notice, the funds
submitted will be refunded to the subscriber with interest at Lincoln Park
Savings' current passbook savings rate, and/or the subscriber's withdrawal
authorizations will be terminated. In the event that the offering is not
effected, all funds submitted and not previously refunded pursuant to the
subscription and community offering will be promptly refunded to subscribers
with interest at Lincoln Park Savings' current passbook savings rate, and all
withdrawal authorizations will be terminated.
SUBSCRIPTION RIGHTS. Under the plan of reorganization, nontransferable
subscription rights to purchase the shares of common stock have been issued to
persons and entities entitled to purchase the shares of common stock in the
subscription offering. The amount of shares of common stock which these parties
may purchase will depend on the availability of the common stock for purchase
under the categories described in the plan of reorganization. Subscription
priorities have been established for the allocation of common stock to the
extent that the common stock is available. These priorities are as follows:
CATEGORY 1: ELIGIBLE ACCOUNT HOLDERS. Subject to the maximum purchase
limitations, each depositor with $50.00 or more on deposit at Lincoln Park
Savings, as of the close of business on March 31, 2003, will receive
nontransferable subscription rights to subscribe for up to the greater of the
following:
(i) $75,000 of common stock;
(ii) one-tenth of one percent of the total offering of common stock;
or
(iii) 15 times the product, rounded down to the nearest whole number,
obtained by multiplying the total number of shares of common
stock to be sold by a fraction, the numerator of which is the
amount of the qualifying deposit of the eligible account holder
and the denominator is the total amount of qualifying deposits
of all eligible account holders.
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
eligible account holders so as to permit each one, to the extent possible, to
purchase a number of shares sufficient to make the person's total allocation
equal 100 shares or the number of shares actually subscribed for, whichever is
less. Thereafter, unallocated shares will be allocated among the remaining
subscribing eligible account holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective qualifying deposits bear to the
total amount of qualifying deposits of all remaining eligible account holders
whose subscriptions remain unfilled; however, no fractional shares shall be
issued. If the amount so allocated exceeds the amount subscribed for by any one
or more eligible account holders, the excess shall be reallocated, one or more
times as necessary, among those eligible account holders whose subscriptions are
still not fully satisfied on the same principle until all available shares have
been allocated or all subscriptions satisfied. Subscription rights received by
officers and directors in this category based on their increased deposits in
Lincoln Park Savings in the one-year period preceding March 31, 2003 are
subordinated to the subscription rights of other eligible account holders.
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CATEGORY 2: TAX-QUALIFIED EMPLOYEE PLANS. The plan of reorganization
provides that tax-qualified employee plans of Lincoln Park Savings, such as the
employee stock ownership plan, shall receive nontransferable subscription rights
to purchase up to 10% of the shares of common stock issued in the offering. The
employee stock ownership plan intends to purchase 4% of the shares of common
stock sold in the offering unless additional purchases are required to complete
the stock offering at the minimum of the offering range. If the employee stock
ownership plan's subscription is not filled in its entirety, the employee stock
ownership plan may purchase shares of common stock in the open market or may
purchase shares of common stock directly from the holding company subsequent to
completion of the offering.
CATEGORY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that
there are sufficient shares of common stock remaining after satisfaction of
subscriptions by eligible account holders and the tax-qualified employee plans,
and subject to the maximum purchase limitations, each depositor with $50.00 or
more on deposit, as of the close of business on June 30, 2004, will receive
nontransferable subscription rights to subscribe for up to the greater of:
(i) $75,000 of common stock;
(ii) one-tenth of one percent of the total offering of common stock;
or
(iii) 15 times the product, rounded down to the nearest whole number,
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, the numerator of which is the
amount of qualifying deposits of the supplemental eligible
account holder and the denominator is the total amount of
qualifying deposits of all supplemental eligible account
holders.
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
supplemental eligible account holders so as to permit each supplemental eligible
account holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation equal 100 shares or the number of
shares actually subscribed for, whichever is less. Thereafter, unallocated
shares will be allocated among subscribing supplemental eligible account holders
whose subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to total qualifying deposits of all
subscribing supplemental eligible account holders.
CATEGORY 4: VOTING DEPOSITORS. To the extent that there are sufficient
shares of common stock remaining after satisfaction of subscriptions by eligible
account holders, the tax-qualified employee plans and supplemental eligible
account holders, and subject to the maximum purchase limitations, each depositor
with $50.00 or more on deposit, as of the close of business on ____________,
2004 who is neither an Eligible Account Holder nor Supplemental Eligible Account
Holder, ("Other Depositors"), will receive nontransferable subscription rights
to subscribe for up to the greater of:
(i) $75,000 of common stock;
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(ii) one-tenth of one percent of the total offering of common stock;
or
(iii) 15 times the product, rounded down to the nearest whole number,
obtained by multiplying the total number of shares of common
stock to be issued by a fraction, the numerator of which is the
amount of qualifying deposits of the Other Depositors and the
denominator is the total amount of qualifying deposits of all
Other Depositors.
If the exercise of subscription rights in this category results in an
oversubscription, shares of common stock will be allocated among subscribing
Other Depositors so as to permit each Other Depositor, to the extent possible,
to purchase a number of shares sufficient to make his or her total allocation
equal 100 shares or the number of shares actually subscribed for, whichever is
less. Thereafter, unallocated shares will be allocated among subscribing Other
Depositors whose subscriptions remain unfilled in the proportion that the
amounts of their respective qualifying deposits bear to total qualifying
deposits of all subscribing Other Depositors.
Lincoln Park Savings and Lincoln Park Bancorp will make reasonable
efforts to comply with the securities laws of all states in the United States in
which persons entitled to subscribe for shares of common stock pursuant to the
plan of reorganization reside. However, no shares of common stock will be
offered or sold under the plan of reorganization to any person who resides in a
foreign country or resides in a state of the United States in which a small
number of persons otherwise eligible to subscribe for shares under the plan of
reorganization reside or as to which Lincoln Park Savings and Lincoln Park
Bancorp determine that compliance with the securities laws of the state would be
impracticable for reasons of cost or otherwise, including, but not limited to, a
requirement that Lincoln Park Savings or Lincoln Park Bancorp or any of their
officers, directors or employees register, under the securities laws of the
state, as a broker, dealer, salesman or agent. No payments will be made in lieu
of the granting of subscription rights to any person.
COMMUNITY OFFERING. Any shares of common stock which remain unsubscribed
for in the subscription offering will be offered by Lincoln Park Bancorp in a
community offering to members of the general public to whom Lincoln Park Bancorp
delivers a copy of this prospectus and a stock order form, with preference given
to natural persons residing in the Borough of Lincoln Park, Pequannock Township,
Montville Township and Wayne Township, New Jersey. Subject to the maximum
purchase limitations, these persons, may purchase up to $75,000 of common stock.
The community offering, if any, may be undertaken concurrent with, during, or
promptly after the subscription offering, and may terminate at any time without
notice, but may not terminate later than November ___, 2004, unless extended by
Lincoln Park Bancorp and Lincoln Park Savings. Subject to any required
regulatory approvals, Lincoln Park Bancorp will determine the advisability of a
community offering, the commencement and termination dates of any community
offering, and the methods of finding potential purchasers in such offering, in
its discretion based upon market conditions. The opportunity to subscribe for
shares of common stock in the community offering category is subject to the
right of Lincoln Park Bancorp and Lincoln Park Savings, in their sole
discretion, to accept or reject these orders in whole or in part either at the
time of receipt of an order or as soon as practicable thereafter.
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If there are not sufficient shares of common stock available to fill
orders in the community offering, the shares of common stock will be allocated
first to each natural person residing in the Borough of Lincoln Park, Pequannock
Township, Montville Township and Wayne Township, New Jersey (the "Local
Community") whose order is accepted by Lincoln Park Savings, in an amount equal
to the lesser of 200 shares of common stock or the number of shares of common
stock subscribed for by each subscriber residing in the Local Community, if
possible. Thereafter, unallocated shares of common stock will be allocated among
the subscribers residing in the Local Community, whose orders remain
unsatisfied, in the same proportion that the unfilled subscription of each bears
to the total unfilled subscriptions of all subscribers residing in the Local
Community whose subscription remains unsatisfied. If there are any shares of
common stock remaining, shares will be allocated to other members of the general
public who subscribe in the community offering applying the same allocation
described above for subscribers residing in the Local Community.
SYNDICATED COMMUNITY OFFERING. All shares of common stock not purchased
in the subscription and community offerings, if any, may be offered for sale to
the general public in a syndicated community offering through a syndicate of
registered broker-dealers to be formed and managed by Sandler O'Neill &
Partners, L.P. Lincoln Park Bancorp and Lincoln Park Savings expect to market
any shares of common stock which remain unsubscribed after the subscription and
community offerings through a syndicated community offering. Lincoln Park
Bancorp and Lincoln Park Savings have the right to reject orders in whole or
part in their sole discretion in the syndicated community offering. Neither
Sandler O'Neill & Partners, L.P. nor any registered broker-dealer shall have any
obligation to take or purchase any shares of common stock in the syndicated
community offering; however, in the event Sandler O'Neill & Partners, L.P.
agrees to participate in a syndicated community offering, it will use its best
efforts in the sale of shares of common stock in the syndicated community
offering.
The price at which shares of common stock are sold in the syndicated
community offering will be the same price as in the subscription and community
offerings. Subject to the overall purchase limitations, no person by himself or
herself may subscribe for or purchase more than $75,000 or 7,500 shares of
common stock.
Sandler O'Neill & Partners, L.P. may enter into agreements with selected
dealers to assist in the sale of the shares of common stock in the syndicated
community offering. No orders may be placed or filled by or for a selected
dealer during the subscription offering. After the close of the subscription
offering, Sandler O'Neill & Partners, L.P. will instruct selected dealers as to
the number of shares of common stock to be allocated to each selected dealer.
Only after the close of the subscription offering and upon allocation of shares
to selected dealers may selected dealers take orders from their customers.
During the subscription and community offerings, selected dealers may only
solicit indications of interest from their customers to place orders with
Lincoln Park Bancorp as of a certain order date for the purchase of shares of
common stock. When and if Lincoln Park Bancorp, in consultation with Sandler
O'Neill & Partners, L.P., believes that enough indications of interest and
orders have not been received in the subscription and community offerings to
consummate the offering, it will instruct Sandler O'Neill & Partners, L.P. to
request, as of the order date, selected dealers to submit orders to purchase
shares for which they have previously received indications of interest from
their customers. Selected
112
dealers will send confirmations of the orders to customers on the next business
day after the order date. Selected dealers will debit the accounts of their
customers on the settlement date, which date will be three business days from
the order date. Customers who authorize selected dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the settlement date. On the settlement date, selected dealers
will remit funds to the account established by Lincoln Park Bancorp for each
selected dealer. Each customer's funds so forwarded to Lincoln Park Bancorp,
along with all other accounts held in the same title, will be insured by the
Federal Deposit Insurance Corporation up to $100,000 in accordance with
applicable Federal Deposit Insurance Corporation regulations. After payment has
been received by Lincoln Park Bancorp from selected dealers, funds will earn
interest at Lincoln Park Savings' passbook rate until the completion or
termination of the reorganization and offering. Funds will be promptly returned,
with interest, in the event the reorganization and offering is not completed as
described above.
The syndicated community offering will terminate no more than 45 days
following the subscription expiration date, unless extended by Lincoln Park
Bancorp and Lincoln Park Savings with the approval of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable.
LIMITATIONS ON PURCHASE OF SHARES. The plan provides for certain
limitations on the purchase of shares of common stock in the offering. These
limitations are as follows:
A. The aggregate amount of outstanding common stock of
Lincoln Park Bancorp owned or controlled by persons
other than Lincoln Park Bancorp, MHC at the close of the
offering shall be less than 50% of Lincoln Park
Bancorp's total outstanding common stock.
B. The maximum purchase of common stock in the subscription
offering by a person or group of persons through a
single deposit account is $75,000. No person by himself,
or with an associate or group of persons acting in
concert, may purchase more than $150,000 of the common
stock offered in the offering, except that: (i) Lincoln
Park Bancorp may, in its sole discretion and without
further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum
purchase limitation to 5% of the number of shares
offered in the offering; (ii) the tax-qualified employee
plans may purchase up to 10% of the shares offered in
the offering; and (iii) shares to be held by any
tax-qualified employee plan and attributable to a person
shall not be aggregated with other shares purchased
directly by or otherwise attributable to such person.
C. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by any non-tax-qualified employee plan or any
management person and his or her associates, exclusive
of any shares of common stock acquired by such plan or
management person and his or her associates in the
secondary market, shall not exceed 4.9% of the
outstanding shares of common stock of Lincoln Park
Bancorp at the conclusion of the offering. In
calculating the
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number of shares held by any management person and his
or her associates under this paragraph, shares held by
any tax-qualified employee plan or non-tax-qualified
employee plan of Lincoln Park Bancorp or Lincoln Park
Savings that are attributable to such person shall not
be counted.
D. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by one or more non-tax-qualified employee plan
exclusive of any common stock acquired by such plan or
management person and his or her associates in the
secondary market, shall not exceed 4.9% of the
stockholders' equity of Lincoln Park Bancorp at the
conclusion of the offering. In calculating the number of
shares held by any management person and his or her
associates under this paragraph, shares held by any
tax-qualified employee plan or non-tax-qualified
employee plan of Lincoln Park Bancorp or Lincoln Park
Savings that are attributable to such person shall not
be counted.
E. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by any one or more tax-qualified employee
plans, exclusive of any shares of common stock acquired
by such plans in the secondary market, shall not exceed
4.9% of the outstanding shares of common stock of
Lincoln Park Bancorp at the conclusion of the offering.
F. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by any one or more tax-qualified employee
plans, exclusive of any shares of common stock acquired
by such plans in the secondary market, shall not exceed
4.9% of the stockholders' equity of Lincoln Park Bancorp
at the conclusion of the offering
G. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by all non-tax-qualified employee plans or
management persons and their associates, exclusive of
any common stock acquired by such plans or management
persons and their associates in the secondary market,
shall not exceed 34% of the outstanding shares of common
stock held by persons other than Lincoln Park Bancorp,
MHC at the conclusion of the offering. In calculating
the number of shares held by management persons and
their associates under this paragraph or the next
paragraph shares held by any tax-qualified employee plan
or non-tax-qualified employee plan that are attributable
to such persons shall not be counted.
H. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by all non-tax-qualified employee plans or
management persons and
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their associates, exclusive of any common stock acquired
by such plans or management persons and their associates
in the secondary market, shall not exceed 34% of the
stockholders' equity of Lincoln Park Bancorp held by
persons other than Lincoln Park Bancorp, MHC at the
conclusion of the offering.
I. The aggregate amount of common stock acquired in the
offering, plus all prior issuances by Lincoln Park
Bancorp, by all stock benefit plans of Lincoln Park
Bancorp or Lincoln Park Savings, other than employee
stock ownership plans, shall not exceed 25% of the
outstanding common stock of Lincoln Park Bancorp held by
persons other than the Lincoln Park Bancorp, MHC.
J. Notwithstanding any other provision of the plan or
reorganization, no person shall be entitled to purchase
any common stock to the extent such purchase would be
illegal under any federal law or state law or regulation
or would violate regulations or policies of the National
Association of Securities Dealers, Inc., particularly
those regarding free riding and withholding. Lincoln
Park Bancorp and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of
such purchase and may refuse to honor any purchase order
if such opinion is not timely furnished.
K. The board of directors of Lincoln Park Bancorp has the
right in its sole discretion to reject any order
submitted by a person whose representations the board of
directors believes to be false or who it otherwise
believes, either alone or acting in concert with others,
is violating, circumventing, or intends to violate,
evade or circumvent the terms and conditions of the plan
or reorganization.
L. A minimum of 25 shares of common stock must be purchased
by each person purchasing shares in the offering to the
extent those shares are available; provided, however,
that in the event the minimum number of shares of common
stock purchased times the price per share exceeds $500,
then such minimum purchase requirement shall be reduced
to such number of shares which when multiplied by the
price per share shall not exceed $500, as determined by
the board of directors.
For purposes of the plan, the members of the board of directors are not
deemed to be acting in concert solely by reason of their board membership. The
term "associate" is used above to indicate any of the following relationships
with a person:
o any corporation or organization, other than Lincoln Park
Bancorp, MHC, Lincoln Park Bancorp or Lincoln Park Savings or a
majority-owned subsidiary of Lincoln Park Bancorp or Lincoln
Park Savings, of which a person is a senior officer or partner,
or beneficially owns, directly or indirectly, 10% or more of any
class of equity securities of the corporation or organization;
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o any trust or other estate if the person has a substantial
beneficial interest in the trust or estate or is a trustee or
fiduciary of the estate. For purposes of Office of Thrift
Supervision Regulations Sections 563b.370, 563b.380, 563b.385,
563b.390 and 563b.505 a person who has a substantial beneficial
interest in a tax-qualified or non-tax-qualified employee plan,
or who is a trustee or fiduciary of the plan is not an associate
of the plan. For purposes of Section 563b.370 of the Office of
Thrift Supervision Regulations, a tax-qualified employee plan is
not an associate of a person;
o any person who is related by blood or marriage to such person
and (i) who lives in the same house as the person; or (ii) who
is a director or senior officer of Lincoln Park Bancorp, MHC,
Lincoln Park Bancorp or Lincoln Park Savings or a subsidiary
thereof; and
o any person acting in concert with the persons or entities
specified above.
As used above, the term "acting in concert" means:
o knowing participation in a joint activity or interdependent
conscious parallel action towards a common goal whether or not
pursuant to an express agreement;
o a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise; or
o a person or company which acts in concert with another person or
company ("other party") shall also be deemed to be acting in
concert with any person or company who is also acting in concert
with that other party, except that any tax-qualified employee
plan will not be deemed to be acting in concert with its trustee
or a person who serves in a similar capacity solely for the
purpose of determining whether stock held by the trustee and
stock held by the plan will be aggregated.
Persons or companies who file jointly a Form 13-D or Form 13-G with any
regulatory agency will be deemed to be acting in concert.
The boards of directors of Lincoln Park Bancorp and Lincoln Park Savings
may, in their sole discretion increase the maximum purchase limitation up to
9.99% of the shares being offered in the offering. However, orders for shares
exceeding 5.0% of the shares sold may not exceed, in the aggregate, 10% of the
shares sold. Requests to purchase shares of Lincoln Park Bancorp common stock
under this provision will be allocated by the boards of directors in accordance
with the priority rights and allocation procedures set forth above. Depending
upon market and financial conditions, and subject to certain regulatory
limitations, the boards of directors of Lincoln Park Bancorp and Lincoln Park
Savings, with the approval of the Office of Thrift Supervision, the Federal
Deposit Insurance Corporation, and the New Jersey Commissioner, as applicable,
and without further approval of the members, may increase or
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decrease any of the above purchase limitations at any time. In computing the
number of shares of common stock to be allocated, all numbers will be rounded
down to the next whole number.
Shares of common stock purchased in the offering will be freely
transferable except for shares of common stock purchased by executive officers
and directors of Lincoln Park Savings or Lincoln Park Bancorp and except as
described below. In addition, under National Association of Securities Dealers,
Inc. ("NASD") guidelines, members of the NASD and their associates are subject
to certain restrictions on transfer of securities purchased in accordance with
subscription rights and to certain reporting requirements upon purchase of these
securities.
RESTRICTIONS ON TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Subscription rights are nontransferable. Lincoln Park Savings may
reasonably investigate to determine compliance with this restriction. Persons
selling or otherwise transferring their rights to subscribe for shares of common
stock in the subscription offering or subscribing for shares of common stock on
behalf of another person may forfeit those rights and may face possible further
sanctions and penalties imposed by the Office of Thrift Supervision or another
agency of the United States Government. LINCOLN PARK SAVINGS AND LINCOLN PARK
BANCORP WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT THEY
BECOME AWARE OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS
KNOWN BY THEM TO INVOLVE THE TRANSFER OF THESE RIGHTS. Each person exercising
subscription rights will be required to certify that he or she is purchasing
shares solely for his or her own account and that he or she has no agreement or
understanding with any other person for the sale or transfer of the shares of
common stock. In addition, joint stock registration will be allowed only if the
qualifying account is so registered. Once tendered, subscription orders cannot
be revoked without the consent of Lincoln Park Savings and Lincoln Park Bancorp.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the end of the offering, in accordance with Rule 15c2-8 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), no prospectus
will be mailed later than five days or hand delivered any later than two days
prior to the end of the offering. Execution of the order form will confirm
receipt or delivery of a prospectus in accordance with Rule 15c2-8. Order forms
will be distributed only with a prospectus. Neither we nor Sandler O'Neill &
Partners, L. P. is obligated to deliver a prospectus and an order form by any
means other than the U.S. Postal Service.
To ensure that eligible account holders and supplemental eligible
account holders are properly identified as to their stock purchase priorities,
such parties must list all deposit accounts on the order form giving all names
on each deposit account and the account numbers at the applicable eligibility
date.
Full payment by check, money order, bank draft or withdrawal
authorization (payment by wire transfer will not be accepted) must accompany an
original order form. WE ARE NOT OBLIGATED TO ACCEPT AN ORDER SUBMITTED ON
PHOTOCOPIED OR TELECOPIED ORDER FORMS. ORDERS
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CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE CERTIFICATION
APPEARING ON THE ORDER FORM.
If the employee stock ownership plan purchases shares of common stock,
it will not be required to pay for such shares until consummation of the
offering, provided that there is a loan commitment to lend to the employee stock
ownership plan the amount of funds necessary to purchase the number of shares
ordered.
PLAN OF DISTRIBUTION AND MARKETING ARRANGEMENTS
Offering materials for the offering initially have been distributed to
certain persons by mail, with additional copies made available through our Stock
Information Center and Sandler O'Neill & Partners, L.P. All prospective
purchasers are to send payment directly to Lincoln Park Savings, where such
funds will be held in a segregated savings account and not released until the
offering is completed or terminated.
To assist in the marketing of the common stock, we have retained Sandler
O'Neill & Partners, L.P., which is a broker-dealer registered with the NASD.
Sandler O'Neill & Partners, L.P. will assist us in the offering as follows: (i)
in training and educating our employees regarding the mechanics of the offering;
(ii) in conducting informational meetings for employees, customers and the
general public; (iii) in coordinating the selling efforts in our local
communities; and (iv) in soliciting orders for shares of common stock in the
subscription and community offering. For these services, Sandler O'Neill &
Partners, L.P. will receive a fee equal to 2.0% of the dollar amount of the
shares of common stock sold in the subscription and community offerings. No fee
will be payable to Sandler O'Neill & Partners, L.P. with respect to shares
purchased by officers, directors and employees or their immediate families, or
shares purchased by our tax-qualified and non-qualified employee benefit plans.
If there is a syndicated offering, Sandler O'Neill & Partners, L.P. will receive
a fee in an amount competitive with gross underwriting discounts charged at such
time for underwritings of comparable amounts of common stock sold at a
comparable price per share in a similar market environment. However, the total
fees payable to Sandler O'Neill & Partners, L.P. and other NASD member firms in
the syndicated offering shall not exceed ____% of the aggregate dollar amount of
the common stock sold in the syndicated community offering. In no event will
total fees payable to Sandler O'Neill & Partners, L. P. and other NASD member
firms exceed ____% of the aggregate dollar amount of the common stock sold in
the offering.
We also will reimburse Sandler O'Neill & Partners, L.P. for its
reasonable expenses associated with its marketing effort (including legal fees),
up to a maximum of $40,000. We will indemnify Sandler O'Neill & Partners, L.P.
against liabilities and expenses (including legal fees) incurred in connection
with certain claims or litigation arising out of or based upon untrue statements
or omissions contained in the offering material for the common stock, including
liabilities under the Securities Act of 1933.
Sandler O'Neill & Partners, L.P. will also perform proxy solicitation
services, conversion agent services and records management services for Lincoln
Park Savings in the reorganization and offering and will receive a fee of
$10,000 for these services and the associated expenses.
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Our directors and executive officers may participate in the solicitation
of offers to purchase shares of common stock. Other trained employees may
participate in the offering in ministerial capacities, providing clerical work
in effecting a sales transaction or answering questions of a ministerial nature.
Other questions of prospective purchasers will be directed to executive officers
or registered representatives. We will rely on Rule 3a4-1 of the Exchange Act,
so as to permit officers, directors, and employees to participate in the sale of
shares of common stock. No officer, director or employee will be compensated for
his participation by the payment of commissions or other remuneration based
either directly or indirectly on the transactions in the common stock. Sandler
O'Neill will solicit orders and conduct sales of the common stock of Lincoln
Park Bancorp in states in which our directors and executive officers are not
permitted to offer and sell our common stock.
HOW WE DETERMINED STOCK PRICING AND THE NUMBER OF SHARES TO BE ISSUED
The plan of reorganization and federal regulations require that the
aggregate purchase price of the common stock sold in the offering be based on
the appraised pro forma market value of the common stock, as determined on the
basis of an independent valuation. We retained RP Financial, LC. to make the
independent valuation. RP Financial, LC. will receive a fee of $20,000, which
amount does not include a fee of $5,000 to be paid to RP Financial, LC. for
assistance in the preparation of a business plan. We have agreed to indemnify RP
Financial, LC. and its employees and affiliates against certain losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services as appraiser, except where RP Financial LC.'s
liability results from its negligence or bad faith.
The independent valuation was prepared by RP Financial, LC. in reliance
upon the information contained in the prospectus, including the financial
statements. RP Financial, LC. also considered the following factors, among
others:
o the present and projected operating results and financial
condition of Lincoln Park Savings and the economic and
demographic conditions in our existing market area;
o historical, financial and other information relating to Lincoln
Park Savings;
o a comparative evaluation of the operating and financial
statistics of Lincoln Park Savings with those of other publicly
traded subsidiaries of holding companies;
o the aggregate size of the offering;
o the impact of the reorganization and offering on our
stockholders' equity and earnings potential;
o the proposed dividend policy of Lincoln Park Bancorp; and
o the trading market for securities of comparable institutions and
general conditions in the market for such securities.
On the basis of the foregoing, RP Financial, LC. advised us that as of
June 9, 2004, the estimated pro forma market value of the common stock on a
fully converted basis ranged from a
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minimum of $9,137,500 to a maximum of $12,632,500, with a midpoint of
$10,750,000 (the estimated valuation range). The board determined to offer the
shares of common stock in the offering at the purchase price of $10.00 per share
and that 46% of the shares issued should be held by purchasers in the offering
and 54% should be held by Lincoln Park Bancorp, MHC. Based on the estimated
valuation range and the purchase price of $10.00 per share, the number of shares
of common stock that Lincoln Park Bancorp will issue will range from 913,750
shares to 1,236,250 shares, with a midpoint of 1,075,000 shares, and the number
of shares sold in the offering will range from 420,325 shares to 568,675 shares,
with a midpoint of 494,500 shares.
The board reviewed the independent valuation and, in particular,
considered (i) our financial condition and results of operations for the three
months ended March 31, 2004 and the year ended December 31, 2003, (ii) financial
comparisons to other financial institutions, and (iii) stock market conditions
generally and, in particular, for financial institutions, all of which are set
forth in the independent valuation. The board also reviewed the methodology and
the assumptions used by RP Financial, LC. in preparing the independent
valuation. The estimated valuation range may be amended with the approval of the
Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the
New Jersey Commissioner, as applicable, if necessitated by subsequent
developments in our financial condition or market conditions generally.
Following commencement of the subscription offering, the maximum of the
estimated valuation range may be increased by up to 15%, to up to $14,216,875
and the maximum number of shares that will be outstanding immediately following
the offering may be increased up to 15% to 1,421,688 shares. Under such
circumstances the number of shares sold in the offering will be increased to
653,976 shares and the number of shares held by Lincoln Park Bancorp, MHC will
be increased to 767,711 shares. The increase in the valuation range may occur to
reflect changes in market and financial conditions, demand for the shares, or
regulatory considerations, without the resolicitation of subscribers. The
minimum of the estimated valuation range and the minimum of the offering range
may not be decreased without a resolicitation of subscribers. The purchase price
of $10.00 per share will remain fixed. See "Offering of Common Stock-Limitations
On Purchase of Shares" as to the method of distribution and allocation of
additional shares of common stock that may be issued in the event of an increase
in the offering range to fill unfilled orders in the subscription and community
offerings.
The independent valuation is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing shares of
common stock. RP Financial, LC. did not independently verify the financial
statements and other information provided by Lincoln Park Savings, nor did RP
Financial, LC. value independently the assets or liabilities of Lincoln Park
Savings. The independent valuation considers Lincoln Park Savings as a going
concern and should not be considered as an indication of its liquidation value.
Moreover, because the valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing shares in the
offering will thereafter be able to sell such shares at prices at or above the
purchase price.
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The independent valuation will be updated at the time of the completion
of the offering. If the update to the independent valuation at the conclusion of
the offering results in an increase in the pro forma market value of the common
stock to more than $14,216,875 or a decrease in the pro forma market value to
less than $9,137,500, then Lincoln Park Bancorp, after consulting with the
Office of Thrift Supervision and the Federal Deposit Insurance Corporation, if
applicable, may terminate the plan of reorganization and return all funds
promptly, with interest on payments made by check, certified or teller's check,
bank draft or money order, extend or hold a new subscription offering, community
offering, or both, establish a new offering range, commence a resolicitation of
subscribers or take such other actions as may be permitted by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable, in order to complete the reorganization and
offering. In the event that a resolicitation is commenced, unless an affirmative
response is received within a reasonable period of time, all funds will be
promptly returned to investors as described above. A resolicitation, if any,
following the conclusion of the subscription and community offerings would not
exceed 45 days unless further extended by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation and the New Jersey Commissioner, as
applicable, for periods of up to 90 days not to extend beyond 24 months
following the special meeting of members, or September ___, 2006.
An increase in the independent valuation and the number of shares to be
issued in the offering would decrease both a subscriber's ownership interest and
Lincoln Park Bancorp's pro forma earnings and stockholders' equity on a per
share basis while increasing pro forma earnings and stockholders' equity on an
aggregate basis. A decrease in the independent valuation and the number of
shares of common stock to be issued in the offering would increase both a
subscriber's ownership interest and Lincoln Park Bancorp's pro forma earnings
and stockholders' equity on a per share basis while decreasing pro forma net
income and stockholders' equity on an aggregate basis. For a presentation of the
effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of RP Financial, LC. and the detailed
memorandum of the appraiser setting forth the method and assumptions for such
appraisal are available for inspection at the main office of Lincoln Park
Savings and the other locations specified under "Where You Can Find More
Information."
No sale of shares of common stock may occur unless, prior to such sale,
RP Financial, LC. confirms to Lincoln Park Savings and the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable, that, to the best of its knowledge, nothing of a
material nature has occurred that, taking into account all relevant factors,
would cause RP Financial, LC. to conclude that the independent valuation is
incompatible with its estimate of the pro forma market value of the common stock
of Lincoln Park Bancorp at the conclusion of the offering. Any change that would
result in an aggregate purchase price that is below the minimum or above the
maximum of the estimated valuation range would be subject to approval of the
Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the
New Jersey Commissioner, as applicable. If such confirmation is not received, we
may extend the offering, reopen the offering or commence a new offering,
establish a new estimated valuation range and commence a resolicitation of all
purchasers with
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the approval of the Office of Thrift Supervision, the Federal Deposit Insurance
Corporation and the New Jersey Commissioner, as applicable, or take such other
actions as permitted by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation and the New Jersey Commissioner, as applicable, in order
to complete the offering.
PROCEDURE FOR PURCHASING SHARES
PROSPECTUS DELIVERY. To ensure that each purchaser receives a prospectus
at least 48 hours before the expiration date, prospectuses may not be mailed any
later than five days prior to such date or be hand delivered any later than two
days prior to such date. Order forms may only be distributed with a prospectus.
EXPIRATION DATE. The offering will terminate at ___:___ p.m., New Jersey
time on September __, 2004, unless extended by us for up to 90 days following
the date of Office of Thrift Supervision approval (and Federal Deposit Insurance
Corporation non-objection, if applicable) of the use of the prospectus, which is
November __,2004, or, if approved by the Office of Thrift Supervision (and the
Federal Deposit Insurance Corporation, if applicable), for an additional period
after November __,2004 (as so extended, the "expiration date"). We are not
required to give purchasers notice of any extension unless the expiration date
is later than November ___, 2004, in which event purchasers will be given the
right to increase, decrease, confirm, or rescind their orders.
USE OF ORDER FORMS. In order to purchase shares of common stock, each
purchaser must complete an order form except for certain persons purchasing in
the syndicated community offering as more fully described below. Any person
receiving an order form who desires to purchase shares of common stock may do so
by delivering to the main office of Lincoln Park Savings, a properly executed
and completed order form, together with full payment for the shares of common
stock purchased. The order form must be received by Lincoln Park Savings prior
to ___:___ p.m., New Jersey time on September __, 2004. Each person ordering
shares of common stock is required to represent that they are purchasing such
shares for their own account. Our interpretation of the terms and conditions of
the plan of reorganization and of the acceptability of the order forms will be
final. We are not required to accept copies of order forms.
PAYMENT FOR SHARES. Payment for all shares will be required to accompany
a completed order form for the purchase to be valid. Payment for shares may be
made by check, money order, or authorization of withdrawal from a deposit
account maintained with Lincoln Park Savings. Third party checks will not be
accepted as payment for a subscriber's order. Appropriate means by which such
withdrawals may be authorized are provided in the order forms.
Once such a withdrawal amount has been authorized, a hold will be placed
on such funds, making them unavailable to the depositor until the offering has
been completed or terminated. In the case of payments authorized to be made
through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the offering is
completed or terminated.
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Interest penalties for early withdrawal applicable to certificate of
deposit accounts at Lincoln Park Savings will not apply to withdrawals
authorized for the purchase of shares of common stock. However, if a withdrawal
results in a certificate of deposit account with a balance less than the
applicable minimum balance requirement, the certificate of deposit shall be
canceled at the time of withdrawal without penalty, and the remaining balance
will earn interest at our passbook rate subsequent to the withdrawal.
Payments received by Lincoln Park Savings will be placed in a segregated
savings account and will be paid interest at our passbook rate from the date
payment is received until the offering is completed or terminated. Such interest
will be paid by check, on all funds held, including funds accepted as payment
for shares of common stock, promptly following completion or termination of the
offering.
The employee stock ownership plan will not be required to pay for the
shares of common stock it intends to purchase until consummation of the
offering, provided that there is a loan commitment to lend to the employee stock
ownership plan the amount of funds necessary to purchase the number of shares
ordered.
Owners of self-directed IRAs may use the assets of such IRAs to purchase
shares of common stock in the offering, provided that the IRA accounts are not
maintained at Lincoln Park Savings. Persons with IRAs maintained with us must
have their accounts transferred to a self-directed IRA account with an
unaffiliated trustee in order to purchase shares of common stock in the
offering. In addition, the provisions of ERISA and IRS regulations require that
executive officers, trustees, and 10% stockholders who use self-directed IRA
funds and/or Keogh plan accounts to purchase shares of common stock in the
offering, make such purchase for the exclusive benefit of the IRA and/or Keogh
plan participant. Assistance on how to transfer IRAs maintained at Lincoln Park
Savings can be obtained from the Stock Offering Center. Depositors interested in
using funds in an IRA maintained at Lincoln Park Savings should contact the
Stock Offering Center as soon as possible.
Once submitted, an order cannot be modified or revoked unless the
offering is terminated or extended beyond November ___, 2004.
Depending on market conditions, the common stock may be offered for sale
to the general public on a best efforts basis in a syndicated community offering
by a selling group of broker-dealers to be managed by Sandler O'Neill &
Partners, L.P. Sandler O'Neill & Partners, L.P., in their discretion, will
instruct selected broker-dealers as to the number of shares of common stock to
be allocated to each selected broker-dealer. Only upon allocation of shares of
common stock to selected broker-dealers may they take orders from their
customers. Investors who desire to purchase shares of common stock in the
community offering directly through a selected broker-dealer, which may include
Sandler O'Neill & Partners, L.P., will be advised that the members of the
selling group are required either (a) upon receipt of an executed order form or
direction to execute an order form on behalf of an investor, to forward the
appropriate purchase price to us for deposit in a segregated account on or
before 12:00 p.m., New York time, of the business day next following such
receipt or execution; or (b) upon receipt of confirmation by such member of the
selling group of an investor's interest in purchasing shares of common
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stock, and following a mailing of an acknowledgment by such member to such
investor on the business day next following receipt of confirmation, to debit
the account of such investor on the third business day next following receipt of
confirmation and to forward the appropriate purchase price to us for deposit in
the segregated account on or before twelve noon, prevailing time, of the
business day next following such debiting. Payment for any shares purchased
pursuant to alternative (a) above must be made by check in full payment
therefor. Payment for shares of common stock purchased pursuant to alternative
(b) above may be made by wire transfer to Lincoln Park Savings.
DELIVERY OF STOCK CERTIFICATES. Certificates representing shares of
common stock issued in the offering will be mailed to the persons entitled
thereto at the registration address noted on the order form, as soon as
practicable following consummation of the offering. Any certificates returned as
undeliverable will be held by us until claimed by persons legally entitled
thereto or otherwise disposed of in accordance with applicable law. Until
certificates for the shares of common stock are available and delivered to
purchasers, purchasers may not be able to sell the shares of common stock which
they ordered.
RESTRICTIONS ON PURCHASE OR TRANSFER OF STOCK BY DIRECTORS AND OFFICERS
All shares of the common stock purchased by our directors and officers
in the offering will be subject to the restriction that such shares may not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares (i) following the
death of the original purchaser or (ii) by reason of an exchange of securities
in connection with a merger or acquisition approved by the applicable regulatory
authorities. Sales of shares of the common stock by Lincoln Park Bancorp's
directors and officers will also be subject to certain insider trading and other
transfer restrictions under the federal securities laws. See
"Regulation--Federal Securities Laws."
Purchases of outstanding shares of common stock of Lincoln Park Bancorp
by directors, executive officers, or any person who was an executive officer or
director of Lincoln Park Savings after adoption of the plan of reorganization,
and their associates during the three-year period following the reorganization
and offering may be made only through a broker or dealer registered with the
Securities and Exchange Commission, except with the prior written approval of
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation,
if applicable. This restriction does not apply, however, to negotiated
transactions involving more than 1% of Lincoln Park Bancorp's outstanding common
stock or to the purchase of shares of common stock under the stock option plan
expected to be implemented subsequent to completion of the non-objection and
stock offering.
Lincoln Park Bancorp has filed with the Securities and Exchange
Commission a registration statement under the Securities Act of 1933, as
amended, for the registration of the shares of common stock to be issued in the
offering. The registration under the Securities Act of shares of the common
stock to be issued in the offering does not cover the resale of the shares of
common stock. Shares of common stock purchased by persons who are not affiliates
of Lincoln Park Bancorp may be resold without registration. Shares purchased by
an affiliate of Lincoln Park Bancorp will have resale restrictions under Rule
144 of the Securities Act of 1933. If
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Lincoln Park Bancorp meets the current public information requirements of Rule
144 under the Securities Act of 1933, each affiliate of Lincoln Park Bancorp who
complies with the other conditions of Rule 144, including those that require the
affiliate's sale to be aggregated with those of certain other persons, would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of 1% of the outstanding
shares of Lincoln Park Bancorp common stock or the average weekly volume of
trading in the shares of common stock during the preceding four calendar weeks.
Provision may be made in the future by Lincoln Park Bancorp to permit affiliates
to have their shares of common stock registered for sale under the Securities
Act of 1933 under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates
face certain reporting requirements upon purchase of the securities.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the plan of reorganization by the board of
directors will be final, subject to the authority of the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable. The plan of reorganization provides that, if deemed
necessary or desirable by the board of directors of Lincoln Park Savings, the
plan of reorganization may be substantially amended by a majority vote of the
board of directors as a result of comments from regulatory authorities or
otherwise, at any time prior to submission of proxy materials to Lincoln Park
Savings' members. Amendment of the plan of reorganization thereafter requires a
majority vote of the board of directors, with the concurrence of the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable. The plan of reorganization may be terminated by a
majority vote of the board of directors of Lincoln Park Savings at any time
prior to the earlier of approval or non-objection of the plan by the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable, and the date of the special meeting of members, and
may be terminated at any time thereafter with the concurrence of the Office of
Thrift Supervision, the Federal Deposit Insurance Corporation and the New Jersey
Commissioner, as applicable. Completion of the reorganization requires the
approval of the plan of reorganization by the affirmative vote of not less than
a majority of the total number of votes of members eligible to be cast at the
Special Meeting of Members. The plan of reorganization shall be terminated if
the reorganization and offering are not completed within 24 months from the date
on which the members of Lincoln Park Savings approve the plan of reorganization
and may not be extended by Lincoln Park Savings or the Office of Thrift
Supervision, Federal Deposit Insurance Corporation and the New Jersey
Commissioner.
125
STOCK INFORMATION CENTER
If you have any questions regarding the offering or the reorganization,
please call the Stock Information Center at (____) ____-______, from 10:00 a.m.
to 4:00 p.m., New Jersey time, Monday through Friday.
RESTRICTIONS ON THE ACQUISITION OF LINCOLN PARK BANCORP AND
LINCOLN PARK SAVINGS
GENERAL
The plan of reorganization provides for the conversion of Lincoln Park
Savings from the mutual to the stock form of organization and the concurrent
formation of a holding company and a mutual holding company. Certain provisions
in Lincoln Park Bancorp's charter and bylaws, together with certain governing
regulatory restrictions, may have anti-takeover effects.
MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure will restrict the ability of our
stockholders to effect a change in control of management because, as long as
Lincoln Park Bancorp, MHC remains in existence as a mutual savings and loan
holding company, it will control a majority of Lincoln Park Bancorp's voting
stock. Moreover, the directors of Lincoln Park Bancorp, MHC will be the
directors of Lincoln Park Bancorp and the directors of Lincoln Park Savings.
Lincoln Park Bancorp, MHC will be able to elect all of the members of the board
of Directors of Lincoln Park Bancorp, and as a general matter, will be able to
control the outcome of all matters presented to the stockholders of Lincoln Park
Bancorp for a vote. Therefore, a change in control of Lincoln Park Bancorp or
Lincoln Park Savings cannot occur unless Lincoln Park Bancorp, MHC, first
converts to the stock form of organization or is dissolved.
FEDERAL LAW
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings institution unless the Office of Thrift Supervision
has been given 60 days prior written notice. The Home Owners' Loan Act provides
that no company may acquire "control" of a savings institution without the prior
approval of the Office of Thrift Supervision. Any company that acquires such
control becomes a savings and loan holding company subject to registration,
examination and regulation by the Office of Thrift Supervision. Pursuant to
federal regulations, control of a savings institution is conclusively deemed to
have been acquired by, among other things, the acquisition of more than 25% of
any class of voting stock of the institution or the ability to control the
election of a majority of the directors of an institution. Moreover, control is
presumed to have been acquired, subject to rebuttal, upon the acquisition of
more than 10% of any class of voting stock, or of more than 25% of any class of
stock of a savings institution, where certain enumerated "control factors" are
also present in the acquisition.
The Office of Thrift Supervision may prohibit an acquisition of control
if:
126
o it would result in a monopoly or substantially lessen
competition;
o the financial condition of the acquiring person might jeopardize
the financial stability of the institution; or
o the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors
or of the public to permit the acquisition of control by such
person.
These restrictions do not apply to the acquisition of a savings
institution's capital stock by one or more tax-qualified employee stock benefit
plans, provided that the plans do not have beneficial ownership of more than 25%
of any class of equity security of the savings institution.
For a period of three years following completion of the stock issuance,
Office of Thrift Supervision regulations generally prohibit any person from
acquiring or making an offer to acquire beneficial ownership of more than 10% of
the stock of Lincoln Park Bancorp or Lincoln Park Savings without Office of
Thrift Supervision's prior approval.
CHARTER AND BYLAWS OF LINCOLN PARK BANCORP
The following discussion is a summary of certain provisions of the
charter and bylaws of Lincoln Park Bancorp that relate to corporate governance.
The description is necessarily general and qualified by reference to the charter
and bylaws.
CLASSIFIED BOARD OF DIRECTORS. The board of directors of Lincoln Park
Bancorp is required by the charter and bylaws to be divided into three staggered
classes which are as equal in size as is possible. Each year one class will
elected by stockholders of Lincoln Park Bancorp for a three-year term. A
classified board promotes continuity and stability of management of Lincoln Park
Bancorp, but makes it more difficult for stockholders to change a majority of
the directors because it generally takes at least two annual elections of
directors for this to occur.
AUTHORIZED BUT UNISSUED SHARES OF CAPITAL STOCK. Following the stock
offering, Lincoln Park Bancorp will have authorized but unissued shares of
preferred stock and common stock. See "Description of Capital Stock of Lincoln
Park Bancorp." Although these shares could be used by the board of directors of
Lincoln Park Bancorp to make it more difficult or to discourage an attempt to
obtain control of Lincoln Park Bancorp through a merger, tender offer, proxy
contest or otherwise, it is unlikely that we would use or need to use shares for
these purposes since Lincoln Park Bancorp, MHC owns a majority of the common
stock.
HOW SHARES ARE VOTED. Lincoln Park Bancorp's charter provides that there
will not be cumulative voting by stockholders for the election of Lincoln Park
Bancorp's directors. No cumulative voting rights means that Lincoln Park
Bancorp, MHC, as the holder of a majority of the shares eligible to be voted at
a meeting of stockholders, may elect all directors of Lincoln Park Bancorp to be
elected at that meeting. This could prevent minority stockholder representation
on Lincoln Park Bancorp's board of directors.
127
RESTRICTIONS ON ACQUISITIONS OF SHARES. Lincoln Park Savings' charter
provides that for a period of five years from the closing of the stock issuance,
no person other than Lincoln Park Bancorp and Lincoln Park Bancorp, MHC, may
offer directly or indirectly to acquire or acquire the beneficial ownership of
more than 10% of any class of equity security of Lincoln Park Savings. This
provision does not apply to any tax-qualified employee benefit plan of Lincoln
Park Savings or Lincoln Park Bancorp or to an underwriter or member of an
underwriting or selling group involving the public sale or resale of securities
of Lincoln Park Bancorp or any of its subsidiaries so long as after the sale or
resale, no underwriter or member of the selling group is a beneficial owner of
more than 10% of any class of equity securities of Lincoln Park Bancorp. In
addition, during this five-year period, all shares owned over the 10% limit may
not be voted in any matter submitted to stockholders for a vote. The inclusion
of this provision in Lincoln Park Savings' charter is deemed to restrict the
acquisition and voting of shares of Lincoln Park Bancorp.
PROCEDURES FOR STOCKHOLDER NOMINATIONS. Lincoln Park Bancorp's bylaws
provide that any stockholder wanting to make a nomination for the election of
directors or a proposal for new business at a meeting of stockholders must send
written notice to the Secretary of Lincoln Park Bancorp at least five days
before the date of the annual meeting. The bylaws further provide that if a
stockholder wanting to make a nomination or a proposal for new business does not
follow the prescribed procedures, the proposal will not be considered until an
adjourned, special, or annual meeting of the shareholders taking place 30 days
or more thereafter. Management believes that it is in the best interests of
Lincoln Park Bancorp and its stockholders to provide enough time for management
to disclose to stockholders information about a dissident slate of nominations
for directors. This advance notice requirement may also give management time to
solicit its own proxies in an attempt to defeat any dissident slate of
nominations if management thinks it is in the best interest of stockholders
generally. Similarly, adequate advance notice of stockholder proposals will give
management time to study such proposals and to determine whether to recommend to
the stockholders that such proposals be adopted.
BENEFIT PLANS
In addition to the provisions of Lincoln Park Bancorp's charter and
bylaws described above, certain benefit plans of Lincoln Park Bancorp and
Lincoln Park Savings adopted in connection with the stock offering, or expected
to be adopted following completion of the stock offering, contain, or may
contain, provisions which also may discourage hostile takeover attempts which
the board of directors of Lincoln Park Savings might conclude are not in the
best interests of Lincoln Park Bancorp and Lincoln Park Savings or Lincoln Park
Bancorp's stockholders.
128
DESCRIPTION OF CAPITAL STOCK OF LINCOLN PARK BANCORP
GENERAL
Lincoln Park Bancorp is authorized to issue 5,000,000 shares of common
stock having a par value of $.01 per share and 1,000,000 shares of serial
preferred stock. Each share of Lincoln Park Bancorp's common stock will have the
same relative rights as, and will be identical in all respects with, each other
share of common stock. Upon payment of the purchase price for the common stock
in accordance with the stock issuance plan, all of the stock will be duly
authorized, fully paid and nonassessable. Presented below is a description of
Lincoln Park Bancorp's capital stock which are deemed material to an investment
decision with respect to the offering. The common stock of Lincoln Park Bancorp
will represent nonwithdrawable capital, will not be an account of an insurable
type, and will not be insured by the Federal Deposit Insurance Corporation.
Lincoln Park Bancorp currently expects that it will have a maximum of up
to 1,236,250 shares of common stock outstanding after the stock offering, of
which 568,675 shares will be held by persons other than Lincoln Park Bancorp,
MHC. The board of directors can, without stockholder approval, issue additional
shares of common stock, although Lincoln Park Bancorp, MHC, so long as it is in
existence, must own a majority of Lincoln Park Bancorp's outstanding shares of
common stock. Lincoln Park Bancorp's issuance of additional shares of common
stock could dilute the voting strength of the holders of the common stock and
may assist management in impeding an unfriendly takeover or attempted change in
control. Lincoln Park Bancorp has no present plans to issue additional shares of
common stock other than pursuant to the stock benefit plans previously
discussed.
COMMON STOCK
DISTRIBUTIONS. Lincoln Park Bancorp can pay dividends if, as and when
declared by its board of directors, subject to compliance with limitations which
are imposed by law. The holders of common stock of Lincoln Park Bancorp will be
entitled to receive and share equally in such dividends as may be declared by
the board of directors of Lincoln Park Bancorp out of funds legally available
therefor. If Lincoln Park Bancorp issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.
VOTING RIGHTS. Upon the effective date of the stock offering, the
holders of common stock of Lincoln Park Bancorp will possess exclusive voting
rights in Lincoln Park Bancorp Each holder of common stock will be entitled to
one vote per share and will not have any right to cumulate votes in the election
of directors. Under certain circumstances, shares in excess of 10% of the issued
and outstanding shares of common stock may be considered "Excess Shares" and,
accordingly, will not be entitled to vote. See "Restrictions on the Acquisition
of Lincoln Park Bancorp and Lincoln Park Savings." If Lincoln Park Bancorp
issues preferred stock, holders of the preferred stock may also possess voting
rights.
LIQUIDATION. In the event of any liquidation, dissolution or winding up
of Lincoln Park Savings, Lincoln Park Bancorp, as holder of Lincoln Park
Savings' capital stock, would be
129
entitled to receive, after payment or provision for payment of all debts and
liabilities of Lincoln Park Savings, including all deposit accounts and accrued
interest thereon, all assets of Lincoln Park Savings available for distribution.
In the event of liquidation, dissolution or winding up of Lincoln Park Bancorp,
the holders of its common stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of
Lincoln Park Bancorp available for distribution. If preferred stock is issued,
the holders thereof may have a priority over the holders of the common stock in
the event of liquidation or dissolution.
RIGHTS TO BUY ADDITIONAL SHARES. Holders of the common stock of Lincoln
Park Bancorp will not be entitled to preemptive rights with respect to any
shares which may be issued. Preemptive rights are the priority right to buy
additional shares if Lincoln Park Bancorp issues more shares in the future. The
common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of Lincoln Park Bancorp's authorized preferred stock
will be issued in the stock issuance. Such stock may be issued with such
preferences and designations as the board of directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. Lincoln Park Bancorp has no present plans to issue preferred stock.
TRANSFER AGENT AND REGISTRAR
__________________, _________, __________ will act as the transfer agent
and registrar for the common stock.
LEGAL AND TAX MATTERS
The legality of the common stock and the federal income tax consequences
of the reorganization and offering have been passed upon for Lincoln Park
Savings and Lincoln Park Bancorp by the firm of Luse Gorman Pomerenk & Schick,
P.C., Washington, D.C. The New Jersey state income tax consequences of the
reorganization and offering have been passed upon for Lincoln Park Savings and
Lincoln Park Bancorp by Radics & Co., LLC, Pine Brook, New Jersey. Luse Gorman
Pomerenk & Schick, P.C. and Radics & Co., LLC have consented to the references
in this prospectus to their opinions. Certain legal matters regarding the
reorganization and offering will be passed upon for Sandler O'Neill Partners,
L.P. by Elais, Matz, Tiernan & Herrick, L.L.P., Washington, D.C.
EXPERTS
The financial statements of Lincoln Park Savings at December 31, 2003
and 2002 and for the years then ended, appearing in this prospectus and
registration statement have been audited by Radics & Co., LLC, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
130
RP Financial, LC. has consented to the publication in this prospectus of
the summary of its report to Lincoln Park Savings and Lincoln Park Bancorp
setting forth its opinion as to the estimated pro forma market value of the
common stock upon the completion of the reorganization and offering and its
valuation with respect to subscription rights.
WHERE YOU CAN FIND MORE INFORMATION
Lincoln Park Bancorp has filed a registration statement with the
Securities and Exchange Commission under the Securities Act of 1933, with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Securities and Exchange Commission, this prospectus does not
contain all the information set forth in the registration statement. This
information can be examined without charge at the public reference facilities of
the Securities and Exchange Commission located at 450 Fifth Street, NW,
Washington, D.C. 20549, and copies of the material can be obtained from the
Securities and Exchange Commission at prescribed rates. The registration
statement also is available through the Securities and Exchange Commission's
world wide web site on the internet at http://www.sec.gov. The statements
contained in this prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete but do contain all
material information regarding the documents; each statement is qualified by
reference to the contract or document.
Lincoln Park Savings has filed a Combined Application MHC-1/MHC-2 with
the Office of Thrift Supervision with respect to the reorganization and
offering. Pursuant to the rules and regulations of the Office of Thrift
Supervision, this prospectus omits certain information contained in that
Application. The Application may be examined at the principal offices of the
Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552 and at
the Northeast Regional Office of the Office of Thrift Supervision located at
Harborside Financial Center Plaza Five, Suite 1600, Jersey City, New Jersey
07311.
Lincoln Park Bancorp has filed applications for conversion with the
Commissioner of Banking and Insurance of the State of New Jersey and with the
Federal Deposit Insurance Corporation. This prospectus omits some information
contained in those applications.
A copy of the charter and bylaws of Lincoln Park Bancorp are available
without charge from Lincoln Park Savings.
REGISTRATION REQUIREMENTS
In connection with the offering, Lincoln Park Bancorp will register the
common stock with the Securities and Exchange Commission under Section 12(g) of
the Securities Exchange Act of 1934; and, upon this registration, Lincoln Park
Bancorp and the holders of its shares of common stock will become subject to the
proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the
Securities Exchange Act of 1934. Under the plan of reorganization, Lincoln Park
Bancorp has undertaken that it will not terminate this registration for a period
of at least three years following the reorganization.
131
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
FINANCIAL STATEMENTS
(With Independent Auditors' Report Thereon)
INDEX
Page
-----------
Management Responsibility Statement F-2
Independent Auditors' Report F-3
Statements of Financial Condition as of March 31, 2004
(Unaudited), and December 31, 2003 and 2002 F-4
Statements of Income for the Three Months Ended March 31,
2004 and 2003 (Unaudited), and for the Years Ended
December 31, 2003 and 2002 F-5
Statements of Comprehensive Income for the Three Months
Ended March 31, 2004 and 2003 (Unaudited), and for the Years
Ended December 31, 2003 and 2002 F-6
Statements of Retained Earnings for the Three Months Ended
March 31, 2004 (Unaudited), and for the Years Ended
December 31, 2003 and 2002 F-7
Statements of Cash Flows for the Three Months Ended March 31,
2004 and 2003 (Unaudited), and for the Years Ended December
31, 2003 and 2002 F-8
Notes to Financial Statements F-9 - F-27
All schedules are omitted as the required information is either not applicable
or is presented in the financial statements.
The financial statements of Lincoln Park Bancorp have been omitted because
Lincoln Park Bancorp has not yet been formed and therefore has not issued any
stock, has no assets and no liabilities and has not conducted any business.
F-1
[LOGO] LP LINCOLN PARK SAVINGS
& LOAN ASSOCIATION
31 Boonton Turnpike, Lincoln Park, New Jersey 07035
(973) 694-0330 o Facsimile (973) 694-3114
March 11, 2004
MANAGEMENT RESPONSIBILITY STATEMENT
Management of Lincoln Park Savings and Loan Association is responsible for the
preparation of the financial statements and all other financial information
included in this report. Financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America. All
financial information included in the report agrees with the financial
statements. In preparing the financial statements, management makes informed
estimates and judgements, with consideration given to materiality, about the
expected results of various events and transactions.
Management maintains a system of internal accounting control that includes
personnel selection, appropriate division of responsibilities, and formal
procedures and policies consistent with high standards of accounting and
administrative practice. Consideration has been given to the necessary balance
between the costs of systems of internal control and the benefits derived.
Management reviews and modifies its system of accounting and internal control in
light of changes in conditions and operations as well as in response to
recommendations from the independent certified public accountants. Management
believes the accounting and internal control systems provide reasonable
assurance that assets are safeguarded and financial information is reliable.
The Board of Directors is responsible for determining that management fulfills
its responsibilities in the preparation of financial statements and the control
of operations. The Board appoints the independent certified public accountants.
The Board meets with management and the independent certified public
accountants, approves the overall scope of audit work and related fee
arrangements, and reviews audit reports and findings.
/s/ Donald S. Hom, President
-------------------------------------------
Donald S. Hom, President
/s/ Nandini S. Mallya
-------------------------------------------
Nandini S. Mallya, Vice President/Treasurer
F-2
[Letterhead of Radics & Co., LLC]
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Lincoln Park Savings and Loan Association
We have audited the accompanying statements of financial condition of Lincoln
Park Savings and Loan Association (the "Association") as of December 31, 2003
and 2002, and the related statements of income, comprehensive income, retained
earnings and cash flows for the years then ended. These financial statements are
the responsibility of the Association's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to in the second preceding
paragraph present fairly, in all material respects, the financial position of
Lincoln Park Savings and Loan Association at December 31, 2003 and 2002, and the
results of its operations and cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Radics & Co., LLC
Pine Brook, New Jersey
March 11, 2004
F-3
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
------------------------------------------------
December 31,
March 31, --------------------------------
Note(s) 2004 2003 2002
--------------- --------------- --------------- ---------------
(Unaudited)
ASSETS
Cash and amounts due from depository institutions $ 1,349,959 $ 1,423,614 $ 1,335,169
Interest-bearing deposits 2,630,357 1,658,854 1,325,761
Federal funds sold - - 900,000
----------- ----------- -----------
Total cash and cash equivalents 1 3,980,316 3,082,468 3,560,930
Term deposits 2 665,306 1,060,190 2,838,393
Securities available for sale 1 and 3 5,629,229 5,811,339 3,652,310
Securities held to maturity 1 and 4 13,559,543 13,507,348 16,378,381
Loans receivable 1, 5 and 9 49,540,523 48,913,463 34,410,095
Premises and equipment 1 and 6 931,582 940,598 956,113
Federal Home Loan Bank of New York stock 9 617,400 569,500 345,200
Interest receivable 1 and 7 384,652 355,881 374,082
Other assets 38,805 40,343 44,009
----------- ----------- -----------
Total assets $75,347,356 $74,281,130 $62,559,513
=========== =========== ===========
LIABILITIES AND RETAINED EARNINGS
LIABILITIES
Deposits 8 $57,043,827 $57,290,264 $53,365,134
Advances from Federal Home Loan Bank of New York 9 12,347,196 11,389,477 4,000,000
Advance payments by borrowers for taxes and insurance 321,910 291,545 231,653
Other liabilities 11 337,789 179,516 186,703
----------- ----------- -----------
Total liabilities 70,050,722 69,150,802 57,783,490
----------- ----------- -----------
Commitments and contingencies 14 - - -
RETAINED EARNINGS 10, 11, and 15
Retained earnings - substantially restricted 5,246,284 5,104,900 4,734,236
Accumulated other comprehensive income 50,350 25,428 41,787
----------- ----------- -----------
Total retained earnings 5,296,634 5,130,328 4,776,023
----------- ----------- -----------
Total liabilities and retained earnings $75,347,356 $74,281,130 $62,559,513
=========== =========== ===========
See notes to financial statements.
F-4
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF INCOME
----------------------------------------------
Three Months Year Ended
Ended March 31, December 31,
------------------------------ ---------------------------
Note(s) 2004 2003 2003 2002
------------- ---------- ------------ ----------- ------------
Unaudited)
Interest income:
Loans 1 and 5 $ 663,914 $ 517,276 $ 2,364,106 $ 2,198,926
Securities 1 220,066 241,038 819,247 886,458
Other interest-earning assets 8,051 30,557 78,960 144,139
---------- ---------- ----------- -----------
Total interest income 892,031 788,871 3,262,313 3,229,523
---------- ---------- ----------- -----------
Interest expense:
Deposits: 8
NOW and Money Market 33,158 38,692 142,717 189,401
Savings and club 42,553 44,439 168,988 216,080
Certificates of deposit 147,769 180,335 673,892 857,889
---------- ---------- ----------- -----------
223,480 263,466 985,597 1,263,370
Borrowings 86,163 66,623 229,695 47,291
---------- ---------- ----------- -----------
Total interest expense 309,643 330,089 1,215,292 1,310,661
---------- ---------- ----------- -----------
Net interest income 582,388 458,782 2,047,021 1,918,862
(Recovery of) provision for loan losses 1 and 5 (16,486) 9,652 34,760 8,569
---------- ---------- ----------- -----------
Net interest income after (recovery of) provision
for loan losses 598,874 449,130 2,012,261 1,910,293
---------- ---------- ----------- -----------
Non-interest income:
Fees and service charges 21,541 21,376 87,355 76,372
Gain on sales of securities 3 and 4 - 5,204 47,499 -
Impairment loss on security available for sale - - - (85,000)
Gain (loss) on calls of term deposits and securities
held to maturity 2,075 - (2,270) (27,447)
Other 5,046 5,172 23,519 22,034
---------- ---------- ----------- -----------
Total non-interest income (loss) 28,662 31,752 156,103 (14,041)
---------- ---------- ----------- -----------
Non-interest expenses:
Salaries and employee benefits 12 199,162 182,314 745,217 713,283
Occupancy expense of premises 1 28,608 31,832 121,229 104,031
Equipment 1 52,410 56,222 207,206 190,387
Advertising 8,040 3,231 35,073 37,670
Federal insurance premium 2,183 2,191 8,643 8,321
Other 13 101,897 109,092 432,113 393,578
---------- ---------- ----------- -----------
Total non-interest expenses 392,300 384,882 1,549,481 1,447,270
---------- ---------- ----------- -----------
Income before income taxes 235,236 96,000 618,883 448,982
Income taxes 1 and 11 93,852 35,202 248,219 172,846
---------- ---------- ----------- -----------
Net income $ 141,384 $ 60,798 $ 370,664 $ 276,136
========== ========== =========== ===========
See notes to financial statements.
F-5
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF COMPREHENSIVE INCOME
----------------------------------------------
Three Months Ended March 31, Year Ended December 31,
---------------------------- -----------------------
2004 2003 2003 2002
-------- -------- -------- --------
(Unaudited)
Net income $141,384 $ 60,798 $370,664 $276,136
-------- -------- -------- --------
Other comprehensive income (loss) , net of income taxes:
Unrealized holding gain (loss) on securities available for sale,
net of deferred income taxes of $16,600, $4,104,
$3,909 and $(13,759), respectively 24,922 5,696 11,359 (28,560)
Reclassification adjustment for realized (gain) loss on securities
available for sale, net of deferred income taxes of $ - ,
$2,078, $18,432 and $(33,949), respectively - (3,126) (27,718) 51,051
-------- -------- -------- --------
Other comprehensive income (loss) 24,922 2,570 (16,359) 22,491
-------- -------- -------- --------
Comprehensive income $166,306 $ 63,368 $354,305 $298,627
======== ======== ======== ========
See notes to financial statements.
F-6
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF RETAINED EARNINGS
----------------------------------------------
Retained Accumulated
Earnings - Other
Substantially Comprehensive
Restricted Income Total
--------------- ---------------- --------------
Balance, December 31, 2001 $4,458,100 $ 19,296 $4,477,396
Net income for the year ended December 31, 2002 276,136 - 276,136
Unrealized gain on securities
available for sale, net - 22,491 22,491
---------- ------------ ----------
Balance, December 31, 2002 4,734,236 41,787 4,776,023
Net income for the year ended December 31, 2003 370,664 - 370,664
Unrealized (loss) on securities
available for sale, net - (16,359) (16,359)
---------- ------------ ----------
Balance, December 31, 2003 5,104,900 25,428 5,130,328
Net income for the three months ended
March 31, 2004 (unaudited) 141,384 - 141,384
Unrealized gain on securities available for
sale, net (unaudited) - 24,922 24,922
---------- ------------ ----------
Balance, March 31, 2004 (unaudited) $5,246,284 $ 50,350 $5,296,634
========== ============ ==========
See notes to financial statements.
F-7
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
----------------------------------------------
Three Months Year Ended
Ended March 31, December 31,
-------------------------- -------------------------
2004 2003 2003 2002
----------- ----------- ----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 141,384 $ 60,798 $ 370,664 $ 276,136
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation of premises and equipment 15,321 20,521 82,563 87,597
Amortization and accretion, net 6,163 7,057 44,897 (23,715)
Impairment loss on security available for sale - - - 85,000
Gain on sale of securities available for sale - (3,806) (46,150) -
Gain on sale of security held to maturity - (1,349) (1,349) -
(Gain) loss on calls of term deposits and securities
held to maturity (2,075) - 2,270 27,447
(Recovery of) provision for loan losses (16,486) 9,652 34,760 8,569
(Increase) decrease in interest receivable (28,771) 12,361 18,201 (74,269)
Decrease (increase) in other assets 1,538 3,870 3,666 (8,947)
Increase in accrued interest payable 2,331 4,105 15,447 7,675
Deferred income taxes 13,305 (9,800) (18,470) (17,792)
Increase (decrease) in other liabilities 126,390 (79,752) 9,000 17,560
----------- ----------- ----------- -----------
Net cash provided by operating activities 259,100 23,657 515,499 385,261
----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of term deposits - (693,000) (792,000) (2,367,000)
Proceeds from maturities and calls of term deposits 396,000 1,192,588 2,575,637 2,377,000
Purchases of securities available for sale - - (3,799,688) (700,760)
Proceeds from maturities and calls of securities available for sale 200,000 500,000 700,000 100,008
Principal repayments on securities available for sale 22,136 119,122 432,772 302,349
Proceeds from sales of securities available for sale - 103,362 764,945 -
Purchases of securities held to maturity (1,487,775) (2,000,000) (7,918,586) (12,814,214)
Proceeds from maturities and calls of securities held to maturity 1,300,000 3,200,000 8,550,000 2,689,919
Principal repayments on securities held to maturity 137,531 631,182 1,884,075 1,414,836
Proceeds from sale of security held to maturity - 100,000 100,000 -
Proceeds from the sale of a loan participation - - 225,000 -
Purchase of loans - - (115,000) -
Net (increase) in loans receivable (616,233) (3,064,100) (14,685,626) (2,249,805)
Additions to premises and equipment (6,305) (962) (67,048) (5,556)
Purchase of Federal Home Loan Bank of New York stock (47,900) - (237,800) (28,500)
Redemption of Federal Home Loan Bank of New York - - 13,500 -
----------- ----------- ----------- -----------
Net cash (used in) provided by investing activities (102,546) 88,192 (12,369,819) (11,281,723)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Net (decrease) increase in deposits (246,790) 1,176,301 3,926,489 6,705,461
Proceeds of advances from the Federal Home Loan Bank of New York 4,100,000 - 11,725,000 3,000,000
Repayments of advances from the Federal Home Loan Bank of New York (3,142,281) (1,000,000) (4,335,523) -
Increase (decrease) in advance payments by borrowers for taxes
and insurance 30,365 25,648 59,892 (15,658)
----------- ----------- ----------- -----------
Net cash provided by financing activities 741,294 201,949 11,375,858 9,689,803
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 897,848 313,798 (478,462) (1,206,659)
Cash and cash equivalents - beginning 3,082,468 3,560,930 3,560,930 4,767,589
----------- ----------- ----------- -----------
Cash and cash equivalents - ending $ 3,980,316 $ 3,874,728 $ 3,082,468 $ 3,560,930
=========== =========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 51,068 $ 62,504 $ 270,404 $ 163,644
=========== =========== =========== ===========
Interest $ 307,312 $ 325,984 $ 1,199,845 $ 1,302,986
=========== =========== =========== ===========
See notes to financial statements.
F-8
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements of the Association have been prepared in
conformity with accounting principles generally accepted in the United
States of America ("GAAP"). In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the dates of the
statement of financial condition and revenues and expenses for the
periods then ended. Actual results could differ significantly from those
estimates. A material estimate that is particularly susceptible to
significant change relates to the determination of the allowance for loan
losses. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses
on loans, future additions to the allowance for loan losses may be
necessary based on changes in economic conditions in the market area.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Association's allowance for
loan losses. Such agencies may require the Association to recognize
additions to the allowance based on their judgments about information
available to them at the time of their examination.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and amounts due from depository
institutions, interest-bearing deposits having original maturities of
three months or less and federal funds sold. Generally, federal funds
sold are sold for one day periods.
SECURITIES AVAILABLE FOR SALE AND HELD TO MATURITY
Investments in debt securities that the Association has the positive
intent and ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in
the near term are classified as trading securities and reported at fair
value, with unrealized holding gains and losses included in earnings.
Debt and equity securities not classified as trading securities nor as
held-to-maturity securities are classified as available for sale
securities and reported at fair value, with unrealized holding gains or
losses, net of applicable deferred income taxes, reported in the
accumulated other comprehensive income component of retained earnings.
Premiums and discounts on all securities are amortized/accreted to
maturity using the interest method. Interest and dividend income on
securities, which includes amortization of premiums and accretion of
discounts, is recognized in the financial statements when earned. Gains
or losses on sales are recognized based on the specific identification
method.
LOANS RECEIVABLE
Loans receivable are carried at unpaid principal balances plus net
deferred loan origination costs, less the allowance for loan losses.
Loan origination fees and certain direct loan origination costs are
deferred and amortized as an adjustment of yield over the contractual
lives of the related loans.
F-9
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is maintained at a level considered adequate
to absorb loan losses. Management of the Association, in determining the
allowance for loan losses, considers the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activities,
along with the general economic and real estate market conditions. The
Association utilizes a two tier approach: (1) identification of impaired
loans and establishment of specific loss allowances on such loans; and
(2) establishment of general valuation allowances on the remainder of its
loan portfolio. The Association maintains a loan review system which
allows for a periodic review of its loan portfolio and the early
identification of potential impaired loans. Such system takes into
consideration, among other things, delinquency status, size of loans,
types of collateral and financial condition of the borrowers. Specific
loan loss allowances are established for identified loans based on a
review of such information and/or appraisals of the underlying
collateral. General loan loss allowances are based upon a combination of
factors including, but not limited to, actual loan loss experience,
composition of the loan portfolio, current economic conditions and
management's judgment. Although management believes that adequate
specific and general allowances for loan losses are established, actual
losses are dependent upon future events and, as such, further additions
to the level of specific and general loan loss allowances may be
necessary.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate, or as a
practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. A loan
evaluated for impairment is deemed to be impaired when, based on current
information and events, it is probable that the Association will be
unable to collect all amounts due according to the contractual terms of
the loan agreement. All loans identified as impaired are evaluated
independently. The Association does not aggregate such loans for
evaluation purposes. Payments received on impaired loans are applied
first to accrued interest receivable and then to principal. The
Association did not have, during the periods covered in the financial
statements, any loans deemed to be impaired.
ALLOWANCE FOR UNCOLLECTED INTEREST
The Association provides an allowance for the loss of uncollected
interest on loans contractually delinquent ninety days or more. Such
interest ultimately collected is credited to income in the period of
recovery.
CONCENTRATION OF RISK
The Association's lending activity is concentrated in loans secured by
real estate located in the State of New Jersey.
F-10
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
PREMISES AND EQUIPMENT
Land is carried at cost. Building, building improvements and furniture,
fixtures and equipment are carried at cost, less accumulated
depreciation. Depreciation charges are computed on the straight-line
method over the following estimated useful lives:
Building 30 to 50 years
Building improvements 5 to 25 years
Furniture, fixtures and equipment 3 to 7 years
Significant renovations and additions are charged to the property and
equipment account. Maintenance and repairs are charged to expense in the
period incurred.
INTEREST-RATE RISK
The Association is principally engaged in the business of attracting
deposits from the general public and using these deposits, together with
other funds, to make loans secured by real estate and to purchase
securities. The potential for interest-rate risk exists as a result of
the generally shorter duration of the Association's interest-sensitive
liabilities compared to the generally longer duration of its
interest-sensitive assets. In a rising rate environment, liabilities will
reprice faster than assets, thereby reducing net interest income. For
this reason, management regularly monitors the maturity structure of the
Association's interest-earning assets and interest-bearing liabilities in
order to measure its level of interest-rate risk and to plan for future
volatility.
INCOME TAXES
Federal and state income taxes have been provided on the basis of
reported income. The amounts reflected on the Association's tax return
differs from these provisions due principally to temporary differences in
the reporting of certain items for financial reporting and income tax
reporting purposes. The tax effect of these temporary differences is
accounted for as deferred taxes applicable to future periods. Deferred
income tax expense or benefit is determined by recognizing deferred tax
assets and liabilities for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in earnings in the period that includes the enactment date.
The realization of deferred tax assets is assessed and a valuation
allowance provided, when necessary, for that portion of the asset which
is not likely to be realized. Management believes, based upon current
facts, that it is more likely than not that there will be sufficient
taxable income in future years to realize all deferred tax assets.
RECLASSIFICATION
Certain amounts for prior periods have been reclassified to conform to
the current period's presentation.
F-11
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
2. TERM DEPOSITS
December 31,
March 31, ----------------------------
2004 2003 2002
----------- ----------- -----------
(Unaudited)
Due within one year $ 396,000 $ 792,000 $ 2,376,000
Due after one through five years 173,306 172,190 96,000
Due after five through ten years 96,000 96,000 263,874
Due after ten years - - 102,519
----------- ----------- -----------
$ 665,306 $ 1,060,190 $ 2,838,393
=========== =========== ===========
3. SECURITIES AVAILABLE FOR SALE
March 31, 2004 (Unaudited)
------------------------------------------------------
Gross Unrealized
Amortized ------------------------- Carrying
Cost Gains Losses Value
------------- ------------ ----------- ------------
U.S. Government Agencies:
Due after one through five years $ 500,000 $ 780 $ - $ 500,780
Due after five through ten years 1,000,000 6,575 - 1,006,575
Due after ten years 2,199,692 31,673 - 2,231,365
---------- --------- ------ -----------
3,699,692 39,028 - 3,738,720
---------- --------- ------ -----------
Corporate bonds:
Due within one year 500,058 5,930 - 505,988
Due after one year through five years 607,660 35,353 - 643,013
Due after ten years 150,000 - 563 149,437
---------- --------- ------ -----------
1,257,718 41,283 563 1,298,438
---------- --------- ------ -----------
Mortgage-backed securities
Due after ten years 236,780 1,813 9,176 229,417
---------- --------- ------ -----------
Municipal Bonds:
Due after five through ten years 351,089 11,565 - 362,654
---------- --------- ------ -----------
$5,545,279 $ 93,689 $9,739 $ 5,629,229
========== ========= ====== ===========
F-12
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
3. SECURITIES AVAILABLE FOR SALE (Cont'd.)
December 31, 2003
------------------------------------------------------
Gross Unrealized
Amortized ------------------------- Carrying
Cost Gains Losses Value
------------- ------------ ----------- ------------
U.S. Government Agencies:
Due after one through five years $ 500,000 $ - $ 1,405 $ 498,595
Due after five through ten years 1,000,000 - 3,125 996,875
Due after ten years 2,199,688 4,687 8,422 2,195,953
---------- --------- ------- -----------
3,699,688 4,687 12,952 3,691,423
---------- --------- ------- -----------
Corporate bonds:
Due within one year 599,696 6,772 - 606,468
Due after one year through five years 709,292 44,608 - 753,900
Due after ten years 150,000 1,949 - 151,949
---------- --------- ------- -----------
1,458,988 53,329 - 1,512,317
---------- --------- ------- -----------
Mortgage-backed securities
Due after ten years 259,116 2,061 9,599 251,578
---------- --------- ------- -----------
Municipal Bonds:
Due after five through ten years 351,119 5,830 928 356,021
---------- --------- ------- -----------
$5,768,911 $ 65,907 $23,479 $ 5,811,339
========== ========= ======= ===========
December 31, 2002
------------------------------------------------------
Gross Unrealized
Amortized ------------------------- Carrying
Cost Gains Losses Value
------------- ------------ ----------- ------------
U.S. Government Agencies:
Due after ten years $ 500,000 $ 1,405 $ - $ 501,405
---------- --------- ------ -----------
Corporate bonds:
Due within one year 302,600 3,948 306,548
Due after five through ten years 1,933,021 61,880 - 1,994,901
Due after ten years 150,000 5,026 - 155,026
---------- --------- ------ -----------
2,385,621 70,854 - 2,456,475
---------- --------- ------ -----------
Mortgage-backed securities
Due after ten years 493,265 1,788 - 495,053
---------- --------- ------ -----------
Collateralized mortgage obligation:
Due after ten years 200,114 - 737 199,377
---------- --------- ------ -----------
$3,579,000 $ 74,047 $ 737 $ 3,652,310
========== ========= ====== ===========
F-13
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
3. SECURITIES AVAILABLE FOR SALE (Cont'd.)
During the year ended December 31, 2003, securities available for sale were sold
for net proceeds of $764,945, resulting in gross gains of $46,150. During the
three months ended March 31, 2003 (unaudited), securities available for sale
were sold for net proceeds of $103,362, resulting in gross gains of $3,806.
There were no sales of securities available for sale during the year ended
December 31, 2002, and the three months ended March 31, 2004 (unaudited).
4. SECURITIES HELD TO MATURITY
March 31, 2004 (Unaudited)
-----------------------------------------------------------
Gross Unrealized
Carrying -------------------------- Estimated
Value Gains Losses Fair Value
-------------- ------------ ------------ -------------
U.S. Government Agencies:
Due after five years through ten years $ 2,960,704 $ 28,984 $ - $ 2,989,688
Due after ten years 6,147,154 60,107 27,065 6,180,196
------------ ---------- --------- -----------
9,107,858 89,091 27,065 9,169,884
------------ ---------- --------- -----------
Corporate bonds:
Due within one year 300,324 8,777 - 309,101
Due after one year through five years 483,633 37,583 - 521,216
Due after five years through ten years 1,057,053 26,577 14,000 1,069,630
After ten years 500,000 625 6,875 493,750
------------ ---------- --------- -----------
2,341,010 73,562 20,875 2,393,697
------------ ---------- --------- -----------
Mortgage-backed securities:
Due after one year through five years 11,763 572 - 12,335
Due after five years through ten years 1,175 80 - 1,255
Due after ten years 1,606,884 25,326 10,758 1,621,452
------------ ---------- --------- -----------
1,619,822 25,978 10,758 1,635,042
------------ ---------- --------- -----------
Municipal bonds:
Due after ten years 490,853 13,041 - 503,894
------------ ---------- --------- -----------
$ 13,559,543 $ 201,672 $ 58,698 $13,702,517
============ ========== ========= ===========
F-14
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
4. SECURITIES HELD TO MATURITY (Cont'd.)
December 31, 2003
-----------------------------------------------------------
Gross Unrealized
Carrying -------------------------- Estimated
Value Gains Losses Fair Value
-------------- ------------ ------------ -------------
U.S. Government Agencies:
Due after five years through ten years $ 4,058,929 $ 16,827 $ 34,215 $ 4,041,541
Due after ten years 4,759,192 27,016 130,575 4,655,633
------------ ---------- --------- -----------
8,818,121 43,843 164,790 8,697,174
------------ ---------- --------- -----------
Corporate bonds:
Due within one year 199,729 2,452 - 202,181
Due after one year through five years 781,954 59,346 - 841,300
Due after five years through ten years 1,059,040 20,691 7,000 1,072,731
Due after ten years 500,000 - 12,275 487,725
------------ ---------- --------- -----------
2,540,723 82,489 19,275 2,603,937
------------ ---------- --------- -----------
Mortgage-backed securities:
Due after one year through five years 91,814 5,073 182 96,705
Due after five years through ten years 2,822 170 - 2,992
Due after ten years 1,663,031 42,000 9,432 1,695,599
------------ ---------- --------- -----------
1,757,667 47,243 9,614 1,795,296
------------ ---------- --------- -----------
Municipal bonds:
Due after ten years 390,837 8,706 - 399,543
------------ ---------- --------- -----------
$ 13,507,348 $ 182,281 $ 193,679 $13,495,950
============ ========== ========= ===========
F-15
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
4. SECURITIES HELD TO MATURITY (Cont'd.)
December 31, 2002
-----------------------------------------------------------
Gross Unrealized
Carrying -------------------------- Estimated
Value Gains Losses Fair Value
-------------- ------------ ------------ -------------
U.S. Government Agencies:
Due after one year through five years $ 250,000 $ 2,735 $ - $ 252,735
Due after five years through ten years 5,760,072 56,951 - 5,817,023
Due after ten years 3,802,384 20,724 20,265 3,802,843
------------- ---------- --------- -----------
9,812,456 80,410 20,265 9,872,601
------------- ---------- --------- -----------
Corporate bonds:
Due within one year 449,478 - 6,675 442,803
Due after one year through five years 892,433 22,408 - 914,841
Due after five years through ten years 197,869 12,532 - 210,401
Due after ten years 750,000 - 530 749,470
------------- ---------- --------- -----------
2,289,780 34,940 7,205 2,317,515
------------- ---------- --------- -----------
Mortgage-backed securities:
Due within one year 29 - - 29
Due after one year through five years 8,355 584 - 8,939
Due after five years through ten years 22,727 1,319 - 24,046
Due after ten years 2,927,758 94,936 3,676 3,019,018
------------- ---------- --------- -----------
2,958,869 96,839 3,676 3,052,032
------------- ---------- --------- -----------
Municipal bonds:
Due after five years through ten years 251,380 3,358 - 254,738
Due after ten years 390,787 4,858 - 395,645
------------- ---------- --------- -----------
642,167 8,216 - 650,383
------------- ---------- --------- -----------
Collateral mortgage obligation:
Due after five years through ten years 24,437 - 573 23,864
Due after ten years 650,672 1,236 5,684 646,224
------------- ---------- --------- -----------
675,109 1,236 6,257 670,088
------------- ---------- --------- -----------
$ 16,378,381 $ 221,641 $ 37,403 $16,562,619
============= ========== ========= ===========
During the year ended December 31, 2003, and three months ended March 31, 2003
(unaudited), a corporate bond held to maturity was sold for proceeds of
$100,000, resulting in a gross gain of $1,349. Management determined that this
particular issue was to be sold based upon significant deterioration of the
issuer's creditworthiness. There were no sales of securities held to maturity
during the year ended December 31, 2002, and three months ended March 31, 2004
(unaudited).
Securities held to maturity with a carrying value of $77,000, $77,000 and
$139,000 at March 31, 2004 (unaudited) and December 31, 2003 and 2002,
respectively, were pledged to secure public funds on deposits.
F-16
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
5. LOANS RECEIVABLE
December 31,
March 31, -----------------------------------
2004 2003 2002
------------ ------------ ------------
(Unaudited)
Real estate mortgage:
One to four family $ 35,171,150 $ 33,553,696 $ 21,466,273
Multi-family 320,917 323,100 216,164
Commercial 2,025,548 2,059,721 2,187,974
------------ ------------ ------------
37,517,615 35,936,517 23,870,411
------------ ------------ ------------
Real estate construction 150,000 380,000 180,000
------------ ------------ ------------
Consumer:
Passbook or certificate 78,589 100,112 122,503
Home equity line of credit 4,312,753 4,637,838 4,924,333
Home equity 7,217,859 7,670,198 5,144,805
Auto 233,041 265,404 262,392
Personal unsecured 71,608 48,150 24,974
Unsecured line of credit 19,403 16,640 12,882
------------ ------------ ------------
11,933,253 12,738,342 10,491,889
------------ ------------ ------------
Total loans 49,600,868 49,054,859 34,542,300
------------ ------------ ------------
Less: Deferred loan (costs), net (74,375) (75,910) (53,741)
Allowance for loan losses 109,720 126,206 91,446
Loans in process 25,000 91,100 94,500
------------ ------------ ------------
60,345 141,396 132,205
------------ ------------ ------------
$ 49,540,523 $ 48,913,463 $ 34,410,095
============ ============ ============
Nonaccrual loans totalled approximately $131,000 , $356,000 and $245,000 at
March 31, 2004 (unaudited) and December 31, 2003 and 2002, respectively.
Interest income recognized on these loans during the years ended December 31,
2003 and 2002 and three months ended March 31, 2004 and 2003, was approximately
$15,000, $19,000, $1,000 and $2,000, respectively. Had these loans been
performing in accordance with their original terms, interest income for the
years ended December 31, 2003 and 2002 and three months ended March 31, 2004 and
2003 (unaudited), would have been approximately $25,000, $18,000, $3,000 and
$4,000, respectively. The Association is not committed to lend additional funds
to the borrowers whose loans have been placed on nonaccrual status.
F - 17
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
5. LOANS RECEIVABLE (Cont'd.)
The following is an analysis of the allowance for loan losses:
The Association grants loans to its officers and directors and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. Such loans totaled approximately $2,530,000 ,
$3,141,000 and $2,062,000 at March 31, 2004 (unaudited), and December 31, 2003
and 2002, respectively.
6. PREMISES AND EQUIPMENT
December 31,
March 31, ------------------------------
2004 2003 2002
----------- ----------- -----------
(Unaudited)
Land $ 82,881 $ 82,881 $ 82,881
----------- ----------- -----------
Building and improvements 1,346,746 1,346,746 1,343,226
Less accumulated depreciation (600,976) 592,295 557,714
----------- ----------- -----------
745,770 754,451 785,512
----------- ----------- -----------
Furniture, fixtures and equipment 681,230 674,925 611,398
Less accumulated depreciation (578,299) 571,659 523,678
----------- ----------- -----------
102,931 103,266 87,720
----------- ----------- -----------
$ 931,582 $ 940,598 $ 956,113
=========== =========== ===========
F - 18
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
7. INTEREST RECEIVABLE
December 31,
March 31, ------------------------
2004 2003 2002
-------- -------- --------
(Unaudited)
Loans, net of allowance for uncollectible
interest of $10,724 (unaudited), $18,591
and $,4,804, respectively $191,509 $191,400 $162,361
Securities 190,612 161,747 203,979
Other interest-earning assets 2,531 2,734 7,742
-------- -------- --------
$384,652 $355,881 $374,082
======== ======== ========
8. DEPOSITS
March 31, December 31,
----------------------- --------------------------------------------------------
2004 2003 2002
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Rate Amount Rate Amount Rate Amount
-------- ----------- -------- ----------- -------- -----------
(Unaudited)
Demand:
Non-interest bearing 0.00% $ 784,761 0.00% $ 1,081,778 0.00% $ 941,256
NOW and Money Market 1.00% 12,898,267 1.01% 12,590,412 1.37% 12,147,118
----------- ----------- -----------
0.94% 13,683,028 0.93% 13,672,190 1.27% 13,088,374
Savings and club 1.01% 17,264,850 1.01% 17,416,961 1.41% 14,188,419
Certificates of deposit 2.28% 26,095,949 2.31% 26,201,113 2.99% 26,088,341
----------- ----------- -----------
1.58% $57,043,827 1.58% $57,290,264 2.15% $53,365,134
=========== =========== ===========
At March 31, 2004 (unaudited), and December 31, 2003 and 2002, certificates of
deposit of $100,000 or more totalled approximately $3,297,000, $3,185,000 and
$2,950,000, respectively. Individual deposits in excess of $100,000 are not
insured by the Federal Deposit Insurance Corporation.
F - 19
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
8. DEPOSITS (Cont'd.)
The scheduled maturities of certificates of deposit were as follows (in
thousands):
December 31,
March 31, ----------------------
2004 2003 2002
------- ------- -------
(Unaudited)
One year or less $18,889 $19,319 $19,436
After one year to three years 4,567 4,434 5,638
After three years 2,640 2,448 1,014
------- ------- -------
Total $26,096 $26,201 $26,088
======= ======= =======
9. ADVANCES FROM FEDERAL HOME LOAN BANK OF NEW YORK ("FHLB")
December 31,
----------------------------------------------------------
March 31, 2004 2003 2002
------------------------ ------------------------- -------------------------
Weighted Weighted Weighted
Maturing Average Rate Amount Average Rate Amount Average Rate Amount
------------------------------------ ------------ ----------- ------------ ------------ ------------ -------------
(Unaudited)
Within one year 2.26% $ 250,000 1.39% $ 1,250,000 1.51% $ 1,250,000
After one but within two years 2.17% 2,225,000 2.17% 2,225,000 3.60% 1,250,000
After two but within three years 3.30% 250,000 3.30% 250,000 2.84% 250,000
After three but within four years 3.71% 1,000,000 3.71% 1,000,000 3.30% 250,000
After four but within five years 2.95% 6,921,786 3.03% 5,438,315 3.71% 1,000,000
After six but within seven years 3.03% 500,000 - - - -
After nine but within ten years 4.03% 1,200,410 4.03% 1,226,162 - -
----------- ----------- -----------
2.97% $12,347,196 2.97% $11,389,477 2.91% $ 4,000,000
=========== =========== ===========
At March 31, 2004 (unaudited), and December 31, 2003 and 2002, the advances were
secured by a pledge of the Association's investment in the capital stock of the
FHLB and a blanket assignment of the Association's unpledged qualifying mortgage
loans.
10. REGULATORY CAPITAL
The Association is subject to various regulatory capital requirements
administered by the various 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 Association. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Association's capital
amounts and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
F - 20
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
10. REGULATORY CAPITAL (Cont'd.)
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of Total and Tier
1 capital (as defined in the regulations) to risk-weighted assets (as defined),
and of Tier 1 capital to adjusted total assets (as defined). The following
tables present a reconciliation of capital per GAAP and regulatory capital and
information as to the Association's capital levels.
December 31,
March 31, ----------------------
2004 2003 2002
------- ------- -------
(In Thousands) (Unaudited)
GAAP capital $ 5,297 $ 5,130 $ 4,776
Less: Unrealized (gain) on
securities available for sale (50) (25) (42)
------- ------- -------
Core and tangible capital 5,247 5,105 4,734
Add: general valuation allowance 110 126 91
------- ------- -------
Total regulatory capital $ 5,357 $ 5,231 $ 4,825
======= ======= =======
To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirements Actions Provisions
-------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ------------- ----------- ------------ ------------
(Dollars in Thousands)
MARCH 31, 2004 (UNAUDITED)
Total Capital
(to risk-weighted assets) $5,357 13.24% $3,237 8.00% $4,047 10.00%
Tier 1 Capital
(to risk-weighted assets) 5,247 12.97% - - 2,428 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 5,247 6.97% 3,011 4.00% 3,764 5.00%
Tangible Capital
(to adjusted total assets) 5,247 6.97% 1,129 1.50% - -
F - 21
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
10. REGULATORY CAPITAL (Cont'd.)
To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirements Actions Provisions
-------------------------- --------------------------- ---------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ----------- ------------- ----------- ------------ ------------
(Dollars in Thousands)
DECEMBER 31, 2003
Total Capital
(to risk-weighted assets) $5,231 12.84% $3,259 8.00% $4,074 10.00%
Tier 1 Capital
(to risk-weighted assets) 5,105 12.53% - - 2,444 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 5,105 6.88% 2,970 4.00% 3,712 5.00%
Tangible Capital
(to adjusted total assets) 5,105 6.88% 1,114 1.50% - -
DECEMBER 31, 2002
Total Capital
(to risk-weighted assets) $4,825 14.61% $2,643 8.00% $3,304 10.00%
Tier 1 Capital
(to risk-weighted assets) 4,734 14.33% - - 1,982 6.00%
Core (Tier 1) Capital
(to adjusted total assets) 4,734 7.58% 2,500 4.00% 3,125 5.00%
Tangible Capital
(to adjusted total assets) 4,734 7.58% 937 1.50% - -
As of November 24, 2003, the most recent notification from the Office of Thrift
Supervision, the Association was categorized as well-capitalized under the
regulatory framework for prompt corrective action. There are no conditions
existing or events which have occurred since notification that management
believes have changed the institution's category.
F - 22
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
11. INCOME TAXES
The Association qualifies as a thrift institution under the provisions of the
Internal Revenue Code and, therefore, must calculate its bad debt deduction
using either the experience or the specific charge off method. Retained earnings
at March 31, 2004 (unaudited), and December 31, 2003, includes approximately
$730,000 of such bad debt, for which income taxes have not been provided. If
such amount is used for purposes other than for bad debts losses, including
distributions in liquidation, it will be subject to income tax at the then
current rate.
The components of income taxes are summarized as follows:
Three Months Ended
March 31, Year Ended December 31,
--------------------------- ---------------------------
2004 2003 2003 2002
--------- --------- --------- ---------
(Unaudited)
Current income tax expense:
Federal $ 62,557 $ 30,210 $ 192,748 $ 159,915
State 17,990 14,792 73,941 30,723
--------- --------- --------- ---------
80,547 45,002 266,689 190,638
--------- --------- --------- ---------
Deferred income tax expense (benefit):
Federal 9,968 (7,228) (14,308) (20,349)
State 3,337 (2,572) (4,162) 2,557
--------- --------- --------- ---------
13,305 (9,800) (18,470) (17,792)
--------- --------- --------- ---------
$ 93,852 $ 35,202 $ 248,219 $ 172,846
========= ========= ========= =========
F - 23
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
11. INCOME TAXES
The tax effects of existing temporary difference that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
are as follows:
December 31,
March 31, ------------------------
2004 2003 2002
-------- -------- --------
(Unaudited)
DEFERRED INCOME TAX ASSETS
Allowance for loan losses $ 44,343 $ 50,407 $ 23,756
Deferred loan fees and costs 2,288 2,713 5,078
Other 4,727 7,840 2,311
-------- -------- --------
51,358 60,960 31,145
-------- -------- --------
DEFERRED INCOME TAX LIABILITIES
Depreciation 73,748 70,145 58,700
Unrealized gain on securities available for sale 33,600 17,000 31,523
-------- -------- --------
107,348 87,045 90,223
-------- -------- --------
Net deferred tax liabilities included in other liabilities $ 55,990 $ 26,085 $ 59,078
======== ======== ========
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
Three Months Ended
March 31, Year Ended December 31,
--------------------------- ---------------------------
2004 2003 2003 2002
--------- --------- --------- ---------
(Unaudited)
Federal income tax expense $ 79,980 $ 32,640 $ 210,420 $ 152,654
Increases (reductions) in income taxes resulting from:
New Jersey corporate business tax,
net of federal income tax effect 14,076 8,065 46,054 21,965
Other items, net (204) (5,503) (8,255) (1,773)
--------- --------- --------- ---------
Effective income tax $ 93,852 $ 35,202 $ 248,219 $ 172,846
========= ========= ========= =========
F - 24
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
12. PROFIT SHARING PLAN
The Association has established a non-contributory defined contribution profit
sharing plan covering all eligible employees. Total profit sharing plan expense
for the three months ended March 31, 2004 and 2003 (unaudited) and for the years
ended December 31, 2003 and 2002, was approximately $10,000, $9,000, $34,000 and
$31,000, respectively.
13. OTHER NON-INTEREST EXPENSES
Three Months Year Ended
Ended March 31, December 31,
------------------------ ------------------------
2004 2003 2003 2002
-------- -------- -------- --------
(Unaudited)
Directors' compensation $ 33,850 $ 29,220 $126,300 $123,050
Supervisory examinations and assessments 9,489 13,280 39,441 20,421
Bank service charges 8,164 7,154 34,680 35,787
MAC charges 8,411 7,534 33,788 35,283
Stationery and printing 7,387 10,002 37,283 38,081
Other 34,596 41,902 160,621 140,956
-------- -------- -------- --------
$101,897 $109,092 $432,113 $393,578
======== ======== ======== ========
14. COMMITMENTS AND CONTINGENCIES
The Association 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 primarily include commitments to extend credit. The
Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Association uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
F - 25
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
14. COMMITMENTS AND CONTINGENCIES (Cont'd.)
The Association's outstanding commitments were as follows (in thousands):
December 31,
March 31, -----------------------
2004 2003 2002
-------- -------- --------
(Unaudited)
To originate loans:
Fixed rate mortgage $1,079 $1,520 $ 817
Adjustable rate mortgage 221 470 150
Floating rate construction 300 - -
Consumer - 9 120
To fund lines of credit:
Home equity 7,140 7,418 5,345
Unsecured 63 63 45
To purchase securities 850 - -
Undisbursed funds from approved lines of credit, unless they are specifically
cancelled by notice to or from the Association, represent firm commitments
available to the respective borrowers on demand. The interest rates charged on
funds disbursed under the homeowners' equity lending program range from the
prime rate minus 1.00% to 2.75% above the prime rate. Funds drawn on the
unsecured credit reserve program are assessed interest at a rate of 16%.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, total commitment amounts do not necessarily represent
future cash requirements. The Association evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Association upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
primarily includes residential real estate properties.
The Association also has, in the normal course of business, commitments for
services and supplies. Management does not anticipate losses on any of these
transactions.
The Association, from time to time, may be a party to litigation which arises
primarily in the ordinary course of business. In the opinion of management, the
ultimate disposition of such litigation should not have a material effect on the
financial statements.
F - 26
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
15. PROPOSED CONVERSION TO STOCK FORM OF OWNERSHIP (Unaudited)
On May 13, 2004, the Board of Directors of the Association unanimously adopted
the Plan of Reorganization from Mutual Savings Association to Mutual Holding
Company and Stock Issuance (the "Plan"). Pursuant to the Plan, the Association
will: (i) convert to a stock savings Association as the successor to the
Association in it current mutual form; (ii) organize the Stock Holding Company
as a federally-chartered corporation that will own 100% of the common stock of
the Stock Association; and (iii) organize the Mutual Holding Company as a
federally-chartered mutual holding company that will own at least 51% of the
Common Stock of the Stock Holding Company so long as the Mutual Holding Company
remains in existence. The Stock Association will succeed to the business and
operations of the Association in its mutual form and the Stock Holding Company
will sell a minority interest in its Common stock in a public stock offering.
The Plan must be approved by both the OTS and by the Association's depositors
and borrowers with outstanding loans as of March 31, 2003, provided such loans
remain outstanding as of the voting record date (the "Members").
Following the completion of the reorganization, all depositors who had
membership or liquidation rights with respect to the association as of the
effective date of the reorganization will continue to have such rights solely
with respect to the Holding Company so long as they continue to hold deposit
accounts with the Association. In addition, all persons who become depositors of
the Association subsequent to the reorganization will have such membership and
liquidation rights with respect to the Holding Company. Borrower members of the
Association at the time of the reorganization will have the same membership
rights in the Holding Company that they had in the Association immediately prior
to the reorganization so long as their existing borrowings remain outstanding.
The Stock Holding Company plans to offer to the public shares of common stock
representing a minority ownership of the estimated pro forma market value of the
Association as determined by an independent appraisal. The Mutual Holding
Company will maintain the majority ownership of the Stock Holding Company. Cost
incurred in connection with the offering will be recorded as a reduction of the
proceeds from the offering. If the transaction is not consummated, all costs
incurred in connection with the transactions will be expensed. As of March 31,
2004, no costs were incurred in connection with the offering.
F - 27
You should rely only on the information contained in this document or
that to which we have referred you. We have not authorized anyone to provide you
with information that is different. This document does not constitute an offer
to sell, or the solicitation of an offer to buy, any of the securities offered
hereby to any person in any jurisdiction in which such offer or solicitation
would be unlawful. The affairs of Lincoln Park Savings Bank or Lincoln Park
Bancorp may change after the date of this prospectus. Delivery of this document
and the sales of shares made hereunder does not mean otherwise.
Lincoln Park Bancorp
Proposed Holding Company for Lincoln Park Savings Bank
568,675 Shares of Common Stock
(Subject to Increase to up to 653,976 Shares)
PROSPECTUS
Sandler O'Neill & Partners, L.P.
August ___, 2004
UNTIL THE LATER OF NOVEMBER ___, 2004 OR 90 DAYS AFTER THE COMMENCEMENT OF THE
OFFERING, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 545.121 of the Office of Thrift Supervision (OTS) regulations
provides indemnification for directors and officers of the Association. Although
there are no indemnification provisions in the charter and bylaws of the
Registrant, all the directors and officers of the Registrant hold the same
position with Lincoln Park Savings and Loan Association and have indemnification
under OTS Regulations as described below.
Generally, federal regulations define areas for indemnity coverage for
federal savings associations as follows:
(a) Any person against whom any action is brought or threatened
because that person is or was a director or officer of the savings association
shall be indemnified by the savings association for:
(i) Any amount for which that person becomes liable under a
judgment in such action; and
(ii) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid or incurred by that
person in defending or settling such action, or in
enforcing his or her rights under this section if he or
she attains a favorable judgment in such enforcement
action.
(b) Indemnification shall be made to such person under paragraph (b)
of this Section only if:
(i) Final judgment on the merits is in his or her favor; or
(ii) In case of:
a. Settlement,
b. Final judgment against him or her, or
c. Final judgment in his or her favor, other than
on the merits, if a majority of the
disinterested directors of the savings
association determine that he or she was acting
in good faith within the scope of his or her
employment or authority as he or she could
reasonably have perceived it under the
circumstances and for a purpose he or she could
reasonably have believed under the circumstances
was in the best interest of the savings
association or its members. However, no
indemnification shall be made unless the
association gives the Office at least 60 days
notice of its intention to make such
indemnification. Such notice shall state the
facts on which the action arose, the terms of
any settlement, and any disposition of the
action by a court. Such notice, a copy thereof,
and a certified copy of the resolution
containing the required determination by the
board of directors shall be sent to the Regional
Director, who shall promptly acknowledge receipt
thereof. The notice period shall run from the
date of such receipt. No such indemnification
shall be made if the OTS advises the association
in writing, within such notice period, of its
objection thereto.
(c) As used in this paragraph:
(i) "Action" means any judicial or administrative
proceeding, or threatened proceeding, whether civil,
criminal, or otherwise, including any appeal or other
proceeding for review;
(ii) "Court" includes, without limitation, any court to which
or in which any appeal or any proceeding for review is
brought;
(iii) "Final Judgment" means a judgment, decree, or order
which is not appealable or as to which the period for
appeal has expired with no appeal taken;
(iv) "Settlement" includes the entry of a judgment by consent
or confession or a plea of guilty or of NOLO CONTENDERE.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Amount
------
* Legal Fees and Expenses........................................... $ 140,000
* Accounting Fees and Expenses...................................... 60,000
* Conversion Agent and Data Processing Fees......................... 15,000
* Marketing Agent Fees and Expenses, including attorney's fees (1).. 127,284
* Appraisal and Business Plan Fees and Expenses..................... 30,000
* Printing, Postage, Mailing and EDGAR.............................. 60,000
* OTS Filing Fee.................................................... 14,400
* SEC Filing Fee.................................................... 830
* NASD Fee.......................................................... 1,154
* State "Blue Sky" Legal and Filing Fees............................ 25,000
* Other............................................................. 14,332
----------
* Total ............................................................ $ 488,000
==========
* Estimated
(1) Lincoln Park Bancorp has retained Sandler O'Neill & Partners, L.P. to
assist in the sale of common stock on a best efforts basis in the
offerings. Fees are estimated at the midpoint of the offering range.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are as
follows:
(A) LIST OF EXHIBITS
1.1 Engagement Letters between Lincoln Park Bancorp and Sandler O'Neill &
Partners, L.P.
1.2 Form of Agency Agreement between Lincoln Park Bancorp and Sandler
O'Neill & Partners, L.P.*
2 Plan of Reorganization from a Mutual Savings Association to a Mutual
Holding Company and Stock Issuance Plan
3.1 Charter of Lincoln Park Bancorp (see Exhibit 2)
3.2 Bylaws of Lincoln Park Bancorp (see Exhibit 2)
4 Form of Common Stock Certificate of Lincoln Park Bancorp
5 Opinion of Luse Gorman Pomerenk & Schick regarding legality of
securities being registered
8 Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1 Employee Stock Ownership Plan
21 Subsidiaries of Registrant
23.1 Consent of Luse Gorman Pomerenk & Schick (contained in Opinions
included as Exhibits 5 and 8)
23.2 Consent of Radics & Co., LLC
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal Agreement between Lincoln Park Bancorp and RP Financial, LC.
99.2 Business Plan Agreement between Lincoln Park Bancorp and RP Financial,
LC.
99.3 Appraisal Report of RP Financial, LC.*,**
99.4 Letter of RP Financial LC. with respect to Subscription Rights
99.5 Marketing Materials*
99.6 Order and Acknowledgment Form*
-------------------------------
* To be filed supplementally or by amendment.
** Supporting financial schedules filed pursuant to Rule 202 of Regulation
S-T.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) Include any additional or changed material information as
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement as the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof.
(3) To file a post-effective amendment to remove from registration any
of the securities being registered that remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
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.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the Borough of
Lincoln Park, State of New Jersey on June 18, 2004.
LINCOLN PARK BANCORP
By: /s/ Donald S. Hom
-----------------------------------
Donald S. Hom
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Lincoln Park Bancorp (the
"Company") hereby severally constitute and appoint Donald S. Hom as our true and
lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said Donald S. Hom may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form SB-2 relating
to the offering of the Company's common stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said Donald S. Hom shall do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated.
Signatures Title Date
/s/ Donald S. Hom President and Chief Executive June 18, 2004
-------------------------------- Officer (Principal Executive and
Donald S. Hom Financial Officer)
/s/ Nandini Mallya Vice President and Treasurer June 18, 2004
-------------------------------- (Principal Accounting Officer)
Nandini Mallya
/s/ Stanford Stoller Chairman of the Board and June 18, 2004
-------------------------------- Director
Stanford Stoller
/s/ William H. Weisbrod Vice Chairman of the Board and June 18, 2004
-------------------------------- Director
William H. Weisbrod
/s/ David G. Baker Director June 18, 2004
--------------------------------
David G. Baker
/s/ John F. Feeney Director June 18, 2004
-------------------------------
John F. Feeney
/s/ Ronald M. Higgins Director June 18, 2004
-------------------------------
Ronald M. Higgins
/s/ Edith M. Perrotti Director June 18, 2004
-------------------------------
Edith M. Perrotti
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 2004
REGISTRATION NO. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
LINCOLN PARK BANCORP
LINCOLN PARK, NEW JERSEY
EXHIBIT INDEX
1.1 Engagement Letters between Lincoln Park Bancorp and Sandler O'Neill &
Partners, L.P.
1.2 Form of Agency Agreement between Lincoln Park Bancorp and Sandler O'Neill
& Partners, L.P.*
2 Plan of Reorganization from a Mutual Savings Association to a Mutual
Holding Company and Stock Issuance Plan
3.1 Charter of Lincoln Park Bancorp (see Exhibit 2)
3.2 Bylaws of Lincoln Park Bancorp (see Exhibit 2)
4 Form of Common Stock Certificate of Lincoln Park Bancorp
5 Opinion of Luse Gorman Pomerenk & Schick regarding legality of
securities being registered
8 Form of Federal Tax Opinion of Luse Gorman Pomerenk & Schick
10.1 Employee Stock Ownership Plan
21 Subsidiaries of Registrant
23.1 Consent of Luse Gorman Pomerenk & Schick (contained in Opinions
included as Exhibits 5 and 8)
23.2 Consent of Radics & Co., LLC
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal Agreement between Lincoln Park Bancorp and RP Financial, LC.
99.2 Business Plan Agreement between Lincoln Park Bancorp and RP Financial,
LC.
99.3 Appraisal Report of RP Financial, LC.*,**
99.4 Letter of RP Financial, LC. with respect to Subscription Rights
99.5 Marketing Materials*
99.6 Order and Acknowledgment Form*
-------------------------------
* To be filed supplementally or by amendment.
** Supporting financial schedules filed pursuant to Rule 202 of Regulation
S-T.
EXHIBIT 1.1
May 27, 2004
Board of Directors
Lincoln Park Savings and Loan Association
31 Boonton Turnpike
Lincoln Park, New Jersey 07035
Attention: Mr. Donald S. Hom
President and Chief Executive Officer
-------------------------------------
Ladies and Gentlemen:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as an independent financial advisor to Lincoln Park Savings and Loan Association
(the "Bank") in connection with the Bank's proposed reorganization into mutual
holding company form (the "Reorganization"), including the offer and sale of
certain shares of the common stock (the "Common Stock") of a newly organized
middle-tier stock holding company (the "Holding Company") to the Bank's eligible
account holders in a Subscription Offering and to members of the Bank's
community in a Direct Community Offering (collectively, the "Offerings"). For
purposes of this letter, the term "Actual Purchase Price" shall mean the price
at which the shares of the Common Stock are sold in the Offerings. This letter
is to confirm the terms and conditions of our engagement.
ADVISORY SERVICES
Sandler O'Neill will act as a consultant and advisor to the Bank and
will work with the Bank's management, counsel, accountants and other advisors in
connection with the Reorganization and the Offerings. We anticipate that our
services will include the following, each as may be necessary and as the Bank
may reasonably request:
1. Consulting as to the securities marketing implications of any
aspect of the Plan of Reorganization or related corporate
documents;
2. Reviewing with the Board of Directors the financial impact on
the Bank of the independent appraiser's appraisal of the Common
Stock;
3. Reviewing all offering documents, including the Prospectus,
stock order forms and related offering materials (it being
understood that preparation and filing of such documents will be
the responsibility of the Bank and its counsel);
4. Assisting in the design and implementation of a marketing
strategy for the Offerings;
Board of Directors
Lincoln Park Savings and Loan Association
May 27, 2004
Page 2
5. Assisting Bank management in scheduling and preparing for
meetings with potential investors and broker-dealers as
necessary; and
6. Providing such other general advice and assistance as may be
requested to promote the successful completion of the Offering.
FEES
If the Reorganization is consummated, the Bank agrees to pay Sandler
O'Neill for its services a fee of two percent (2.0%) of the aggregate Actual
Purchase Price of the shares of Common Stock sold in the Subscription Offering
and Direct Community Offering, excluding in each case shares purchased by (i)
any employee benefit plan of the Bank established for the benefit of the Bank's
directors, officers and employees, and (ii) any director, officer or employee of
the Bank or members of their immediate families.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of
the reasons provided for under the second paragraph of the section of this
letter captioned "Definitive Agreement," or (ii) the Reorganization is
terminated by the Bank, no fees shall be payable by the Bank to Sandler O'Neill
hereunder; however, the Bank shall reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses (including legal fees) incurred in connection with its
engagement hereunder, subject to the provisions of the section captioned "Costs
and Expenses" below.
All fees payable to Sandler O'Neill hereunder shall be payable in cash
at the time of the closing of the Reorganization. In recognition of the long
lead times involved in the reorganization process, the Bank agrees to make an
advance payment to Sandler O'Neill in the amount of $25,000, which shall be
payable upon execution of this letter and which shall be credited against any
fees or reimbursement of expenses payable hereunder.
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder and documented to the reasonable satisfaction of the Bank,
regardless of whether the Reorganization is consummated, including, without
limitation, legal fees and expenses, promotional, syndication and travel
expenses, up to a maximum of $40,000. The provisions of this paragraph are not
intended to apply to or in any way impair or limit the indemnification
provisions contained herein.
As is customary, the Bank will bear all other expenses incurred in
connection with the Reorganization and the Offerings, including, without
limitation, (i) the cost of obtaining all securities and bank regulatory
approvals, including any required NASD filing fees; (ii) the cost of printing
Board of Directors
Lincoln Park Savings and Loan Association
May 27, 2004
Page 3
and distributing the offering materials; (iii) the costs of blue sky
qualification (including fees and expenses of blue sky counsel) of the shares in
the various states; (iv) listing fees; and (v) all fees and disbursements of the
Bank's counsel, accountants, conversion agent and other advisors. In the event
Sandler O'Neill incurs any such fees and expenses on behalf of the Bank, the
Bank will reimburse Sandler O'Neill for such fees and expenses whether or not
the Reorganization is consummated.
DUE DILIGENCE REVIEW
Sandler O'Neill's obligation to perform the services contemplated by
this letter shall be subject to the satisfactory completion of such
investigation and inquiries relating to the Bank, and its directors, officers,
agents and employees, as Sandler O'Neill and its counsel in their sole
discretion may deem appropriate under the circumstances. In this regard, the
Bank agrees that, at its expense, it will make available to Sandler O'Neill all
information that Sandler O'Neill requests, and will allow Sandler O'Neill the
opportunity to discuss with the Bank's board of directors and management the
financial condition, business and operations of the Bank. The Bank acknowledges
that Sandler O'Neill will rely upon the accuracy and completeness of all
information received from the Bank and its directors, officers, employees,
agents, independent accountants and counsel.
BLUE SKY MATTERS
Sandler O'Neill and the Bank agree that the Bank's counsel shall serve
as counsel with respect to blue sky matters in connection with the Offerings,
and that the Bank will cause such counsel to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
Other than as required by law or regulation or legal process, Sandler
O'Neill agrees that it will treat as confidential all material, non-public
information relating to the Bank obtained in connection with its engagement
hereunder (the "Confidential Information"), whether or not the Reorganization is
consummated. As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
Board of Directors
Lincoln Park Savings and Loan Association
May 27, 2004
Page 4
INDEMNIFICATION
Since Sandler O'Neill will be acting on behalf of the Bank in connection
with the Reorganization and the Offerings, the holding companies and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act of 1934 (Sandler O'Neill and each such
person being an "Indemnified Party") harmless from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under applicable federal or state law, or
otherwise, related to or arising out of the Reorganization or the Offerings or
the engagement of Sandler O'Neill pursuant to, or the performance by Sandler
O'Neill of the services contemplated by, this letter, and will reimburse any
Indemnified Party for all expenses (including reasonable legal fees and
expenses) as they are incurred, including expenses incurred in connection with
the investigation of, preparation for or defense of any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party; provided, however, that the Bank and the holding
companies will not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense (i) arises out of or is based upon any
untrue statement of a material fact or the omission of a material fact required
to be stated therein or necessary to make not misleading any statements
contained in any final proxy statement or prospectus, or any amendment or
supplement thereto, or any of the applications, notices, filings or documents
related thereto made in reliance on and in conformity with written information
furnished to the Bank by Sandler O'Neill expressly for use therein, or (ii) is
primarily attributable to the gross negligence or bad faith of Sandler O'Neill.
If the foregoing indemnification is unavailable for any reason, the Bank and the
holding companies agree to contribute to such losses, claims, damages,
liabilities and expenses in the proportion that its financial interest in the
Reorganization and the Offerings bears to that of Sandler O'Neill.
DEFINITIVE AGREEMENT
Sandler O'Neill and the Bank agree that (a) except as set forth in
clause (b), the foregoing represents the general intention of the Bank and
Sandler O'Neill with respect to the services to be provided by Sandler O'Neill
in connection with the Offerings, which will serve as a basis for Sandler
O'Neill commencing activities, and (b) the only legal and binding obligations of
the Bank, the holding companies and Sandler O'Neill with respect to the subject
matter hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement shall
be in form and content satisfactory to Sandler O'Neill, the Bank and the holding
companies and their respective counsel and shall contain standard
indemnification provisions consistent herewith.
Board of Directors
Lincoln Park Savings and Loan Association
May 27, 2004
Page 5
Sandler O'Neill's execution of such Agency Agreement shall also be
subject to (i) Sandler O'Neill's satisfaction with its investigation of the
Bank's business, financial condition and results of operations, (ii) preparation
of offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed Offerings. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to March 31,
2005.
The provisions relating to the payment of fees, costs and expenses and
indemnification will survive any termination of Sandler O'Neill's engagement
hereunder.
Board of Directors
Lincoln Park Savings and Loan Association
May 27, 2004
Page 6
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Thomas P. Duke
----------------------------------
Thomas P. Duke
Vice President
Accepted and agreed to as of the date first above written:
Lincoln Park Savings and Loan Association
By: /s/ Donald S. Hom
----------------------------------
Donald S. Hom
President and Chief Executive Officer
May 27, 2004
Mr. Donald S. Hom
President and Chief Executive Officer
Lincoln Park Savings and Loan Association
31 Boonton Turnpike
Lincoln Park, New Jersey 07035
Dear Mr. Hom:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as conversion agent to Lincoln Park Savings and Loan Association (the "Bank") in
connection with the Bank's proposed reorganization into mutual holding company
form (the "Reorganization"). This letter is to confirm the terms and conditions
of our engagement.
SERVICES AND FEES
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee
of $10,000. The fee set forth above is based upon the requirements of current
regulations and the Plan of Reorganization as currently contemplated. Any
unusual or additional items or duplication of service required as a result of a
material change in the regulations or the Plan of Reorganization or a material
delay or other similar events may result in extra charges which will be covered
in a separate agreement if and when they occur.
Mr. Donald S. Hom
May 27, 2004
Page 2
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Reorganization.
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill
hereunder, the Bank agrees to reimburse Sandler O'Neill, upon request made from
time to time, for its reasonable out-of-pocket expenses incurred in connection
with its engagement hereunder regardless of whether the Reorganization is
consummated, including, without limitation, travel, lodging, food, telephone,
postage, listings, forms and other similar expenses; provided, however, that
Sandler O'Neill shall document such expenses to the reasonable satisfaction of
the Bank. It is understood that all expenses associated with the operation of
the Conversion Center will be borne by the Bank.
RELIANCE ON INFORMATION PROVIDED
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan of
Reorganization which require changes in Sandler O'Neill's services. If a
substantial expense results from any such change, the parties shall negotiate an
equitable adjustment in the fee.
LIMITATIONS
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties
or obligations other than those specifically set forth herein; (b) will be
regarded as making no representations and having no responsibilities as to the
validity, sufficiency, value or genuineness of any order form or any stock
certificates or the shares represented thereby, and will not be required to and
will make no representations as to the validity, value or genuineness of the
offer; (c) shall not be liable to any person or entity, including the Bank, by
reason of any error of judgment or for any act done by it in good faith, or for
any mistake of law or fact in connection with this agreement and the performance
hereof unless caused by or arising out of its own bad faith or gross negligence;
(d) will not be obliged to take any legal action hereunder which might in its
judgment involve any expense or liability, unless it shall have been furnished
with reasonable indemnity satisfactory to it; and (e) may rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telex, telegram, or other document or security delivered to it
and in good faith believed by it to be genuine and to have been signed by the
proper party or parties.
Mr. Donald S. Hom
May 27, 2004
Page 2
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of the form of action.
INDEMNIFICATION
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by, this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Bank will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from Sandler O'Neill's bad faith or
gross negligence.
MISCELLANEOUS
The following addresses shall be sufficient for written notices to each
other:
If to you: Lincoln Park Savings and Loan Association
31 Boonton Turnpike
Lincoln Park, New Jersey 07035
Attention: Mr. Donald S. Hom
If to us: Sandler O'Neill & Partners, L.P.
919 Third Avenue
New York, New York 10022
Attention: Mr. Thomas P. Duke
The Agreement and appendix hereto constitute the entire Agreement
between the parties with respect to the subject matter hereof and can be altered
only by written consent signed by the parties. This Agreement is governed by the
laws of the State of New York.
Mr. Donald S. Hom
May 27, 2004
Page 4
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Thomas P. Duke
------------------------------------
Thomas P. Duke
Vice President
Accepted and agreed to as of
the date first above written:
Lincoln Park Savings and Loan Association
By: /s/ Donald S. Hom
----------------------------------------
Donald S. Hom
President and Chief Executive Officer
APPENDIX A
OUTLINE OF CONVERSION AGENT SERVICES
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election, it being understood that
Sandler O'Neill will not act as inspector of election in the case of
a contested election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgment letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A - 1
EXHIBIT 2
LINCOLN PARK SAVINGS AND LOAN ASSOCIATION
PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS ASSOCIATION
TO A MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
TABLE OF CONTENTS
PAGE
1. INTRODUCTION...............................................................1
2. DEFINITIONS................................................................2
3. THE REORGANIZATION.........................................................7
4. RIGHTS OF DEPOSITORS OF THE MHC...........................................10
5. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION........................10
6. SPECIAL MEETING OF DEPOSITORS.............................................11
7. CONVERSION OF MHC TO STOCK FORM...........................................11
8. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK....................12
9. NUMBER OF SHARES TO BE OFFERED............................................12
10. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES........................12
11. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK....................13
12. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK.......................17
13. PAYMENT FOR STOCK.........................................................20
14. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS..............21
15. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT...........22
16. COMPLETION OF THE STOCK OFFERING..........................................22
17. MARKET FOR COMMON STOCK...................................................22
18. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE STOCK OFFERING............22
19. RESALES OF STOCK BY DIRECTORS AND OFFICERS................................23
20. STOCK CERTIFICATES........................................................23
21. RESTRICTION ON FINANCING STOCK PURCHASES..................................23
22. STOCK BENEFIT PLANS.......................................................23
23. POST-REORGANIZATION FILING AND MARKET MAKING..............................24
24. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK..............................24
25. REORGANIZATION AND STOCK OFFERING EXPENSES................................24
26. INTERPRETATION............................................................24
27. AMENDMENT OR TERMINATION OF THE PLAN......................................24
EXHIBITS
Exhibit A Charter and Bylaws of the Bank
Exhibit B Charter and Bylaws of the Holding Company
Exhibit C Charter and Bylaws of the MHC
1. INTRODUCTION
This Plan of Reorganization from a Mutual Savings Association to a Mutual
Holding Company and Stock Issuance Plan (the "Plan") provides for the
reorganization of Lincoln Park Savings and Loan Association (the "Bank") from a
New Jersey-chartered mutual savings association into the mutual holding company
structure (the "Reorganization"), pursuant to the rules and regulations of the
FDIC, the OTS and the Department. The mutual holding company (the "MHC") will be
a mutually-owned federal corporation. Prior to the Reorganization, the Bank will
convert to a New Jersey mutual savings bank. As part of the Reorganization and
the Plan, the Bank will also convert to a New Jersey stock savings bank, and a
stock holding company (the "Holding Company") will be established as a federal
corporation and a majority-owned subsidiary of the MHC at all times so long as
the MHC remains in existence. Concurrently with the Reorganization, the Holding
Company intends to offer for sale up to 49.9% of its Common Stock in the Stock
Offering. The Common Stock will be offered on a priority basis to Eligible
Account Holders, the Bank's Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and to employees, Officers and directors with any remaining
shares offered to the public in a Community Offering or a Syndicated Community
Offering, or a combination thereof. The price of the Common Stock will be based
upon an independent appraisal of the Bank, and will reflect its estimated pro
forma market value, as converted.
The primary purpose of the Reorganization is to establish a holding
company and to convert the Bank to the stock form of ownership, which will
enable the Bank to compete more effectively in the financial services
marketplace. The Reorganization will permit the Holding Company to issue Capital
Stock, which is a source of capital not available to mutual savings banks. Since
the Holding Company will not be offering all of its Common Stock for sale to
eligible Depositors and the public in the Stock Offering, the Reorganization
will result in less capital raised in comparison to a standard mutual-to-stock
conversion. The Reorganization, however, also will permit the Bank to raise
additional capital since a majority of the Holding Company's common stock will
be available for sale in the future. It also will provide the Bank with greater
flexibility to structure and finance the expansion of its operations, including
the potential acquisition of other financial institutions. Lastly, the
Reorganization will enable the Bank to better manage its capital by (i)
providing broader acquisition and investment opportunities through the holding
company structure, (ii) enabling the Holding Company to distribute capital to
its stockholders in the form of dividends, and (iii) enabling the Holding
Company to repurchase its common stock as market conditions warrant. Although
the Reorganization and Stock Offering will create a stock savings bank and stock
holding company, only a minority of the Common Stock will be offered for sale in
the Stock Offering. As a result, the Bank's mutual form of ownership and its
ability to remain an independent community savings bank will be preserved
through the mutual holding company structure.
In the event the Board of Directors of the Bank determines not to
establish the Holding Company as part of the Reorganization, then all references
in this Plan to the issuance of Common Stock by the Holding Company, including
all references to Employee Plans of the Holding Company, shall mean the issuance
of common stock by the Bank and Employee Plans of the Bank. If no Holding
Company is established as part of the Reorganization, the Board of
Directors may elect to establish the Holding Company subsequent to the
completion of the Reorganization and Stock Offering.
This Plan has been approved by the Board of Directors of the Bank and
must be approved by the affirmative vote of at least a majority of the eligible
votes of Voting Depositors. Each Voting Depositor will be entitled to cast one
vote for each $100 or fraction thereof of deposits in the Bank on the Voting
Record Date, provided that no Voting Depositor shall be entitled to cast more
than 1,000 votes. By approving the Plan, the Voting Depositors will also be
approving all steps necessary and incidental to the formation of the MHC and the
Bank in stock form. The Reorganization and Stock Offering are also subject to
the approval of the Commissioner, the FDIC and the OTS.
2. DEFINITIONS
As used in this Plan, the terms set forth below have the following
meanings:
ACTING IN CONCERT: The term Acting in Concert means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; or (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. A
Person or company which acts in concert with another Person or company ("other
party") shall also be deemed to be acting in concert with any Person or company
who is also acting in concert with that other party, except that any
Tax-Qualified Employee Plan will not be deemed to be acting in concert with its
trustee or a Person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the plan will be
aggregated.
ACTUAL PURCHASE PRICE: The price per share, determined as provided in
this Plan, at which the Common Stock will be sold in the Stock Offering.
AFFILIATE: Any Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
another Person.
APPLICATION: The application to be filed with the Commissioner by the
Bank in connection with the Reorganization and Stock Offering.
ASSOCIATE: The term "Associate," when used to indicate a relationship
with any Person, means: (i) any corporation or organization (other than the
Bank, the Holding Company, the MHC or a majority-owned subsidiary of any
thereof) of which such Person is a senior officer or partner, or beneficially
owns, directly or indirectly, 10% or more of any class of equity securities of
the corporation or organization, provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an associate of any
director or Officer of the Bank; (ii) any trust or other estate, if the Person
has a substantial beneficial interest in the trust or estate or is a trustee or
fiduciary of the trust or estate; (iii) any Person who is related by blood or
marriage to such Person and (a) who lives in the same house as the Person; or
(b) who is a director or senior officer of the Bank, the Holding Company, the
MHC or a subsidiary thereof.
2
BANK: Lincoln Park Savings and Loan Association, a New Jersey mutual
savings and loan association, and upon conversion of Lincoln Park Savings and
Loan Association to a New Jersey savings bank charter, Lincoln Park Savings
Bank, a New Jersey savings bank, in its pre-Reorganization mutual form or
post-Reorganization stock form, as indicated by the context.
CAPITAL STOCK: Any and all authorized stock of the Holding Company.
COMMISSIONER: The Commissioner of the New Jersey Department of Banking
and Insurance.
COMMON STOCK: Common stock issuable by the Holding Company in connection
with the Reorganization, including securities convertible into Common Stock,
pursuant to its stock charter.
COMMUNITY: The Borough of Lincoln Park, Pequannock Township, Montville
Township and Wayne Township, New Jersey.
COMMUNITY OFFERING: The offering to certain members of the general public
of any unsubscribed shares in the Subscription Offering. The Community Offering
may include a Syndicated Community Offering or public offering.
CONTROL: (including the terms "controlling," "controlled by" and "under
common control with") means the direct or indirect power to direct or exercise a
controlling influence over the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise as
described in 12 C.F.R. Part 574.
DEPARTMENT: The New Jersey Department of Banking and Insurance.
DEPOSIT ACCOUNT: Any deposit maintained at the Bank, including, without
limitation, savings, time, demand, negotiable order withdrawable (NOW), money
market and passbook accounts, but excluding tax, insurance and other escrow
accounts.
DEPOSITOR: Any person who owns a Deposit Account in the Bank.
EFFECTIVE DATE: The date upon which all necessary approvals have been
obtained to complete the Reorganization, and the Reorganization and Stock
Offering have been completed.
ELIGIBLE ACCOUNT HOLDER: Any person holding a Qualifying Deposit on the
Eligibility Record Date for purposes of determining subscription rights.
ELIGIBILITY RECORD DATE: March 31, 2003, the date for determining who
qualifies as an Eligible Account Holder of the Bank.
EMPLOYEE PLANS: The Tax-Qualified Employee Plans (including the ESOP) and
Non-Tax Qualified Employee Plans of the Bank or the Holding Company.
ESOP: The Bank's employee stock ownership plan.
3
ESTIMATED VALUATION RANGE: The range of the estimated pro forma market
value of the total number of shares of Common Stock to be issued by the Holding
Company to the MHC and to Minority Stockholders, as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
HOLA: The Home Owners' Loan Act, as amended.
HOLDING COMPANY: Lincoln Park Bancorp, the federal corporation which will
be majority-owned by the MHC and which will own 100% of the common stock of the
Bank, and any successor to such corporation that may be established in
connection with a Conversion Transaction.
HOLDING COMPANY APPLICATION: The Holding Company Application on Form
H(e)-1 or H(e)-1-s to be submitted by the Bank to the OTS to have the Holding
Company acquire the common stock of the Bank.
INDEPENDENT APPRAISER: The appraiser retained by the Bank to prepare an
appraisal of the pro forma market value of the Bank.
MANAGEMENT PERSON: Any Officer or director of the Bank or any Affiliate
of the Bank, and any person acting in concert with any such Officer or director.
MARKET MAKER: A dealer (I.E., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (1) regularly publishes BONA FIDE
competitive bid and offer quotations on request, and (2) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
MHC: Lincoln Park Bancorp, MHC, the mutual holding company resulting from
the Reorganization.
MINORITY OWNERSHIP INTEREST: The shares of the Holding Company's Common
Stock owned by persons other than the MHC, expressed as a percentage of the
total shares of the Holding Company's Common Stock outstanding.
MINORITY STOCK OFFERING: One or more offerings of less than 50% in the
aggregate of the outstanding Common Stock of the Holding Company to persons
other than the MHC.
MINORITY STOCKHOLDER: Any owner of the Holding Company's Common Stock,
other than the MHC.
NON-VOTING STOCK: Any Capital Stock other than Voting Stock.
4
NOTICE: The Notice of Mutual Holding Company Reorganization, including
any related merger or other application to be submitted by the Bank to the FDIC
and the OTS in connection with the Reorganization and the Stock Offering.
OFFERING RANGE: The aggregate purchase price of the Common Stock to be
sold in the Stock Offering based on the Independent Valuation expressed as a
range, which may vary within 15% above or 15% below the midpoint of such range,
with a possible adjustment by up to 15% above the maximum of such range. The
Offering Range will be based on the Estimated Valuation Range, but will
represent a Minority Ownership Interest equal to up to 49.9% of the Common
Stock.
OFFICER: An executive officer of the Holding Company or the Bank,
including the Chief Executive Officer, President, Senior Vice Presidents in
charge of principal business functions, Secretary, Treasurer and any other
person performing similar functions.
ORDER FORM: Any form (together with any attached cover letter and/or
certifications or acknowledgements), sent by the Bank to any Person containing
among other things a description of the alternatives available to such Person
under the Plan and by which any such Person may make elections regarding
purchases of Common Stock in the Subscription and Community Offerings.
OTS: The Office of Thrift Supervision, and any successor thereto.
PERSON: An individual, corporation, partnership, association, joint-stock
company, limited liability company, trust, unincorporated organization, or a
government or political subdivision of a government.
PLAN: This Plan of Reorganization from a Mutual Savings Association to a
Mutual Holding Company and Stock Issuance Plan, including any amendment thereto.
QUALIFYING DEPOSIT: The aggregate balance of each Deposit Account of an
Eligible Account Holder as of the close of business on the Eligibility Record
Date or of a Supplemental Eligible Account Holder as of the close of business on
the Supplemental Eligibility Record Date, as the case may be, provided such
aggregate balance is not less than $50.
REORGANIZATION: The reorganization of the Bank into the mutual holding
company structure including the organization of the MHC, the Holding Company and
the Bank in stock form pursuant to this Plan.
RESIDENT: The terms "resident," "residence," "reside," "resided" or
"residing" as used herein with respect to any person shall mean any person who
occupied a dwelling within the Bank's Community, has an intent to remain with
the Community for a period of time, and manifests the genuineness of that intent
by establishing an ongoing physical presence within the Community together with
an indication that such presence within the Community is something other than
merely transitory in nature. To the extent the Person is a corporation or other
business entity, the principal place of business or headquarters shall be in the
Community. To the extent a person is a personal benefit plan, the circumstances
of the beneficiary shall apply with respect to this definition. In the case of
all other benefit plans, the circumstances of the trustee shall be
5
examined for purposes of this definition. The Bank may utilize deposit or loan
records or such other evidence provided to it to make a determination as to
whether a person is a resident. In all cases, however, such a determination
shall be in the sole discretion of the Bank.
SEC: The Securities and Exchange Commission.
SPECIAL MEETING: The Special Meeting of Voting Depositors called for the
purpose of voting on the Plan.
STOCK OFFERING: The offering of Common Stock of the Holding Company to
persons other than the MHC, in a Subscription Offering and, to the extent shares
remain available, in a Community Offering or Syndicated Community Offering.
SUBSCRIPTION OFFERING: The offering of Common Stock of the Holding
Company for subscription and purchase pursuant to Section 11 of this Plan.
SUBSIDIARY: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDER: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder, a Tax-Qualified Employee Plan or an Officer or director of the
Bank.
SUPPLEMENTAL ELIGIBILITY RECORD DATE: The last day of the calendar
quarter preceding approval of the Plan by the FDIC, the Department and/or the
OTS.
SYNDICATED COMMUNITY OFFERING: The offering of Common Stock following or
contemporaneously with the Community Offering through a syndicate of
broker-dealers.
TAX-QUALIFIED EMPLOYEE PLAN: Any defined benefit plan or defined
contribution plan (including any employee stock ownership plan, stock bonus
plan, profit-sharing plan, or other plan) of the Bank, the Holding Company or
the MHC or any of their affiliates, which, with its related trusts, meets the
requirements to be qualified under Section 401 of the Internal Revenue Code. The
term "Non-Tax-Qualified Employee Plan" means any stock benefit plan which is not
so qualified under Section 401 of the Internal Revenue Code.
VOTING DEPOSITOR: Any Person who owns a Deposit Account at the close of
business on the Voting Record Date and who is entitled to vote on the Plan
pursuant to regulations of the FDIC.
VOTING RECORD DATE: The date established by the Bank for determining
which Depositors are entitled to notice of the Special Meeting and vote on the
Plan.
VOTING STOCK:
(1) Voting Stock means common stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner,
entitle the holder:
6
(i) To vote for or to select directors of the Bank or the
Holding Company; and
(ii) To vote on or to direct the conduct of the operations or
other significant policies of the Bank or the Holding
Company.
(2) Notwithstanding anything in paragraph (1) above, preferred stock
is not "Voting Stock" if:
(i) Voting rights associated with the preferred stock are
limited solely to the type customarily provided by statute
with regard to matters that would significantly and
adversely affect the rights or preferences of the preferred
stock, such as the issuance of additional amounts or
classes of senior securities, the modification of the terms
of the preferred stock, the dissolution of the Bank or the
Holding Company, or the payment of dividends by the Bank or
the Holding Company when preferred dividends are in
arrears;
(ii) The preferred stock represents an essentially passive
investment or financing device and does not otherwise
provide the holder with control over the issuer; and
(iii) The preferred stock does not at the time entitle the
holder, by statute, charter, or otherwise, to select or to
vote for the selection of directors of the Bank or the
Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting
Stock" shall be deemed to include preferred stock and other
securities that, upon transfer or otherwise, are convertible into
Voting Stock or exercisable to acquire Voting Stock where the
holder of the stock, convertible security or right to acquire
Voting Stock has the preponderant economic risk in the underlying
Voting Stock. Securities immediately convertible into Voting Stock
at the option of the holder without payment of additional
consideration shall be deemed to constitute the Voting Stock into
which they are convertible; other convertible securities and
rights to acquire Voting Stock shall not be deemed to vest the
holder with the preponderant economic risk in the underlying
Voting Stock if the holder has paid less than 50% of the
consideration required to directly acquire the Voting Stock and
has no other economic interest in the underlying Voting Stock.
3. THE REORGANIZATION
A. ORGANIZATION OF THE HOLDING COMPANIES AND THE BANK
As part of the Reorganization, the Bank will convert to a New Jersey
stock savings bank charter, and the Holding Company and the MHC will be
established as federal corporations. The Reorganization will be effected as
follows, or in any manner approved by the OTS, the FDIC and/or the Department
that is consistent with the purposes of this Plan and applicable laws and
regulations: (i) the Bank will organize an interim stock savings bank as a
7
wholly-owned subsidiary ("Interim One"); (ii) Interim One will also organize an
interim stock savings bank as a wholly-owned subsidiary ("Interim Two"); (iii)
Interim One will organize the Holding Company as a wholly-owned subsidiary; (iv)
the Bank will exchange its mutual charter for a New Jersey stock savings bank
charter and Interim One will exchange its charter for a federal mutual holding
company charter to become the MHC; (v) simultaneously with step (iv), Interim
Two will merge with and into the Bank with the Bank as the resulting
institution; (vi) all of the initially issued stock of the Bank will be
transferred to the MHC in exchange for liquidation and other rights in the MHC;
and (vii) the MHC will contribute the capital stock of the Bank to the Holding
Company, and the Bank will become a wholly-owned subsidiary of the Holding
Company.
Contemporaneously with the Reorganization, the Holding Company will offer
for sale in the Stock Offering shares of Common Stock representing the pro forma
market value of the Holding Company and the Bank. Upon consummation of the
Reorganization, the legal existence of the Bank will not terminate, and the Bank
under its New Jersey stock savings bank charter will be a continuation of the
Bank in mutual form, and all property of the Bank, including its right, title,
and interest in and to all of its property and assets of every conceivable value
or benefit then existing or pertaining to the Bank, or which would inure to the
Bank, will by operation of law and without the necessity of any conveyance or
transfer and without any further act or deed, vest in the Bank in its stock
form. The Bank in its stock form will have, hold, and enjoy the same in its
right and fully and to the same extent as the same was possessed, held, and
enjoyed by the Bank under its mutual charter. The Bank in its stock form will
continue to have, succeed to, and be responsible for all the assets, rights,
liabilities and obligations of the Bank under its mutual charter and will
maintain its headquarters and operations at the Bank's present locations.
Upon consummation of the Reorganization, substantially all of the assets
and liabilities (including savings accounts and demand accounts) of the Bank
shall become the assets and liabilities of the Bank in its stock form, which
will thereupon become an operating savings bank subsidiary of the Holding
Company and the MHC. The Bank will apply to the Department, the FDIC or the OTS,
as applicable, to have the Holding Company receive or retain (as the case may
be) up to 50% of the net proceeds of the Stock Offering, or such other amount as
may be determined by the Board of Directors. The Bank may distribute additional
capital to the Holding Company following the Reorganization, subject to
regulations of the Department, the FDIC or the OTS, as appropriate, governing
capital distributions.
B. EFFECT ON DEPOSIT ACCOUNTS AND BORROWINGS
Each Deposit Account in the Bank on the Effective Date will remain a
Deposit Account in the Bank after the Reorganization in the same amount and upon
the same terms and conditions, and will continue to be federally insured up to
the legal maximum by the FDIC in the same manner as the Deposit Account existed
in the Bank immediately prior to the Reorganization. Upon consummation of the
Reorganization, all loans and other borrowings from the Bank shall retain the
same status with the Bank after the Reorganization as they had with the Bank
immediately prior to the Reorganization.
8
C. THE BANK
Upon completion of the Reorganization, the Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under New Jersey and
applicable federal laws. A copy of the proposed stock charter and bylaws of the
Bank is attached hereto as Exhibit A and made a part of this Plan. The
Reorganization will not result in any reduction of the amount of retained
earnings (other than the assets of the Bank retained by or distributed to the
Holding Company or the MHC), undivided profits, and general loss reserves that
the Bank had prior to the Reorganization. Such retained earnings and general
loss reserves will be accounted for by the MHC, Holding Company and the Bank on
a consolidated basis in accordance with generally accepted accounting
principles.
The initial members of the Board of Directors of the Bank after the
Reorganization will be the members of the Board of Directors of the Bank
immediately prior to the Reorganization. Upon completion of the Reorganization,
the Bank will be wholly-owned by the Holding Company. The Holding Company will
be wholly-owned by its stockholders who will consist of the MHC and the persons
who purchase Common Stock in the Stock Offering and any subsequent Minority
Stock Offering. Upon the Effective Date of the Reorganization, any ownership,
voting or liquidation rights of Depositors will be transferred to the MHC,
subject to the conditions specified below.
D. THE HOLDING COMPANY
The Holding Company will be authorized to exercise any and all powers,
rights and privileges, and will be subject to all limitations applicable to
savings and loan holding companies and mutual holding companies under federal
law and regulations. The initial members of the Board of Directors of the
Holding Company will be the existing Board of Directors of the Bank. Thereafter,
the voting stockholders of the Holding Company will elect approximately
one-third of the Holding Company's directors annually. A copy of the proposed
charter and bylaws of the Holding Company is attached as Exhibit B and made part
of this Plan.
The Holding Company will have the power to issue shares of Capital Stock
to persons other than the MHC. However, so long as the MHC is in existence, the
MHC will be required to own at least a majority of the Voting Stock of the
Holding Company. The Holding Company may issue any amount of Non-Voting Stock to
persons other than the MHC. The Holding Company will be authorized to undertake
one or more Minority Stock Offerings of less than 50% in the aggregate of the
total outstanding Common Stock of the Holding Company, and the Holding Company
intends to offer for sale up to 49.9% of its Common Stock in the Stock Offering.
E. THE MUTUAL HOLDING COMPANY
As a mutual corporation, the MHC will have no stockholders. Persons who
have liquidation and other rights with respect to the Bank under its existing
charter immediately prior to the Reorganization shall continue to have such
rights solely with respect to the MHC after the Reorganization so long as such
persons remain Depositors of the Bank after the Reorganization.
9
In addition, all persons who become Depositors of the Bank following the
Reorganization will have liquidation or other rights with respect to the MHC.
The rights and powers of the MHC will be defined by the MHC's charter and bylaws
(a copy of which is attached to this Plan as Exhibit C and made a part hereof)
and by the statutory and regulatory provisions applicable to savings and loan
holding companies and mutual holding companies. In particular, the MHC will be
subject to the limitations and restrictions imposed on mutual holding companies
by Section 10(o)(5) of the HOLA.
The initial members of the Board of Directors of the MHC will be the
Board of Directors of the Bank immediately prior to the Reorganization.
Thereafter, the directors of the MHC will be appointed annually by the Board of
Directors of the MHC.
4. RIGHTS OF DEPOSITORS OF THE MHC
Following the Reorganization, all Depositors who had liquidation and
other rights with respect to the Bank as of the date of the Reorganization will
continue to have such rights solely with respect to the MHC. In addition, all
persons who become Depositors of the Bank subsequent to the Reorganization also
will have liquidation and other rights with respect to the MHC. In each case, no
person who ceases to be the holder of a Deposit Account with the Bank after the
Reorganization shall have any liquidation or other rights with respect to the
MHC.
5. CONDITIONS TO IMPLEMENTATION OF THE REORGANIZATION
Consummation of the Reorganization is expressly conditioned upon the
following:
A. Approval of the Plan by at least two-thirds of the Board of
Directors of the Bank.
B. Approval or non-objection of the Plan, the Notice and/or the
Application by the Department, the FDIC and/or the OTS.
C. The filing of a holding company application with and approval by
the OTS pursuant to the HOLA for the Holding Company and MHC to
become mutual savings and loan holding companies by owning or
acquiring up to 100% of the common stock of the Bank and the
Holding Company, respectively, to be issued in connection with the
Reorganization.
D. Submission of the Plan to the Voting Depositors for approval
pursuant to a Proxy Statement and form of proxy cleared in advance
by the Department, the FDIC and/or the OTS, and such Plan is
approved by a majority of the total votes of the Voting Depositors
eligible to be cast at the Special Meeting.
E. Approvals by the Department, the FDIC and/or the OTS of the
charter and bylaws of the MHC, the Holding Company and the Stock
Bank, and the conversion of the Bank to a stock savings bank
charter, and all conditions specified or otherwise imposed by the
Department, the FDIC and/or the OTS in connection with any
approval or notice of intent not to disapprove the Notice and/or
the Application have been satisfied.
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6. SPECIAL MEETING OF DEPOSITORS
Following the approval of the Plan by the Department, the FDIC and/or the
OTS, the Bank shall set the date for the Special Meeting and shall distribute
proxy solicitation materials to all Voting Depositors at least 20 days but not
more than 45 days prior to the Special Meeting. The proxy solicitation materials
shall include a proxy statement and other documents authorized for use by the
regulatory authorities. A copy of the Plan will be made available to Voting
Depositors upon request. The affirmative vote of not less than a majority of the
total outstanding votes of the Voting Depositors is required for approval of the
Plan. Voting may be in person or by proxy. The Department, the FDIC and/or the
OTS shall be notified promptly of the actions of the Voting Depositors.
7. CONVERSION OF MHC TO STOCK FORM
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). However, there can be no assurance when, if ever, a Conversion
Transaction will occur.
In a Conversion Transaction, the MHC would merge with and into the Bank
or the Holding Company, with the Stock Bank or the Holding Company as the
resulting entity, and the depositors of the Bank would receive the right to
subscribe for shares of common stock of the Holding Company or its successor,
which shares would represent the ownership interest of the MHC in the Holding
Company. The additional shares of common stock of the Holding Company issued in
the Conversion Transaction would be sold at their aggregate pro forma market
value as determined by an Independent Appraisal.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any, will
be entitled without additional consideration to maintain the same percentage
ownership interest in the Holding Company after the Conversion Transaction as
their percentage ownership interest in the Bank immediately prior to the
Conversion Transaction (I.E., the "Minority Ownership Interest"). The Minority
Ownership Interest of Minority Stockholders shall not be reduced in a Conversion
Transaction as a result of any waiver of dividends by the MHC.
At the sole discretion of the Board of Directors of the MHC and the
Holding Company, a Conversion Transaction may be effected in any other manner
necessary to qualify the Conversion Transaction as a tax-free reorganization
under applicable federal and state tax laws, provided such Conversion
Transaction does not diminish the rights and ownership interest of Minority
Stockholders. If a Conversion Transaction does not occur, the MHC will always
own a majority of the Voting Stock of the Holding Company. Management of the
Bank has no current intention to conduct a Conversion Transaction.
A Conversion Transaction would require the approval of the OTS and would
be presented to a vote of the depositors of the Bank. Federal regulatory policy
requires that in any Conversion Transaction the depositors of the Bank will be
accorded the same stock purchase priorities as if the MHC were a mutual savings
bank converting to stock form.
11
8. TIMING OF THE REORGANIZATION AND SALE OF CAPITAL STOCK
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 5 of the Plan.
Subject to any necessary regulatory approvals, the Holding Company intends to
commence the Stock Offering concurrently with the proxy solicitation of Voting
Depositors. The Holding Company may close the Stock Offering before the Special
Meeting, provided that the offer and sale of the Common Stock shall be
conditioned upon approval of the Plan by the Voting Depositors at the Special
Meeting. Subject to any necessary regulatory approvals, the Bank's proxy
solicitation materials may permit Voting Depositors to return to the Bank by a
reasonable date certain a postage paid card or other written communication
requesting receipt of the prospectus if the prospectus is not mailed
concurrently with the proxy solicitation materials. The Stock Offering shall be
conducted in compliance with applicable regulations of the SEC, the OTS, the
FDIC and the Department.
9. NUMBER OF SHARES TO BE OFFERED
The total number of shares (or range thereof) of Common Stock to be
issued and offered for sale pursuant to the Plan shall be determined initially
by the Board of Directors of the Bank and the Holding Company in conjunction
with the determination of the Independent Appraiser. The number of shares to be
offered may be adjusted prior to completion of the Stock Offering. The total
number of shares of Common Stock that may be issued to persons other than the
MHC at the close of the Stock Offering must be less than 50% of the issued and
outstanding shares of Common Stock of the Holding Company.
10. INDEPENDENT VALUATION AND PURCHASE PRICE OF SHARES
All shares of Common Stock sold in the Stock Offering shall be sold at a
uniform price per share. The purchase price and number of shares to be
outstanding shall be determined by the Board of Directors of the Holding Company
and the Bank on the basis of the estimated pro forma market value of the Holding
Company and the Bank. The aggregate purchase price for the Common Stock will not
be inconsistent with such market value of the Holding Company and the Bank. The
pro forma market value of the Holding Company and the Bank will be determined
for such purposes by the Independent Appraiser.
Prior to the commencement of the Stock Offering, an Estimated Valuation
Range will be established, which range may vary within 15% above to 15% below
the midpoint of such range, and up to 15% greater than the maximum of such
range, as determined by the Board of Directors at the time of the Stock Offering
and consistent with FDIC, OTS and/or Department regulations. The Holding Company
intends to issue up to 49.9% of its Common Stock in the Stock Offering. The
number of shares of Common Stock to be issued and the ownership interest of the
MHC may be increased or decreased by the Holding Company, taking into
consideration any change in the independent valuation and other factors, at the
discretion of the Board of Directors of the Holding Company and the Bank.
Based upon the independent valuation as updated prior to the commencement
of the Stock Offering, the Board of Directors may establish the minimum and
maximum percentage of shares of Common Stock that will be offered for sale in
the Stock Offering, or it may fix the
12
percentage of shares that will be offered for sale in the Stock Offering. In the
event the percentage of the shares offered for sale in the Minority Stock
Offering is not fixed in the Stock Offering, the Minority Ownership Interest
resulting from the Stock Offering will be determined as follows: (a) the product
of (x) the total number of shares of Common Stock sold by the Holding Company
and (y) the purchase price per share, divided by (b) the aggregate pro forma
market value of the Holding Company and the Bank upon the closing of the Stock
Offering and sale of all the Common Stock.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Holding Company and the Bank and to the FDIC, the OTS and/or the Department
that, to the best knowledge of the Independent Appraiser, nothing of a material
nature has occurred which, taking into account all relevant factors, would cause
the Independent Appraiser to conclude that the aggregate value of the Common
Stock sold in the Stock Offering at the Actual Purchase Price is incompatible
with its estimate of the aggregate consolidated pro forma market value of the
Holding Company and the Bank. If such confirmation is not received, the Holding
Company and the Bank may cancel the Stock Offering, extend the Stock Offering
and establish a new price range and/or estimated price range, extend, reopen or
hold a new Stock Offering or take such other action as the FDIC, the OTS and/or
the Department may permit.
The estimated market value of the Holding Company and the Bank shall be
determined for such purpose by an Independent Appraiser on the basis of such
appropriate factors as are not inconsistent with FDIC, OTS and/or Department
regulations. The Common Stock to be issued in the Stock Offering shall be fully
paid and nonassessable.
If there is a Community Offering or Syndicated Community Offering of
shares of Common Stock not subscribed for in the Subscription Offering, the
price per share at which the Common Stock is sold in such Community Offering or
Syndicated Community Offering shall be the Actual Purchase Price which will be
equal to the purchase price per share at which the Common Stock is sold to
persons in the Subscription Offering. Shares sold in the Community Offering or
Syndicated Community Offering will be subject to the same limitations as shares
sold in the Subscription Offering.
11. METHOD OF OFFERING SHARES AND RIGHTS TO PURCHASE STOCK
In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; and
(4) Voting Depositors. Any shares of Common Stock that are not subscribed for in
the Subscription Offering may at the discretion of the Holding Company and the
Bank be offered for sale in a Community Offering or a Syndicated Community
Offering. The minimum purchase by any Person shall be 25 shares. The Holding
Company and the Bank shall determine in its sole discretion whether each
prospective purchaser is a "resident," "associate," or "acting in concert" as
defined in the Plan, and shall interpret all other provisions of the Plan in its
sole discretion. All such determinations are in the sole discretion of the
Holding Company and the Bank, and may be based on whatever evidence the Holding
Company and the Bank chooses to use in making any such determination.
13
In addition to the priorities set forth below, the Board of Directors may
establish other priorities for the purchase of Common Stock, subject to the
approval of the FDIC, OTS and/or the Department. The priorities for the purchase
of shares in the Stock Offering are as follows:
A. SUBSCRIPTION OFFERING
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall
receive non-transferable subscription rights to subscribe for shares of Common
Stock offered in the Stock Offering in an amount equal to the greater of
$75,000, one-tenth of one percent (.1%) of the total shares offered in the Stock
Offering, or 15 times the product (rounded down to the nearest whole number)
obtained by multiplying the total number of shares of Common Stock to be issued
in the Stock Offering by a fraction, of which the numerator is the Qualifying
Deposit of the Eligible Account Holder and the denominator is the total amount
of Qualifying Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date and subject to the provisions of Section 12; PROVIDED
that the Holding Company may, in its sole discretion and without further notice
to or solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to 5% of the maximum number of shares offered in the
Stock Offering or decrease such maximum purchase limitation to 0.1% of the
maximum number of shares offered in the Stock Offering, subject to the overall
purchase limitations set forth in Section 12. If there are insufficient shares
available to satisfy all subscriptions of Eligible Account Holders, shares will
be allocated to Eligible Account Holders so as to permit each such subscribing
Eligible Account Holder to purchase a number of shares sufficient to make his
total allocation equal to the lesser of 100 shares or the number of shares
subscribed for. Thereafter, unallocated shares will be allocated pro rata to
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the same proportion that each such subscriber's Qualifying Deposit
bears to the total amount of Qualifying Deposits of all subscribing Eligible
Account Holders whose subscriptions remain unfilled. To ensure proper allocation
of stock, each Eligible Account Holder must list on his subscription order form
all accounts in which he had an ownership interest as of the Eligibility Record
Date. Officers, directors, and their Associates may be Eligible Account Holders.
However, if an officer, director, or his or her Associate receives subscription
rights based on increased deposits in the year before the Eligibility Record
Date, subscription rights based upon these deposits are subordinate to the
subscription rights of other Eligible Account Holders.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the shares offered in the Stock Offering. If after the satisfaction of
subscriptions of Eligible Account Holders, a sufficient number of shares are not
available to fill the subscriptions of such plans, the subscriptions by the
Tax-Qualified Employee Plans shall be filled to the maximum extent possible. If
insufficient shares are available to satisfy the subscriptions of the
Tax-Qualified Employee Plans, then the Tax-Qualified Employee Plans may purchase
shares in the open market following consummation of the Stock Offering to enable
them to acquire, together with any shares of Common Stock acquired in the Stock
Offering, up to 10% of the shares of Common Stock issued in the Stock Offering.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, and the Tax-
14
Qualified Employee Plans, each Supplemental Eligible Account Holder shall
receive non-transferable subscription rights to subscribe for shares of Common
Stock offered in the Stock Offering in an amount equal to the greater of
$75,000, one-tenth of one percent (.1%) of the total shares offered in the Stock
Offering, or 15 times the product (rounded down to the nearest whole number)
obtained by multiplying the total number of shares of Common Stock to be issued
in the Stock Offering by a fraction, of which the numerator is the Qualifying
Deposit of the Supplemental Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Supplemental Eligible Account
Holders, in each case on the Supplemental Eligibility Record Date and subject to
the provisions of Section 12; PROVIDED that the Holding Company may, in its sole
discretion and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to 5% of the
maximum number of shares offered in the Stock Offering or decrease such maximum
purchase limitation to 0.1% of the maximum number of shares offered in the Stock
Offering, subject to the overall purchase limitations set forth in Section 12.
In the event Supplemental Eligible Account Holders subscribe for a number of
shares which, when added to the shares subscribed for by Eligible Account
Holders and the Tax-Qualified Employee Plans, is in excess of the total shares
offered in the Stock Offering, the subscriptions of Supplemental Eligible
Account Holders will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each subscribing Supplemental Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated to each subscribing
Supplemental Eligible Account Holder whose subscription remains unfilled in the
same proportion that such subscriber's Qualifying Deposits on the Supplemental
Eligibility Record Date bear to the total amount of Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unfilled.
PRIORITY 4: VOTING DEPOSITORS. To the extent there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
Tax-Qualified Employee Plans, and Supplemental Eligible Account Holders, each
Voting Depositor as of the Voting Record Date who is neither an Eligible Account
Holder nor Supplemental Eligible Account Holder shall receive non-transferable
subscription rights to subscribe for shares of Common Stock offered in the Stock
Offering in an amount equal to the greater of $75,000, one-tenth of one percent
(.1%) of the total shares offered in the Stock Offering, or 15 times the product
(rounded down to the nearest whole number) obtained by multiplying the total
number of shares of Common Stock to be issued in the Stock Offering by a
fraction, of which the numerator is the Qualifying Deposit of the Voting
Depositor and the denominator is the total amount of Qualifying Deposits of all
Voting Depositors, in each case on the Voting Record Date and subject to the
provisions of Section 12; PROVIDED that the Holding Company may, in its sole
discretion and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to 5% of the
maximum number of shares offered in the Stock Offering or decrease such maximum
purchase limitation to 0.1% of the maximum number of shares offered in the Stock
Offering, subject to the overall purchase limitations set forth in Section 12.
In the event Voting Depositors subscribe for a number of shares which, when
added to the shares subscribed for by Eligible Account Holders, the
Tax-Qualified Employee Plans, and Supplemental Eligible Account Holders, is in
excess of the total shares offered in the Stock Offering, the subscriptions of
Voting Depositors will be allocated among subscribing Voting Depositors so as to
permit each subscribing Voting Depositor to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter,
15
unallocated shares will be allocated to each subscribing Voting Depositor whose
subscription remains unfilled in the proportion that the amounts of their
respective qualifying deposits bear to total qualifying deposits of all
subscribing Voting Depositors.
B. COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Community Offering. This will involve an
offering of all unsubscribed shares directly to the general public with a
preference to those natural persons residing in the Community. The Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by the Holding Company and the Bank, and shall commence concurrently with,
during or promptly after the Subscription Offering. The Holding Company and the
Bank may use one or more investment banking firms on a best efforts basis to
sell the unsubscribed shares in the Subscription and Community Offering. The
Holding Company and the Bank may pay a commission or other fee to such
investment banking firm(s) as to the shares sold by such firm(s) in the
Subscription and Community Offering and may also reimburse such firm(s) for
expenses incurred in connection with the sale. The Community Offering may
include a Syndicated Community Offering managed by such investment banking
firm(s). The Common Stock will be offered and sold in the Community Offering, in
accordance with FDIC, OTS and/or Department regulations, so as to achieve the
widest distribution of the Common Stock. No Person, Associate of such Person or
group of Persons acting in concert, may purchase more than $75,000, of Common
Stock in the Community Offering; PROVIDED, that the Holding Company may, in its
sole discretion, and without further notice to or resolicitation of subscribers
or other prospective purchasers, increase such maximum purchase limitations to
5% of the maximum number of shares offered in the Stock Offering, subject to the
overall purchase limitations set forth in Section 12. In the event orders for
Common Stock in the Community Offering exceed the number of shares available for
sale, shares will be allocated (to the extent shares remain available) first to
cover orders of natural persons residing in the Community, and thereafter to
cover orders of other members of the general public, so that each Person in such
category of the Community Offering may receive 200 shares. In the event orders
for Common Stock in any of these categories exceed the number of shares
available for sale, shares may be allocated on a pro rata basis within a
category based on the amount of the respective orders. In addition, if the
maximum purchase limit is increased, orders received for Common Stock in the
Community Offering or any Syndicated Community Offering shall first be filled up
to a maximum of two percent (2%) of the shares sold and thereafter, remaining
shares will be allocated on an equal number of shares basis per order until all
orders are filled. Further, the Holding Company may limit total subscriptions in
the Community Offering so as to assure that the number of shares available for
any Syndicated Community Offering is equal to a specified percentage of the
number of shares of Common Stock to be issued in the Stock Offering.
The Holding Company, in its sole discretion, may reject subscriptions, in
whole or in part, received from any Person under this Section 11(B).
C. SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public by
a selling group of broker-
16
dealers in a Syndicated Community Offering, subject to terms, conditions and
procedures, including the timing of the offering, as may be determined by the
Holding Company and the Bank in a manner that is intended to achieve the widest
distribution of the Common Stock subject to the rights of the Holding Company to
accept or reject in whole or in part all orders in the Syndicated Community
Offering. It is expected that the Syndicated Community Offering would commence
as soon as practicable after termination of the Subscription Offering and the
Community Offering, if any. The Syndicated Community Offering shall be completed
within 45 days after the termination of the Subscription Offering, unless such
period is extended as provided herein. No Person, Associate of such Person, or
group of Persons acting in concert, may purchase more than $75,000 of Common
Stock in the Syndicated Community Offering; PROVIDED, that the Holding Company
may, in its sole discretion, and without further notice to or resolicitation of
subscribers or other prospective purchasers, increase such maximum purchase
limitation to 5% of the maximum number of shares offered in the Stock Offering,
subject to the overall purchase limitations set forth in Section 12.
If for any reason a Syndicated Community Offering of unsubscribed shares
of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Board of Directors
of the Holding Company and the Bank will seek to make other arrangements for the
sale of the remaining shares. Such other arrangements will be subject to the
approval of the FDIC, the OTS and/or the Department and to compliance with
applicable securities laws.
12. ADDITIONAL LIMITATIONS ON PURCHASES OF COMMON STOCK
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
A. The aggregate amount of outstanding Common Stock of the Holding
Company owned or controlled by persons other than MHC at the close
of the Stock Offering shall be less than 50% of the Holding
Company's total outstanding Common Stock.
B. The maximum purchase of Common Stock in the Subscription Offering
by a Person or group of Persons through a single Deposit Account
is $75,000. No Person by himself, or with an Associate or group of
Persons acting in concert, may purchase more than $150,000 of the
Common Stock offered in the Stock Offering, except that: (i) the
Holding Company may, in its sole discretion and without further
notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to 5% of the
number of shares offered in the Stock Offering; (ii) the
Tax-Qualified Employee Plans may purchase up to 10% of the shares
offered in the Stock Offering; and (iii) for purposes of this
subsection 12(B) shares to be held by any Tax-Qualified Employee
Plan and attributable to a person shall not be aggregated with
other shares purchased directly by or otherwise attributable to
such person.
C. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by any
Non-Tax-Qualified Employee
17
Plan or any Management Person and his or her Associates, exclusive
of any shares of Common Stock acquired by such plan or Management
Person and his or her Associates in the secondary market, shall
not exceed 4.9% of the outstanding shares of Common Stock of the
Holding Company at the conclusion of the Stock Offering. In
calculating the number of shares held by any Management Person and
his or her Associates under this paragraph, shares held by any
Tax-Qualified Employee Plan or Non-Tax-Qualified Employee Plan of
the Holding Company or the Bank that are attributable to such
Person shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by any
Non-Tax-Qualified Employee Plan or any Management Person and his
or her Associates, exclusive of any Common Stock acquired by such
plan or Management Person and his or her Associates in the
secondary market, shall not exceed 4.9% of the stockholders'
equity of the Holding Company at the conclusion of the Stock
Offering. In calculating the number of shares held by any
Management Person and his or her Associates under this paragraph,
shares held by any Tax-Qualified Employee Plan or
Non-Tax-Qualified Employee Plan of the Holding Company or the Bank
that are attributable to such Person shall not be counted.
E. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by any
one or more Tax-Qualified Employee Plans, exclusive of any shares
of Common Stock acquired by such plans in the secondary market,
shall not exceed 4.9% of the outstanding shares of Common Stock of
the Holding Company at the conclusion of the Stock Offering.
F. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by any
one or more Tax-Qualified Employee Plans, exclusive of any shares
of Common Stock acquired by such plans in the secondary market,
shall not exceed 4.9% of the stockholders' equity of the Holding
Company at the conclusion of the Stock Offering.
G. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by all
Non-Tax-Qualified Employee Plans or Management Persons and their
Associates, exclusive of any Common Stock acquired by such plans
or Management Persons and their Associates in the secondary
market, shall not exceed 34% of the outstanding shares of Common
Stock held by persons other than the MHC at the conclusion of the
Stock Offering. In calculating the number of shares held by
Management Persons and their Associates under this paragraph or
paragraph H. below, shares held by any Tax-Qualified Employee Plan
or Non-Tax-Qualified Employee Plan that are attributable to such
persons shall not be counted.
H. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by all
Non-Tax-Qualified Employee Plans or Management Persons and their
Associates, exclusive of any Common Stock acquired by such plans
or Management Persons and their Associates in the
18
secondary market, shall not exceed 34% of the stockholders' equity
of the Holding Company held by persons other than the MHC at the
conclusion of the Stock Offering.
I. The aggregate amount of Common Stock acquired in the Stock
Offering, plus all prior issuances by the Holding Company, by all
stock benefit plans of the Holding Company or the Bank, other than
employee stock ownership plans, shall not exceed 25% of the
outstanding common stock of the Holding Company held by persons
other than the MHC.
J. A minimum of 25 shares of Common Stock must be purchased by each
Person purchasing shares in the Stock Offering to the extent those
shares are available; provided, however, that in the event the
minimum number of shares of Common Stock purchased times the price
per share exceeds $500, then such minimum purchase requirement
shall be reduced to such number of shares which when multiplied by
the price per share shall not exceed $500, as determined by the
Board.
K. The Board of Directors of the Holding Company, may, in its sole
discretion, increase the maximum purchase limitation referred to
in subparagraph B above up to 9.99%, provided that orders for
shares exceeding 5% of the shares being offered in the Stock
Offering shall not in the aggregate exceed 10% of the shares being
offered in the Subscription Offering. Requests to purchase
additional shares of Common Stock under this provision will be
allocated by the Board of Directors on a pro rata basis giving
priority in accordance with its priority rights of Section 11.
Notwithstanding any other provision of this Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase would be
illegal under any federal law or state law or regulation or would violate
regulations or policies of the National Association of Securities Dealers, Inc.,
particularly those regarding free riding and withholding. The Holding Company
and/or its agents may ask for an acceptable legal opinion from any purchaser as
to the legality of such purchase and may refuse to honor any purchase order if
such opinion is not timely furnished.
The Board of Directors of the Holding Company has the right in its sole
discretion to reject any order submitted by a person whose representations the
Board of Directors believes to be false or who it otherwise believes, either
alone or acting in concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of this Plan.
SUBSCRIPTION RIGHTS AFFORDED UNDER THIS PLAN AND BY APPLICABLE
REGULATIONS ARE NON-TRANSFERABLE. NO PERSON MAY TRANSFER, OFFER TO TRANSFER, OR
ENTER INTO ANY AGREEMENT OR UNDERSTANDING TO TRANSFER, THE LEGAL OR BENEFICIAL
OWNERSHIP OF ANY SUBSCRIPTION RIGHTS UNDER THIS PLAN. NO PERSON MAY TRANSFER,
OFFER TO TRANSFER OR ENTER INTO AN AGREEMENT OR UNDERSTANDING TO TRANSFER LEGAL
OR BENEFICIAL OWNERSHIP OF ANY SHARES OF COMMON STOCK EXCEPT PURSUANT TO THIS
PLAN.
19
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED
TO CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE HOLDING COMPANY OR THE BANK IN ITS SOLE DISCRETION. SUCH
DETERMINATION SHALL BE CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS, AND THE
HOLDING COMPANY OR THE BANK MAY TAKE ANY REMEDIAL ACTION INCLUDING, WITHOUT
LIMITATION, REJECTING THE PURCHASE OR REFERRING THE MATTER TO THE FDIC OR THE
DEPARTMENT FOR ACTION, AS THE HOLDING COMPANY OR THE BANK MAY IN ITS SOLE
DISCRETION DEEM APPROPRIATE.
13. PAYMENT FOR STOCK
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; PROVIDED, that if the Employee Plans subscribe for shares
of Common Stock during the Subscription Offering, such plans may pay for such
shares at the Actual Purchase Price upon consummation of the Stock Offering. The
Holding Company or the Bank may make scheduled discretionary contributions to
the ESOP provided such contributions from the Bank, if any, do not cause the
Bank to fail to meet its regulatory capital requirements.
Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's Deposit Account at the Bank in an amount equal to the purchase price
of such shares. Such authorized withdrawal, whether from a savings passbook or
certificate account, shall be without penalty as to premature withdrawal. If the
authorized withdrawal is from a certificate account, and the remaining balance
does not meet the applicable minimum balance requirements, the certificate shall
be canceled at the time of withdrawal, without penalty, and the remaining
balance will earn interest at the Bank's passbook rate. Funds for which a
withdrawal is authorized will remain in the purchaser's Deposit Account but may
not be used by the purchaser until the Common Stock has been sold or the 45-day
period (or such longer period as may be approved by the OTS, the Department or
the FDIC) following the Stock Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the Actual Purchase
Price per share. Interest will continue to be earned on any amounts authorized
for withdrawal until such withdrawal is given effect. Payment for Common Stock
made by check or money order will be paid by the Bank at a rate no less than the
Bank's passbook rate. Such interest will be paid from the date payment is
received by the Bank until consummation or termination of the Stock Offering. If
for any reason the Stock Offering is not consummated, all payments made by
subscribers in the Stock Offering will be refunded to them with interest. In
case of amounts authorized for withdrawal from Deposit Accounts, refunds will be
made by canceling the authorization for withdrawal.
20
14. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the prospectus prepared by the Holding
Company has been declared effective by the Department, the OTS, the FDIC and/or
the SEC, as applicable, copies of the prospectus and order forms will be
distributed to all Eligible Account Holders, the Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders and employees, Officers and directors at
their last known addresses appearing on the records of the Bank for the purpose
of subscribing for shares of Common Stock in the Subscription Offering and will
be made available to those persons that purchase Common Stock in the Community
Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Community Offerings. Each order form will contain, among other things, the
following:
A. A specified date by which all order forms must be received by the
Bank, which date shall be not less than 20 nor more than 45 days
following the date on which the order forms are mailed by the
Bank, and which date will constitute the termination of the
Subscription Offering;
B. The purchase price per share for shares of Common Stock to be sold
in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Common Stock that may be subscribed for pursuant to the exercise
of Subscription Rights or otherwise purchased in the Community
Offering;
D. Instructions as to how the recipient of the order form must
indicate thereon the number of shares of Common Stock for which
such Person elects to subscribe and the available alternative
methods of payment therefor;
E. An acknowledgment that the recipient of the order form has
received a final copy of the prospectus prior to execution of the
order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the
effect that all subscription rights are nontransferable, will be
void at the end of the Subscription Offering, and can only be
exercised by delivering to the Bank within the subscription period
such properly completed and executed order form, together with a
check or money order in the full amount of the purchase price as
specified in the order form for the shares of Common Stock for
which the recipient elects to subscribe in the Subscription
Offering (or by authorizing on the order form that the Bank
withdraw said amount from the subscriber's Deposit Account at the
Bank); and
G. A statement to the effect that the executed order form, once
received by the Bank, may not be modified or amended by the
subscriber without the consent of the Bank.
21
Notwithstanding the above, the Holding Company or the Bank reserve the
right in its sole discretion to accept or reject orders received on photocopied
or facsimilied order forms.
15. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event order forms (a) are not delivered and are returned to the
Bank by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the Person to whom such
rights have been granted will lapse as though such Person failed to return the
completed order form within the time period specified thereon; PROVIDED, that
the Bank may, but will not be required to, waive any immaterial irregularity on
any order form or require the submission of corrected order forms or the
remittance of full payment for subscribed shares by such date as the Bank may
specify. The interpretation by the Bank of terms and conditions of this Plan and
of the order forms will be final, subject to the authority of the Department,
the FDIC or the OTS.
16. COMPLETION OF THE STOCK OFFERING
The Stock Offering will be terminated if not completed within 90 days
from the date on which the prospectus is declared effective unless an extension
is approved by the Department, the OTS and/or the FDIC.
17. MARKET FOR COMMON STOCK
If at the close of the Stock Offering the Holding Company has more than
100 shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain a
market for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq quotation system.
18. STOCK PURCHASES BY MANAGEMENT PERSONS AFTER THE STOCK OFFERING
For a period of three years after the Stock Offering, no Management
Person or his or her Associates may purchase, without the prior written approval
of the Department, the OTS or the FDIC, as applicable, any Common Stock of the
Holding Company, except from a broker-dealer registered with the SEC, except
that the foregoing shall not apply to:
A. Negotiated transactions involving more than 1% of the outstanding
stock in the class of stock; or
22
B. Purchases of stock made by and held by any Tax-Qualified or
Non-Tax Qualified Employee Plan even if such stock is attributable
to Management Persons or their Associates.
19. RESALES OF STOCK BY DIRECTORS AND OFFICERS
Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death of a Management Person or an
Associate.
20. STOCK CERTIFICATES
Each stock certificate shall bear a legend giving appropriate notice of
the restrictions set forth in Section 19 above. Appropriate instructions shall
be issued to the Bank's transfer agent with respect to applicable restrictions
on transfers of such stock. Any shares of stock issued as a stock dividend,
stock split or otherwise with respect to such restricted stock, shall be subject
to the same restrictions as apply to the restricted stock.
21. RESTRICTION ON FINANCING STOCK PURCHASES
The Bank and the Holding Company will not loan funds to any Person to
purchase Common Stock in the Stock Offering, and will not knowingly offer or
sell any of the Common Stock to any Person whose purchase would be financed by
funds loaned to the Person by the Bank, the Holding Company or any Affiliate.
22. STOCK BENEFIT PLANS
The Board of Directors of the Bank and/or the Holding Company intends to
adopt one or more stock benefit plans for employees, Officers and directors,
including an ESOP, stock award plans and stock option plans, which will be
authorized to purchase Common Stock and grant options for Common Stock. However,
only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock
in the Stock Offering, subject to the purchase priorities set forth in this
Plan. The Board of Directors of the Bank intends to establish the ESOP and
authorize the ESOP and any other Tax-Qualified Employee Plans to purchase in the
aggregate up to 10% of the shares issued in the Stock Offering. The Bank or the
Holding Company may make scheduled discretionary contributions to one or more
Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock
Offering, or to purchase issued and outstanding shares of Common Stock in the
open market or from authorized but unissued shares of Common Stock or treasury
shares from the Holding Company subsequent to the completion of the Stock
Offering; PROVIDED such contributions do not cause the Bank to fail to meet any
of its regulatory capital requirements. In addition to shares purchased by one
or more Tax-Qualified Employee Plans in this Stock Offering, any subsequent
stock offering, and/or from authorized but unissued shares or treasury shares of
the Holding Company, this Plan specifically authorizes the Holding Company to
grant awards under one or more stock benefit plans, including stock recognition
and award plans and stock option plans, in an amount up to 25% of the number of
shares of Common Stock held by persons other than the MHC.
23
23. POST-REORGANIZATION FILING AND MARKET MAKING
It is likely that there will be a limited market for the Common Stock
sold in the Stock Offering, and purchasers must be prepared to hold the Common
Stock for an indefinite period of time. If the Holding Company has more than 35
stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
24. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The Holding Company may not declare or pay a cash dividend on its Common
Stock if the effect thereof would cause the regulatory capital of the Bank to be
reduced below the amount required under applicable regulations. Following
completion of the Stock Offering, the Holding Company may repurchase its Common
Stock consistent with applicable regulations relating to stock repurchases, as
long as such repurchases do not cause the regulatory capital of the Bank to be
reduced below the amount required under applicable regulations. The MHC also may
from time to time purchase Common Stock of the Holding Company. Subject to any
notice or approval requirements of the OTS, the MHC may waive its right to
receive dividends declared by the Holding Company.
25. REORGANIZATION AND STOCK OFFERING EXPENSES
Federal regulations require that the expenses of any Stock Offering must
be reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization and
the Stock Offering will be reasonable.
26. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the Department, the OTS and/or the
FDIC.
27. AMENDMENT OR TERMINATION OF THE PLAN
If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Bank's Board of Directors, as a result of
comments from regulatory authorities or otherwise, at any time prior to the
solicitation of proxies and submission of the Plan and proxy materials to a vote
of the Voting Depositors. At any time after the solicitation of proxies and
submission of the Plan and proxy materials to a vote of the Voting Depositors,
the terms of the Plan that relate to the Reorganization may be amended by a
majority vote of the Board of Directors only with the concurrence of the
Department, the OTS and/or the FDIC. Terms of the Plan relating to the Stock
Offering including, without limitation, Sections 8 through 20, may be amended by
a majority vote of the Bank's Board of Directors as a result of comments from
regulatory authorities or otherwise at any time prior to the approval of the
Plan by the Department, the OTS and/or the FDIC and at any time thereafter with
the concurrence of the Department, the OTS and/or the FDIC. The Plan may be
terminated by a majority vote of the Board of Directors at any time prior to the
earlier of approval of the Plan by the Department, the OTS and/or the FDIC and
the date of the Special Meeting, and may be terminated by a majority
24
vote of the Board of Directors at any time thereafter with the concurrence of
the Department, the OTS and/or the FDIC. In its discretion, the Board of
Directors may modify or terminate the Plan upon the order of the regulatory
authorities without a resolicitation of proxies or another meeting of the
Depositors; however, any material amendment of the terms of the Plan that relate
to the Reorganization which occur after the Special Meeting shall require a
resolicitation of Depositors. Failure of the Voting Depositors to approve the
Plan will result in the termination of the Plan.
The Plan shall be terminated if the Reorganization is not completed
within 24 months from the date upon which the Voting Depositors of the Bank
approve the Plan, and may not be extended by the Bank, the Department, the OTS
or the FDIC.
Dated: May 13, 2004
25
EXHIBIT A
CHARTER AND BYLAWS OF THE BANK
LINCOLN PARK SAVINGS BANK
CERTIFICATE OF INCORPORATION
SECTION 1. CORPORATE TITLE. The full corporate title of the Bank is
"Lincoln Park Savings Bank."
SECTION 2. OFFICE. The principal office of the Bank shall be located at
31 Boonton Turnpike in Lincoln Park, New Jersey.
SECTION 3. DURATION. The duration of the Bank is perpetual.
SECTION 4. PURPOSE AND POWERS. The Bank is a capital stock savings bank
incorporated under Title 17, Chapter 9A-1 et seq. of the New Jersey Revised
Statutes, as amended, and has and may exercise all the express, implied and
incidental powers, including fiduciary and trust powers, conferred thereby and
by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the State of New Jersey as they are now in effect, or
as they may hereafter be amended, and subject to all lawful and applicable
rules, regulations, and orders of the Commissioner of Banking and Insurance of
the State of New Jersey (the "Commissioner"). In addition, the Bank may make any
investment and engage in any activity as may be specifically authorized by
action of the Commissioner or his delegate in connection with action approving
the issuance of this Certificate of Incorporation.
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Bank has authority to issue is Five Million
(5,000,000), all of which are to be shares of common stock, $2.00 par value per
share. These shares may be issued by the Bank from time to time as approved by
its Board of Directors and the Commissioner without the approval of its
stockholders.
The consideration for the issuance of the shares shall be paid in full
before their issuance and shall not be less than the par value per share.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Bank. The consideration for the shares
shall be cash, tangible or intangible property, labor or services actually
performed for the Bank or any combination of the foregoing. In the absence of
actual fraud in the transaction, the value of such property, labor or services,
as determined by the board of directors of the Bank, shall be conclusive. Upon
payment of such consideration such shares shall be deemed to be fully paid and
nonassessable. The Bank shall have a reserve fund for organizational expenses in
the amount of Fifty Thousand Dollars ($50,000). The Bank shall also maintain a
capital surplus of at least One Hundred Fifty Thousand Dollars ($150,000). As of
March 31, 2004, the amount of surplus of the Bank's mutual savings bank
predecessor was $5.3 million ($5,300,000).
Dividends may be paid in capital stock of the Bank without an amendment
of the Certificate of Incorporation of the Bank notwithstanding the payment of
such stock dividend effects an increase in the outstanding capital stock of the
Bank. In such a case, stock dividends may be paid from time to time in common
stock at the discretion of the Board of Directors; PROVIDED, that, prior to the
date of the payment of any such stock dividend, an appropriate certificate of
the officers of the Bank, with the endorsement of approval of the Commissioner,
is filed with the Department of Banking and Insurance of the State of New
Jersey. In the case of a stock dividend, that part of the surplus of the Bank
that is transferred to stated capital upon the issuance of shares as a stock
dividend shall be deemed to be the consideration for their issuance.
The holders of the common stock shall exclusively possess all voting
power. Each holder of shares of common stock shall be entitled to one vote for
each share held by such holder, including the election of directors.
In the event of any liquidation, dissolution or winding up of the Bank,
the holders of the capital stock shall be entitled, after payment or provision
for payment of all debts and liabilities of the Bank, to receive the remaining
assets of the Bank available for distribution, in cash or in kind.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Bank
shall not be entitled to preemptive rights with respect to any shares of the
Bank which may be issued.
SECTION 7. DIRECTORS. The Bank shall be under the direction of a board of
directors. The number of directors shall consist of no less than five (5) nor
more than fifteen (15) members, as determined by the Board of Directors. The
directors shall be divided into three classes. The members of each class shall
be elected for a term of three years and until their successors are elected and
qualify. One class shall be elected annually.
The persons serving as members of the Board of Managers of the Bank at
the date of consummation of the conversion of the Bank to the stock form shall
become the initial directors of the Bank and shall be divided into three
classes. The term of office of the Class I directors shall expire at the first
annual meeting of stockholders after such consummation, the term of office of
directors of the Class II directors shall expire at the second annual meeting of
stockholders after such consummation, and the term of office of directors of the
Class III directors shall expire at the third annual meeting of stockholders
after such consummation; and, as to directors of each class, when their
respective successors are elected and qualified. At each subsequent annual
meeting of stockholders, directors elected to succeed those whose terms are
expiring shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders and when their respective successors are elected
and qualified.
At a meeting of stockholders called expressly for that purpose, any
Director of the Bank may be removed, with or without cause, from his or her
position as a Director before the expiration of his or her respective term upon
the affirmative vote of eighty percent (80%) of the outstanding capital stock of
the Bank having power to vote in the election of Directors. Any member of the
Board of Directors may be removed at any time, with cause, by a vote of
two-thirds of the entire membership of the Board at the time in office. The
Board may, in its discretion, remove any Director who has absented himself
without authority of the Board from three consecutive meetings of the Board.
Vacancies in the Board of Directors of the Bank, including vacancies
created by an increase in the number of directors, shall be filled by a majority
vote of the directors then in office, whether or not a quorum, and any director
so chosen shall hold office for a term expiring
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at the annual meeting of stockholders at which the term of the class to which he
has chosen expires and when his successor is elected and qualified.
SECTION 8. INITIAL DIRECTORS. The number of directors constituting the
initial Board of Directors of the Bank is six. The names and classes of such
initial directors are as follows: Stanford Stoller (Class I), Ronald Higgins
(Class I), David G. Baker (Class II), John F. Feeney (Class II), Edith M.
Perrotti (Class III) and William H. Weisbrod (Class III).
SECTION 19. REGISTERED OFFICE. The street address of the Bank's initial
registered office in the State of New Jersey is 31 Boonton Turnpike, Lincoln
Park, New Jersey 07035, and the name of its initial registered agent at such
address is Donald Hom.
SECTION 10. INCORPORATORS. The names of the incorporators are as follows:
Stanford Stoller, William H. Weisbrod, David G. Baker, John F. Feeney, Ronald
Higgins, Edith M. Perrotti, Donald Hom, Deborah Shahin, and Nancy Shaw. The
business address of each of the incorporators is 31 Boonton Turnpike, Lincoln
Park, New Jersey 07035.
SECTION 11. LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS.
A. No director shall be personally liable to this Bank or to any
stockholder or stockholders of this Bank for breach of any duty owed to the Bank
or its stockholders, provided, however, that this provision shall not relieve a
director from liability for any breach of duty based upon an act or omission (1)
in breach of such person's duty of loyalty to the Bank or its stockholders, (2)
not in good faith or involving a knowing violation of law, or (3) resulting in
receipt by the director of an improper personal benefit.
B. No officer shall be personally liable to this Bank or to any
stockholder or stockholders of this Bank for breach of duty owed to the Bank or
its stockholders, provided, however, that this provision shall not relieve an
officer from liability for any breach of duty based upon an act or omission (1)
in breach of such person's duty of loyalty to the Bank or its stockholders, (2)
not in good faith or involving a knowing violation of law, or (3) resulting in
receipt by the officer of an improper personal benefit.
C. In the event the law permitting the provisions of this Section is
changed or expires with respect to either officers or directors, such a change
or expiration shall not affect or invalidate those provisions of this Section
which remain in accordance with the law.
SECTION 12. INDEMNIFICATION.
A. Each party who was or is made a party or is threatened to be made
a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative ("proceeding"), by reason
of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director, officer, employee or agent of this Bank or
is or was serving at the request of this Bank as a director, officer, employee
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official capacity
as a director, officer, employee or agent or in any other capacity while serving
as director, officer, employee or agent, shall be indemnified and held harmless
by this Bank to
3
the fullest extent permissible by the laws of the State of New Jersey, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits this Bank to provide broader
indemnification rights than said law permitted this Bank to provide prior to
such amendment) against all expenses, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be paid in settlement) therewith and such indemnification shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that this Bank shall indemnify any such person seeking
indemnity in connection with an action, suit or proceeding (or part thereof)
initiated by such person only if such action, suit or proceeding (or part
thereof) was authorized by the Board of Directors of this Bank. Such right shall
be a contract right and shall include the right to be paid by this Bank for
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, the payment of such expenses incurred by a
director, officer, employee or agent in his or her capacity as a director,
officer, employee or agent (and not in any other capacity in which service was
or is rendered by such person while a director, officer, employee or agent,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of such proceeding, shall be made only upon delivery to
this Bank of an undertaking, by or on behalf of such director, officer, employee
or agent, to repay all amounts so advanced if it should be determined ultimately
that such director, officer, employee or agent is not entitled to be indemnified
under this Section or otherwise.
B. If a claim under Paragraph A is not paid in full by this Bank
within ninety (90) days after a written claim has been received by this Bank,
the claimant may at any time thereafter bring suit against this Bank to recover
the unpaid amount of the claim and, if successful in whole or in part, the
claimant shall also be entitled to be paid the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to this Bank) that the claimant has not met the standards of conduct which make
it permissible under the New Jersey law for this Bank to indemnify the claimant
for the amount claimed, but the burden of proving such defense shall be on this
Bank. Neither the failure of this Bank (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he or she has met the applicable standard of
conduct set forth in New Jersey law, nor an actual determination by this Bank
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
C. The rights conferred on any person by Paragraphs A and B shall not
be exclusive of any other right which such person may have or hereafter acquire
under any statute, provision of this Certificate of Incorporation, Bylaws of
this Bank, agreement, vote of stockholders or disinterested directors or
otherwise.
D. This Bank may maintain insurance, at its expense, to protect
itself and any such director, officer, employee or agent of this Bank or another
corporation, partnership, joint
4
venture, trust or other enterprise against any such person against such expense,
liability or loss under New Jersey law.
E. In no event shall indemnification be made to or on behalf of a
director, officer, employee or agent if a judgment or other final adjudication
adverse to the director, officer, employee or agent establishes that his acts or
omissions (1) were in breach of his duty of loyalty to the Bank or its
stockholders, (2) were not in good faith or involved a knowing violation of law,
or (3) resulted in receipt of an improper personal benefit.
SECTION 13. AMENDMENTS OF BYLAWS. The Board of Directors may make, alter,
amend and repeal the Bylaws of the Bank, subject to the right of stockholders to
make, alter, amend and repeal the Bylaws, as provided by Article 16 of the
Banking Act of 1948, as amended.
SECTION 14. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS. Notwithstanding
anything contained in the Bank's Certificate of Incorporation or Bylaws to the
contrary, for a period of five years from the effective date of this Certificate
of Incorporation, the following provision shall apply:
No person, other than Lincoln Park Bancorp or Lincoln Park Bancorp, MHC
(or any successor thereto), the stock holding company and mutual holding
company, respectively, of the Bank, shall directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of any class of an
equity security of the Bank. This limitation shall not apply to the purchase of
shares by underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan of the Bank.
In the event shares are acquired in violation of this Section 14, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote.
For purposes of this Section 14, the following definitions apply:
(1) 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 Bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an
5
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangements, whether written or otherwise.
6
IN WITNESS WHEREOF, WE THE UNDERSIGNED, being each of the incorporators
hereinbefore named, for the purpose of forming a capital stock savings bank,
pursuant to Title 17, Chapter 9A-1 et seq. of the New Jersey Revised Statutes,
do make this certificate hereby declaring and certifying that this our act and
deed and the facts herein stated are true, and accordingly have hereunto set our
hands this ____ day of __________, 2004.
---------------------------------- -----------------------------------
Stanford Stoller William H. Weisbrod
---------------------------------- -----------------------------------
David G. Baker John F. Feeney
---------------------------------- -----------------------------------
Ronald Higgins Edith M. Perrotti
---------------------------------- -----------------------------------
Donald Hom Deborah Shahin
----------------------------------
Nancy Shaw
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LINCOLN PARK SAVINGS BANK
BYLAWS
ARTICLE I. HOME OFFICE
The Home Office of Lincoln Park Savings Bank (the "Bank") shall be in
Lincoln Park, New Jersey.
ARTICLE II. STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
stockholders shall be held at the Corporate Headquarters of the Bank or at such
other place as the Board of Directors may determine.
SECTION 2. ANNUAL MEETINGS. A meeting of the stockholders of the Bank for
the election of Directors and for the transaction of any other business of the
Bank shall be held annually at such date and time during the month of April as
the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, may be
called by or upon the direction of the Chairman of the Board, President or a
majority of the Board of Directors of the Bank, or by the holders of not less
than a majority of all shares outstanding and entitled to vote.
SECTION 4. NOTICE OF MEETINGS.
A. ANNUAL MEETINGS. Written notice stating the place, day and hour of
the meeting and the purpose or purposes for which the meeting is called shall be
delivered not less than ten (10) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, the Secretary or the Directors calling the
meeting, to each stockholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States Mail, addressed to the stockholder at his address as it appears on the
stock transfer books or records of the Bank as of the record date prescribed in
Section 5 of this Article II, with postage thereon prepaid. When any
stockholders' meeting, either annual or special, is adjourned for thirty (30)
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than thirty (30) days or of the
business to be transacted thereat, other than an announcement at the meeting at
which such adjournment is taken. Notice may be waived by the unanimous action of
the stockholders.
B. SPECIAL MEETINGS. At any time upon the written request of any
person or persons entitled to call a special meeting, the Secretary of the Bank
shall notify stockholders of the call of the special meeting to be held at such
time and place (within the State of New Jersey) as the notice shall specify, but
in no event shall such notice specify a time more than sixty (60) days after the
receipt of the request.
SECTION 5. FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors shall fix in advance a date as the record
date for any such determination of stockholders. Such date in any case shall be
not more than sixty (60) days and, in case of a meeting of stockholders, not
less than twenty (20) days prior to the date on which the particular action,
requiring such determination of stockholders, is to be taken. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.
SECTION 6. QUORUM. A majority of the outstanding shares of the Bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum is present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
SECTION 7. PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his duly authorized
attorney-in-fact. Proxies solicited on behalf of the management shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid
after eleven (11) months from the date of its execution except for a proxy
coupled with an interest.
SECTION 8. ACTION WITHOUT A MEETING. Any action required to be taken or
that may be taken at any Annual or Special Meeting of stockholders of the Bank
may be taken without a meeting, if all stockholders consent thereto in writing.
ARTICLE III. BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Bank shall be
under the direction of its Board of Directors. The Board of Directors shall
annually elect a Chairman of the Board from among its members. The Chairman of
the Board shall preside at all meetings of the Board of Directors. In the
absence of the Chairman, the Vice-Chairman of the Board, if such office is
created, or the President shall preside.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of not
less than five (5) members and not more than fifteen (15) members, as shall from
time to time be fixed by resolution of the Board of Directors, and shall
initially consist of six (6) members. The Board of Directors shall be divided
into three (3) classes. The members of each class shall be elected for a term of
three (3) years and until their successors are elected and qualified. One class
shall be elected annually.
2
SECTION 3. REGULAR MEETINGS. The Board of Directors shall hold at least
one regular meeting each month at such time and place as it may determine. A
regular meeting of the Board of Directors shall be held without other notice
than this Bylaw immediately after, and at the same place as, the Annual Meeting
of stockholders. The Board of Directors may provide, by resolution, the time and
place, within the State of New Jersey, for the holding of additional regular
meetings without other notice than such Resolution.
SECTION 4. SPECIAL MEETINGS. Special Meetings of the Board of Directors
may be called at any time by the Chairman of the Board or the President, and
shall be called by the Secretary upon the written request of a majority of the
directors. Whenever the Secretary shall call a special meeting of the Board upon
the request of directors as herein provided, he shall call such meeting in not
less than five (5) days or not more than ten (10) days after he has been
requested to call said meeting.
SECTION 5. TELEPHONE PARTICIPATION. Members of the Board of Directors may
participate in Regular or Special Meetings by means of conference telephone or
in similar communications equipment by which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person but shall not constitute attendance for the purpose of compensation
pursuant to Section 13 of this Article III.
SECTION 6. NOTICE. The Secretary shall notify each member of the Board of
any special meeting of the Board in person, by telephone, by telegraph or by
mail, at least one day prior to such meeting. Such notice shall state the object
for which such special meeting is to be held and the time and place of such
meeting. Such notice may be waived by all directors.
SECTION 7. QUORUM. A majority of the number of Directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in the
same manner as prescribed by Section 6 of this Article III.
SECTION 8. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by applicable law or
regulation or by these Bylaws.
SECTION 9. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the Directors.
SECTION 10. RESIGNATION. Any Director may resign at any time by sending a
written notice of such resignation to the Corporate Headquarters of the Bank,
addressed to the Chairman of the Board or the President. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof by
the Chairman of the Board or the President. Any Director who has been absent
from one-third or more of the meetings of the Board of Directors during the
preceding calendar year, unless such absences are for good cause shown, shall
not accept re-election as a Director at the next Annual Meeting of stockholders.
3
SECTION 11. REMOVAL. At a meeting of stockholders called expressly for
that purpose, any Director of the Bank may be removed, with or without cause,
from his or her position as a Director before the expiration of his or her
respective term upon the affirmative vote of eighty percent (80%) of the
outstanding capital stock of the Bank having power to vote in the election of
Directors. Any member of the Board of Directors may be removed at any time, with
cause, by a vote of two-thirds of the entire membership of the Board at the time
in office. The Board may, in its discretion, remove any Director who has
absented himself without authority of the Board from three consecutive meetings
of the Board.
SECTION 12. VACANCIES. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining Directors
although less than a quorum of the Board of Directors.
SECTION 13. COMPENSATION. Directors, as such, may receive a stated
compensation for their services. By resolution of the Board of Directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each Regular or Special meeting of the Board of
Directors. Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the Board of
Directors may determine.
SECTION 14. PRESUMPTION OF ASSENT. A Director of the Bank who is present
at a meeting of the Board of Directors at which action on any Bank matter is
taken shall be presumed to have assented to the action taken unless his dissent
by registered mail to the Secretary of the Bank within five days after the date
he receives a copy of the Minutes of the meeting. Such right to dissent shall
not apply to a Director who voted in favor of such action.
SECTION 15. DIRECTORS EMERITI. The Board of Directors may designate, from
time to time, Directors Emeriti for such terms as the Board shall designate and
who shall have the right to attend meetings of the Bank and to be compensated as
the Board of Directors shall decide. No Director Emeritus shall have the right
of notice of meeting or right to vote and the duties of any Director Emeritus
shall be as the Board of Directors shall designate from time to time.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. An executive committee of at least five (5)
members may, from time to time, be appointed by the Board from its members,
which committee, subject to the provisions of these bylaws, shall exercise the
powers of the Board in the management of the business and affairs of the Bank
during the interval between meetings of the Board. The Executive Committee shall
meet at the call of the Chairman of the Board or the call of the Chairman of the
Executive Committee. The Chairman of the Executive Committee, if such office is
created, shall preside at the meetings of this committee and serve only in such
capacity, and in his absence, the Chairman of the Board shall preside.
SECTION 2. AUTHORITY. The Executive Committee, when the Board of
Directors is not is session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the Resolution appointing the Executive Committee; and except also
that the Executive Committee shall not have the authority of the
4
Board of Directors with reference to the Amendment of the Charter or Bylaws of
the Bank, or recommending to the stockholders a plan of merger, consolidation,
or conversion; the sale, lease or other disposition of all or substantially all
of the property and assets of the Bank otherwise than in the usual and regular
course of its business; a voluntary dissolution of the Bank; a revocation of any
of the foregoing; or the approval of a transaction in which any member of the
Executive Committee, directly or indirectly, has any material beneficial
interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the Executive Committee shall hold office until the next
regular Annual Meeting of the Board of Directors following his designation and
until his successor is designated as a member of the Executive Committee.
SECTION 4. MEETINGS. Regular meetings of the Executive Committee may be
held without notice at such times and places as the Executive Committee may fix
from time to time by Resolution. Special meetings of the Executive Committee may
be called by a member thereof upon not less than one day's notice stating the
place, date and hour of the meeting, which notice may be written or oral. Any
member of the Executive Committee may waive notice of any meeting and no notice
of any meeting need by given to any member thereof who attends in person. The
notice of a meeting of the Executive Committee need not state the business
proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the Executive Committee may be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Executive Committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee.
SECTION 7. VACANCIES. Any vacancy in the Executive Committee may only be
filled by a Resolution adopted by a majority of the Full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the Executive
Committee may be removed at any time with or without cause by Resolution adopted
by a majority of the Full Board of Directors. Any member of the Executive
Committee may resign from the Executive Committee at any time by giving written
notice to the President or Secretary of the Bank. Unless otherwise specified
thereon, such resignation shall take effect upon receipt. The acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The Executive Committee may fix its own rules of
procedure which shall not be inconsistent with these Bylaws. It shall keep
regular minutes of its proceedings and report the same to the Board of Directors
for its information at the meeting thereof held next after the proceedings shall
have been taken.
5
SECTION 10. OTHER COMMITTEES. The President may, from time to time,
appoint such committees as are required by the laws of the State of New Jersey
or the needs of the Bank may require. The Board of Directors may appoint such
other committees as it may deem necessary.
ARTICLE V. OFFICERS
SECTION 1. POSITIONS. At the first meeting of the Board after the annual
meeting of stockholders in each fiscal year, the Board shall elect one of their
members to preside at their meetings as Chairman of the Board and may also elect
a Vice-Chairman of the Board and a Chairman of the Executive Committee. They
shall elect a President, one or more Vice-Presidents, a Treasurer and a
Secretary all of whom shall hold office for one year and until their successors
shall be elected and qualified. If the Board elects more than one
Vice-President, they shall designate the order of seniority of the
Vice-Presidents. Where permitted by law, more than one office may be held by the
same person. The Board may appoint such other officers as they deem necessary
for the proper conduct of the business of the Bank. The Board may also appoint
or employ or authorize the appointment or employment of assistant officers or
assistants to officers subject to the confirmation of the Board; provided,
however, that assistants to officers shall not be considered as officers but as
employees. The Board may delegate the authority to appoint any other employees
or agents. Upon the termination of service of any officer, director, employee or
agent, all monies, records, securities or property in his possession and
belonging to the Bank shall be surrendered forthwith and delivered to his
successor or to the Board.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, or his
designee, shall preside at all meetings of the stockholders of the Bank and at
all meetings of the Board of Directors. He shall perform such duties as usually
appertain to the office of Chairman of the Board. In his absence at meetings of
the Bank or meetings of the Board of Directors, the Vice-Chairman of the Board,
if such office is created, or the President shall preside.
SECTION 3. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the Board, if
such office is created, shall preside at meetings of the Bank and at the
meetings of the Board of Directors in the absence of the Chairman of the Board.
SECTION 4. CHAIRMAN OF THE EXECUTIVE COMMITTEE. The Chairman of the
Executive Committee, if such office is created, shall preside at all meetings of
the Executive Committee. In his absence, the President shall preside.
SECTION 5. PRESIDENT. The President shall be the Chief Executive Officer
of the Bank. He shall be an Ex Officio member of all regular committees. In the
absence of the Chairman of the Executive Committee, if such office is created,
the President shall preside. He shall perform such other duties as usually
appertain to the office of President and as the Board may direct and as provided
by law.
SECTION 6. VICE-PRESIDENTS. The Vice-President or Vice-Presidents, shall,
in the order of their seniority, unless otherwise determined by the Board, in
the absence or disability of the Chairman of the Board and the President,
perform such duties as may devolve upon them, by reason of such absence or
disability. He or they shall perform such other duties as may from time to time
be assigned to them.
6
SECTION 7. TREASURER. The Treasurer shall perform such other duties as
generally pertain to that office and such other duties as shall from time to
time be assigned to him. In the absence of the Treasurer, his duties may be
performed by an Assistant Treasurer elected by the Board.
SECTION 8. SECRETARY. The Secretary shall be the custodian of the seal of
the Bank. He shall give notice of all meetings of the Bank, of the Board and of
the Executive Committee to the members and directors as herein and by law
provided. He shall keep a record of the proceedings of the meetings of the Bank,
of the Board and of the Executive Committee, unless a Secretary to the Board
shall have been appointed, in which case such Secretary of the Board shall keep
a record of the proceedings of the meetings of the Board and of the Executive
Committee. He shall perform such duties as may, from time to time, be assigned
to him. In the absence of the Secretary, his duties may be performed by an
Assistant Secretary appointed by the Board.
SECTION 9. ATTORNEY. The Board shall annually appoint an attorney or
attorneys or firm of attorneys-at-law who shall be an attorney-at-law in this
state. He or they shall attend such meetings of the Board as the members of the
Board may request and perform such other or additional services as may be
required of him.
SECTION 10. OFFICERS' POWERS. Each officer in addition to such powers and
duties as may be provided herein, and as may be delegated to him by the Board,
shall have such powers and duties as usually pertain to his office. All checks,
notes and drafts shall be executed in a manner and form determined by resolution
of the Board.
SECTION 11. COMPENSATION. The Board shall have full power and authority
to fix the compensation of all officers, the directors, the attorney or
employees or any other person whom the Board deems proper to retain and employ
in connection with the administration of the business and the property of the
Bank. The Board may, from time to time, delegate to the president, the power and
authority to fix the compensation paid to all assistant officers or employees.
The Board shall be authorized to enter into written contracts with officers and
employees.
SECTION 12. RETIREMENT BENEFITS. The Board may provide for such
retirement or disability benefits for any of its officers or employees, as is
permitted by New Jersey law.
SECTION 13. REMOVAL. Employees chosen or appointed by the Board shall be
removal by a majority vote of the Board. Officers chosen or appointed by the
Board shall be removable by a two-thirds vote of the Board. Any termination of
employment of an officer by the Board will not affect any contractual rights
such officer may have under any employment agreement with the Bank.
ARTICLE VI. CONTRACTS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by applicable law or
regulation, and except as otherwise prescribed by these Bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Bank. Such authority may be
general or confined to specific instances.
7
SECTION 2. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Bank shall be signed by one or more officers, employees or agents of
the Bank in such manner as shall from time to time be determined by the Board of
Directors.
SECTION 3. DEPOSITS. All funds of the Bank not otherwise employed shall
be deposited from time to time to the credit of the Bank in any of its duly
authorized depositories as the Board of Directors may elect.
ARTICLE VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES OF SHARES. Certificates representing shares of
capital stock of the Bank shall be in such form as shall be determined by the
Board of Directors, subject to applicable law and regulations. Such certificates
shall be signed by the Chief Executive Officer or by any other officer of the
Bank authorized by the Board of Directors, attested by the Secretary or an
Assistant Secretary, and sealed with the Corporate Seal or a facsimile thereof.
The signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the Bank itself or one of its employees. Each certificate for shares
of capital stock shall be consecutively numbered or otherwise identified. The
name and address of the person to whom the shares are issued, with the number of
shares and date of issued, shall be entered on the stock transfer books of the
Bank. All certificates surrendered to the Bank for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in case
of a lost or destroyed certificate, a new certificate may be issued therefor
upon such terms and indemnity to the Bank as the Board of Directors may
prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Bank shall be made only on its stock transfer books. Authority for such transfer
shall be given only by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney thereunto authorized by power of attorney duly executed and filed with
the Bank. Such transfer shall be made only on surrender or cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner
thereof for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Bank shall end on the 31st day of December of each
year. The Bank shall be subject to an annual audit as of the end of its fiscal
year by independent public accountants appointed by and responsible to the Board
of Directors. The appointment of such accountants may be subject to annual
ratification by the stockholders.
ARTICLE IX. DIRECTOR LIABILITY AND INDEMNIFICATION
SECTION 1. LIMITATIONS ON LIABILITY. No Director of the Bank shall be
personally liable to the Bank for any damages for breach of any duty owed to the
Bank, except to the extent of any act or omission which is:
8
(i) in breach of the director's duty of loyalty to the Bank; or
(ii) not in good faith or involving a knowing violation of law; or
(iii) resulting in the receipt by the director of an improper personal
benefit.
SECTION 2. INDEMNIFICATION. The Directors, Officers, employees and agents
of this Bank, present or former, shall be entitled to indemnification to the
fullest extent permitted by law, now or hereinafter enacted with respect to
expenses and liabilities incurred in connection with any proceedings involving
such Director, officer, employee or agent by reason of his/her activities in
connection with the Bank; provided that a majority of the disinterested
directors determines that: (1) such individual acted in good faith and in a
manner he/she reasonably believed to be in or not opposed to the best interest
of the Bank, and (2) with respect to any criminal proceeding, such individual
had no reasonable cause to believe his/her conduct was unlawful.
ARTICLE X. DIVIDENDS
Subject to the terms of the Bank's Certificate of Incorporation and
applicable law and regulation, the Board of Directors may, from time to time,
declare, and the Bank may pay, dividends on its outstanding shares of capital
stock.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall have the power to adopt and alter the Seal
of the Bank.
ARTICLE XII. AMENDMENTS
These Bylaws may be amended, altered or repealed at any time by a
majority vote of the full Board of Directors, or by a vote of the holders of a
majority of the total votes eligible to be cast by stockholders of the Bank at a
legal meeting, voting together as a single class. Prior to any stockholder vote
to amend the Bylaws, notice of any change must be furnished in writing to each
stockholder at least twenty (20) business days prior to the vote. Prior to any
director vote to amend the Bylaws, notice of any change must be furnished in
writing to each director at least seven (7) calendar days prior to the vote.
9
EXHIBIT B
CHARTER AND BYLAWS OF THE HOLDING COMPANY
LINCOLN PARK BANCORP
STOCK HOLDING COMPANY CHARTER
SECTION 1. CORPORATE TITLE. The full corporate title of the Mutual
Holding Company subsidiary holding company is Lincoln Park Bancorp (the
"Company").
SECTION 2. DOMICILE. The domicile of the Company shall be located in
Morris County, Borough of Lincoln Park in the State of New Jersey.
SECTION 3. DURATION. The duration of the Company is perpetual.
SECTION 4. PURPOSE AND POWERS. The purpose of the Company is to pursue
any or all of the lawful objectives of a federal mutual holding company
chartered under Section 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467a(o),
and to exercise all of the express, implied, and incidental powers conferred
thereby and by all acts amendatory thereof and supplemental thereto, subject to
the Constitution and laws of the United States as they are now in effect, or as
they may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision (the "Office").
SECTION 5. CAPITAL STOCK. The total number of shares of all classes of
the capital stock which the Company has authority to issue is 6,000,000 of which
5,000,000 shares shall be common stock, par value $0.01 per share, and of which
1,000,000 shares shall be serial preferred stock. The shares may be issued from
time to time as authorized by the board of directors without the approval of its
shareholders, except as otherwise provided in this Section 5 or to the extent
that such approval is required by governing law, rule, or regulation. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the par value. Neither promissory notes nor
future services shall constitute payment or part payment for the issuance of
shares of the Company. The consideration for the shares shall be cash, tangible
or intangible property (to the extent direct investment in such property would
be permitted to the Company), labor, or services actually performed for the
Company, or any combination of the foregoing. In the absence of actual fraud in
the transaction, the value of such property, labor, or services, as determined
by the board of directors of the Company, shall be conclusive. Upon payment of
such consideration, such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the retained
earnings of the Company that is transferred to common stock or paid in capital
accounts upon the issuance of shares as a stock dividend shall be deemed to be
the consideration for their issuance.
Except for shares issued in the initial organization of the Company, no
shares of capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons (except for shares issued to the
parent mutual holding company) of the Company other than as part of a general
public offering or as qualifying shares to a director, unless their issuance or
the plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, and there
shall be no cumulation of votes for the election of directors. PROVIDED, that
this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the board of directors, less than a
majority thereof, in the event of default in the payment of
dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to approve
the merger or consolidation of the Company with another
corporation or the sale, lease, or conveyance (other than
by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the
Company if the preferred stock is exchanged for securities
of such other corporation: PROVIDED, that no provision may
require such approval for transactions undertaken with the
assistance or pursuant to the direction of the Office or
the Federal Deposit Insurance Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth
in this Section 5 (or in any supplementary sections
hereto), including any amendment which would create or
enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock,
or substitutes the surviving Company in a merger or
consolidation for the Company, shall not be considered to
be such an adverse change.
A description of the different classes and series of the Company's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series of capital
stock are as follows:
A. COMMON STOCK. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to payment of dividends, the full amount of
dividends and of sinking fund, retirement fund or other retirement payments, if
any, to which such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class or series
of stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Company, the holders of the common stock (and the holders of any class or series
of stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets of the
Company available for distribution remaining after: (i) payment or provision for
payment of the Company's debts and liabilities; (ii) distributions or provision
for distributions in settlement of its liquidation account; and (iii)
distributions or provisions for distributions to holders of any class or series
of stock having preference over the common stock in the liquidation,
dissolution, or winding up of the Company. Each share of common stock shall have
the same relative rights as and be identical in all respects with all the other
shares of common stock.
B. PREFERRED STOCK. The Company may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All shares
of the same class shall be identical, except as to the following relative rights
and preferences, as to which there may be variations between different series:
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(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the Company;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such
fund and the manner of its application, including the price(s) at
which such shares may be redeemed or purchased through the
application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of
the Company and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by
a supplementary charter section adopted by the board of directors, the Company
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS. Holders of the capital stock of the Company
shall not be entitled to preemptive rights with respect to any shares of the
Company which may be issued.
SECTION 7. DIRECTORS. The Company shall be under the direction of a board
of directors. The authorized number of directors, as stated in the Company's
bylaws, shall not be fewer than five nor more
3
than fifteen except when a greater or lesser number is approved by the Director
of the Office, or his or her delegate.
SECTION 8. AMENDMENT OF CHARTER. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the Company, approved by
the shareholders by a majority of the votes eligible to be cast at a legal
meeting, unless a higher vote is otherwise required, and approved or preapproved
by the Office.
4
LINCOLN PARK BANCORP
ATTEST: ________________________________________________
Nancy M. Shaw, Secretary
By: ________________________________________________
Donald Hom, President and Chief Executive Officer
The home office of Lincoln Park Bancorp (the "Company") shall be at 31
Boonton Turnpike, in Morris County, Borough of Lincoln Park, State of New
Jersey.
ARTICLE II - SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
convenient place as the Board of Directors may determine.
SECTION 2. ANNUAL MEETING. A meeting of the shareholders of the Company
for the election of directors and for the transaction of any other business of
the Company shall be held annually within 150 days after the end of the
Company's fiscal year on the [FOURTH] [WEDNESDAY] in April, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at [10:00 A.M.,] or at such other date and time within such
150-day period as the Board of Directors may determine.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the Board of Directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Company entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Company addressed to the
chairman of the board, the president or the secretary.
SECTION 4. CONDUCT OF MEETINGS. Annual and special meetings shall be
conducted in accordance with rules adopted by the Board of Directors or in the
absence of adoption by the Board of Directors, by the Chairman of the meeting,
which rules shall be intended to assure fair and equitable treatment of
shareholders, and made available for inspection by stockholders at the annual or
special meeting unless otherwise prescribed by regulations of the Office or
these bylaws. The Board of Directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. NOTICE OF MEETINGS. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary or the directors calling the meeting, to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the mail, addressed to
the shareholder at the address as it appears on the stock transfer books or
records of the Company as of the record date prescribed in Section 6 of this
Article II with postage prepaid. When any shareholders meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
1
SECTION 6. FIXING OF RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
SECTION 7. VOTING LIST. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Company shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Company and shall
be subject to inspection by any shareholder of record or the shareholder's agent
at any time during usual business hours for a period of 20 days prior to such
meeting. Such list also shall be produced and kept open at the time and place of
the meeting and shall be subject to inspection by any shareholder of record or
the shareholder's agent during the entire time of the meeting. The original
stock transfer book shall constitute PRIMA FACIE evidence of the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the Board of Directors may
elect to follow the procedures described in ss. 552.6(d) of the Office's
regulations as now or hereafter in effect.
SECTION 8. QUORUM. A majority of the outstanding shares of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
SECTION 10. VOTING OF SHARES IN THE NAME OF TWO OR MORE PERSONS. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Company to the contrary, at any meeting of the shareholders of
the Company any one or more of such shareholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt is
made to cast
2
conflicting votes, in person or by proxy, by the several persons in whose names
shares of stock stand, the vote or votes to which those persons are entitled
shall be cast as directed by a majority of those holding such and present in
person or by proxy at such meeting, but no votes shall be cast for such stock if
a majority cannot agree.
SECTION 11. VOTING OF SHARES OF CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may be voted by the
Company if no other instructions are received. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer into his or her
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Company nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Company,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
SECTION 12. CUMULATIVE VOTING. Stockholders may not cumulate their votes
for election of directors.
SECTION 13. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
3
SECTION 14. NOMINATING COMMITTEE. The Board of Directors or a committee
thereof shall act as a nominating committee for selecting the management
nominees for election as directors. Except in the case of a nominee substituted
as a result of the death or other incapacity of a management nominee, the
nominating committee shall deliver written nominations to the secretary at least
20 days prior to the date of the annual meeting. Upon delivery, such nominations
shall be posted in a conspicuous place in each office of the Company. No
nominations for directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the secretary of the Company at least five days
prior to the date of the annual meeting. Upon delivery, such nominations shall
be posted in a conspicuous place in each office of the Company. Ballots bearing
the names of all persons nominated by the nominating committee and by
shareholders shall be provided for use at the annual meeting. However, if the
nominating committee shall fail or refuse to act at least 20 days prior to the
annual meeting, nominations for directors may be made at the annual meeting by
any shareholder entitled to vote and shall be voted upon.
SECTION 15. NEW BUSINESS. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Company
at least five days prior to the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the shareholders taking place 30 days or
more thereafter. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
SECTION 16. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Company shall
be under the direction of its Board of Directors. The Board of Directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
SECTION 2. NUMBER AND TERM. The Board of Directors shall consist of six
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without other notice than this bylaw following the annual meeting
of shareholders. The Board of Directors may provide, by resolution, the time and
place for the holding of additional regular meetings without notice other than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
4
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the Board of Directors may fix any place, within the Company's normal lending
territory, as the place for holding any special meeting of the Board of
Directors called by such persons.
Members of the Board of Directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
SECTION 5. NOTICE. Written notice of any special meeting shall be given
to each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail, when delivered to the telegraph company if sent by
telegram or when the Company receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors; but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in the
same manner as prescribed by Section 5 of this Article III.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
SECTION 8. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
SECTION 9. RESIGNATION. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Company addressed
to the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
Board of Directors, unless excused by resolution of the Board of Directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the Board of Directors.
SECTION 10. VACANCIES. Any vacancy occurring on the Board of Directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the Board of Directors for a
term of office continuing only until the next election of directors by the
shareholders.
5
SECTION 11. COMPENSATION. Directors, as such, may receive a stated salary
for their services. By resolution of the Board of Directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the Board of Directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the Board of Directors may determine.
SECTION 12. PRESUMPTION OF ASSENT. A director of the Company who is
present at a meeting of the Board of Directors at which action on any Company
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Company within
five days after the date a copy of the minutes of the meeting is received. Such
right to dissent shall not apply to a director who voted in favor of such
action.
SECTION 13. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. APPOINTMENT. The Board of Directors, by resolution adopted by
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the Board of Directors, or any director,
of any responsibility imposed by law or regulation.
SECTION 2. AUTHORITY. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Company or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the Company otherwise
than in the usual and regular course of its business; a voluntary dissolution of
the Company; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
SECTION 3. TENURE. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
SECTION 4. MEETINGS. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one days
6
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need not
state the business proposed to be transacted at the meeting.
SECTION 5. QUORUM. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
SECTION 6. ACTION WITHOUT A MEETING. Any action required or permitted to
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the executive committee.
SECTION 7. VACANCIES. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full Board of Directors.
SECTION 8. RESIGNATIONS AND REMOVAL. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the Company. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 9. PROCEDURE. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the Board of Directors for its information at
the meeting held next after the proceedings shall have occurred.
SECTION 10. OTHER COMMITTEES. The Board of Directors may by resolution
establish an audit, nominating, loan, or other committee composed of directors
as they may determine to be necessary or appropriate for the conduct of the
business of the Company and may prescribe the duties, constitution, and
procedures thereof.
ARTICLE V - OFFICERS
SECTION 1. POSITIONS. The officers of the Company shall be a president,
one or more vice presidents, a secretary and a treasurer or comptroller, each of
whom shall be elected by the Board of Directors. The Board of Directors also may
designate the chairman of the board as an officer. The offices of the secretary
and treasurer may be held by the same person and a vice president also may be
either the secretary or the treasurer. The Board of Directors may designate one
or more vice presidents as executive vice president or senior vice president.
The Board of Directors also may elect or authorize the appointment of such other
officers as the business of the Company may require. The officers shall have
such authority and perform such duties as the Board of Directors may from time
to time authorize or determine. In the absence of action by the Board of
Directors, the officers shall have such powers and duties as generally pertain
to their respective offices.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Company shall
be elected annually at the first meeting of the Board of Directors held after
each annual meeting of the shareholders. If the
7
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until a successor
has been duly elected and qualified or until the officers death, resignation, or
removal in the manner hereinafter provided. Election or appointment of an
officer, employee, or agent shall not of itself create contractual rights. The
Board of Directors may authorize the Company to enter into an employment
contract with any officer in accordance with regulations of the Office; but no
such contract shall impair the right of the Board of Directors to remove any
officer at any time in accordance with Section 3 of this Article V.
SECTION 3. REMOVAL. Any officer may be removed by the Board of Directors
whenever in its judgment the best interests of the Company will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. REMUNERATION. The remuneration of the officers shall be fixed
from time to time by the Board of Directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
SECTION 1. CONTRACTS. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee or agent of the Company to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Company. Such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the Company
and no evidence of indebtedness shall be issued in its name unless authorized by
the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the Company shall be signed by one or more officers, employees, or
agents of the Company in such manner as shall from time to time be determined by
the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Company not otherwise employed
shall be deposited from time to time to the credit of the Company in any duly
authorized depositories as the Board of Directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of
capital stock of the Company shall be in such form as shall be determined by the
Board of Directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the Company authorized
by the Board of Directors, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signature of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the Company
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively
8
numbered or otherwise identified. The name and address of the person to whom the
shares are issued, with the number of shares and date of issue, shall be entered
on the stock transfer books of the Company. All certificates surrendered to the
Company for transfer shall be canceled and no new certificate shall be issued
until the former certificate for a like number of shares has been surrendered
and canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Company as the
Board of Directors may prescribe.
SECTION 2. TRANSFER OF SHARES. Transfer of shares of capital stock of the
Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Company. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Company shall be deemed by the Company to be the
owner for all purposes.
ARTICLE VIII - FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the last day of December of
each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - Dividends
Subject only to the terms of the Company's charter and the regulations
and orders of the Office, the Board of Directors may, from time to time declare,
and the Company may pay, dividends on its outstanding shares of capital stock.
ARTICLE X - Corporate Seal
The Board of Directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of
the Office and shall be effective after: (i) approval of the amendment by a
majority vote of the authorized Board of Directors, or by a majority vote of the
votes cast by the shareholders of the Company at any legal meeting; and (ii)
receipt of any applicable regulatory approval. When the Company fails to meet
its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
9
EXHIBIT C
CHARTER AND BYLAWS OF THE MHC
LINCOLN PARK BANCORP, MHC
MUTUAL HOLDING COMPANY CHARTER
SECTION 1. CORPORATE TITLE. The name of the mutual holding company is
Lincoln Park Bancorp, MHC (the "Mutual Company").
SECTION 2. DURATION. The duration of the Mutual Company is perpetual.
SECTION 3. PURPOSE AND POWERS. The purpose of the Mutual Company is to
pursue any or all of the lawful objectives of a federal mutual savings bank
holding company chartered under section 10(o) of the Home Owners' Loan Act, 12
U.S.C. 1467a(o), and to exercise all of the express, implied, and incidental
powers conferred thereby and all acts amendatory thereof and supplemental
thereto, subject to the Constitution and the laws of the United States as they
are now in effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("OTS").
SECTION 4. CAPITAL. The Mutual Company shall have no capital stock.
SECTION 5. MEMBERS. All holders of the savings, demand, or other
authorized accounts of Lincoln Park Savings Bank (the "Bank") shall have the
same rights, if any, in the Mutual Company as such account holders have in a New
Jersey-chartered mutual savings bank under applicable law.
SECTION 6. DIRECTORS. The Mutual Company shall be under the direction of
a board of directors. The authorized number of directors shall not be fewer than
five nor more than 15, as stated in the Mutual Company's bylaws, except that the
number of directors may be decreased to a number less than five or increased to
a number greater than 15 with the prior approval of the Director of the OTS or
his or her delegate.
SECTION 7. CAPITAL, SURPLUS, AND DISTRIBUTION OF EARNINGS. All holders of
accounts of the Bank shall be entitled to equal distribution of the assets of
the Mutual Company, PRO RATA to the value of their accounts in the Bank, in the
event of a voluntary or involuntary liquidation, dissolution, or winding up of
the Mutual Company.
SECTION 8. AMENDMENT. Adoption of any preapproved charter amendment shall
be effective upon filing the amendment with the OTS in accordance with
regulatory procedures, after such preapproved amendment has been submitted to
and approved by the board of directors. Any other amendment, addition,
alteration, change or repeal of this charter must be submitted to and
preliminarily approved by the OTS prior to submission to and approval by the
board and shall be effective upon filing with the OTS in accordance with
regulatory procedures.
Dated: This _____ day of ___________, 2004.
By: ____________________________________________________
Donald Hom, President
Lincoln Park Bancorp, MHC
Attest: ____________________________________________________
Nancy M. Shaw, Secretary
Lincoln Park Bancorp, MHC
Declared effective this ____ day of __________, 2004.
OFFICE OF THRIFT SUPERVISION
By: ___________________________________
Attest: ________________________________
2
LINCOLN PARK BANCORP, MHC
BYLAWS
SECTION 1. ELECTION OF DIRECTORS. Election of directors shall be held
annually at the annual meeting of the Board of Directors. Each director shall be
elected by a vote of a plurality of the members of the Board of Directors.
Members of the Board of Directors shall be elected for a term of three years and
until their successors have been elected and qualified.
SECTION 2. NUMBER OF DIRECTORS. The number of directors of the Mutual
Company shall be six, and shall be divided into three classes, with one class of
directors elected annually by the board.
SECTION 3. MEETINGS OF THE BOARD. The Board of Directors shall meet
regularly without notice at the principal place of business of the Mutual
Company at least once each calendar year at an hour and date fixed by resolution
of the board, provided that the place of meeting may be changed by the
directors. The regular meeting held in the month of April of each year or in
such other month as determined by the Board of Directors, shall be designated as
the annual meeting. Special meetings of the board may be held at any place
specified in a notice of such meeting and shall be called by the secretary upon
the written request of the chairman or of three directors. All special meetings
shall be held upon at least 24 hours written notice to each director unless
notice is waived in writing before or after such meeting. Such notice shall
state the place, date, time and purposes of such meeting. A majority of the
authorized directors shall constitute a quorum for the transaction of business.
The act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the board. Action may be taken without a meeting if
unanimous written consent is obtained for such action. The meetings shall be
under the direction of a chairman, appointed annually by the board, or in the
absence of the chairman, the meetings shall be under the direction of the
president.
SECTION 4. OFFICERS, EMPLOYEES AND AGENTS. The Board of Directors of the
Mutual Company shall annually elect a president, one or more vice presidents, a
secretary, and a treasurer; PROVIDED, that the offices of president and
secretary may not be held by the same person and a vice president may also be
the treasurer. The board may appoint such additional officers, employees, and
agents as it may from time to time determine. The term of office of all officers
shall be one year or until their respective successors are elected and
qualified; but any officer may be removed at any time by the board. In the
absence of designation from time to time of powers and duties by the board, the
officers shall have such powers and duties as generally pertain to their
respective offices.
Any indemnification by the Mutual Company of the Mutual Company's
personnel is subject to any applicable rules or regulations of the Office.
SECTION 5. RESIGNATION OR REMOVAL OF DIRECTORS. Any director may resign
at any time by sending a written notice of such resignation to the office of the
Mutual Company delivered to the secretary. Unless otherwise specified therein
such resignation shall take effect upon receipt by the secretary. More than
three consecutive absences from regular meetings of the board, unless excused by
resolution of the board, shall automatically constitute a resignation, effective
when such resignation is accepted by the board. Any member of the Board of
Directors may be removed at any time by a vote of two-thirds of the entire
membership of the Board at the time in office.
SECTION 6. POWERS OF THE BOARD. The Board of Directors shall have the
power:
(a) By resolution, to appoint from among its members an
executive committee, which committee shall have and may exercise the powers of
the board between the meetings of the board,
but no such committee shall have the authority of the board to amend the charter
or bylaws, adopt a plan of merger, consolidation, dissolution, or provide for
the disposition of all or substantially all the property and assets of the
Mutual Company. Such committee shall not operate to relieve the board, or any
member thereof, of any responsibility imposed by law;
(b) To appoint and remove by resolution the members of such
other committees as may be deemed necessary and prescribe the duties thereof;
(c) To fix the compensation of directors, officers, and
employees, and to remove any officer or employee at any time with or without
cause; and
(d) To exercise any and all of the powers of the Mutual
Company.
SECTION 7. VACANCIES. Any vacancy occurring in the board of directors may
be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the Board of Directors. A director elected to
fill a vacancy may be elected to serve the remaining term to which he/she is
elected. Any directorship to be filled by reason of an increase in the number of
directors may be filled by election by the Board of Directors to serve the
remaining term to which he/she is elected.
SECTION 8. EXECUTION OF INSTRUMENTS, GENERALLY. All documents and
instruments or writings of any nature shall be signed, executed, verified,
acknowledged, and delivered by such officers, agents, or employees of the Mutual
Company or any one of them and in such manner as from time to time may be
determined by resolution of the board. All notes, drafts, acceptances, checks,
endorsements, and all evidences of indebtedness of the Mutual Company whatsoever
shall be signed by such officer or officers or such agent or agents of the
Mutual Company and in such manner as the board may from time to time determine.
Endorsements for deposit to the credit of the Mutual Company in any of its duly
authorized depositories shall be made in such manner as the board may from time
to time determine. Proxies to vote with respect to shares or accounts of other
associations or stock of other corporations owned by, or standing in the name
of, the Mutual Company may be executed and delivered from time to time on behalf
of the Mutual Company by the president or a vice president and the secretary or
an assistant secretary of the Mutual Company or by any other persons so
authorized by the board.
SECTION 9. COMPENSATION. Directors, as such, may receive such
compensation for their services as determined by the Board of Directors,
including, without limitation, a reasonable fixed sum for, and reasonable
expenses of, attendance at each regular or special meeting of the Board of
Directors. Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the Board of
Directors may determine.
SECTION 10. PRESUMPTION OF ASSENT. A director of the Mutual Company who
is present at a meeting of the Board of Directors at which action on any Mutual
Company matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the Mutual
Company within five days after the date a copy of the minutes of the meeting is
received.
SECTION 11. SEAL. The seal shall be two concentric circles between which
shall be the name of the Mutual Company. The year of incorporation, the word
"incorporated," or an emblem may appear in the center.
SECTION 12. AMENDMENT. Adoption of any bylaw amendment, as long as
consistent with applicable law, rules and regulations, and which adequately
addresses the subject and purpose of the stated bylaw section, shall be
effective upon filing with the Office in accordance with the regulatory
procedures after such amendment has been approved by a majority vote of the
authorized board.
EXHIBIT 4
CHARTERED UNDER THE LAWS OF THE UNITED STATES OF AMERICA
====================== ======================
No. LINCOLN PARK BANCORP Shares
====================== ======================
LINCOLN PARK, NEW JERSEY
CUSIP:
FULLY PAID AND NON-ASSESSABLE
PAR VALUE $0.01 PER SHARE
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO
RESTRICTIONS, SEE REVERSE SIDE
THIS CERTIFIES that is the owner of
SHARES OF COMMON STOCK OF
LINCOLN PARK BANCORP
a federally chartered subsidiary holding company
The shares evidenced by this certificate are transferable only on the books of Lincoln Park Bancorp by the holder hereof, in
person or by attorney, upon surrender of this certificate properly endorsed.
The interest in Lincoln Park Bancorp evidenced by this certificate may not be retired or withdrawn except as provided in the
Rules and Regulations promulgated by the Office of Thrift Supervision and the charter and bylaws of Lincoln Park Bancorp. THE
CAPITAL STOCK EVIDENCED HEREBY IS NOT AN ACCOUNT OF AN INSURABLE TYPE AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER FEDERAL OR STATE GOVERNMENTAL AGENCY.
This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, Lincoln Park Bancorp has caused this certificate to be executed by the facsimile signatures of its duly
authorized officers and has caused its seal to be hereunto affixed.
By [SEAL] By
----------------------------------- -----------------------------------------
NANCY M. SHAW DONALD S. HOM
CORPORATE SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Board of Directors of Lincoln Park Bancorp (the "Company") is
authorized by resolution or resolutions, from time to time adopted, to provide
for the issuance of more than one class of stock, including preferred stock in
series, and to fix and state the voting powers, designations, preferences,
limitations and restrictions thereof. The Company will furnish to any
shareholder upon request and without charge a full description of each class of
stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted
on any matter.
Special meetings of the stockholders shall be called upon the written
request of the holders of not less than 10% of all the outstanding capital stock
of the Company entitled to vote at the meeting.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT Custodian
------------ -----------
(CUST) (MINOR)
TEN ENT - as tenants by the
entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants
with right of
survivorship and not
as tenants in common
------------------------------------
(STATE)
Additional abbreviations may also be used though not in the above list
For value received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
(please print or typewrite name and address including
postal zip code of assignee)
Shares of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated ________________________
In the presence of Signature:
_______________________________ __________________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
EXHIBIT 5
(202) 274-2000
June 18, 2004
The Board of Directors
Lincoln Park Bancorp
31 Boonton Turnpike
Lincoln Park, New Jersey 07035
RE: LINCOLN PARK BANCORP
COMMON STOCK PAR VALUE $0.01 PER SHARE
Ladies and Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Lincoln Park Bancorp (the
"Company") Common Stock, par value $0.01 per share ("Common Stock"). We have
reviewed the Company's Charter, Registration Statement on Form SB-2 (the "Form
SB-2"), as well as applicable statutes and regulations governing the Company and
the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form SB-2, the Common Stock, when sold pursuant to the Company's prospectus and
the Lincoln Park Savings and Loan Association Plan of Reorganization from a
Mutual Savings Association to a Mutual Holding Company and Stock Issuance Plan,
will be duly authorized, legally issued, fully paid and non-assessable in
accordance with the laws of the United States of America.
This Opinion has been prepared for the use of the Company in connection
with the Form SB-2. We hereby consent to our firm being referenced under the
caption "Legal and Tax Opinions," and for inclusion as an exhibit to the
Registration Statement on Form SB-2.
Very truly yours,
/s/ LUSE GORMAN POMERENK & SCHICK
---------------------------------
LUSE GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
EXHIBIT 8
FORM OF FEDERAL TAX OPINION
(202) 274-2000
_______________, 2004
Board of Directors
Lincoln Park Savings Savings and Loan Association
31 Boonton Turnpike
Lincoln Park Savings, New Jersey 07035
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Ladies and Gentlemen:
We have been requested as special counsel to Lincoln Park Savings and
Loan Association ("Lincoln Park Savings") to express our opinion concerning the
Federal income tax consequences relating to the proposed conversion of Lincoln
Park Savings from a New Jersey chartered mutual savings and loan association
(sometimes referred to herein as "Mutual Bank") to a New Jersey chartered stock
savings bank (sometimes referred to herein as "Stock Bank") and the formation of
Lincoln Park Bancorp, MHC, a federal mutual holding company, and Lincoln Park
Bancorp, a mid-tier federal holding company and the subsidiary of Lincoln Park
Bancorp, MHC. Lincoln Park Bancorp, MHC will acquire the outstanding stock of
Stock Bank and subsequently contribute Stock Bank's stock to Lincoln Park
Bancorp.
In connection therewith, we have examined Lincoln Park Savings' Plan of
Reorganization From A Mutual Savings Association To A Mutual Holding Company And
Stock Issuance Plan ("Plan of Reorganization") and certain other documents of or
relating to the reorganization of the bank into the mutual holding company
structure (the "Reorganization"), some of which are described or referred to in
the Plan of Reorganization and which we deemed necessary to examine in order to
issue the opinions set forth below. Unless otherwise defined, all terms used
herein have the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We have
further assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
board of directors of Lincoln Park Savings at a meeting duly called and held;
that Lincoln Park Savings will comply with the terms and conditions of the Plan
of Reorganization, and that the various factual representations and warranties
which are provided to us are accurate, complete, true and correct. Accordingly,
we express no
opinion concerning the effect, if any, of variations from the foregoing. We
specifically express no opinion concerning tax matters relating to the Plan of
Reorganization under state and local tax laws, except on the basis of the
documents and assumptions described above.
For purposes of this opinion, we are relying on the factual
representations provided to us by Lincoln Park Savings, which are incorporated
herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures, and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date hereof,
and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein, we
are of the opinion that:
WITH RESPECT TO THE EXCHANGE OF LINCOLN PARK SAVINGS' CHARTER FOR A
STOCK CHARTER (THE "BANK CONVERSION"):
1. The conversion of Lincoln Park Savings'charter from a mutual
savings bank charter to a stock bank charter will qualify as a reorganization
within the meaning of Section 368(a)(1)(F) of the Code.
2. No gain or loss will be recognized by Lincoln Park Savings upon
the transfer of its assets to Stock Bank solely in exchange for shares of Stock
Bank stock and the assumption by Stock Bank of the liabilities of Mutual Bank.
(Code Sections 361(a) and 357(a)).
3 No gain or loss will be recognized by Stock Bank upon the
receipt of the assets of the Mutual Bank in exchange for shares of Stock Bank
common stock. (Code Section 1032(a)).
4. Stock Bank's holding period in the assets received from Lincoln
Park Savings will include the period during which such assets were held by
Mutual Bank. (Code Section 1223(2)).
5. Stock Bank's basis in the assets of Lincoln Park Savings will be
the same as the basis of such assets in the hands of Lincoln Park Savings
immediately prior to the reorganization. (Code Section 362(b)).
6. Depositors will recognize no gain or loss upon the constructive
receipt of solely Stock Bank common stock in exchange for their liquidation and
other interests in Mutual Bank. (Code Section 354(a)(1)).
7. Stock Bank will succeed to and take into account Lincoln Park
Savings' earnings and profits or deficit in earnings and profits, as of the date
of the reorganization. (Code Section 381).
8. For purposes of Section 381, Stock Bank will be treated the same
as Mutual Bank, and therefore, Mutual Bank's tax year will not end merely as a
result of the conversion of Lincoln Park Savings to stock form and Stock Bank
will not be required to obtain a new employee identification number. (Treas.
Reg. Section 1.381(b)-2 and Rev. Rul. 73-526, 1973-2 CB. 404).
9. No gain or loss shall be recognized by Eligible Account Holders
and Supplemental Eligible Account Holders of Mutual Bank on the issuance to them
of withdrawable deposit accounts in Stock Bank plus liquidation rights with
respect to Lincoln Park Bancorp, MHC, in exchange for their deposit accounts in
the Mutual Bank or to the other depositors on the issuance to them of
withdrawable deposit accounts. (Code Section 354(a)).
10. It is more likely than not that the fair market value of the
subscription rights to purchase Common Stock is zero. Accordingly, no gain or
loss will be recognized by Eligible Account Holders and Supplemental Eligible
Account Holders upon the distribution to them of the nontransferable
subscription rights to purchase shares of stock in the Holding Company. Gain
realized, if any, by the Eligible Account Holders and Supplemental Eligible
Account Holders on the distribution to them of nontransferable subscription
rights to purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription rights. (Code
Section 356(a)). Eligible Account Holders and Supplemental Eligible Account
Holders will not realize any taxable income as a result of the exercise by them
of the nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the deposit accounts in the Stock Bank to be
received by the Eligible Account Holders, Supplemental Eligible Account Holders
and Depositors of the Mutual Bank will be the same as the basis of their deposit
accounts in Mutual Bank surrendered in exchange therefor. (Code Section
358(a)(1)). The basis of the interests in the liquidation rights in Lincoln Park
Bancorp, MHC to be received by the Eligible Account Holders and Supplemental
Eligible Account Holders of Mutual Bank shall be zero. (Rev. Rul. 71-233, 1971-1
C.B. 113).
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO LINCOLN PARK
BANCORP, MHC, FOR LIQUIDATION AND OTHER INTERESTS (THE "351 TRANSACTION"):
12. The exchange of Stock Bank common stock constructively received
by Eligible Account Holders, Supplemental Eligible Account Holders and
Depositors in exchange for liquidation and other interests in Lincoln Park, MHC
will constitute a tax-free exchange of property solely for "stock" pursuant to
Section 351 of the Code.
13. Eligible Account Holders, Supplemental Eligible Account Holders
and Depositors will recognize no gain or loss upon the transfer of Stock Bank
common stock they constructively received in the Bank Conversion to Lincoln Park
Bancorp, MHC solely in exchange for liquidation and other interests in Lincoln
Park Bancorp, MHC. (Code Section 351).
14. Eligible Account Holders, Supplemental Eligible Account Holders
and Depositors basis in the Lincoln Park Bancorp, MHC liquidation and other
interests received in the transaction (which basis is -0-) will be the same as
the basis of the property transferred in exchange therefor. (Code Section
358(a)(1)).
15. Lincoln Park Bancorp, MHC will recognize no gain or loss upon
the receipt of property from Eligible Account Holders, Supplemental Eligible
Account Holders and Depositors in exchange for liquidation and other interests
in Lincoln Park Savings , MHC. (Code Section 1032(a)).
16. Lincoln Park Bancorp, MHC's basis in the property received from
Eligible Account Holders, Supplemental Eligible Account Holders and Depositors
(which basis is -0-) will be the same as the basis of such property in the hands
of Eligible Account Holders, Supplemental Eligible Account Holders and
Depositors immediately prior to the transaction. (Code Section 362(a)).
17. Lincoln Park Bancorp, MHC's holding period for the property
received from Eligible Account Holders, Supplemental Eligible Account Holders
and Depositors will include the period during which such property was held by
such persons. (Code Section 1223(2)).
WITH RESPECT TO THE TRANSFERS TO LINCOLN PARK BANCORP IN EXCHANGE FOR
COMMON STOCK IN LINCOLN PARK SAVINGS BANCORP, INC. (THE "SECONDARY 351
TRANSACTION"):
18. Lincoln Park Bancorp, MHC and the persons who purchased Common
Stock of Lincoln Park Bancorp in the Subscription and Community Offering
("Minority Stockholders") will recognize no gain or loss upon the transfer of
Stock Bank stock and cash, respectively, to Lincoln Park Bancorp in exchange for
stock in Lincoln Park Bancorp. (Code Section 351(a)).
19. Lincoln Park Bancorp will recognize no gain or loss on its
receipt of Stock Bank stock and cash in exchange for Lincoln Park Bancorp Common
Stock. (Code Section 1032(a)).
20. Lincoln Park Bancorp, MHC's basis in the Lincoln Park Bancorp
Common Stock received in the Secondary 351 Transaction will be the same as its
basis in the Stock Bank stock transferred. (Code Section 358(a)(1)).
21. Lincoln Park Bancorp, MHC's holding period in the Lincoln Park
Bancorp Common Stock received will include the period during which it held the
Stock Bank common stock, provided that such property was a capital asset on the
date of the exchange. (Code Section 1223(1)).
22. Lincoln Park Bancorp's basis in the Stock Bank stock received
from Lincoln Park Bancorp, MHC will be the same as the basis of such property in
the hands of Lincoln Park Bancorp,
MHC. (Code Section 362(a)).
23. Lincoln Park Bancorp's holding period for the Stock Bank stock
received from Lincoln Park Bancorp, MHC will include the period during which
such property was held by Lincoln Park Bancorp, MHC. (Code Section 1223(2)).
24. It is more likely than not that the basis of the Lincoln Park
Bancorp Common Stock to its stockholders will be the purchase price thereof.
(Code Section 1012). The holding period of the Common Stock purchased pursuant
to the exercise of subscription rights shall commence on the date on which the
right to acquire such stock was exercised. (Code Section 1223(6)).
PROPOSED TRANSACTION
On May 13, 2004, the board of directors of Lincoln Park Savings adopted
the Plan of Reorganization. For what are represented to be valid business
purposes, Lincoln Park Savings 'board of directors has decided to convert to a
mutual holding company structure pursuant to statutes. The following steps are
proposed:
(i) Lincoln Park Savings will organize an interim stock savings bank
(Interim One) as its wholly owned subsidiary;
(ii) Interim One will organize an interim stock savings bank as its
wholly owned subsidiary (Interim Two); and
(iii) Interim One will also organize a federal mid-tier holding
company as its wholly owned subsidiary (Lincoln Park Bancorp).
The following transactions will occur simultaneously:
(iv) Lincoln Park Savings will exchange its charter for a federal
stock savings bank charter (Stock Bank) and Interim One will
exchange its charter for a federal mutual holding company
charter to become the Lincoln Park Bancorp, MHC ("MHC");
(v) Simultaneously with step (iv) Interim Two will merge with and
into Bank with the Bank as the resulting institution;
(vi) All of the initially issued stock of the Bank will be
transferred to the MHC in exchange for liquidation and other
rights in the MHC; and
(vii) Lincoln Park Bancorp, MHC will contribute Stock Bank's common
stock to Lincoln Park Bancorp, a wholly owned subsidiary of
Lincoln Park Bancorp, MHC, for additional shares of Lincoln Park
Bancorp stock.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Conversion (the "Effective
Date"), hold depository rights with respect to Mutual Bank will thereafter have
such rights solely with respect to Stock Bank. Each deposit account with Mutual
Bank at the time of the exchange will become a deposit account in Stock Bank in
the same amount and upon the same terms and conditions. Following the completion
of the Reorganization, all depositors and borrowers who had liquidation and
other rights with respect to Mutual Bank immediately prior to the Reorganization
will continue to have such rights solely with respect to Lincoln Park Bancorp,
MHC so long as they continue to hold deposit accounts or borrowings with Stock
Bank. All new depositors of Stock Bank after the completion of the
Reorganization will have ownership rights solely with respect to Lincoln Park
Bancorp, MHC so long as they continue to hold deposit accounts with Stock Bank.
The shares of Interim Two common stock owned by Lincoln Park Bancorp,
MHC prior to the Reorganization shall be converted into and become shares of
common stock of Stock Bank on the Effective Date. The shares of Stock Bank
common stock will be transferred to Lincoln Park Bancorp, MHC in exchange for
liquidation and other interests in Lincoln Park Bancorp, MHC.
Lincoln Park Bancorp will have the power to issue shares of capital
stock (including common and preferred stock) to persons other than Lincoln Park
Bancorp, MHC. So long as Lincoln Park Bancorp, MHC is in existence, however, it
must own a majority of the voting stock of Lincoln Park Bancorp. Lincoln Park
Bancorp may issue any amount of non-voting stock to persons other than Lincoln
Park Bancorp, MHC. No such non-voting stock will be issued as of the date of the
Reorganization.
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
Our opinion under paragraph 10 above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs 10 and 24
is based on the position that the subscription rights to purchase shares of
Common Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Depositors have a fair market value of zero. We note that the
subscription rights will be granted at no cost to the recipients, will be
legally non-transferable and of short duration, and will provide the recipient
with the right only to purchase shares of Common Stock at the same price to be
paid by members of the general public in any Community Offering. Based on the
foregoing, we believe it is more likely than not that the nontransferable
subscription rights to purchase Common Stock have no value.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and the Lincoln Park
Bancorp and/or the Stock Bank may be taxable on the distribution of the
subscription rights.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance, or
regulation governing or pertaining to environmental matters, hazardous wastes,
toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent
our conclusions based upon the documents reviewed by us and the facts presented
to us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with
respect to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to Lincoln
Park Savings' combined Form MHC-1/MHC-2 Notice of MHC Reorganization and
Application for Approval of a Minority Stock Issuance by a Subsidiary of MHC,
and as an exhibit to the Holding Company's Application on Form H(e)-1, as filed
with the OTS and Lincoln Park Bancorp's Registration Statement on Form SB-2 as
filed with the SEC. We also consent to the references to our firm in the
Prospectus contained in the Forms MHC-1/MHC-2, H(e)-1, and SB-2 under the
captions "The Reorganization and Offering - Tax Effects of the Reorganization"
and "Legal and Tax Matters," and to the summarization of our opinion in such
Prospectus.
Very truly yours,
LUSE GORMAN POMERENK & SCHICK
A Professional Corporation
EXHIBIT 10.1
LINCOLN PARK SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 2004)
LINCOLN PARK SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, is executed on the ________ day of
______________, 2004, by Lincoln Park Savings Bank, a New Jersey chartered stock
savings bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees of the Bank and
subsidiaries of the Bank, in accordance with the terms and conditions presented
set forth herein;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth
the terms and conditions pertaining to contributions by the Employer and the
payment of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
By:
Secretary President
C O N T E N T S
PAGE NO.
--------
SECTION 1. PLAN IDENTITY.........................................................................................1
1.1 NAME..............................................................................................1
1.2 PURPOSE...........................................................................................1
1.3 EFFECTIVE DATE....................................................................................1
1.4 FISCAL PERIOD.....................................................................................1
1.5 SINGLE PLAN FOR ALL EMPLOYERS.....................................................................1
1.6 INTERPRETATION OF PROVISIONS......................................................................1
SECTION 2. DEFINITIONS...........................................................................................1
SECTION 3. ELIGIBILITY FOR PARTICIPATION.........................................................................6
3.1 INITIAL ELIGIBILITY...............................................................................6
3.2 DEFINITION OF ELIGIBILITY YEAR....................................................................6
3.3 TERMINATED EMPLOYEES..............................................................................7
3.4 CERTAIN EMPLOYEES INELIGIBLE......................................................................7
3.5 PARTICIPATION AND REPARTICIPATION.................................................................7
3.6 OMISSION OF ELIGIBLE EMPLOYEE.....................................................................7
SECTION 4. CONTRIBUTIONS AND CREDITS.............................................................................7
4.1 DISCRETIONARY CONTRIBUTIONS.......................................................................7
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS...............................................................8
4.3 CONDITIONS AS TO CONTRIBUTIONS....................................................................8
4.4 ROLLOVER CONTRIBUTIONS............................................................................8
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS..........................................................8
5.1 LIMITATION ON ANNUAL ADDITIONS....................................................................8
5.2 EFFECT OF LIMITATIONS............................................................................10
5.3 LIMITATIONS AS TO CERTAIN PARTICIPANTS...........................................................10
SECTION 6. TRUST FUND AND ITS INVESTMENT........................................................................11
6.1 CREATION OF TRUST FUND...........................................................................11
6.2 STOCK FUND AND INVESTMENT FUND...................................................................11
6.3 ACQUISITION OF STOCK.............................................................................11
6.4 PARTICIPANTS' OPTION TO DIVERSIFY................................................................12
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.................................................................13
7.1 VOTING AND TENDERING OF STOCK....................................................................13
7.2 DIVIDENDS ON STOCK...............................................................................13
SECTION 8. ADJUSTMENTS TO ACCOUNTS..............................................................................14
8.1 ADJUSTMENTS FOR TRANSACTIONS.....................................................................14
8.2 VALUATION OF INVESTMENT FUND.....................................................................14
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE............................................................14
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS...................................................................15
9.1 DEFERRED VESTING IN ACCOUNTS.....................................................................15
9.2 COMPUTATION OF VESTING YEARS.....................................................................15
9.3 FULL VESTING UPON CERTAIN EVENTS.................................................................16
9.4 FULL VESTING UPON PLAN TERMINATION...............................................................17
9.5 FORFEITURE, REPAYMENT, AND RESTORAL..............................................................17
9.6 ACCOUNTING FOR FORFEITURES.......................................................................17
9.7 VESTING AND NONFORFEITABILITY....................................................................17
SECTION 10. PAYMENT OF BENEFITS..................................................................................17
10.1 BENEFITS FOR PARTICIPANTS........................................................................17
(i)
10.2 TIME FOR DISTRIBUTION............................................................................18
10.3 MARITAL STATUS...................................................................................19
10.4 DELAY IN BENEFIT DETERMINATION...................................................................19
10.5 ACCOUNTING FOR BENEFIT PAYMENTS..................................................................19
10.6 OPTIONS TO RECEIVE STOCK OR CASH.................................................................19
10.7 RESTRICTIONS ON DISPOSITION OF STOCK.............................................................20
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS..................................21
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION.........................................................21
10.10 WAIVER OF 30-DAY PERIOD AFTER NOTICE OF DISTRIBUTION.............................................21
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS................................................22
11.1 CLAIM FOR BENEFITS...............................................................................22
11.2 NOTIFICATION BY COMMITTEE........................................................................22
11.3 CLAIMS REVIEW PROCEDURE..........................................................................22
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.....................................................................22
12.1 AUTHORITY OF COMMITTEE...........................................................................22
12.2 IDENTITY OF COMMITTEE............................................................................23
12.3 DUTIES OF COMMITTEE..............................................................................23
12.4 VALUATION OF STOCK...............................................................................23
12.5 COMPLIANCE WITH ERISA............................................................................23
12.6 ACTION BY COMMITTEE..............................................................................24
12.7 EXECUTION OF DOCUMENTS...........................................................................24
12.8 ADOPTION OF RULES................................................................................24
12.9 RESPONSIBILITIES TO PARTICIPANTS.................................................................24
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY........................................................24
12.11 INDEMNIFICATION BY EMPLOYERS.....................................................................24
12.12 NONPARTICIPATION BY INTERESTED MEMBER............................................................24
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.....................................................24
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS..............................................................24
13.2 PLAN ADOPTION SUBJECT TO QUALIFICATION...........................................................25
13.3 RIGHT TO AMEND OR TERMINATE......................................................................25
SECTION 14. MISCELLANEOUS PROVISIONS............................................................................25
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS................................................................25
14.2 NONASSIGNABILITY OF BENEFITS.....................................................................25
14.3 LIMIT OF EMPLOYER LIABILITY......................................................................26
14.4 TREATMENT OF EXPENSES............................................................................26
14.5 NUMBER AND GENDER................................................................................26
14.6 NONDIVERSION OF ASSETS...........................................................................26
14.7 SEPARABILITY OF PROVISIONS.......................................................................26
14.8 SERVICE OF PROCESS...............................................................................26
14.9 GOVERNING STATE LAW..............................................................................26
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY..............................................26
14.11 UNCLAIMED ACCOUNTS...............................................................................26
14.12 QUALIFIED DOMESTIC RELATIONS ORDER...............................................................26
SECTION 15. TOP-HEAVY PROVISIONS................................................................................27
15.1 TOP-HEAVY PLAN...................................................................................27
15.2 SUPER TOP-HEAVY PLAN.............................................................................28
15.3 DEFINITIONS......................................................................................28
15.4 TOP-HEAVY RULES OF APPLICATION...................................................................29
15.5 MINIMUM CONTRIBUTIONS............................................................................30
15.7 TOP-HEAVY PROVISIONS CONTROL IN TOP-HEAVY PLAN...................................................30
(ii)
LINCOLN PARK SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
1.1 NAME. The name of this Plan is "Lincoln Park Savings Bank
Employee Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is January 1,
2004.
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a
January 1 to December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.
SECTION 2. DEFINITIONS.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"ACCOUNT" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"ACTIVE PARTICIPANT" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1,000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
"BANK" means Lincoln Park Savings Bank and any entity which succeeds to
the business of Lincoln Park Savings Bank and adopts this Plan as its own
pursuant to Section 13.1 of the Plan.
"BENEFICIARY" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his surviving
Spouse, if any, or his estate if he is not survived by a Spouse. The Committee
may rely upon the advice of the Participant's executor or administrator as to
the identity of the Participant's Spouse.
"BREAK IN SERVICE" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day of which an Employee has an Hour of Service, in which an
Employee has 500 or fewer Hours of Service. Solely for this purpose, an Employee
shall be considered employed for his normal hours of paid employment during a
Recognized Absence (said Employee shall not be credited with more than 501 Hours
of Service to avoid a Break in Service), unless he does not resume his Service
at the end of the Recognized Absence. Further, if an Employee is absent for any
period (i) by reason of the Employee's pregnancy, (ii) by reason of the birth of
the Employee's child, (iii) by reason of the placement of a child with the
Employee in connection with the Employee's adoption of the child, or (iv) for
purposes of caring for such child for a period beginning immediately after such
birth or placement, the Employee shall be credited with the Hours of Service
which would normally have been credited but for such absence, up to a maximum of
501 Hours of Service.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"DISABILITY" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"EARLY RETIREMENT" means retirement on or after a Participant's
attainment of age 55 and the completion of ten (10) years of employment with an
Employer. If the Participant terminates employment before satisfying the age
requirement, but has satisfied the employment requirement, the Participant will
be entitled to elect early retirement upon satisfaction of the age requirement.
"EFFECTIVE DATE" means January 1, 2004.
"EMPLOYEE" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
2
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's 415 Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other Employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"EMPLOYER" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"ENTRY DATE" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"415 COMPENSATION"
(a) means wages, as defined in Code Section 3401(a) for
purposes of income tax withholding at the source. For Plan Years
beginning after December 31, 1997, any elective deferral as defined in
Code Section 402(g)(3) (any employer contributions made on behalf of a
Participant to the extent not includible in gross income and any
Employer contributions to purchase an annuity contract under Code
Section 403(b) under a salary reduction agreement) and any amount which
is contributed or deferred by the Employer at the election of the
Participant and which is not includible in gross income of the
Participant by reason of Code Section 125 (Cafeteria Plan) shall also be
included in the definition of 415 Compensation. For purposes of "415
Compensation," for purposes of applying the limitation is described in
Code Section 415, compensation paid or made available during such
limitation years (that is, calendar years) shall include elective
amounts that are not includible in the gross income of an Employee by
reason of Section 132(f)(4) of the Code.
(b) 415 Compensation in excess of $200,000 (as indexed)
shall be disregarded for all Participants. For purposes of this
sub-section, the $200,000 limit shall be referred to as the "applicable
limit" for the Plan Year in question. The $200,000 limit shall be
adjusted for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code, effective for the Plan Year which begins
within the applicable calendar year. For purposes of the applicable
limit, 415 Compensation shall be prorated over short Plan Years.
"HIGHLY PAID EMPLOYEE" for any Plan Year means an Employee who, during
either that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or, during
the immediately preceding Plan Year, had 415 Compensation exceeding $90,000 and
was among the most highly compensated one-fifth of all Employees (the $90,000
amount is adjusted at the same time and in the same manner as under Code Section
415(d), provided, however, the base period is the calendar quarter ending
September 30, 1996). For these purposes, "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all individuals
working for all related Employer entities described in the definition of
"Service", but excluding any individual who has not completed six months of
Service, who normally works fewer than 17-1/2 hours per week or in fewer than
six months per year, who has not reached age 21, whose employment is covered by
a collective bargaining agreement, or who is a nonresident alien who receives no
earned income from United States sources. The applicable year for which a
determination is being made is called a "determination year" and the preceding
12-month period is called a look-back year.
3
"HOURS OF SERVICE" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled
to be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or
indirectly paid or is entitled to be paid for a period of vacation,
holidays, illness, disability, lay-off, jury duty, temporary military
duty, or leave of absence is an Hour of Service. However, except as
otherwise specifically provided, no more than 501 Hours of Service shall
be credited for any single continuous period which an Employee performs
no duties. No more than 501 Hours of Service will be credited under this
paragraph for any single continuous period (whether or not such period
occurs in a single computation period). Further, no Hours of Service
shall be credited on account of payments made solely under a plan
maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee
for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not have
performed any duties. The same Hours of Service will not be credited
both under paragraph (a) or (b) as the case may be, and under this
paragraph (c). These hours will be credited to the employee for the
computation period or periods to which the award or agreement pertains
rather than the computation period in which the award agreement or
payment is made.
(d) Hours of Service shall be credited in any one period
only under one of the foregoing paragraphs (a), (b) and (c); an Employee
may not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment
to an Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the Hours of
Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor's regulations under Title I of ERISA.
"INVESTMENT FUND" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"NORMAL RETIREMENT" means retirement on or after the Participant's
Normal Retirement Date.
"NORMAL RETIREMENT DATE" means the date on which a Participant attains
age 65.
4
"PARTICIPANT" means any Employee who is an Active Participant
participating in the Plan, or Employee or former Employee who was previously an
Active Participant and still has a balance credited to his Account.
"PLAN YEAR" means the twelve-month period commencing January 1 and
ending December 31, 2004 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"RECOGNIZED ABSENCE" means a period for which -
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leave on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer
because of a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"SERVICE" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any Service which constitutes Service with a
predecessor Employer within the meaning of Section 414(a) of the Code, provided,
however, that Service with an acquired entity shall not be considered Service
under the Plan unless required by applicable law or agreed to by the parties to
such transaction. An Employee's Service shall also include any Service with an
entity which is not an Employer, but only either (i) for a period after 1975 in
which the other entity is a member of a controlled group of corporations or is
under common control with other trades and businesses within the meaning of
Section 414(b) or 414(c) of the Code, and a member of the controlled group or
one of the trades and businesses is an Employer, (ii) for a period after 1979 in
which the other entity is a member of an affiliated service group within the
meaning of Section 414(m) of the Code, and a member of the affiliated service
group is an Employer, or (iii) all Employers aggregated with the Employer under
Section 414(o) of the Code (but not until the Proposed Regulations under Section
414(o) become effective). Notwithstanding any provision of this Plan to the
contrary, contributions, benefits and service credit with respect to qualified
military service will be provided in accordance with Section 414(u) of the Code.
"SPOUSE" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former Spouse shall be treated as
the Spouse or surviving Spouse to the extent provided under a qualified domestic
relations order as described in section 414(p) of the Code.
"STOCK" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"STOCK FUND" means that portion of the Trust Fund consisting of Stock.
5
"STOCK OBLIGATION" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying Employer securities as defined in
Treasury Regulations ss. 54.4975-12;
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"TRUST" OR "TRUST FUND" means the trust fund created under this Plan.
"TRUST AGREEMENT" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.
"TRUSTEE" means one or more corporate persons or individuals selected
from time to time by the Bank to serve as trustee or co-trustees of the Trust
Fund.
"UNALLOCATED STOCK FUND" means that portion of the Stock Fund consisting
of the Plan's holding of Stock which have been acquired in exchange for one or
more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2.
"VALUATION DATE" means the last day of the Plan Year and each other date
as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"VALUATION PERIOD" means the period following a Valuation Date and
ending with the next Valuation Date.
"VESTING YEAR" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
SECTION 3. ELIGIBILITY FOR PARTICIPATION.
3.1 INITIAL ELIGIBILITY. An Employee who has satisfied the
requirements set forth below as of the Effective Date shall enter the Plan
retroactively on January 1 of the first Plan Year. All other Employees shall
enter the Plan as of the Entry Date coincident with or next following the later
of the following dates:
(a) the last day of the Employee's first Eligibility Year,
and
(b) the Employee's 21st birthday. However, if an Employee is
not in active Service with an Employer on the date he would otherwise
first enter the Plan, his entry shall be deferred until the next day he
is in Service.
3.2 DEFINITION OF ELIGIBILITY YEAR. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
6
(a) an Employee's first "eligibility period" is the
12-consecutive month period beginning on the first day on which he has
an Hour of Service, and
(b) his subsequent eligibility periods will be
12-consecutive month periods beginning on each January 1 after that
first day of Service.
3.3 TERMINATED EMPLOYEES. No Employee shall have any interest or
rights under this Plan if he is never in active Service with an Employer on or
after the Effective Date.
3.4 CERTAIN EMPLOYEES INELIGIBLE.
(a) No Employee shall participate in the Plan while his
Service is covered by a collective bargaining agreement between an
Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining
between the Employer and the representative and (ii) the collective
bargaining agreement does not provide for the Employee's participation
in the Plan.
(b) Leased Employees are not eligible to participate in the
Plan.
(c) An eligible Employee may elect not to participate in the
Plan, provided, however, such election is made solely to meet the
requirements of Code Section 409(n). For an election to be effective for
a particular Plan Year, the Employee or Participant must file the
election in writing with the Plan Administrator no later than the last
day of the Plan Year for which the election is to be effective. The
Employer may not make a contribution under the Plan for the Employee or
for the Participant for the Plan Year for which the election is
effective, nor for any succeeding Plan Year, unless the Employee or
Participant re-elects to participate in the Plan. The Employee or
Participant may elect again not to participate, but not earlier than the
first Plan Year following the Plan Year in which the re-election was
first effective.
3.5 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction
of the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after five (5) consecutive one year Breaks in
Service with a vested Account balance in the Plan shall re-enter the Plan as of
the date of his return to Service with an Employer.
3.6 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any
Employee who should be included as a Participant in the Plan is erroneously
omitted and discovery of such omission is not made until after a contribution by
his Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed regardless of whether or not it is deductible in
whole or in part in any taxable year under applicable provisions of the Code.
SECTION 4. CONTRIBUTIONS AND CREDITS.
4.1 DISCRETIONARY CONTRIBUTIONS. The Employer shall from time to
time contribute, with respect to a Plan Year, such amounts as it may determine
from time to time. The Employer shall have no obligation to contribute any
amount under this Plan except as so determined in its sole discretion. The
Employer's contributions and available forfeitures for a Plan Year shall be
credited as of the last day of the year to the Accounts of the Active
Participants in proportion to their amounts of 415 Compensation earned during
that portion of the Plan Year that such persons are Participants in the Plan.
7
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
4.3 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall
in all events be subject to the limitations set forth in Section 5.
Contributions may be made in the form of cash, or securities and other property
to the extent permissible under ERISA, including Stock, and shall be held by the
Trustee in accordance with the Trust Agreement. In addition to the provisions of
Section 13.3 for the return of an Employer's contributions in connection with a
failure of the Plan to qualify initially under the Code, any amount contributed
by an Employer due to a good faith mistake of fact, or based upon a good faith
but erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
4.4 ROLLOVER CONTRIBUTIONS. This Plan shall not accept a direct
rollover or rollover contribution of an "eligible rollover distribution" as such
term is defined in Section 10.9-1 of the Plan.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS.
5.1 LIMITATION ON ANNUAL ADDITIONS. Notwithstanding anything herein
to the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance
with Section 4.1 will result in an allocation of more than one-third the
total contributions for a Plan Year to the Accounts of Highly Paid
Employees, then allocation of such amount shall be adjusted so that such
excess will not occur.
8
5.1-2 After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview of
Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $40,000 (or such other dollar amount which results
from cost-of-living adjustments under Section 415(d) of the Code) (the
"dollar limitation") or 100 percent of the Participant's 415
Compensation for such limitation year (the "percentage limitation"). The
percentage limitation shall not apply to any contribution for medical
benefits after separation from service (within the meaning of Section
401(h) or Section 419A(f)(2) of the Code) which is otherwise treated as
an annual addition. In the event that annual additions exceed the
aforesaid limitations, they shall be reduced in the following priority:
(i) Any excess amount at the end of the Plan Year that
cannot be allocated to the Participant's Account shall be reallocated to
the remaining Participants who are eligible for an allocation of
Employer contributions for the Plan Year. The reallocation shall be made
in accordance with Section 4.1 of the Plan as if the Participant whose
Account otherwise would receive the excess amount is not eligible for an
allocation of Employer contributions.
(ii) If the allocation or reallocation of the excess amounts
causes the limitations of Code section 415 to be exceeded with respect
to each Participant for the limitation year, then the excess amount will
be held unallocated in a suspense account. The suspense account will be
applied to reduce future Employer contributions for all remaining
Participants in the next limitation year and each succeeding limitation
year if necessary.
(iii) If a suspense account is in existence at any time during
a limitation year, it will not participate in any allocation of
investment gains and losses. All amounts held in suspense accounts must
be allocated to Participants' Accounts before any contributions may be
made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1, the "annual addition"
to a Participant's Accounts means the sum of (i) Employer contributions,
(ii) Employee contributions, if any, and (iii) forfeitures. Annual
additions to a defined contribution plan also include amounts allocated,
after March 31, 1984, to an individual medical account, as defined in
Section 415(l)(2) of the Internal Revenue Code, which is part of a
pension or annuity plan maintained by the Employer, amounts derived from
contributions paid or accrued after December 31, 1985, in taxable years
ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee
under a welfare benefit fund, as defined in Section 419A(d) of the
Internal Revenue Code, maintained by the Employer. For these purposes,
annual additions to a defined contribution plan shall not include the
allocation of the excess amounts remaining in the Unallocated Stock Fund
subsequent to a sale of stock from such fund in accordance with a
transaction described in Section 8.1 of the Plan.
5.1-4 Notwithstanding the foregoing, if no more than one-third
of the Employer contributions to the Plan for a year which are
deductible under Section 404(a)(9) of the Code are allocated to Highly
Paid Employees (within the meaning of Section 414(q) of the Internal
Revenue Code), the limitations imposed herein shall not apply to:
9
(i) forfeitures of Employer securities (within the meaning
of Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5 If the Employer contributes amounts, on behalf of
Employees covered by this Plan, to other "defined contribution plans" as
defined in Section 3(34) of ERISA, the limitation on annual additions
provided in this Section shall be applied to annual additions in the
aggregate to this Plan and to such other plans. Reduction of annual
additions, where required, shall be accomplished first by reductions
under such other plan pursuant to the directions of the named fiduciary
for administration of such other plans or under priorities, if any,
established under the terms of such other plans and then by allocating
any remaining excess for this Plan in the manner and priority set out
above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month
period beginning each January 1.
5.2 EFFECT OF LIMITATIONS. The Committee shall take whatever action
may be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1. Specifically, the Committee shall see that each Employer
restrict its contributions for any Plan Year to an amount which, taking into
account the amount of available forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan. If it is determined at
any time that the Committee and/or Trustee has erred in accepting and allocating
any contributions or forfeitures under this Plan, or in allocating net gain or
loss pursuant to Sections 8.2 and 8.3, then the Committee, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The Accounts of any or all Participants
may be revised, if necessary, in order to correct such error.
5.3 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the
limitations set forth in Section 5.1, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
10
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date of sale and ending on the later of (1) the date
that is ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
5.4 ERRONEOUS ALLOCATIONS. No Participant shall be entitled to any
annual additions or other allocations to his Account in excess of those
permitted under Section 5. If it is determined at any time that the
administrator and/or Trustee have erred in accepting and allocating any
contributions or forfeitures under this Plan, or in allocating investment
adjustments, or in excluding or including any person as a Participant, then the
administrator, in a uniform and nondiscriminatory manner, shall determine the
manner in which such error shall be corrected and shall promptly advise the
Trustee in writing of such error and of the method for correcting such error.
The Accounts of any or all Participants may be revised, if necessary, in order
to correct such error.
SECTION 6. TRUST FUND AND ITS INVESTMENT.
6.1 CREATION OF TRUST FUND. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the
Trustee shall be divided into the Stock Fund, consisting entirely of Stock, and
the Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.3 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 ACQUISITION OF STOCK. From time to time the Committee may, in
its sole discretion, direct the Trustee to acquire Stock from the issuing
Employer or from shareholders, including shareholders who are or have been
Employees, Participants, or fiduciaries with respect to the Plan. The Trustee
shall pay for such Stock no more than its fair market value, which shall be
determined conclusively by the Committee pursuant to Section 12.4. The Committee
may direct the Trustee to finance the acquisition of Stock by incurring or
assuming indebtedness to the seller or another party which indebtedness shall be
called a "Stock Obligation." The term "Stock Obligation" shall refer to a loan
made to the Plan by a disqualified person within the meaning of Section
4975(e)(2) of the Code, or a loan to the Plan which is guaranteed by a
disqualified person. A Stock Obligation includes a direct loan of cash, a
purchase-money transaction, and an assumption of an obligation of a
tax-qualified employee stock ownership plan under Section 4975(e)(7) of the Code
("ESOP"). For these purposes, the term "guarantee" shall include an unsecured
guarantee and the use of assets of a disqualified person as collateral for a
loan, even though the use of assets may not be a guarantee under applicable
state law.
11
An amendment of a Stock Obligation in order to qualify as an "exempt loan" is
not a refinancing of the Stock Obligation or the making of another Stock
Obligation. The term "exempt loan" refers to a loan that satisfies the
provisions of this paragraph. A "non-exempt loan" fails to satisfy this
paragraph. Any Stock Obligation shall be subject to the following conditions and
limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and shall bear
a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock
Obligation shall have any right or recourse to any Plan and Trust assets
other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments on
the Stock obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation shall be made by the Trustee only from Employer cash
contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock, in the last
case, however, subject to the further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value
of Plan assets transferred in satisfaction of the Stock Obligation must
not exceed the amount of the default. If the lender is a disqualified
person within the meaning of Section 4975 of the Code, a Stock
Obligation must provide for a transfer of Plan assets upon default only
upon and to the extent of the failure of the Plan to meet the payment
schedule of said Stock Obligation. For purposes of this paragraph, the
making of a guarantee does not make a person a lender.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY. The Committee shall provide
for a procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversify must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may be made within each year of the qualified election period and shall
continue for the 90-day period immediately following the last day of each year
in the qualified election period. Once a Participant makes such election, the
Plan must complete diversification in accordance with such election within 90
days after the end of the period during which the election could be made for the
Plan Year. In the discretion of the Committee, the Plan may satisfy the
diversification requirement by any of the following methods:
12
6.4-1 The Plan may distribute all or part of the amount
subject to the diversification election.
The Plan may offer the Participant at least three other distinct
investment options, if available under the Plan. The other investment
options shall satisfy the requirements of Regulations under Section
404(c) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section
404(c) of ERISA.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall vote
all shares of Stock held under the Plan in accordance with the written
instructions of the Committee. However, if any Employer has registration-type
class of securities within the meaning of Section 409(e)(4) of the Code, or if a
matter submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with respect to the
voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
13
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account are
used to repay the Stock Obligation, Stock with a fair market value equal to the
dividends so used must be allocated to such Participant's Account in lieu of the
dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS.
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution pursuant
to Section 4.1 shall be credited to the Participants' Accounts as of the last
day of the Plan Year for which it is contributed, in accordance with Section
4.1. Stock released from the Unallocated Stock Fund upon the Trust's repayment
of a Stock Obligation pursuant to Section 4.2 shall be credited to the
Participants' Accounts as of the last day of the Plan Year in which the
repayment occurred, pro rata based on the cash applied from such Participant's
Account relative to the cash applied from all Participants' Accounts. Any excess
amounts remaining in the suspense account following a sale of Stock from the
Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to 415 Compensation. Any benefit which is
paid to a Participant or Beneficiary pursuant to Section 10 shall be charged to
the Participant's Account as of the first day of the Valuation Period in which
it is paid. Any forfeiture or restoral shall be charged or credited to the
Participant's Account as of the first day of the Valuation Period in which the
forfeiture or restoral occurs pursuant to Section 9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of
the Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
14
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest in
his Account shall be based on his Vesting Years in accordance with the following
table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
----- ---------------
Fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a
"Vesting Year" means generally a Plan Year in which an Employee has at least
1,000 Hours of Service, beginning with the first Plan Year in which the Employee
has completed an Hour of Service with the Employer, and including Service with
other Employers as provided in the definition of "Service." Notwithstanding the
above, an Employee who was employed with the Bank in its pre-conversion mutual
form (the "Mutual Association") shall receive credit for vesting purposes for
each calendar year of continuous employment with the Mutual Association in which
such Employee completed 1,000 Hours of Service (such years shall also be
referred to as "Vesting Years"). However, a Participant's Vesting Years shall be
computed subject to the following conditions and qualifications:
9.2-1 A Participant's Vesting Years shall not include any
Service prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account
accumulated before five (5) consecutive Breaks in Service shall be
determined without regard to any Service after such five consecutive
Breaks in Service. Further, if a Participant has five (5) consecutive
Breaks in Service before his interest in his Account has become vested
to some extent, pre-Break years of Service shall not be required to be
taken into account for purposes of determining his post-Break vested
percentage.
9.2-3 In the case of a Participant who has 5 or more
consecutive 1-year Breaks in Service, the Participant's pre-Break
Service will count in vesting of the Employer-derived post-break accrued
benefit only if either:
(i) such Participant has any nonforfeitable interest in the
accrued benefit attributable to Employer contributions at the time of
separation from Service, or
(ii) upon returning to Service the number of consecutive
1-year Breaks in Service is less than the number of years of Service.
9.2-4 Notwithstanding any provision of the Plan to the
contrary, effective January 1, 1998, calculation of service for
determining Vesting Years with respect to qualified military service
will be provided in accordance with Section 414(u) of the Code.
9.2-5 If any amendment changes the vesting schedule, including
an automatic change to or from a top-heavy vesting schedule, any
Participant with three (3) or more Vesting Years may, by filing a
written request with the Employer, elect to have his vested percentage
computed under the vesting
15
schedule in effect prior to the amendment. The election period must
begin not later than the later of sixty (60) days after the amendment is
adopted, the amendment becomes effective, or the Participant is issued
written notice of the amendment by the Employer or the Committee.
9.3 FULL VESTING UPON CERTAIN EVENTS.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in
his Account shall fully vest on the Participant's Normal Retirement
Date. The Participant's interest shall also fully vest in the event that
his Service is terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also
fully vest in the event of a "Change in Control" of the Bank. For these
purposes, "Change in Control" shall mean an event of a nature that (i)
would be required to be reported in response to Item 1a of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank within the meaning of
the Bank Holding Company Act of 1956, as amended, and applicable rules
and regulations promulgated thereunder as in effect at the time of the
Change in Control (collectively, the "BHCA"); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at
such time as (a) any "Person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Bank representing 25% or more of the Bank's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, PROVIDED that
any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least [TWO-THIRDS]
[THREE-QUARTERS] of the directors comprising the Incumbent Board or
whose nomination for election by the Company's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall
be, for purposes of this clause (b), considered as though he were a
member of the Incumbent Board; or (c) a reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank,
or similar transaction in which the Bank is not the surviving
institution occurs; or (d) a proxy statement soliciting proxies from
stockholders of the Bank, by someone other than the current management
of the Bank, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan are to be exchanged for or
converted into cash or property or securities not issued by the Bank; or
(e) a tender offer is made for 25% or more of the voting securities of
the Bank and the shareholders owning beneficially or of record 25% or
more of the outstanding securities of the Bank have tendered or offered
to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror. Notwithstanding
anything to the contrary herein, it shall not be considered a Change in
Control where the Bank forms a holding company without change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraiser rights or the
purchase of shares by underwriters in connection with a public offering
of the Bank stock. Notwithstanding anything herein to the contrary, the
reorganization of the Company by way of a second step conversion shall
not be considered a "Change in Control."
9.3-3 Upon a Change in Control described in 9.3-2, the Plan
shall be terminated and the Plan Administrator shall direct the Trustee
to sell a sufficient amount of Stock from the Unallocated Stock Fund to
repay any outstanding Stock Obligation in full. The proceeds of such
sale shall be used to repay such Stock Obligation. After repayment of
the Stock Obligation, all remaining shares in the
16
Unallocated Stock Fund (or the proceeds thereof, if applicable) shall be
deemed to be earnings and shall be allocated in accordance with the
requirements of Section 8.1.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section 9.1,
a Participant's interest in his Account shall fully vest upon termination of
this Plan or upon the permanent and complete discontinuance of contributions by
his Employer. In the event of a partial termination, the interest of each
affected Participant shall fully vest with respect to that part of the Plan
which is terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs a
one-year Break in Service. If a Participant's Service terminates prior to having
any portion of his Account become vested, such Participant shall be deemed to
have received a distribution of his vested interest as of the Valuation Date
next following his termination of Service.
If a Participant who has suffered a forfeiture of the nonvested portion
of his Account returns to Service before he has five (5) consecutive Breaks in
Service, the nonvested portion shall be restored, provided that, if the
Participant had received a distribution of his vested Account balance, the
amount distributed shall be repaid prior to such restoral. The Participant may
repay such amount at any time within five years after he has returned to
Service. The amount repaid shall be credited to his Account at the time it is
repaid; an additional amount equal to that portion of his Account which was
previously forfeited shall be restored to his Account at the same time from
other Employees' forfeitures and, if such forfeitures are insufficient, from a
special contribution by his Employer for that year. If the Participant did not
receive a distribution of his vested Account balance, any forfeiture restored
shall include earnings that would have been credited to the Account but for the
forfeiture. A Participant who was deemed to have received a distribution of his
vested interest in the Plan shall have his Account restored as of the first day
on which he performs an Hour of Service after his return.
9.6 ACCOUNTING FOR FORFEITURES. If a portion of a Participant's
Account is forfeited, Stock allocated to said Participant's Account shall be
forfeited only after other assets are forfeited. If interests in more than one
class of Stock have been allocated to a Participant's Account, the Participant
must be treated as forfeiting the same proportion of each class of Stock. A
forfeiture shall be charged to the Participant's Account as of the first day of
the first Valuation Period in which the forfeiture becomes certain pursuant to
Section 9.5. Except as otherwise provided in that Section, a forfeiture shall be
added to the contributions of the terminated Participant's Employer which are to
be credited to other Participants pursuant to Section 4.1 as of the last day of
the Plan Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
10.1 BENEFITS FOR PARTICIPANTS. For a Participant whose Service ends
for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
payment in a lump sum, in accordance with Section 10.2, either, or a combination
of the following methods:
By payment in a lump sum, in accordance with Section 10.2; or
By payment in a series of substantially equal annual
installments over a period not to exceed five (5) years, provided the
maximum period over which the distribution of a Participant's Account
17
may be made shall be extended by 1 year, up to five (5) additional
years, for each $145,000 (or fraction thereof) by which such
Participant's Account balance exceeds $725,000 (the aforementioned
figures are subject to cost-of-living adjustments prescribed by the
Secretary of the Treasury pursuant to Section 409(o)(2) of the Code).
The Participant shall elect the manner in which his vested
Account balance will be distributed to him. If a Participant so desires,
he may direct how his benefits are to be paid to his Beneficiary. If a
deceased Participant did not file a direction with the Committee, the
Participant's benefits shall be distributed to his Beneficiary in a lump
sum. Notwithstanding any provision to the contrary, if the value of a
Participant's vested Account balance at the time of any distribution,
does not equal or exceed $5,000, then such Participant's vested Account
shall be distributed in a lump sum within 60 days after the end of the
Plan Year in which employment terminates. If the value of a
Participant's vested Account balance is, or has ever been, in excess of
$5,000, then his benefits shall not be paid prior to the later of the
time he has attained Normal Retirement or age 62 unless he elects an
early payment date in a written election filed with the Committee. A
Participant may modify such an election at any time, provided any new
benefit payment date is at least 30 days after a modified election is
delivered to the Committee. Failure of a Participant to consent to a
distribution prior to the later of Normal Retirement or age 62 shall be
deemed to be an election to defer commencement of payment of any benefit
under this section.
10.2 TIME FOR DISTRIBUTION.
10.2.1 If the Participant and, if applicable, with the consent
of the Participant's spouse, elects the distribution of the
Participant's Account balance in the Plan, distribution shall commence
as soon as practicable following his termination of Service, but no
later than one year after the close of the Plan Year:
(i) in which the Participant separates from service by
reason of attainment of Normal Retirement Age under the Plan,
Disability, or death; or
(ii) which is the fifth Plan Year following the year in which
the Participant resigns or is dismissed, unless he is reemployed before
such date.
10.2.2 Unless the Participant elects otherwise, the
distribution of the balance of a Participant's Account shall commence
not later than the 60th day after the latest of the close of the Plan
Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with
respect to a 5-percent owner (as defined in Code Section 416),
distribution of a Participant's Account shall commence (whether or not
he remains in the employ of the Employer) not later than the April 1 of
the calendar year next following the calendar year in which the
Participant attains age 70 1/2, and (2) with respect to all other
Participants, payment of a Participant's benefit will commence not later
than April 1 of the calendar year following the calendar year in which
the Participant attains age 70 1/2, or, if later, the year in which the
Participant retires. A Participant's benefit from that portion of his
Account committed to the
18
Investment Fund shall be calculated on the basis of the most recent
Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after
his death shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall commence
not later than one year after the end of the Plan Year in which the
Participant died; however, if the Participant's Beneficiary is his
surviving Spouse, distributions may commence on the date on which the
Participant would have attained age 70 1/2. In either case,
distributions shall be completed within five years after they commence.
(ii) If the Participant dies after distribution has commenced
pursuant to Section 10.1.2 but before his entire interest in the Plan
has been distributed to him, then the remaining portion of that interest
shall, in accordance with Section 401(a)(9) of the Code, be distributed
at least as rapidly as under the method of distribution being used under
Section 10.1.2 at the date of his death.
(iii) If a married Participant dies before his benefit
payments begin, then unless he has specifically elected otherwise the
Committee shall cause the balance in his Account to be paid to his
Spouse. No election by a married Participant of a different Beneficiary
shall be valid unless the election is accompanied by the Spouse's
written consent, which (i) must acknowledge the effect of the election,
(ii) must explicitly provide either that the designated Beneficiary may
not subsequently be changed by the Participant without the Spouse's
further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a
notary public. (This requirement shall not apply if the Participant
establishes to the Committee's satisfaction that the Spouse may not be
located.)
10.2-5 All distributions under this section shall be determined
and made in accordance with final and temporary regulations Sections
1.401(a)(9)-1 through 1.401(a)(9)-9, as promulgated under Code Section
401(a)(9), including the minimum distribution incidental benefit
requirements of Code Section 401(a)(9)(G) and Section 1.401(a)(9)-2 of
the proposed regulations. These provisions override any distribution
options in the Plan inconsistent with Code Section 401(a)(9).
10.3 MARITAL STATUS. The Committee, the Plan, the Trustee, and the
Employers shall be fully protected and discharged from any liability to the
extent of any benefit payments made as a result of the Committee's good faith
and reasonable reliance upon information obtained from a Participant and his
Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 OPTIONS TO RECEIVE STOCK OR CASH. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his
19
Account in the form of cash or Stock or a combination thereof. In the event the
Participant elects to receive all Stock, the Committee shall apply the
Participant's vested interest in the Investment Fund to purchase sufficient
Stock from the Stock Fund or from any owner of Stock to make the required
distribution.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(a)(5) of the Code, shall have the right to require the Employer
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's Account which the Employee elected to have reinvested under Code
Section 401(a)(28)(B). If the put right is exercised, the Trustee may, if so
directed by the Committee in its sole discretion, assume the Employer's rights
and obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.
If a Participant elects to receive his distribution in the form of a
lump sum pursuant to Section 10.1.1 of the Plan, the Employer or the Trustee, as
the case may be, may elect to pay for the Stock in equal periodic installments,
not less frequently than annually, over a period not longer than five years from
the day after the put right is exercised, with adequate security and interest at
a reasonable rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to acceleration
upon any uncured default.
If a Participant elects to receive his distribution in the form of an
installment payment pursuant to Section 10.1.2 of the Plan, the Employer or the
Trustee, as the case may be, shall pay for the Stock distributed in the
installment distribution over a period which shall not exceed 30 days after the
exercise of the put right.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of
Stock which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this
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Section 10.7, as well as any other restrictions upon the transfer of the Stock
imposed by federal and state securities laws and regulations.
10.8 CONTINUING LOAN PROVISIONS; CREATIONS OF PROTECTIONS AND RIGHTS.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to be applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 DIRECT ROLLOVER OF ELIGIBLE DISTRIBUTION. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life
(or life expectancy) of the distributee or the joint lives (or joint
life expectancies) of the Participant and the Participant's Beneficiary,
or for a specified period of ten years or more; any distribution to the
extent such distribution is required under Code Section 401(a)(9); any
hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the
Code; and the portion of any distribution that is not included in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities). A portion of a
distribution shall not fail to be an eligible rollover distribution
merely because the portion consists of after-tax employee contributions
which are not includible in gross income. However, such portion may be
transferred only to an individual retirement account or annuity
described in section 408(a) or (b) of the Code, or to a qualified
defined contribution plan described in section 401(a) or 403(a) of the
Code that agrees to separately accounting for the portion of such
distribution which is includible in gross income and the portion of such
distribution which is not so includible.
10.9-2 An "eligible retirement plan" is an individual
retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in Code
Section 401(a), that accepts the distributee's eligible rollover
distribution. In the case of distributions after December 31, 2001, an
eligible retirement plan shall also include an annuity contract
described in Section 403(b) of the Code and an eligible plan under
Section 457(b) of the Code which is maintained by a state, or any agency
or instrumentality of a state or political subdivision of a state and
which agrees to separately account for amounts transferred into such
plan from this plan. In the case of an eligible rollover distribution to
a surviving Spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Code Section 414(p).
10.10 WAIVER OF 30-DAY PERIOD AFTER NOTICE OF DISTRIBUTION. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
21
(i) the Trustee or Committee, as applicable, clearly informs
the Participant that the Participant has a right to a period of at least
30 days after receiving the notice to consider the decision of whether
or not to elect a distribution (and, if applicable, a particular
option), and
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the day before the date on which benefits become payable, he
shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2.
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a
claim for benefits (or within 180 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary within 90 days after receiving the claim for
benefits), the Committee shall notify the Participant or Beneficiary whether the
claim has been approved or denied. If the Committee denies a claim in any
respect, the Committee shall set forth in a written notice to the Participant or
Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on
which the denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or Beneficiary to support
his claim, with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth
in Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The
22
Committee shall have exclusive responsibility regarding decisions concerning the
payment of benefits under the Plan. The Committee shall have no investment
responsibility with respect to the Investment Fund except to the extent, if any,
specifically provided in the Trust Agreement. In the discharge of its duties,
the Committee may employ accountants, actuaries, legal counsel, and other agents
(who also may be employed by an Employer or the Trustee in the same or some
other capacity) and may pay their reasonable expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three or
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records
may be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the Plan under ERISA and other laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to the
direction of the board as to the application of Employer contributions to Stock
Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by the Trustee or an investment manager. No provision of the Plan
relating to the allocation or vesting of any interests in the Stock Fund or the
Investment Fund shall restrict the Committee from changing any holdings of the
Trust, whether the changes involve an increase or a decrease in the Stock or
other assets credited to Participants' Accounts. In determining the proper
extent of the Trust's investment in Stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents and to
pay their reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan, subject to the requirements of Code
Section 401(a)(28)(c). Such value shall be determined as of each Valuation Date,
and on any other date as of which the Plan purchases or sells such Stock. The
Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
23
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies.
12.7 EXECUTION OF DOCUMENTS. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by ERISA, and subject to and conditioned upon
compliance with 12 C.F.R. Section 545.121, to the extent applicable, against any
and all costs, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or him or in
which it or he may be involved by reason of its or his being, or having been,
the Committee, or a member or employee of the Committee, to the extent such
amounts are not paid by insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the
Bank, any entity may become a participating Employer under the Plan by (i)
taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
24
13.2 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any
other provision of the Plan, the adoption of the Plan and the execution of the
Trust Agreement are conditioned upon their being determined initially by the
Internal Revenue Service to meet the qualification requirements of Section
401(a) of the Code, so that the Employers may deduct currently for federal
income tax purposes their contributions to the Trust and so that the
Participants may exclude the contributions from their gross income and recognize
income only when they receive benefits. In the event that this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a), the
Plan may be amended retroactively to the earliest date permitted by U.S.
Treasury Regulations in order to secure qualification under Section 401(a). If
this Plan is held by the Internal Revenue Service not to qualify initially under
Section 401(a) either as originally adopted or as amended, each Employer's
contributions to the Trust under this Plan (including any earnings thereon)
shall be returned to it and this Plan shall be terminated. In the event that
this Plan is amended after its initial qualification and the Plan as amended is
held by the Internal Revenue Service not to qualify under Section 401(a), the
amendment may be modified retroactively to the earliest date permitted by U.S.
Treasury Regulations in order to secure approval of the amendment under Section
401(a).
13.3 RIGHT TO AMEND OR TERMINATE. The Bank intends to continue this
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be any
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan by
the Bank, the Trustee shall continue to administer the Trust and pay benefits in
accordance with the Plan as amended from time to time and the Committee's
instructions.
SECTION 14. MISCELLANEOUS PROVISIONS.
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a state domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.12 hereof.
25
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee
and the Trustee in connection with administering this Plan and Trust Fund shall
be paid by the Trustee from the Trust Fund to the extent the expenses have not
been paid or assumed by the Employer or by the Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be interpreted
to include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.2 and
14.12, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is
held to be invalid or unenforceable, the other provisions of the Plan shall not
be affected but shall be applied as if the invalid or unenforceable provision
had not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon
the Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in
accordance with the laws of the State of New Jersey to the extent those laws are
applicable under the provisions of ERISA.
14.10 EMPLOYER CONTRIBUTIONS CONDITIONED ON DEDUCTIBILITY. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 UNCLAIMED ACCOUNTS. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his
Beneficiary are unknown to the Trustees, the Plan will forfeit the
benefit, provided that the benefit is subject to a claim for
reinstatement if the Participant or Beneficiary make a claim for the
forfeited benefit.
Any payment made pursuant to the power herein conferred upon the
Trustees shall operate as a complete discharge of all obligations of the
Trustees, to the extent of the distributions so made.
14.12 QUALIFIED DOMESTIC RELATIONS ORDER. Section 14.2 shall not apply
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so
26
treated under the provisions of the Retirement Equity Act of 1984. Further, to
the extent provided under a "qualified domestic relations order," a former
Spouse of a Participant shall be treated as the Spouse or surviving Spouse for
all purposes under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order
and the Plan's procedures for determining the qualified status of
domestic relations orders, and
(b) Within a reasonable period after receipt of such order,
the Employer or the Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Committee
shall establish reasonable procedures to determine the qualified status
of domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Committee shall segregate in a separate account in the Plan or
in an escrow account the amounts which would have been payable to the alternate
payee during such period if the order had been determined to be a qualified
domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Committee shall pay
the segregated amounts (plus any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
SECTION 15. TOP-HEAVY PROVISIONS.
15.1 TOP-HEAVY PLAN. This Plan is top-heavy if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty
percent (60%) and this Plan is not part of any required aggregation
group or permissive aggregation group;
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate
top-heavy ratio for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group
and part of a permissive aggregation group and the aggregate top-heavy
ratio for the permissive aggregation group exceeds sixty percent (60%).
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15.2 SUPER TOP-HEAVY PLAN. This Plan will be a super top-heavy Plan
if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety
percent (90%) and this Plan is not part of any required aggregation
group or permissive aggregation group.
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and
the aggregate top-heavy ratio for the group of Plans exceeds ninety
percent (90%), or
(c) If this Plan is a part of a required aggregation group
and part of a permissive aggregation group and the aggregate top-heavy
ratio for the permissive aggregation group exceeds ninety percent (90%).
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