As filed with the Securities and Exchange Commission on November 3, 1999
Registration No.__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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FIDELITY D & D BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 6712 23-3017653
- ----------------------------- ------------------------- ------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Classification Identification No.)
or organization) Code Number)
FIDELITY D & D BANCORP, INC.
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
(570) 342-8281
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(Address, including ZIP Code, and telephone
number, including area code, of registrant's
principal executive offices)
Michael F. Marranca
President and Chief Executive Officer
FIDELITY D & D BANCORP, INC.
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
(570) 342-8281
-------------------------------------------
(Name, address, including ZIP Code, and
telephone number, including area
code, of agent for service)
With a Copy to:
Nicholas Bybel, Jr., Esquire
Cheryl A. Zeman, Esquire
SHUMAKER WILLIAMS, P.C.
P.O. Box 88, Harrisburg, Pennsylvania 17108
(717) 763-1121
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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Title of Each Class Amount Proposed Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Registration
be Registered Registered Per Share(1) Offering Price(1) Fee(2)
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Common Stock, without
par value 1,901,472 shares $ 18.39 $34,968,070.08 $9,722
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(1) Estimated solely for the purpose of calculating the registration fee and
based, in accordance with Rule 457(f)(2), upon the book value of the
897,736.20888 outstanding shares of common stock of The Fidelity Deposit
and Discount Bank, par value $1.5625 , of $36.78 per share as of September
30, 1999, and estimated based upon the issuance of a maximum of 1,901,472
shares of Registrant's common stock, without par value, in the
reorganization of The Fidelity Deposit and Discount Bank as a subsidiary
of Registrant. Registrant will issue 2 shares of common stock in exchange
for each share of bank common stock. The 1,901,472 shares include 100,000
shares to be reserved for issuance under the bank's Independent Directors
Stock Option Plan and Stock Incentive Plan, which Registrant will assume.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to such Section
8(a), may determine.
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PROXY STATEMENT/PROSPECTUS
FIDELITY D & D BANCORP, INC.
Prospectus for 1,901,472 Shares of Common Stock
THE FIDELITY DEPOSIT AND DISCOUNT BANK
Proxy Statement
This document is a prospectus of Fidelity D & D Bancorp, Inc., a
Pennsylvania business corporation and the proposed holding company for The
Fidelity Deposit and Discount Bank. Fidelity D & D Bancorp proposes to issue
approximately 1,801,472 shares of its common stock to the shareholders of the
bank as part of a reorganization of the bank as the holding company's
wholly-owned subsidiary, and to reserve an additional 100,000 shares for
issuance under stock option plans the holding company will assume from the bank.
The proposed holding company does not have an operating history. We anticipate
that its common stock will trade on a very limited basis in the local
over-the-counter market.
This document is also a proxy statement of The Fidelity Deposit and
Discount Bank for its Special Meeting of Shareholders to be held on __________,
December ____, 1999, at ______ ___.m., Eastern Standard Time. At the meeting,
shareholders will vote on a proposal to approve and adopt the Plan of
Reorganization and Plan of Merger, providing for the reorganization of the bank
as the wholly owned subsidiary of Fidelity D & D Bancorp and the automatic
exchange of each whole share of common stock of the bank for 2 shares of common
stock of the holding company. The proposed reorganization and related matters
that shareholders will vote on at the meeting are described in this document.
The bank's common stock trades on the OTC Bulletin Board under the symbol
"FDDB."
The proposed reorganization involves elements of risk, including certain
anti-takeover strategies, which are described under "Risk Factors" on pages
beginning on page 9.
Neither the Securities and Exchange Commission, the Federal Deposit
Insurance Corporation, the Pennsylvania Department of Banking, the Pennsylvania
Securities Commission nor any other state securities commission has approved or
disapproved these securities or determined if this document is truthful or
complete. Any representation to the contrary is a criminal offense.
The shares of Fidelity D & D Bancorp common stock offered in this proxy
statement/ prospectus are not savings accounts, deposits, or other obligations
of a bank or savings association and are not insured by the Federal Deposit
Insurance Corporation or any other governmental agency. There can be no
assurance that the trading price of the common stock being offered will not
decrease at any time.
The date of this proxy statement/prospectus is November ____, 1999.
<PAGE>
You should rely only on the information contained or referred to in this
document or any supplement. Neither Fidelity D & D Bancorp nor the bank has
authorized anyone else to provide you with different or additional information.
This document does not constitute an offer of securities in any
jurisdiction in which or to any person to whom, it is not permitted. You should
not assume that the information in this document or any supplement is accurate
as of any other date than the date indicated on those documents.
This proxy statement/prospectus does not cover resales of shares of
Fidelity D & D Bancorp common stock after completion of the proposed
reorganization, and no person is authorized to make use of this document in
connection with any resale.
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TABLE OF CONTENTS
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Page
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SUMMARY ..............................................................................1
Basic Information..................................................................1
Address/Telephone Number..................................................1
Type of Organization/Description of Business..............................1
Information about the Special Meeting of The Fidelity Deposit and Discount
Bank and Voting Procedure..........................................................2
Date .................................................................2
Time and Place............................................................2
Who is entitled to attend and vote at the meeting.........................2
What will constitute a quorum at the meeting..............................2
How do I vote.............................................................2
What is the effect if I do not vote.......................................2
May I change my vote after I have mailed my signed proxy form.............3
What vote is required to approve each proposal............................3
What percentage of the outstanding shares do the directors and
executive officers of the bank hold.......................................3
Information about the Proposed Transaction.........................................3
What are you proposing....................................................3
Why are you forming a bank holding company................................4
What will happen to my stock..............................................4
How will the 2-for-1 exchange affect the value of my stock................4
Will I have to turn in my stock certificates..............................5
Does formation of a holding company affect my federal income taxes........5
Will the management of the bank change after the reorganization...........5
What will happen to my stock options......................................6
What will happen to the bank's dividend reinvestment plan.................6
If the shareholders approve the reorganization, when will it occur........6
How will you treat the reorganization for accounting purposes.............6
Does the proposed transaction carry risks for shareholders................6
What rights will I have under Pennsylvania law if I vote against the
Plan of Reorganization and Plan of Merger.................................7
RISK FACTORS...........................................................................9
Risks Relating to the Reorganization...............................................9
The holding company's articles of incorporation and by-laws
have anti-takeover defenses that could delay or prevent an
acquisition and could adversely affect the price of the common stock......9
Certain strong anti-takeover defenses of the Pennsylvania Business
Corporation Law will also apply to the holding company and could
delay or prevent an acquisition..........................................12
The holding company's issuance of additional shares of common
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stock or preferred stock could dilute or depress the value of your shares
of the holding company's common stock..........................................12
The issuance of preferred stock could limit the holding company's
ability to pay dividends to common stock shareholders..........................13
Upon the dissolution or winding up of the holding company, the claims
of others, including the holders of preferred stock, may limit your ability
recover your investment in the holding company.................................13
Reorganizing the bank into a holding company structure will add an
additional layer of government regulation which will result in additional
costs..........................................................................14
Risks Shared by the Bank and the Holding Company........................................14
We may be unable to retain or replace members of the board of directors or
senior management or to hire and retain other skilled personnel................15
Our future success is dependent on our ability to compete effectively in
the highly competitive banking industry........................................15
The banking industry is highly susceptible to economic change..................15
Increases in interest rates could make us less profitable......................16
Our allowance for loan losses may prove to be insufficient to absorb
potential losses in our loan portfolio.........................................16
Changes in real estate values may adversely impact our loans that are
secured by real estate.........................................................16
Federal and state governmental entities extensively regulate and
supervise the banking industry.................................................17
Changes in the law and regulations may affect our ability to do business,
our costs, and our profits.....................................................17
Regulatory restrictions on dividend payments from the bank may affect
our ability to pay dividends to our shareholders...............................18
You will have a minimal influence on shareholder decisions.....................18
The market for the bank's common stock is not active...........................19
Our computer systems, and the systems of our customers and suppliers,
may not properly process date information after December 31, 1999,
which could disrupt our business and increase our costs........................19
The by-laws of the holding company provide for the indemnification
of directors, officers and employees and limit the liability of directors......20
The forward-looking statements we make in this document are
inherently uncertain...........................................................20
SUMMARY FINANCIAL INFORMATION...............................................................21
PER SHARE PRICE INFORMATION.................................................................22
INFORMATION ABOUT THE SPECIAL MEETING.......................................................23
Time and Place of Special Meeting..................................................23
Purpose of the Special Meeting.....................................................23
Voting Rights, Quorum and Vote Required............................................23
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Solicitation of Proxies.......................................................24
Voting by Proxy and Revocation of Proxies.....................................24
Information about Beneficial Ownership of the Bank's Common Stock by
Significant Shareholders, Directors and Executive Officers....................25
INFORMATION ABOUT THE PROPOSED REORGANIZATION..........................................29
Description of Reorganization Procedure.......................................29
Amendment or Termination of the Plan of Reorganization and Plan of Merger.....29
Exchange of Stock, 2-for-1 Exchange Ratio.....................................30
Stock Options and Stock Option Plans..........................................30
Dividend Reinvestment Plan....................................................31
Exchange of Stock Certificates................................................31
Failure to Surrender Stock Certificates.......................................32
Reasons for the Proposed Reorganization.......................................32
Financing............................................................32
Authorized Capital..........................................32
Debt Financing..............................................34
Trust Preferred Stock.......................................34
Non-Banking Activities...............................................35
Protection Against an Unfriendly Takeover............................35
Flexibility in Responding to Changes in Law..........................35
Bank Acquisitions....................................................36
Dissenters' Rights of Appraisal...............................................36
General ............................................................36
Fair Value...........................................................36
Notice of Intention to Dissent.......................................36
Notice to Demand Payment.............................................37
Failure to Comply with Notice to Demand Payment, etc.................37
Payment of Fair Value of Shares......................................37
Estimate by Dissenter of Fair Value of Shares........................37
Valuation Proceeding.................................................38
Costs and Expenses...................................................38
Material Conditions...........................................................38
Closing Date..................................................................40
Tax Consequences..............................................................40
Accounting Treatment..........................................................42
Trading and Resale of Holding Company Common Stock............................42
DESCRIPTION OF THE HOLDING COMPANY.....................................................43
Organization and Description of Business......................................43
Properties....................................................................44
Management....................................................................44
Executive and Director Compensation...........................................44
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Information about Beneficial Ownership of Significant Shareholders,
Directors and Executive Officers..................................................45
Certain Relationships and Related Transactions....................................45
Directors' and Officers' Indemnification and Limits on Liability..................45
Supervision and Regulation of the Holding Company.................................46
The Securities Act of 1933 -The Offer and Sale of Securities.............46
The Securities Exchange Act of 1934 - Periodic Reporting Requirements....46
The Bank Holding Company Act of 1956 - Supervision by the Federal
Reserve Board............................................................46
General Supervision by the Federal Reserve Board................46
Restrictions on Acquiring Control of other Banks and Companies..46
Anti-Tie-In Provisions..........................................47
Restrictions on Extensions of Credit by Banks to their
Holding Companies...............................................47
Risk-Based Capital Guidelines...................................48
Capital Leverage Ratio Requirements.............................48
Restrictions on Control Changes.................................48
The Pennsylvania Banking Code of 1965 - Supervision by the
Pennsylvania Department of Banking.......................................48
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 - Interstate Banking.........................................49
Permitted Activities..............................................................49
DESCRIPTION OF THE BANK....................................................................54
History .........................................................................54
Offices .........................................................................54
Description of Business...........................................................54
Properties........................................................................57
Supervision and Regulation of the Bank............................................58
Pennsylvania Banking Law.................................................58
Federal Banking Law......................................................59
Capital Adequacy Guidelines.....................................59
FDIC Insurance Assessments......................................60
Meeting the Needs of the Community..............................61
Truth-In-Savings................................................61
Restrictions on Control Changes.................................62
Suspicious Activities Reports...................................62
Interstate Banking..............................................62
Securities Regulation....................................................62
New Legislation..........................................................62
Legal Proceedings.................................................................62
Directors.........................................................................63
Principal Officers................................................................64
Executive Compensation............................................................64
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Stock Option Awards...............................................................65
Compensation of Directors.........................................................66
Certain Relationships between Officer and Directors and Certain Transactions
between Officer and Directors and the Bank........................................66
Family Relationships.....................................................66
Indebtedness of Management...............................................66
Year 2000 Computer Problem........................................................67
Description of the Problem...............................................67
The Bank's State of Readiness............................................67
FINANCIAL INFORMATION ABOUT THE REORGANIZATION.............................................69
Capitalization....................................................................69
Other Financial Information.......................................................71
DESCRIPTION OF THE BANK'S CAPITAL SECURITIES...............................................71
Common Stock......................................................................71
Voting Rights............................................................71
Preemptive Rights........................................................71
Liquidation..............................................................71
Liability for Further Assessments........................................71
Sinking Fund Provision...................................................71
Redemption Provision.....................................................72
Capital Requirements under State Banking Law.............................72
Dividends................................................................72
Comparative Market Prices.........................................................72
Trade Price High's and Low's......................................................73
Stock Option Plans................................................................73
1998 Independent Directors Stock Option Plan.............................74
1998 Stock Incentive Plan................................................76
Dividend Reinvestment Plan........................................................78
DESCRIPTION OF THE HOLDING COMPANY'S CAPITAL SECURITIES....................................78
Common Stock......................................................................78
Voting Rights............................................................78
Preemptive Rights........................................................78
Liquidation..............................................................78
Liability for Further Assessments........................................79
Sinking Fund Provision...................................................79
Redemption or Conversion Rights..........................................79
Dividends................................................................79
Stock Option Plans.......................................................79
Preferred Stock...................................................................80
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Voting Rights............................................................80
Preemptive Rights........................................................80
Liquidation..............................................................80
Liability for Further Assessments........................................80
Sinking Fund Provision...................................................80
Redemption or Conversion Rights..........................................80
Dividends................................................................80
Issuance of Additional Securities.................................................81
Legal Opinion.....................................................................81
Anti-Takeover Provisions in Articles and By-laws..................................81
Authorized Capital.......................................................81
Classified Board.........................................................81
No Cumulative Voting.....................................................82
Supermajority Vote for Approval of Extraordinary Transactions............82
Authorization to Consider Various Factors in Tender Offers...............82
Supermajority Vote for Amendment of By-laws..............................83
Supermajority Vote for Amendment of Certain Articles.....................83
Anti-takeover Provisions Applicable to Registered Corporations....................83
COMPARISON OF SHAREHOLDER RIGHTS...........................................................88
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION and QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK..............................................................90
INDEPENDENT AUDITORS.......................................................................90
SHAREHOLDER PROPOSALS......................................................................91
OTHER MATTERS..............................................................................91
Where You Can Find More Information........................................................92
The Holding Company's Registration Statement......................................92
Prior Annual Reports Sent to Shareholders and Information Filed with the FDIC.....92
Periodic Reports and Information Filed with the SEC Following the Reorganization..93
INDEX TO FINANCIAL STATEMENTS.............................................................F-1
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ANNEX A PLAN OF REORGANIZATION AMONG THE FIDELITY DEPOSIT AND
DISCOUNT BANK, THE FIDELITY DEPOSIT AND DISCOUNT INTERIM BANK,
AND FIDELITY D & D BANCORP, INC., WITH EXHIBIT A, PLAN OF
MERGER BETWEEN THE FIDELITY DEPOSIT AND DISCOUNT BANK AND THE
FIDELITY DEPOSIT AND DISCOUNT INTERIM BANK
vi
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ANNEX B AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FIDELITY D
& D BANCORP, INC.
ANNEX C BY-LAWS OF FIDELITY D & D BANCORP, INC.
ANNEX D STATUTES REGARDING DISSENTING SHAREHOLDERS' RIGHTS
Anti-Takeover Provisions
Fidelity D & D Bancorp, Inc.'s articles of incorporation and by-laws
include certain provisions that may be considered "anti-takeover" in nature.
They may have the effect of discouraging or making the acquisition of control
over the holding company more difficult by means of an unsolicited tender or
exchange offer, proxy contest or similar transaction. The anti-takeover
provisions in the holding company's articles of incorporation include the
following:
o a provision that provides for substantial authorized but unissued
capital stock, including both common stock and preferred stock,
o a provision that denies shareholders the right to cumulate their
votes in the election of directors,
o a provision that establishes criteria to be applied by the board of
directors in evaluating an acquisition proposal,
o a supermajority provision that requires greater than a majority vote
to approve a merger or other extraordinary corporate transaction,
unless approved by a supermajority vote of the directors.
o the absence of a provision for shareholders' preemptive rights to
subscribe to purchase additional shares of stock on a pro rata
basis, and
o a supermajority provision that requires greater than a majority vote
to amend certain provisions of our articles of incorporation, unless
approved by a supermajority vote of the directors.
The provisions of the holding company's by-laws that may be considered
anti-takeover in nature include the following:
o a provision that establishes a classified board of directors, and
o a supermajority provision that requires greater than a majority vote
in order to amend the by-laws.
The overall effect of these provisions may result in the entrenchment of
current management by enabling it to retain its current position and placing it
in a better position to resist changes that shareholders may want to make if
dissatisfied with the conduct of our management and business, regardless of
whether these changes are desired by or are beneficial to a majority of the
shareholders. You may determine that these provisions are not in your best
interest inasmuch as they may substantially limit your voting power.
As a Pennsylvania business corporation, we are also subject to the
Pennsylvania Business Corporation Law of 1988, as amended, which includes
provisions applicable to us that may have similar effects. As stated above,
these provisions may have the effect of entrenching management against the
wishes of the shareholders. See "Risk Factors - Risks Relating to the
Reorganization" and "Description of the Holding Company's Capital
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Securities -- Anti-Takeover Provisions in Articles and By-laws, Anti-Takeover
Provisions Applicable to Registered Corporations."
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SUMMARY
Questions and Answers
The following questions and answers are designed to help you understand
the reorganization proposal. These questions and answers and the rest of the
summary only highlight information in the proxy statement/prospectus. The
remainder of the proxy statement/prospectus and attached exhibits contain more
detailed information. We urge you to read the entire proxy statement/prospectus
and exhibits to fully understand the reorganization.
Basic Information
Address/Telephone Number:
The mailing and physical address of the principal executive offices of
Fidelity D & D Bancorp, Inc. and of The Fidelity Deposit and Discount Bank is:
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512.
The telephone number of Fidelity D & D Bancorp and the bank is (570)
342-8281. In addition, the bank maintains a Web site at www.the-fidelity.com.
Type of Organization/Description of Business:
Fidelity D & D Bancorp is a Pennsylvania business corporation. The bank
filed the holding company's articles of incorporation with the Pennsylvania
Corporation Bureau on August 10, 1999, to create a one-bank holding company for
the bank. The same persons who serve on the board of directors of the bank serve
as the holding company's directors. The holding company has no operating
history.
The bank is a Pennsylvania-chartered bank and trust company. The bank
engages in a full service commercial and consumer banking business, including:
o the acceptance of time and demand deposits;
o the making of secured and unsecured commercial and consumer loans;
and
o the offering of trust services.
The bank's primary service area is located in Lackawanna and Luzerne Counties,
Pennsylvania.
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Information about the Special Meeting of The Fidelity Deposit and Discount Bank
and Voting Procedure
Date:
December ____, 1999
Time and Place:
______ ___.m., Eastern Standard Time, at the main office of The Fidelity
Deposit and Discount Bank, Blakely and Drinker Streets, Dunmore, Pennsylvania
18512.
Who is entitled to attend and vote at the meeting?
Holding the bank's common stock at the close of business on November ___,
1999, the record date, entitles the holder to attend and vote at the meeting. On
the record date, approximately 897,736 shares of the bank's common stock were
outstanding. Each share of the bank's common stock entitles its holder to 1 vote
with respect to all matters presented at the meeting.
What will constitute a quorum at the meeting?
Each matter to be acted upon at the meeting requires the presence of a
quorum. The presence, in person or by proxy, of shareholders entitled to cast at
least a majority of the votes that all shareholders are entitled to cast
constitutes a quorum.
How do I vote?
After carefully reading and considering the information contained in this
document, please fill out and sign the enclosed proxy form. Then mail the proxy
to the bank in the enclosed prepaid return envelope as soon as possible so that
your shares will be represented at the special meeting. Your proxy will instruct
the persons named on the form as proxy holders to vote your shares at the
meeting as you direct on the proxy form. The board of directors recommends that
you vote for the reorganization proposal.
What is the effect if I do not vote?
A bank shareholder who abstains from voting is not included in the
affirmative vote necessary to approve and adopt the Plan of Reorganization and
Plan of Merger. This has the effect of voting against a matter, for purposes of
whether or not shareholders approve a proposal. If you abstain from voting and
do not follow the requirements under Pennsylvania law for dissenters' rights of
appraisal, and if at least 2/3 of the outstanding shares of bank common stock
vote in favor of the reorganization, you will automatically, without any action
on your part,
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receive 2 shares of holding company common stock in exchange for each share of
bank common stock you hold.
May I change my vote after I have mailed my signed proxy form?
You may change your vote at any time before your shares are voted at the
meeting by
o giving notice of revocation to John F. Glinsky, Jr., Secretary of
the bank, Blakely and Drinker Streets, Dunmore, Pennsylvania 18512;
o delivering a properly executed proxy form bearing a later date to
John F. Glinsky, Jr.; or
o by voting in person after giving notice to John F. Glinsky, Jr..
Your attendance at the special meeting will not by itself revoke your
proxy.
What vote is required to approve each proposal?
Approval and adoption of the Plan of Reorganization and Plan of Merger
requires the affirmative vote of the holders of at least 2/3 of the outstanding
shares of the bank's common stock. Approval of the proposal to adjourn the
meeting to a later date if necessary requires the affirmative vote of a majority
of the shares present and entitled to vote at the meeting, in person or by
proxy.
What percentage of the outstanding shares do the directors and executive
officers of the bank hold?
As of _______________, 1999, the bank's directors, executive officers and
their affiliates own 19.77% of the bank's outstanding common stock. Their shares
represent about 29.6% of the affirmative votes needed to approve the
reorganization. We anticipate that these shares will be voted for the
reorganization.
Information about the Proposed Transaction
What are you proposing?
We are asking you to approve a Plan of Reorganization and related Plan of
Merger that would result in the reorganization of the bank into a holding
company structure. These agreements provide for the reorganization of the bank
as the wholly owned subsidiary of Fidelity D & D Bancorp, Inc. The
reorganization will occur through the merger of the bank with The Fidelity
Deposit and Discount Interim Bank, a Pennsylvania chartered banking institution
and subsidiary of Fidelity D & D Bancorp. The bank is organizing the interim
bank to facilitate the proposed reorganization. The bank will be the surviving
bank after its merger into the interim
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bank and will be a wholly owned subsidiary of the holding company, which will
own 100% of its shares. Upon completion of the reorganization, each whole share
of common stock of the bank will automatically represent 2 shares of common
stock of Fidelity D & D Bancorp.
We also ask you to approve a proposal to adjourn the special meeting to a
later date, if necessary, to permit further solicitation of proxies if there are
not sufficient votes at the time of the meeting to constitute a quorum or to
approve the reorganization.
Why are you forming a bank holding company?
In our opinion, the reorganization of the bank into a holding company
structure will provide greater flexibility in:
o financing;
o engaging in non-banking activities;
o protecting against an unfriendly takeover; and
o responding to changes in law.
What will happen to my stock?
Upon the completion of the Plan of Reorganization and Plan of Merger, all
shareholders of the bank, except those who exercise dissenting shareholders'
rights, will become shareholders of Fidelity D & D Bancorp and will own 2 shares
of the holding company's common stock for each share of common stock of the bank
owned prior to the reorganization. 2 shares of common stock of the holding
company will automatically replace each share of the bank's common stock. The
holding company will not issue fractional shares in connection with the
reorganization. Instead, the holding company will pay the holders of fractional
shares of the bank's common stock the fair market value of their fractional
interests in cash.
How will the 2-for-1 exchange affect the value of my stock?
We anticipate that the 2-for-1 exchange ratio will have the same effect as
a 2-for-1 stock split of the bank's common stock. Immediately after the
reorganization, the market value per share of the holding company's common stock
will be about 1/2 of the market value per share of the bank's common stock
immediately prior to the reorganization. As a result, the total market value of
your shares immediately after the reorganization should remain about the same as
before the reorganization. We have chosen the 2-for-1 exchange ratio to create a
more liquid market for the holding company's common stock. We believe that the
exchange ratio will make the holding company's common stock more affordable to
persons in the communities in which the bank does business and will enhance the
trading volume and marketability of the shares. The 2-for-1 exchange
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ratio also provides the holding company with more flexibility to issue
additional shares of common stock to raise additional capital, because the
market value per share will be less.
Will I have to turn in my stock certificates?
You must exchange your stock certificates, bearing the name "The Fidelity
Deposit and Discount Bank," for new stock certificates, bearing the name
"Fidelity D & D Bancorp, Inc." At its option, the holding company may withhold
dividends payable after the reorganization to those who have received
notification to exchange their stock certificates but have not done so within a
reasonable period of time. The holding company will pay any dividends withheld,
without interest, upon the proper surrender of the bank stock certificates.
You must surrender your Bank stock certificates within 2 years of
receiving notification to exchange the certificates. In the event that you do
not surrender your stock certificates within that time, the holding company may
sell the shares of holding company common stock that the holding company would
otherwise have issued you. The holding company will hold the net proceeds of the
sale, together with any cash to which you are entitled instead of the issuance
of a fractional share and any previously accrued and unpaid dividends, in a
non-interest bearing account for your benefit. After this sale, your only right
would be the right to collect the net sales proceeds, cash and accumulated
dividends held for your account. Generally, the holding company will pay you the
net proceeds, cash and accumulated dividends, without interest, only upon the
proper surrender of the bank stock certificates.
Does formation of a holding company affect my federal income taxes?
The proposed reorganization will be a tax-free reorganization under
federal tax laws. You will not recognize any gain or loss for federal income tax
purposes upon your receipt of Fidelity D & D Bancorp common stock in exchange
for your shares of the bank's common stock. However, you will recognize a gain
or loss upon the receipt of cash instead of holding company stock if you are a
dissenting shareholder or upon the receipt of cash for any fractional interests
in the bank's common stock. You should consult your own tax advisors concerning
the specific tax consequences of the reorganization to you, including any state
or local tax consequences.
Will the management of the bank change after the reorganization?
The management of the bank will not change as a result of the
reorganization. The members of the bank's board of directors were elected to
serve as the board of directors of the holding company until its first annual
meeting of shareholders. The executive officers of the holding company,
including the President, are also executive officers of the bank.
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What will happen to my stock options?
After the reorganization, the holding company will assume the bank's
obligations under any outstanding stock options and stock option plans. We will
adjust these plans and outstanding stock options under the plans to account for
the 2-for-1 exchange of Fidelity D & D Bancorp common stock for bank common
stock.
What will happen to the bank's dividend reinvestment plan?
The bank's dividend reinvestment plan will terminate upon completion of
the reorganization. After the proposed reorganization, we expect that Fidelity D
& D Bancorp will establish a dividend reinvestment plan with substantially the
same terms as the bank's plan.
If the shareholders approve the reorganization, when will it occur?
We would like to complete the reorganization as soon as possible after the
special meeting. In order to complete the reorganization, the bank, The Fidelity
Deposit and Discount Interim Bank and the holding company must obtain certain
regulatory approvals from the Pennsylvania Department for Banking, the FDIC, and
the Board of Governors of the Federal Reserve System. If the necessary approvals
are issued in time, the bank and holding company anticipate completing the
reorganization immediately after obtaining shareholder approval, before the end
of the 1999 fiscal year.
How will you treat the reorganization for accounting purposes?
We intend to account for the reorganization as a pooling-of-interests. The
pooling-of-interest method of accounting for a business combination reflects
the union of ownership between the entities involved. Because Fidelity D & D
Bancorp will be a one-bank holding company, immediately after the
reorganization, its consolidated financial statements will be substantially the
same to the bank's financial statements prior to the reorganization. The holding
company's parent-only financial statements will reflect its investment in 100%
of the shares of the bank's common stock.
Does the proposed transaction carry risks for shareholders?
The proposed transaction will create certain new risks for shareholders
resulting from "anti-takeover" strategies contained in the holding company's
articles of incorporation and by-laws and in applicable provisions of the
Pennsylvania Business Corporation Law of 1988. The general effect of these
anti-takeover strategies may be to delay or prevent a merger or acquisition that
a majority of the shareholders might view to be in their best interests. For
example, shareholders might favor an offer that included a substantial premium
over the market price of the holding company's common stock. These provisions
may also assist the holding company's current board of directors in retaining
its position and in resisting changes that the shareholders may desire.
6
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For example, the following anti-takeover provisions of the articles of
incorporation and by-laws of the holding company are unique to the holding
company and represent changes from the bank's articles of incorporation and
by-laws:
o the authorization of 10 million shares of common stock, and the
authorization of 5 million shares of preferred stock all of which
may be issued without shareholder approval,
o the elimination of cumulative voting in the election of directors,
and
o the requirement that holders of at least 75% of the outstanding
shares entitled to vote approve any merger or other extraordinary
corporate transaction, unless at least 80% of all of the members of
the board of directors has approved the transaction. (Then the
transaction must be approved by only 51% of the holders of
outstanding shares entitled to vote.)
In addition to delaying or preventing an acquisition, the issuance of a
substantial number of additional shares could dilute prior shareholders' value.
Also, the issuance of preferred shares could depress the price of the common
stock.
Additionally, investment in the common stock of the holding company
involves a degree of risk, similar to the risk of investment in the common stock
of the bank. The FDIC will not insure investments in the common stock of the
holding company. Funds invested in common stock will not earn interest. Intense
competition, government regulation, and economic uncertainties result in a
degree of risk for any investment in the common stock of the holding company.
What rights will I have under Pennsylvania law if I vote against the Plan of
Reorganization and Plan of Merger?
You will be entitled to receive cash payment of the fair value of your
shares if the reorganization is completed if you:
o do not vote in favor of the Plan of Reorganization and Plan of
Merger; and
o if you comply with the statutory requirements of Pennsylvania law
concerning dissenters' rights of appraisal.
To be eligible to demand payment for your shares as a dissenter, you must
file with the bank, prior to the vote on the proposal, a written notice of
intention to demand payment for the fair value of your shares if the
reorganization is completed. Merely voting against the Plan of Reorganization
and Plan of Merger at the special meeting will not perfect a shareholder's
dissenter's rights. If the reorganization is approved, the bank will then mail a
further notice to
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all dissenters who gave due notice and who did not vote in favor of the
reorganization. This further notice will provide instructions on how to proceed
further.
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<PAGE>
RISK FACTORS
You should carefully consider all information in this document, especially
the risk factors below, in determining how to vote. We have divided risk factors
into two groups:
o risks relating to the reorganization, and
o risks that apply to the bank and will apply substantially equally to
Fidelity D & D Bancorp because Fidelity D & D Bancorp's primary
asset will be its ownership of the equity of the bank.
Risks Relating to the Reorganization
The proposed transaction will create certain new risks that do not
currently exist for shareholders of the bank. Some of these new risks will occur
because the articles of incorporation and by-laws of the holding company differ
in key ways from those of the bank. Also, the Pennsylvania Banking Code of 1965
governs the rights of shareholders of the bank, but the Pennsylvania Business
Corporation Law of 1988 will govern the rights of shareholders of the holding
company
The holding company's articles of incorporation and by-laws have anti-takeover
defenses that could delay or prevent an acquisition and could adversely affect
the price of the common stock.
The banking industry has experienced significant consolidation in
recent years. The amended and restated articles of incorporation and the by-laws
of the holding company contain provisions that may be considered "anti-takeover"
in nature that will immediately apply to you upon completion of the
reorganization. The articles and by-laws are attached as Annexes B and C. The
Pennsylvania Business Corporation Law permits these anti-takeover strategies,
which will help the holding company's board of directors to stop takeover
attempts it does not favor. These anti-takeover defenses constitute a risk to
shareholders for the following reasons:
o Shareholders may disagree with the Board of Director's opposition to
a takeover. For example, you may determine the takeover would be in
your best interests if the potential acquiror offered a substantial
premium over the market price of the holding company's common stock
or if you were dissatisfied with the current board of directors.
o A shareholder who disagrees with management's opposition to a tender
offer may have less negotiating power to get more money from the
potential acquiror for his or her shares.
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o These provisions could negatively affect the price of the holding
company's common stock and may discourage third parties from bidding
for the holding company.
o These provisions will give the board of directors of the holding
company more control than the board of directors of the bank
currently has. This means that shareholders will generally have less
control over the company.
The following table describes the anti-takeover defenses in the holding
company's articles of incorporation and by-laws:
<TABLE>
<CAPTION>
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Anti-Takeover Provision Anti-Takeover Effect Risks to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The articles of incorporation authorize 10 The board of directors will Shareholders may believe
million shares of common stock and 5 million have more flexibility to issue the acquisition or merger
shares of preferred stock. The holding company additional shares to would be in their best
may issue these shares without shareholder management-friendly parties interests.
approval (Article 5 of the articles of in order to weaken the
incorporation, Annex B). position of a potential Shareholders' percentage
acquiror. ownership of stock and
voting power may be
diluted.
The issuance of preferred stock
could depress the price of common
stock.
- ------------------------------------------------------------------------------------------------------------------------
The articles of incorporation eliminate The prohibition against Shareholders may believe
cumulative voting in the election of directors. cumulative voting will make it the acquisition or merger
Cumulative voting entitles a shareholder to as more difficult for a potential would be in their best
many votes as equal the number of shares acquiror to elect its own interests.
owned by the shareholder multiplied by the nominees to the board and
number of directors to be elected. A control the company. No cumulative voting may
shareholder may cast all of these votes for one make it more difficult for
candidate or distribute them among any two or shareholders to elect their
more candidates. nominees to the board of
directors, even if they do
not intend to gain control
over the company.
- ------------------------------------------------------------------------------------------------------------------------
75% of the outstanding shares entitled to vote This provision ensures that Many shareholders may
must approve any merger, consolidation, any extraordinary corporate believe the acquisition or
liquidation or dissolution of the holding transaction opposed by the merger would be in their
company or the sale of all or substantially all of board can occur only with best interests, but may be
its assets, unless at least 80% of all of the a clear mandate from unable to garner the 75%
members of the board of directors has approved shareholders. vote required for approval.
the transaction. Then, only 51% of the holders
of shares entitled to vote can approve the
transaction (Article 7 of the articles of
incorporation, Annex B).
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</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
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Anti-Takeover Provision Anti-Takeover Effect Risks to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The holders of at least 75% of the outstanding This provision would make it Shareholders may believe
shares entitled to vote must approve any change more difficult for an acquiror the acquisition or merger
in the by-laws, unless a majority of the to change the by-laws. would be in their best
members of the board of directors has approved interests.
the change. (Exceptions:
Shareholders with no
1. The directors may not make or alter any by- intention of taking over the
laws fixing their qualification, classification company will have more
or term of office. difficulty amending the by-laws. s
2. The power of the board of directors to
change the by-laws is subject to the power of
the holders of 75% of the outstanding shares
entitled to vote to change action by the board
of directors) (Article 34 of the by-laws,
Annex C)
- -----------------------------------------------------------------------------------------------------------------------
The articles of incorporation authorize the board This provision makes it easier Shareholders may believe
of directors to oppose a tender offer on the for the board to oppose an the acquisition or merger
basis of factors other than economic benefit to offer by a potential acquiror would be in their best
shareholders, such as social and economic because the board is authorized interests.
effects, and to use any legal means to resist an to consider factors
unwanted takeover (Article 10 of the articles of in its decision-making other
incorporation, Annex B). than the economic benefit to
shareholders.
- -----------------------------------------------------------------------------------------------------------------------
The affirmative vote of at least 75% of the This may make it more Shareholders may believe
outstanding shares entitled to vote is required difficult for a potential the acquisition or merger
to amend the "anti-takeover" provisions of the acquiror to amend the articles would be in their best
articles of incorporation, unless 80% of the to assist the acquiror in interests.
members of the board of directors has approved gaining control of the holding
the amendment. If 80% of the Board has company. Shareholders with no
approved the Amendment, then 51% of intention of taking over the
outstanding shares entitled to vote may amend company will have more
the Articles (Article 12 of the articles of difficulty amending the
incorporation, Annex C). articles of incorporation.
- -----------------------------------------------------------------------------------------------------------------------
The following anti-takeover defenses are
already in use by the bank and apply to the
holding company as well:
The by-laws provide for 3-year staggered terms Electing a board with Shareholders may believe
of office for directors (Section 9.2 of the by- staggered terms of office, also the acquisition or merger
laws, Annex C). known as a "classified" or would be in their best
"staggered" board, will make interests.
it more difficult for an
acquiror to change the All shareholders will find it
management of the company. more difficult to change the
Only one-third of the directors composition of the board.
come up for election each
year, so shareholders will only
be able to elect a full board
over a span of 3 years.
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</TABLE>
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<TABLE>
<CAPTION>
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Anti-Takeover Provision Anti-Takeover Effect Risks to Shareholders
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Like shareholders of the bank, shareholders of The board of directors may Shareholders may believe
the holding company will not have a guarantee issue additional shares to the acquisition or merger
of preemptive rights. The articles of management-friendly parties would be in their best
incorporation do not guarantee preemptive in order to weaken the interests.
rights of shareholders. "Preemptive rights" position of a potential
mean that a company must give current acquiror. Shareholders' percentage
shareholders the opportunity to purchase the ownership of stock may be
same proportion of new shares it issues as the diluted. However, the
shareholder's current ownership proportion. board of directors may
Without preemptive rights, a company may choose to grant preemptive
issue shares to third parties without offering rights to shareholders in a
them to current shareholders. particular stock offering.
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</TABLE>
For a more detailed description of these anti-takeover defenses, please
refer to the section entitled "Description of the Holding Company's Capital
Securities - Anti-Takeover Provisions in Articles and By-laws."
Certain strong anti-takeover defenses of the Pennsylvania Business Corporation
Law will also apply to the holding company and could delay or prevent an
acquisition.
Under the Business Corporation Law, certain strong anti-takeover
provisions are available to corporations that have their securities registered
with the SEC under Section 12 of the Securities Exchange Act of 1934. The
holding company will be required to register its stock under the 1934 Act
because it will have more than 500 shareholders and more than $10 million in
assets on a consolidated basis after the reorganization. The anti-takeover
provisions of Pennsylvania corporate law do not apply to the bank. The holding
company expects to attain the status of a registered corporation upon filing the
appropriate form with the SEC after completion of the reorganization, at which
time these anti-takeover provisions of Pennsylvania corporate law will apply. To
the extent that these provisions limit a potential acquiror's rights, they tend
also to limit all shareholders' rights. See section entitled "Description of the
Holding Company's Capital Securities - Anti-Takeover Provisions Applicable to
Registered Corporations."
The holding company's issuance of additional shares of common stock or preferred
stock could dilute or depress the value of your shares of the holding company's
common stock.
The holding company's articles of incorporation authorize the issuance of
up to 10 million shares of common stock and 5 million shares of preferred stock.
The issuance of additional stock within these limits will not require prior
shareholder approval. We anticipate that the holding company will issue
approximately 1,801,472 shares of common stock, if the reorganization is
completed, and approximately 8,198,528 shares of common stock will remain
unissued. The holding company will not issue any preferred stock in the
reorganization. Sales of additional shares of stock, or the perception that
shares may be sold, could negatively affect the market price of the holding
company's stock.
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<PAGE>
The issuance of additional shares could also dilute the percentage
ownership interest and corresponding voting power of the prior shareholders.
Shareholders of the holding company, like shareholders of the bank, will not
have preemptive rights, which is the right to subscribe for additional shares
being offered on a proportional basis to their stock ownership percentage.
However, the holding company may make the right of preemption a contractual term
of a particular stock offering.
Additionally, we anticipate that the holding company will implement a
dividend reinvestment plan shortly after the reorganization which will be
substantially similar to the bank's dividend reinvestment plan. We expect that
the dividend reinvestment plan will permit the holding company to sell up to
100,000 shares of common stock to its shareholders. The subsequent sale of these
shares could reduce the market price for the common stock and result in a
dilution to our shareholders.
The holding company will assume the obligations of the bank under its 1998
Independent Directors Stock Option Plan and 1998 Stock Incentive Plan. As
adjusted for the 2-for-1 exchange ratio in the reorganization, the holding
company will be able to issue up to 50,000 shares under each of these stock
option plans. The issuance and exercise of stock options under these plans may
also depress the price of holding company common stock or dilute shareholder
value.
The issuance of a substantial number of preferred stock could also have
the effect of depressing the price of the common stock because the public could
show more demand for the preferred stock.
The issuance of preferred stock could limit the holding company's ability to pay
dividends to common stock shareholders.
The holding company's issuance of preferred stock could limit its ability
to pay dividends to common stock shareholders if the holding company granted the
preferred shares preferential dividend rights. The holding company may issue
preferred stock and determine the rights of preferred stock shareholders without
prior approval by the holders of common stock.
Upon the dissolution or winding up of the holding company, the claims of others,
including the holders of preferred stock, may limit your ability recover your
investment in the holding company.
In the event of dissolution and termination of the holding company, the
proceeds, if any, realized from liquidation of the holding company's assets will
first be used to satisfy all claims of creditors, including depositors. This
risk also exists for current shareholders of the bank.
If the holding company issues any preferred stock, the holders of
preferred stock are also likely to have priority over the holders of common
stock in recovering their investment in the case of dissolution. Although the
holding company's board of directors currently has no plans to
13
<PAGE>
issue preferred stock, it may do so at any time without shareholder approval.
Because the bank could not issue preferred stock without prior shareholder
approval, this risk does not currently exist for the bank's shareholders.
Accordingly, your ability as common stock shareholder to recover all or
any portion of your investment under these circumstances will depend on the
amount of funds realized, the claims of creditors, depositors and others to be
satisfied, and the amount of preferred stock issued, if any.
Reorganizing the bank into a holding company structure will add an additional
layer of government regulation which will result in additional costs.
The bank is already subject to extensive governmental supervision,
regulation and control, and the reorganization will result in additional
regulation. The holding company will be subject to the provisions and
restrictions of the Bank Holding Company Act of 1956 and to supervision by the
Board of Governors of the Federal Reserve System. It may engage only in banking
activities and activities related to banking and is subject to various other
restrictions. It must file an annual report with the Federal Reserve Board,
which may also conduct examinations of the holding company. Although these
requirements may be costly and burdensome, they are designed to protect the
safety and soundness of the bank subsidiaries of holding companies.
The holding company must also generally file registration statements with
the SEC under the Securities Act of 1933, as well as with certain state
securities commissions under state securities laws, for the offer and sale of
its securities to the public. Presently, the bank is exempt from the
registration requirements under the 1933 Act because of exemptions for bank
securities. However, the bank must file periodic financial reports, proxy
statements and other information with the FDIC under the Securities Exchange Act
of 1934. The additional filings under the 1933 Act will entail additional costs,
including legal fees and filing fees. See "Description of the Holding Company -
Supervision and Regulation of the Holding Company" below.
Risks Shared by the Bank and the Holding Company
Investment in the common stock of the holding company also involves risks
substantially similar to risks for the current shareholders of the bank. The
FDIC does not insure money invested in the common stock of the holding company,
unlike money deposited with the bank. Funds invested in common stock will not
earn interest. After the reorganization, the following risk factors may
influence the value of the holding company's common stock:
14
<PAGE>
We may be unable to retain or replace members of the board of directors or
senior management or to hire and retain other skilled personnel.
The business success of the bank and holding company depends to a great
extent upon the services of the board of directors of the bank. The loss of key
personnel by the bank would have a material adverse effect upon the future
prospects of the bank or holding company.
Our future success is dependent on our ability to compete effectively in the
highly competitive banking industry.
We face substantial competition in all phases of our operations from a
variety of different competitors. Our future growth and success will depend on
our ability to compete effectively in this highly competitive environment. We
compete for loans, deposits and other financial services in our geographic
market with other commercial banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms and various other non-bank competitors. Many of our
competitors offer services which we do not, and many have substantially greater
resources, name recognition and market presence that benefit them in attracting
business. In addition, larger competitors may be able to price loans and
deposits more aggressively than we do. Within the bank's Lackawanna and Luzerne
County marketplace, the bank is 1 of ___ commercial banks and ___ savings banks
competing for customers. While ___ super-regional banks currently control ____%
of the deposit base, ______ community banks maintain the other _____% of the
total deposits. The Fidelity Deposit and Discount Bank has _____% of
FDIC-insured deposits in Lackawanna County and _______% of FDIC-insured deposits
in Luzerne County. The non-bank financial institutions and financial services
organizations with which we compete are not subject to the same degree of
regulation as is imposed on banks. As a result, these non-bank competitors have
an advantage over us in providing certain services.
The banking industry is highly susceptible to economic change.
Commercial banking is affected by local, domestic and international
economic and political conditions, and by governmental monetary and fiscal
policies. Conditions such as inflation, recession, unemployment, volatile
interest rates, tight money supply, scarce natural resources, real estate
values, international conflicts and other factors beyond the bank's control can
adversely affect the profitability of the bank. Future rising interest rates,
while increasing the income yield on the bank's earning assets, can adversely
affect loan demand and, consequently, the profitability of the bank. Future
decreases in interest rates can adversely affect the bank's profitability
because they reduce the return which the bank earns on its assets. Economic
downturns could result in the delinquency of outstanding loans. In particular, a
downturn in the economic conditions in northeastern Pennsylvania, where the
bank's lending and deposit- gathering are concentrated, could reduce our growth
rate, impair our ability to collect loans and generally affect our financial
condition and results of operations.
15
<PAGE>
Increases in interest rates could make us less profitable.
Our profitability is dependant to a large extent on our net interest
income. Net interest income is the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
Like most financial institutions, we are affected by changes in general interest
rate levels, which are currently at relatively low levels, and by other economic
factors beyond our control. In addition, interest rate risks can result from
mismatches between the dollar amount of repricing or maturing assets and
liabilities and is measured in terms of the ratio of the interest rate
sensitivity gap to total assets. Although our management believes it has
implemented strategies to reduce the potential effects of changes in interest
rates on our results of operations, any substantial and prolonged increase in
market interest rates could adversely affect our operating results.
Our allowance for loan losses may prove to be insufficient to absorb potential
losses in our loan portfolio.
Lending money is a substantial part of our business. However, every loan
we make carries a certain risk of non-payment. We cannot assure that our
allowance for loan losses will be sufficient to absorb actual loan losses. We
also cannot assure you that we will not experience significant losses in our
loan portfolios that may require significant increases to the allowance for loan
losses in the future. Although we evaluate every loan that we make against our
underwriting criteria, we may experience losses by reasons of factors beyond our
control. Some of these factors include changes in market conditions affecting
the value of real estate and unexpected problems affecting the creditworthiness
of our borrowers.
We determine the adequacy of our allowance of loan losses by considering
various factors, including:
o an analysis of the risk characteristics of various classifications
of loans;
o previous loan loss experience;
o specific loans that would have loan loss potential;
o delinquency trends;
o estimated fair value of the underlying collateral;
o current economic conditions;
o the view of our regulators; and
o geographic and industry loan concentration.
Changes in real estate values may adversely impact our loans that are secured by
real estate.
A significant portion of our loan portfolio consists of residential and
commercial mortgages secured by real estate. These properties are concentrated
in northeastern Pennsylvania. Real estate values and real estate markets
generally are affected by, among other things, changes in national, regional or
local economic conditions, fluctuations in interest rates and the availability
of loans to potential purchasers, changes in the tax laws and other governmental
statutes, regulations and policies, and acts of nature. If real estate prices
decline, particularly in northeastern Pennsylvania, the value of the real estate
collateral securing the
16
<PAGE>
bank's loans could be reduced. This reduction in the value of the collateral
would increase the number of non-performing loans and could have a material
negative impact on our financial performance. Additionally, the bank has
increased its level of commercial real estate loans, which are considered to
involve a higher degree of credit risk than that of the one-to-four family
residential loans.
Federal and state governmental entities extensively regulate and supervise the
banking industry.
The bank is subject to, and will continue to be subject to, extensive
governmental supervision, regulation and control. The bank is subject to federal
and state statutes applicable to bank and trust companies chartered under the
banking laws of Pennsylvania and to banks whose deposits are insured by the
Federal Deposit Insurance Corporation. The primary regulator of the bank is the
Pennsylvania Department of Banking, and the bank's primary federal regulator is
the FDIC. Federal and state banking laws and regulations govern the scope of a
bank's business, a bank's investments, a bank's reserves against deposits, a
bank's loans, interest rates, the activities of a bank with respect to mergers
and consolidations, and the establishment of branches.
In addition, due to its number of shareholders and the size of its assets,
the bank is registered under Section 12 of the Securities Exchange Act of 1934
and is subject to various reporting requirements and to regulations regarding
proxy solicitations or tender offers. Under the 1934 Act, the bank files proxy
materials, financial reports and other information with the FDIC. After the
reorganization, the holding company will register its stock under Section 12 of
the 1934 Act and will file proxy statements and periodic reports with the SEC
that contain consolidated financial information on both the holding company and
the bank. The bank will cease to file these reports and information, although it
will continue to file financial information with its regulators under other
laws.
The regulatory burden on banks is costly and makes competition with other
types of financial institutions, such as insurance companies and brokerage
houses, that are not subject to the same regulatory burden difficult. See
"Description of the Bank - Supervision and Regulation of the bank" below.
Changes in the law and regulations may affect our ability to do business, our
costs, and our profits.
We are subject to extensive state and federal supervision and regulation.
These laws and regulations are intended to protect depositors, not shareholders.
Any change in applicable laws or regulations may have a material effect on our
business and prospects. We cannot predict the nature or the extent of the effect
on our business or earnings that monetary policies, economic control, or new
federal or state regulations may have in the future. For example, we cannot
predict whether any of the bills for financial services reform currently being
considered by the United States Senate and House of Representatives will become
law. The legislation would
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allow either bank subsidiaries or bank holding companies, depending on the form
of legislation adopted, to participate fully in insurance, securities
underwriting, and merchant banking.
Regulatory restrictions on dividend payments from the bank may affect our
ability to pay dividends to our shareholders.
The ability of the holding company to pay cash dividends will be subject
to certain restrictions under Pennsylvania corporate law. In addition, because
the cash that the holding company uses to pay dividends will come from dividends
the bank pays to the holding company, the holding company's ability to pay
dividends will depend upon the bank. The bank's ability to pay dividends is
subject to and limited by certain legal and regulatory restrictions applicable
to banks. Assuming a dividend would satisfy the minimum legal requirements, we
will decide whether or not to pay dividends after considering the our capital
requirements and current and projected net income. See "Description of the
Bank's Capital Securities - Dividends."
You will have a minimal influence on shareholder decisions.
The directors, officers and substantial investors may have sufficient
beneficial ownership of the common stock to control the holding company. The
directors and officers of the bank currently own 19.67% of the bank's common
stock and are expected to own approximately the same percentage of common stock
of the holding company upon completion of the proposed reorganization. See
"Principal Beneficial Owners of the Bank's Common Stock."
The ownership of a substantial percentage of the outstanding common stock
by a limited number of shareholders with a common interest, particularly those
who share management of a company, may result in disproportionate control of the
holding company. Although a minority of total shareholders, this group may be
able to consistently determine the outcome of votes in matters submitted to a
vote of the holding company's shareholders. It would be difficult for another
shareholder group to defeat a proposal favored by the holding company's
directors and officers, or to approve a proposal opposed by the directors and
officers.
The ownership of a relatively large percentage of shares by the holding
company's board of directors and officers may assist the board of directors and
its appointed officers in retaining control of the holding company, even if the
other shareholders are dissatisfied with the Board. This effect may be even more
significant for the holding company because of its anti-takeover strategies
designed to assist management in retaining control.
The ownership of a substantial number of shares by a limited number of
persons can also adversely affect the liquidity of the market for the common
stock because only a limited number of shares are widely dispersed and likely to
change hands. Stock prices in an illiquid market tend to increase and decrease
in a more volatile manner than stock prices in a liquid market, because prices
for a relatively small number of shares can have a significant impact on the
price quoted for the common stock. The holding company is unable to estimate the
number of shares of common stock that may be sold in the future by any of its
shareholders. These sales will depend
18
<PAGE>
upon a number of factors, including the market price for the shares of common
stock and the individual circumstances of each shareholder. The sale of a
substantial block of shares of common stock in the public market is likely to
have an adverse impact on the market price of the common stock.
The market for the bank's common stock is not active.
The public trades the bank's common stock on a limited basis in the local
over-the-counter market, primarily in the bank's geographic service area, and
several brokers make a market in the bank's common stock. This will also be the
case for the holding company's common stock. The holding company does not
presently intend to apply to the National Association of Securities Dealers to
have its common stock listed for trading on the National Association of
Securities Dealers Automated Quotation System or to apply for listing on any
national securities exchange. While the holding company does intend to comply
with regulatory requirements necessary for brokerage firms to make an active
market in the common stock, we cannot assure that a more liquid market for the
common stock will develop.
Our computer systems, and the systems of our customers and suppliers, may not
properly process date information after December 31, 1999, which could disrupt
our business and increase our costs.
The "Year 2000 Problem" is the result of computer programs having been
written using two digits rather than four to define the applicable year. Any of
the bank's computer systems that have date-sensitive software or date-sensitive
hardware may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send statements, or engage in similar normal business
activities. The Year 2000 Problem also extends to embedded controllers, which
are microprocessors located within a piece of machinery.
Although we have addressed the issue of our Year 2000 readiness and will
continue to assess the situation, we cannot assure you that we have successfully
identified or resolved all year 2000 problems which may affect the bank. We also
cannot assure you that we will be able to implement any necessary corrective
actions in a timely manner. If the bank or the companies that provide services
to the bank or with which the bank's systems interconnect fail to successfully
identify and resolve their year 2000 problems, the bank's services and
operations could be disrupted. The Bank has contacted third parties, including
its vendors, service providers and significant customers, to determine these
entities' readiness for the year 2000. The ability of vendors and service
providers to provide supplies, equipment and services to the bank is critical to
the bank's operations. Also, the unresolved year 2000 problems of significant
customers could cause the bank to lose business. The Bank has taken steps to
ensure its own year 2000 compliance and to insulate itself from third parties'
lack of readiness, but a substantial risk still exists that the year 2000
problem will affect the bank. See "Description of the Bank's Common Stock - Year
2000 Computer Problem."
19
<PAGE>
The by-laws of the holding company provide for the indemnification of directors,
officers and employees and limit the liability of directors.
The holding company's by-laws provide for indemnification of its
directors, officers, employees and agents to the fullest extent permitted under
Pennsylvania corporate law. Indemnification will only apply to persons who act
in good faith, in a manner he or she reasonably believed to be in the best
interest of the company, without willful misconduct or recklessness. The bank's
by-laws provide similar indemnification provisions, but for directors only.
The holding company's by-laws also limit the liability of directors for
monetary damages to acts of self-dealing, willful misconduct or recklessness,
unless the act constitutes a crime or involves liability for the payment of
taxes. We believe that these provisions will help reduce baseless litigation,
but they may also make it more difficult for shareholders to sue these persons
on behalf of the company. The bank's by-laws provide similar limits on
directors' liability.
The forward-looking statements we make in this document are inherently
uncertain.
This proxy statement/prospectus contains forward-looking statements
including statements regarding intent, belief or current expectations about
matters (including statements as to "beliefs," "expectations," "anticipations,"
"intentions" or similar words) that may or may not occur in the future. A
forward-looking statement is any statement that is not a historical fact. These
statements are subject to risks, uncertainties and assumptions. These include
the risk that projected trends for the continued growth of the bank will not
occur. If one or more of these risks or uncertainties occurs or if underlying
assumptions prove incorrect, actual results, performance or achievements in 1999
and beyond could differ materially from those stated.
20
<PAGE>
SUMMARY FINANCIAL INFORMATION
We have not included complete pro forma and comparative financial
information concerning Fidelity D & D Bancorp, the proposed bank holding
company, because immediately following the effective time of the reorganization,
the consolidated financial statements of Fidelity D & D Bancorp will be
substantially the same as the bank's financial statements immediately prior to
the reorganization. Prior to the closing of the reorganization, Fidelity D & D
Bancorp will not have commenced operations and will have no material assets or
liabilities.
<TABLE>
<CAPTION>
06/30/99 06/30/98 1998 1997 1996 1995 1994
-------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Assets, Deposits and Capital
Total assets $407,371,595 $309,482,386 $348,604,421 $290,252,442 $269,136,881 $240,812,179 $228,246,215
Total investment 104,454,621 70,309,158 78,607,860 72,712,902 87,237,566 71,461,979 73,358,144
securities
Net loans 259,463,214 211,585,666 235,430,079 194,516,933 159,644,245 143,282,316 138,018,150
Loans Available -for-sale 19,075,120 6,369,086 8,858,157 8,202,404 2,964,081 2,825,634 3,998,000
Total deposits 279,729,042 224,232,521 240,000,751 218,025,010 212,069,670 180,904,613 169,329,244
Total shareholders' 32,578,029 29,726,457 34,013,705 28,423,777 25,366,382 23,791,705 20,002,108
equity
Operating Results
Total interest income 13,096,298 11,242,793 23,471,372 21,037,613 9,112,187 17,546,782 15,102,157
Total interest expense (6,905,7190) (5,905,897) (12,308,632) (10,639,884) (9,878,012) (9,471,983) (7,119,822)
Net interest income 6,190,578 5,336,896 11,162,740 10,397,729 9,234,175 8,074,799 7,982,335
Provision for loan losses (320,000) (364,000) (646,000) (622,800) (338,000) (313,000) (559,000)
Net interest income after
provision for loan losses 5,870,578 4,972,896 10,516,740 9,774,929 8,896,175 7,761,799 7,423,335
Other income 1,072,337 804,102 1,902,734 1,303,470 987,106 1,246,713 755,004
Other expense (4,756,578) (3,553,394) (7,609,162) (6,583,334) (6,063,236) (5,283,320) (4,986,303)
Income before provision for 2,186,337 2,223,604 4,810,312 4,495,065 3,820,044 3,725,192 3,192,036
income taxes
Provision for income taxes (481,130) (563,550) (1,246,760) (1,185,008) (995,340) (916,800) (690,000)
Net Income 1,705,207 1,660,054 3,563,552 3,310,057 2,824,704 2,808,392 2,502,036
Net income per share (adjusted $1.91 $1.98 $4.20 $3.97 $3.43 $3.43 $3.11
for stock split)
Dividends paid $536,589 $502,774 $1,200,409 $1,062,530 $906,793 $820,327 $725,519
Dividends per share (adjusted $0.60 $0.60 $1.40 $1.28 $1.10 $1.00 $ .90
for stock split)
Weighted average number of 894,669 838,265 848,554 832.994 824,450 820,270 805,010
shares outstanding (adjusted
for stock split
Actual shares outstanding 896,486 839,956 893,647 837,260 413,889 411,210 409,299
Dividend payout ratio 31.47% 30.29% 33.69% 32.10% 32.10% 29.21% 29.00%
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Book value per share $36.34 $35.39 $38.06 $33.95 $30.64 $28.93 $24.43
</TABLE>
PER SHARE PRICE INFORMATION
There has never been an organized public trading market for the bank's
common stock. Bank common stock is traded over-the-counter from time to time.
The last reported sale of Bank common stock prior to the public announcement of
the reorganization was a trade of 110 shares at $69.50 per share on October 5,
1999. Due to the infrequency of trading and the fact that these trades are
generally private transactions, we are unable to determine actual trading prices
on any given date.
Because Fidelity D & D Bancorp has no substantial assets or liabilities,
the holding company's common stock had no market value at the time of the public
announcement. We anticipate that after the reorganization, the per share market
value of the holding company's common stock will be approximately 1/2 of the per
share market value of the bank's common stock immediately after the
reorganization, based on the 2-for-1 stock exchange ratio.
22
<PAGE>
INFORMATION ABOUT THE SPECIAL MEETING
Time and Place of Special Meeting
The board of directors of The Fidelity Deposit and Discount Bank, a
Pennsylvania- chartered bank and trust company, is furnishing this proxy
statement to solicit your proxy for use at the Special Meeting of Shareholders
of the bank and any adjournment of the meeting. The special meeting will be held
at the main office of The Fidelity Deposit and Discount Bank, Blakely and
Drinker Streets, Dunmore, Pennsylvania 18512, on __________, December ____,
1999, at ______ ___.m., Eastern Standard Time.
Purpose of the Special Meeting
At the special meeting, the board of directors of the bank will request
shareholders:
o to consider and act upon a proposal to approve and adopt the Plan of
Reorganization and related Plan of Merger dated __________, 1999,
providing for
o the reorganization of the bank as the wholly owned subsidiary
of Fidelity D & D Bancorp, Inc., a Pennsylvania corporation
organized by the bank to become the bank's holding company,
through the merger of the bank with The Fidelity Deposit and
Discount Interim Bank, a Pennsylvania chartered banking
institution and subsidiary of Fidelity D & D Bancorp, Inc.;
o and the exchange of each share of common stock of the bank for
2 shares of common stock of Fidelity D & D Bancorp, Inc.;
o to consider any adjournment of the meeting to a later date, if
necessary, to permit further solicitation of proxies in the event
there are not sufficient votes at the time of the meeting to
constitute a quorum or to approve the Plan of Reorganization and
Plan of Merger; and
o to transact any other business that may properly come before the
special meeting and any adjournment of the meeting.
Voting Rights, Quorum and Vote Required
The board of directors of the bank has fixed the close of business on
November ___, 1999, as the record date for the determination of shareholders of
the bank entitled to vote at the special meeting. On the record date, the bank
had outstanding approximately _________ shares of common stock, par value
$1.5625 per share, the only authorized class of stock, which was held by
approximately _______ shareholders. Each outstanding share of common stock
entitles the record holder to one vote.
23
<PAGE>
Under Pennsylvania law and the by-laws of the bank, the presence of a
quorum is required for each matter to be acted upon at the special meeting.
Holders of a majority interest of all outstanding common stock must be present
at the meeting, either in person or by proxy, to establish a quorum. For
purposes of establishing a quorum, the bank will count as present shareholders
represented by proxies marked "withhold" or "abstain." "Broker non-votes" will
also be counted in determining the presence of a quorum for the particular
matter. "Broker non- votes" are shares represented at the meeting held by
brokers or nominees as to which instructions have not been received from the
beneficial owners or persons entitled to vote and the broker or nominee does not
have the discretionary voting power on a particular matter. In the absence of a
quorum, the board of directors of the bank intends to adjourn the meeting to
another place and time without further notice to shareholders, until the
necessary shareholders are present.
The required vote for the approval of the reorganization is the
affirmative vote of at least 2/3 of the outstanding shares of common stock .
Abstentions and broker non-votes are not votes cast and therefore do not count
either for or against the approval and adoption of matters before the meeting.
Although abstentions and broker non-votes are not votes cast, they have the
practical effect of votes cast against the reorganization proposal.
If for any reasons the board of directors of the bank believes additional
time should be allowed to obtain proxies, the Board may adjourn the meeting to
another place and time with a vote of a majority of shares present at the
meeting.
Solicitation of Proxies
The Bank's board of directors is sending this proxy statement and the
enclosed proxy form to shareholders of the bank on or about November ____, 1999.
In connection with the solicitation of proxies, the bank will:
o bear the cost of soliciting proxies,
o reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable expenses, and
o may, if the directors so decide, solicit proxies personally or by
telephone, telegraph, facsimile transmission or electronic mail.
Voting by Proxy and Revocation of Proxies
By properly completing and signing a proxy form, you will be appointing
the proxy holders to vote your shares at the special meeting according to your
instructions on the proxy form. If a proxy is completed, signed and returned
without indicating any voting instructions, the shares represented by the proxy
will be voted
24
<PAGE>
o FOR the approval and adoption of the Plan of Reorganization and Plan
of Merger, and
o FOR adjournment of the meeting to a later date, if necessary, to
permit further solicitation of proxies in the event there are not
sufficient votes at the time of the meeting to constitute a quorum
or to approve the reorganization proposal.
The proxy holders will not vote any proxy that withholds authority or that
is voted against the merger in favor of any adjournment of the meeting. A proxy
also gives the persons named as proxy holders the right to vote on other matters
incidental to the conduct of the meeting. If other matters are properly brought
before the meeting, the proxy holders will vote your proxy in accordance with
the recommendations of the bank's management.
Execution and return of the enclosed proxy will not affect your right to
attend the special meeting and vote in person if you first give notice to John
F. Glinsky, Jr., Secretary of the bank. A shareholder of the bank who returns a
proxy may revoke the proxy prior to the time it is voted:
o by giving notice of revocation to John F. Glinsky, Jr., Secretary of
The Fidelity Deposit and Discount Bank, Blakely and Drinker Streets,
Dunmore, Pennsylvania 18512;
o by delivering a properly executed proxy bearing a later date to John
F. Glinsky, Jr., Secretary of the bank; or
o by voting in person after giving notice to John F. Glinsky, Jr.,
Secretary of the bank.
Attendance by a shareholder at the special meeting will not itself revoke
the proxy.
Information about Beneficial Ownership of the Bank's Common Stock by Significant
Shareholders, Directors and Executive Officers
As of ___________________, 1999, we know of no shareholder who owns more
than 5% of the bank's outstanding common stock, either on the bank's records or
indirectly as a "beneficial" owner.
The following table provides information, as of _______________, 1999,
with respect to the following beneficial owners of the bank's common stock:
o each executive officer of the bank,
o each director of the bank, and
o all Bank executive officers and directors as a group.
25
<PAGE>
We determined beneficial ownership by applying the General Rules and
Regulations of the SEC, which state that a person may be credited with the
ownership of common stock:
o owned by or for the person's spouse, minor children or any other
relative sharing the person's home;
o of which the person shares voting power, which includes the power to
vote or to direct the voting of the stock; and
o of which the person has investment power, which includes the power
to dispose or direct the disposition of the stock.
Also, a person who has the right to acquire shares within 60 days after
___________, 1999, will be considered to own the shares, if the acquisition of
shares is either direct or indirect as a beneficial owner.
- --------------------------------------------------------------------------------
AMOUNT AND NATURE OF PERCENTAGE OF BANK'S
NAME OF INDIVIDUAL AND BENEFICIAL OWNERSHIP OF COMMON STOCK
POSITION WITH BANK BANK'S COMMON STOCK (1) BENEFICIALLY OWNED
- --------------------------------------------------------------------------------
Samuel C. Cali 26,756 (2) 2.980%
Director
- --------------------------------------------------------------------------------
Michael F. Marranca 25,159 (3) 2.802%
President and Chief
Executive Officer,
Director
- --------------------------------------------------------------------------------
Herbert M. McDonald 44,502 (4) 4.957%
Director
- --------------------------------------------------------------------------------
John F. Glinsky, Jr 17,075 (5) 1.902%
Director and Secretary
- --------------------------------------------------------------------------------
Patrick A. Calvey, Jr 2,906 (6) .323%
Director
- --------------------------------------------------------------------------------
Patrick J. Dempsey 15,670 (7) 1.745%
Director
- --------------------------------------------------------------------------------
Paul A. Barrett 17,668 (8) 1.968%
Director
- --------------------------------------------------------------------------------
John T. Cognetti 2,960 (9) .33%
Director
- --------------------------------------------------------------------------------
Michael J. McDonald 19,342 (10) 2.154%
Director
- --------------------------------------------------------------------------------
David L. Tressler, Sr. 2,547 (11) .283%
Director
- --------------------------------------------------------------------------------
26
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
AMOUNT AND NATURE OF PERCENTAGE OF BANK'S
NAME OF INDIVIDUAL AND BENEFICIAL OWNERSHIP OF COMMON STOCK
POSITION WITH BANK BANK'S COMMON STOCK (1) BENEFICIALLY OWNED
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph E. Quinnan 1,276 (12) .142%
Senior Vice President and Chief
Operating Officer of the bank,
Senior Vice President of the
Holding Company
- ---------------------------------------------------------------------------------------------
John J. Keeler 622 (13) .069%
Vice President
- ---------------------------------------------------------------------------------------------
Kevin R. Messett 456 (14) .051%
Senior Vice President
- ---------------------------------------------------------------------------------------------
Robert P. Farrell 255 (15) .028%
Cashier/Comptroller of the bank
Treasurer of the Holding Company
- ---------------------------------------------------------------------------------------------
All Officers and Directors as a Group 77,214 19.768%
(10 Directors, 5 Officers, 14 persons
in total)
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) Information furnished by the Directors and the bank. Fractional shares are
rounded to the nearest whole number.
(2) Figure includes 500 shares held solely by Mr. Cali, 24,261 shares held in
the S.C. Cali Revocable Trust, 1,745 shares held in Jane Cali's Revocable
Trust, and 250 exercisable stock options.
(3) Figure includes 7,906 shares held solely by Mr. Marranca, 693 shares held
solely by Mr. Marranca in his IRA, 14,439 shares held by Mr .Marranca's
spouse, 1,771 shares held by Mr. Marranca's spouse and grandchildren and
350 exercisable stock options.
(4) Figure includes 36,824 shares held solely by Dr. McDonald, 4,972 shares
held jointly by Dr. McDonald and his spouse, 356 shares held by Dr.
McDonald's spouse, 2,100 shares held jointly by Dr. McDonald and his
sister, and 250 exercisable stock options.
(5) Figure includes 6,204 shares held solely by Mr. Glinsky, 9,997 shares held
jointly by Mr. Glinsky and his spouse, 624 shares held jointly by Mr.
Glinsky and his children, and 250 exercisable stock options.
(6) Figure includes 2,556 shares held solely by Mr. Calvey, 100 shares held by
Calvey Enterprises Inc. of which Mr. Calvey is the former President, and
250 exercisable stock options.
(7) Figure includes 2,000 shares held solely by Mr. Dempsey, 10,546 shares
held by Mr. Dempsey's spouse, 3,124 shares held by Mr. Dempsey's children,
and 250 exercisable stock options.
(8) Figure includes 10 shares held solely by Mr. Barrett, 4,523 shares held
solely by Mr. Barrett in his IRA, 988 shares held jointly by Mr. Barrett
and his spouse, 1,049 shares held by Mr. Barrett's spouse, 10,848 shares
held as Trustee and co-owner of the Estate of Mildred Barrett, and 250
exercisable options.
(9) Figure includes 100 shares held solely by Mr. Cognetti in his IRA, 1,366
shares held jointly by Mr. Cognetti and his spouse, 506 shares held by Mr.
Cognetti's spouse, 735 shares held by Mr. Cognetti's spouse and child, and
250 exercisable stock options.
(10) Figure includes 16,378 shares held solely by Mr. McDonald, 2,303 shares
held by Mr. McDonald's spouse, 400 shares held by Mr. McDonald's spouse
and children, 11 shares held by Mr. McDonald's children, and 250
exercisable stock options.
(11) Figure includes 50 shares held solely by Mr. Tressler, 447 shares held in
trust by Mr. Tressler's spouse and child, 1,698 shares held jointly by Mr.
Tressler in trust with his son, 102 shares held jointly by Mr. Tressler in
trust with his daughter, and 250 exercisable stock options.
27
<PAGE>
(12) Figure includes 511 shares held in trust by Mr. Quinnan, 515 shares held
in a revocable trust by Mr. Quinnan's spouse, and 250 exercisable stock
options.
(13) Figure includes 408 shares held solely by Mr. Keeler, 14 shares held by
Mr. Keeler's child, and 200 exercisable stock options.
(14) Figure includes 161 shares held jointly by Mr. Messett and his spouse, 45
shares held jointly by Mr. Messett with his spouse and children, and 250
exercisable options.
(15) Figure includes 55 shares held jointly by Mr. Farrell with his spouse, and
200 exercisable stock options.
The required vote for the approval of the reorganization is the
affirmative vote of at least 2/3 of the outstanding shares of bank common stock.
In terms of the number of shares, as of _____________, 1999, the affirmative
votes of the holders of at least approximately 598,491 shares will result in the
approval of the proposed reorganization. The officers and directors, as a group,
own 177,214 shares, or approximately 29.6% of the shares representing
affirmative votes needed to approve the reorganization.
28
<PAGE>
INFORMATION ABOUT THE PROPOSED REORGANIZATION
Description of Reorganization Procedure
We are asking that you approve a Plan of Reorganization and related Plan
of Merger that would result in the reorganization of the bank as a subsidiary of
Fidelity D & D Bancorp, Inc. The reorganization involves two steps. First, we
incorporated Fidelity D & D Bancorp, Inc. under the Pennsylvania Business
Corporation Law of 1988 to be the holding company for the bank, and we organized
The Fidelity Deposit and Discount Interim Bank under the Pennsylvania Banking
Code of 1965 as its wholly owned subsidiary. Fidelity D & D Bancorp is a
Pennsylvania business corporation, and the interim bank is a
Pennsylvania-chartered banking institution. Neither the holding company nor the
interim bank will conduct any business prior to the reorganization. On
____________, 1999, the boards of directors of the bank, the interim bank and
Fidelity D & D Bancorp unanimously approved the Plan of Reorganization and Plan
of Merger.
Next, under the terms of the Plan of Reorganization and Plan of Merger, if
the bank's shareholders approve the transaction and certain other conditions are
met, the interim bank will merge into the bank on the effective date of the
reorganization. The bank will survive as the wholly owned subsidiary of Fidelity
D & D Bancorp. At that time, the shareholders of the bank will automatically
become shareholders of the holding company. Each whole outstanding share of the
bank's common stock will automatically represent 2 shares of the holding
company's common stock. The prior shareholders of the bank will cease to have
any rights as shareholders of the bank, and their rights will be based solely on
their shares of holding company common stock. Alternatively, if demanded in
accordance with Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law of 1988, the bank's shareholders will have the right to receive
cash in the amount of the appraised value of their shares of the bank's common
stock. See "Dissenters' Rights of Appraisal" below. After the reorganization,
the bank will continue its banking business substantially unchanged and under
the same management.
Assuming that no shareholder exercises his or her appraisal rights, the
number of shares of the holding company outstanding immediately after the
reorganization will be approximately double the number of shares of the bank
outstanding prior to the reorganization.
Amendment or Termination of the Plan of Reorganization and Plan of Merger
The boards of directors of the bank, the holding company and the interim
bank may amend the Plan of Reorganization and Plan of Merger by mutual consent
either before or after approval by the bank's shareholders. However, no
amendments can be made to the provisions relating to the exchange of shares of
the bank for shares of the holding company without proper shareholder approval.
The board of directors of the bank, the holding company and the interim
bank may terminate the Plan of Reorganization and Plan of Merger by mutual
consent either before or after
29
<PAGE>
approval by the bank's shareholders if the bank's board of directors believes
the reorganization would be inadvisable for any other proper reason.
We are incorporating the Plan of Reorganization and Plan of Merger into
this proxy statement/prospectus and attaching them as Annex A.
Exchange of Stock, 2-for-1 Exchange Ratio
On the day of the reorganization, shareholders of the bank who do not
perfect dissenters' rights will become shareholders of the holding company
without any action by the shareholders. Generally, they will automatically own
twice the number of shares of the holding company's common stock as they
previously owned of the bank's common stock. Each whole outstanding share of the
bank's common stock, par value $1.5625 per share, will become 2 shares of common
stock, without par value, of the holding company. We anticipate that immediately
after the reorganization, the common stock of the holding company will have a
market value of 1/2 that of the bank's common stock prior to the reorganization.
Fidelity D & D Bancorp will not issue fractional shares of common stock in
the reorganization. The holding company will pay each former shareholder of the
bank cash in an amount equal to the fair market value of any fractional share
interest.
You should not interpret the fact that the holding company's stock has no
par value as a negative aspect of the exchange. Par value for corporations has
little, if any, meaning in today's marketplace. In organizing the holding
company, we decided not to assign a par value to its common stock or preferred
stock in order to provide for cleaner bookkeeping and maximum flexibility. The
lack of par value is not likely to affect the market value of the common stock
issued in the exchange.
Stock Options and Stock Option Plans
In 1998, the bank implemented an Independent Directors Stock Option Plan
and a Stock Incentive Plan. As of September 30, 1999, the bank had issued
directors and key employees options to purchase 3,750 shares of the bank's
common stock at the price of $62.00 per share under these plans. Following the
reorganization, the holding company will assume these stock options and the
plans. We will adjust the stock options and the plans to reflect the 2-for-1
exchange ratio of holding company common stock for bank common stock. The
holders of stock options will be entitled to receive twice the number of shares
of common stock of the holding company as the original number of shares of the
bank's common stock, and at half of the original exercise price. Accordingly,
after the reorganization, the outstanding options will automatically convert
into options to purchase 7,500 shares of the holding company's common stock at
the price of $31.00 per share. As a result, the value of the stock options
should remain about constant.
30
<PAGE>
Similarly, the number of shares which the holding company may issue under
the plans will adjust automatically. As a result, the holding company will be
able to issue up to 50,000 shares of common stock under each of these plans.
Otherwise, the original terms of these stock options and rights will continue to
apply. See "Description of the Bank's Common Stock - Stock Option Plans" for a
description of the bank's 1998 Independent Directors Stock Option Plan and 1998
Stock Incentive Plan.
Dividend Reinvestment Plan
On the day of the reorganization, The Fidelity Deposit and Discount Bank
Dividend Reinvestment Plan, which the bank adopted in1995 to provide
shareholders a simple and convenient method of investing cash dividends in
additional shares of Bank common stock, will terminate. The holding company will
issue to each participant a certificate representing that number of full shares
of holding company common stock which the participant is entitled to, based on
the 2-for-1 exchange of bank common stock held under the plan for the
participant. The holding company will not issue any fractional shares. If a
participant owns a fractional interest, the holding company will pay him or her
the fair market value of the fractional interest in cash. See "Description of
the Bank's Common Stock - Dividend Reinvestment Plan."
After the reorganization, we anticipate that the holding company will
implement a dividend reinvestment plan with substantially the same terms as the
prior bank dividend reinvestment plan. The holding company will send
shareholders an offering circular for the shares which may be issued under the
plan, along with a registration form.
Exchange of Stock Certificates
Following the reorganization and until properly requested and surrendered,
each outstanding stock certificate of the bank will, for all corporate purposes,
represent the number of whole shares of the holding company that the holder
would be entitled to receive upon its surrender.
The bank and the holding company will require that shareholders exchange
their present stock certificates, bearing the name "The Fidelity Deposit and
Discount Bank," for new stock certificates, bearing the name "Fidelity D & D
Bancorp, Inc." After the reorganization, the bank and the holding company will
send shareholders a notice requiring surrender of the stock certificates of the
bank in exchange for stock certificates of the holding company. The holding
company may withhold dividends payable after the reorganization from those
shareholders who do not exchange their present stock certificates for new stock
certificates within a reasonable period of time after receiving the notification
to exchange their certificates. The holding company will pay any dividends
withheld, without interest, to former shareholders of the bank upon the proper
surrender of the bank's common stock certificates.
31
<PAGE>
Failure to Surrender Stock Certificates
Shareholders of the bank must surrender their stock certificates within 2
years of receiving notification to exchange their certificates. In the event
that any former shareholder of the bank does not surrender his or her stock
certificates within that time, the holding company may sell the shares of
holding company common stock that would otherwise have been issued. The bank
will hold the net proceeds of the sale, together with any cash to which the
shareholder is entitled instead of the issuance of a fractional share and any
previously accrued and unpaid dividends, in a non-interest bearing account for
the shareholder's benefit. After this sale, the only right of the holders of the
unsurrendered outstanding certificates will be the right to collect the net
sales proceeds, cash and accumulated dividends held for their account.
Generally, the net proceeds, cash and accumulated dividends will be paid to the
former shareholder of the bank, without interest, only upon the proper surrender
of the bank's stock certificates.
Reasons for the Proposed Reorganization
In our opinion, the reorganization of the bank into a holding company
structure will provide greater flexibility in:
o financing,
o engaging in non-banking activities,
o protecting against an unfriendly takeover,
o responding to changes in law, and
o acquiring other banks.
Financing. The Bank has experienced a period of sustained and substantial
growth. In order to continue this rate of growth, additional capital may be
necessary. One of the advantages of formation of a holding company is the
greater number of alternatives for raising capital. When used, these
alternatives as described below may support the growth of the bank and holding
company:
o Authorized Capital. The authorized capitalization of the holding
company is:
o 10 million shares of common stock, and
o 5 million shares of preferred stock.
Currently, the bank is only authorized to issue up to 5 million
shares of common stock. If the Plan of Reorganization and Plan of
Merger are approved, we anticipate that the holding company will
issue approximately 1,801,472 shares of its common stock in the
reorganization. This estimate takes into account the possibility of
up to 3,000 additional shares of bank common stock being issued
under the bank's dividend reinvestment plan if the bank declares a
dividend in December, prior to the reorganization. As a result, the
holding company would have approximately 8,198,528 authorized but
unissued shares of common stock and the full 5 million unissued
shares of preferred stock.
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Also upon the reorganization, the holding company will assume the
bank's obligations under its 1998 Independent Directors Plan and
1998 Stock Incentive Plan. The Directors Plan provides for the
issuance of up to 25,000 shares of bank common stock, and the
Incentive Plan provides for the issuance of up to 25,000 shares. The
holding company will be able to issue up to 50,000 shares of its
common stock under each plan, as adjusted after the reorganization.
As of September 30, 1999, options to purchase 3,750 shares of the
bank's common stock at the price of $62.00 per share were
outstanding under these plans. Upon the reorganization, these
options will automatically convert into options to purchase 7,500
shares of the holding company's common stock at the price of $31.00
per share.
We anticipate that the holding company will implement a dividend
reinvestment plan shortly after the reorganization with
substantially the same terms as the bank's dividend reinvestment
plan. The bank may issue up to 50,000 shares under its plan. As of
September 30, 1999, the bank had issued approximately 22,455 shares
under its dividend reinvestment plan. We anticipate that the holding
company's plan will provide for the issuance of up to 100,000
shares.
We have no plans to approve future issuances of additional shares of
common stock or shares of preferred stock other than the shares
reserved for issuance under the above plans. However, we have
authorized a larger number of shares of common stock and a class of
preferred stock of the holding company so that we have shares
available to provide us with additional business and financing
flexibility in the future. The board of directors may use the
additional shares without further shareholder approval to:
o issue additional dividends in the form of stock splits,
o raise capital,
o provide equity incentives to employees, officers or
directors,
o establish strategic relationships with other companies,
o expand the holding company's business through the
acquisition of other businesses, and
o to oppose a hostile takeover attempt or delay or prevent
an acquisition.
Also, we believe that the 2-for-1 exchange ratio will make the
market for the holding company's common stock more liquid than the
market for the bank's common stock, and this should add to our
flexibility.
The articles of incorporation of the holding company authorize the
board of directors to approve the issuance of preferred stock at
terms set by the board, without prior shareholder approval. The
board of directors may designate a series of preferred stock and
determine the rights, preferences and limitations of the
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series. For example, the board could grant the preferred stock the
right to receive dividends before common stock shareholders, to
convert to common stock, to vote or to receive assets upon the
liquidation or winding up of the business prior to the distribution
of assets to common stock shareholders. Provisions granting
directors this type of authority are known as "blank check"
provisions. The authority to issue blank check preferred stock will
provide us with the flexibility to create a series of preferred
stock customized to meet the needs of any particular transaction or
market condition.
The further issuance of common or preferred stock could dilute the
voting rights and book value per share of the common stock of the
holding company. See "Risk Factors - Risks Relating to the
Reorganization."
o Debt Financing. The ability to incur indebtedness at the holding
company level and to contribute the proceeds to the bank as equity
capital provides further flexibility.
o Trust Preferred Stock. The issuance of trust preferred stock is one
alternative for raising capital. Although the manner in which trust
preferred stock is issued is very complicated, the basic form of the
transaction is as follows:
o A holding company creates a special trust subsidiary, usually
a Delaware business trust.
o The subsidiary issues preferred stock to interested investors.
o The holding company then issues long-term debt to the
subsidiary in return for the subsidiary paying the holding
company the proceeds from the sale of the trust preferred
stock. The holding company must pay interest to the subsidiary
which the subsidiary passes through to the holders of the
trust preferred stock.
The advantages of trust preferred stock to the holding company are
that:
o It qualifies as "Tier 1" capital, which is a term used by
regulators to identify the safest type of capital and is a key
factor examined by the holding company's regulators in
determining whether the holding company is adequately
capitalized.
o Under current tax law, the holding company's payment of
interest to a subsidiary is tax deductible.
o The issuance of trust preferred stock will not dilute the
holding company's common stock equity ownership or earnings
per share.
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A Bank may not issue trust preferred stock. The holding company
structure is necessary to issue such securities. Although we have no
plans to issue trust preferred stock at this time, it is possible
that we may utilize this form of financing in the future.
Non-Banking Activities. Under the Bank Holding Company Act of 1956, as
amended, with the prior approval of the Federal Reserve Board, the holding
company may organize or acquire other financially oriented businesses without
shareholder approval. The holding company has no present plans to expand in this
way. Subsidiaries of the holding company not engaged in banking, but rather in
activities related to banking, are not subject to geographic restrictions. See
section entitled "Description of the Holding Company - Permitted Activities."
Protection Against an Unfriendly Takeover. Anti-takeover defenses in the
holding company's articles of incorporation and by-laws and anti-takeover
provisions in the Pennsylvania Business Corporation Law of 1988 will allow the
board of directors of the holding company to more easily resist a takeover which
it considers undesirable than can the board of directors of the bank. Several of
the defenses in the Articles and by-laws would not be allowed for banks under
banking laws but are permissible for corporations. Also, the anti-takeover
provisions of the Business Corporation Law are not applicable to banks or bank
and trust companies. See sections entitled "Description of the Holding Company's
Capital Securities - Anti-Takeover Provisions and Anti-Takeover Provisions
Applicable to Registered Corporations." See also section entitled "Risk Factors
- - Risks Relating to the Reorganization."
Flexibility in Responding to Changes in Law. The holding company structure
will generally provide more flexibility in responding to changes in banking and
corporate law. For example, Congress is currently considering bills for
financial services reform which would repeal provisions in the banking Act of
1933 (the Glass-Steagall Act) to permit bank subsidiaries or holding companies
to expand fully into new service areas such as insurance, securities
underwriting and merchant banking. Some of these bills would require that these
new services be provided within a holding company structure, while other
proposals would permit bank subsidiaries to engage in these activities. While it
cannot be predicted whether financial services reform will become a reality, or
what form of legislation might be adopted, the holding company structure will
permit more flexibility in responding to such changes in the law.
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<PAGE>
Bank Acquisitions. Although we currently have no plans to acquire other
banks, the holding company structure will permit greater flexibility in
acquiring other banking institutions in the future if we decide to do so. Under
the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
adequately capitalized and managed bank holding companies may acquire banks in
any state, subject to deposit concentration limits and approval by the Federal
Reserve Board. The Act also permits interstate mergers between adequately
capitalized and managed banks, subject to approval by the appropriate
regulators, and Pennsylvania law now permits such interstate mergers and
out-of-state branching. However, the ability to acquire another bank, either
within Pennsylvania or outside Pennsylvania, as an additional subsidiary of the
holding company, without merging The Fidelity Deposit and Discount Bank and the
target bank, gives us more options for growth.
Dissenters' Rights of Appraisal
General. Under the Pennsylvania Banking Code of 1965, which directs that
dissenter's rights are governed by the Pennsylvania Business Corporation Law of
1988, shareholders of the bank's common stock have the right to dissent from the
merger and reorganization and to obtain payment of the "fair value" of their
shares in the event we complete the reorganization. The Pennsylvania Business
Corporation Law of 1988 also grants shareholders of the bank the right to
dissent from the transaction and receive the "fair value" of their shares.
If you contemplate exercising your right to dissent, we urge you to read
carefully the provisions of Subchapter D of Chapter 15 of the Pennsylvania
Business Corporation Law of 1988, which is attached to this proxy
statement/prospectus as Exhibit E. A discussion of the provisions of the statute
is included here. The discussion describes the steps that you must take if you
want to exercise your right to dissent. You should read both this summary and
the full text of the law.
Send any written notice or demand required concerning your exercise of
dissenters' rights to Michael F. Marranca, President, The Fidelity Deposit and
Discount Bank, Blakely and Drinker Streets, Dunmore, Pennsylvania 18512.
Fair Value. The term "fair value" means the value of a share of the bank's
common stock immediately before the day of the merger and reorganization, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the reorganization
Notice of Intention to Dissent. If you wish to dissent, you must:
o file a written notice of intention to demand payment of the fair
value of your shares if the reorganization is completed, prior to
the vote of shareholders on the reorganization at the special
meeting;
o make no change in your beneficial ownership of stock from the date
you give notice through the day of the reorganization; and
o not vote your stock for approval of the Plan of Reorganization and
Plan of Merger.
Neither a proxy nor a vote against approval of the reorganization
satisfies the necessary written notice of intention to dissent.
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Notice to Demand Payment. If the reorganization is approved by the
required vote of shareholders, the bank will mail a notice to all dissenters who
gave due notice of intention to demand payment and who did not vote for approval
of the Plan of Reorganization and Plan of Merger. The notice will state where
and when you must deliver a written demand for payment and where you must
deposit certificates for stock in order to obtain payment. The notice will
include a form for demanding payment and a copy of the law. The time set for
receipt of the demand for payment and deposit of stock certificates will be not
less than 30 days from the date of mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc. You must take each
step in the indicated order and in strict compliance with the statute to keep
your dissenters' rights. If you fail to follow the steps, you will lose you
right to dissent and you will receive 2 shares of Fidelity D & D Bancorp's
common stock for each share of the bank's common stock that you hold.
Payment of Fair Value of Shares. Promptly after the reorganization, the
bank will send dissenters, who have timely filed the demand for payment and
deposited their stock certificates, the amount that the bank estimates to be the
fair value of the stock. The remittance or notice will be accompanied by:
o a closing balance sheet and statement of income of the bank for a
fiscal year ending not more than 16 months before the date of
remittance or notice together with the latest available interim
financial statements;
o a statement of the bank's estimate of the fair value of its common
stock; and
o a notice of the right of the dissenter to demand supplemental
payment, accompanied by a copy of the law.
Estimate by Dissenter of Fair Value of Shares. If a dissenter believes
that the amount stated or remitted by the bank is less than the fair value of
the stock, the dissenter may send an estimate of the fair value of the stock to
the bank. If the bank remits payment of estimated value of a dissenter's stock
and the dissenter does not file his or her own estimate within 30 days after the
bank mailed its remittance, the dissenter will be entitled to any additional
payment.
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Valuation Proceeding. If any demands for payment remain unsettled within
60 days after the latest to occur of:
o the reorganization,
o the bank's timely receipt of any demands for payment, or
o the bank's timely receipt of any estimates by dissenters of
the fair value,
then, the bank may file an application, in the Court of Common Please of
Lackawanna County, requesting that the court determine the fair value of the
stock. If this happens, all dissenters, no matter where they reside, whose
demands have not been settled, shall be made parties to the proceeding. In
addition, a copy of the application will be delivered to each dissenter.
If the bank fails to file the application, then any dissenter, on behalf
of all dissenters who have made a demand and who have not settled their claim
against the bank, may file an application in the name of the bank at any time
within the 30-day period after the expiration of the 60-day period and request
that the Lackawanna County Court determine the fair value of the shares. The
fair value determined by the Court may, but need not, equal the dissenters'
estimates of fair value. If no dissenter files an application, then each
dissenter entitled to do so shall be paid the bank's estimates of the fair value
of the common stock and no more, and may bring an action to recover any amount
not previously remitted, plus interest at a rate the Court finds fair and
equitable.
Costs and Expenses. The costs and expenses of any valuation proceedings in
the Lackawanna County Court, including the reasonable compensation and expenses
of any appraiser appointed by the Court to recommend a decision on the issue of
fair value, will be determined by the Court and assessed against the bank except
that any part of the costs and expenses may be apportioned and assessed by the
Court against all or any of the dissenters who are parties and whose action in
demanding supplemental payment the Court finds to be arbitrary, vexatious or in
bad faith.
Material Conditions
The reorganization will not occur unless the following conditions are met:
o The holders of at least 2/3 of the outstanding shares of the bank's
common stock vote to approve and adopt the Plan of Reorganization
and Plan of Merger. The Pennsylvania Banking Code of 1965 requires
this percentage of affirmative votes for any transaction involving a
merger.
o The Pennsylvania Department of Banking must approve the organization
of the interim bank and the merger of the interim bank into the
bank. On October 29, 1999, the organizers of the interim bank filed
an application with the Department for Banking for approval to
charter the interim bank. On ________, 1999, the bank filed an
application to merge with the interim bank. The Department of
Banking granted its approval of the charter for the interim bank and
for the proposed merger on ___________, 1999.
o Under the bank Merger Act, the Federal Deposit Insurance
Corporation, as the bank's primary federal regulator, must approve
the merger of the bank into the interim bank. The Bank filed a Bank
Merger Act application with the FDIC on
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______________, 1999, which remains pending. The FDIC has not yet
issued approval for the merger between the bank and the interim
bank.
o The formation of a bank holding company requires the approval of the
Board of Governors of the Federal Reserve System. Fidelity D & D
Bancorp filed an application with the Federal Reserve Bank of
Philadelphia for approval to become a bank holding company on
___________, 1999, and the application is pending. The Federal
Reserve Board has not yet approved the proposal to form a bank
holding company.
In general, the bank regulatory authorities may disapprove this
transaction if the reorganization and merger of the interim bank with and into
the bank and the reorganization of the bank into a one-bank holding company
would not be consistent with adequate sound banking practices and would not be
in the public interest.
In addition, the merger of the interim bank with the bank may not occur
for 15 days from the date of the latest approval by the Department, the FDIC and
Federal Reserve Board. If the United States Department of Justice has issued a
challenge on anti-trust grounds, the regulators may extend this waiting period
before which the merger may not occur. The merger of the interim bank with the
bank and the reorganization of the bank into a one-bank holding company cannot
proceed in the absence of these requisite regulatory approvals. We cannot assure
that the bank regulatory authorities will issue all necessary approvals for the
reorganization and merger, or that they will issue the approvals in a timely
manner. If the regulators issue the necessary approvals in time, the bank and
holding company anticipate completing the reorganization immediately after
obtaining shareholder approval, before the end of the 1999 fiscal year.
The approval of the bank regulatory authorities reflects only their view
that the transaction does not violate the competitive standards of the law and
is consistent with regulatory concerns relating to bank management and to the
safety and soundness of the banking system. You should not interpret their
approval as an opinion by the bank regulatory authorities that the
reorganization is favorable to shareholders from a financial point of view or
that the terms of the exchange are fair. The bank regulatory authorities'
approval is not an endorsement or recommendation of the reorganization and
merger.
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Closing Date
The reorganization and the merger of the interim bank with the bank will
take place at the time specified on the letters of official certification to be
issued by the Department of Banking and FDIC. Presently, the bank plans to
request that the Department of Banking and FDIC issue their certification for
closing the transaction by no later than December 31, 1999. The Department of
Banking approved the proposed transaction on ______________, 1999, and the FDIC
approved the proposed transaction on ______________, 1999. However, the
Department of Banking and the FDIC will not issue their letter of certification
for closing the transaction until the bank gives notice to the Department of
Banking and the FDIC that holders of at least 2/3 of the issued and outstanding
shares of common stock of the bank have approved and adopted the Plan of
Reorganization and Plan of Merger. The regulators' approval is not an
endorsement or recommendation of the reorganization and merger.
Tax Consequences
Shumaker Williams, P.C., Special Counsel to the bank and Holding Company,
issued a tax opinion dated ___________, 1999, regarding federal tax consequences
of the proposed transaction, the contents of which are summarized below. This is
only a general description of the material federal income tax consequences of
the reorganization. We recommend that you consult your own tax advisors as to
particular facts and circumstances that may be unique to you and not common to
shareholders as a whole and also as to any estate, gift, state, local or foreign
tax consequences arising out of this transaction. We do not anticipate that the
law will change before closing.
The following is a summary of the opinion of Shumaker Williams, P.C. and
is not binding on the Internal Revenue Service. Under the current provisions of
the Internal Revenue Code of 1986, as amended, it is anticipated that:
o the bank, the holding company and the interim bank will recognize no
gain or loss because of the reorganization;
o the bank's shareholders will recognize no gain or loss upon the
exchange of the bank's common stock solely for the holding company's
common stock in accordance with the reorganization, except for
o that gain or loss recognized due to the receipt of cash which
is received by any dissenting shareholder of the bank, and
o that gain or loss recognized due to the receipt of cash by any
shareholder in lieu of fractional shares of the holding
company's common stock;
o the tax basis of the holding company's common stock received by each
of the bank's shareholders will be the same as the tax basis of the
bank's common stock owned prior to the reorganization by the
shareholder;
o the holding period of the holding company's common stock received by
the bank's shareholders, generally, will include the holding period
of the bank's common stock, provided that the common stock of the
bank was held as a capital asset on the date of the exchange;
o the payment of cash to the bank's shareholders in lieu of their
fractional share interests of the holding company's common stock
generally will represent a distribution in full payment in exchange
for the fractional share interest in the holding company and will
qualify as a capital gain or loss; and
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o any distribution by the surviving bank to the holding company for
the repayment of the loan to charter the interim bank will not have
any tax consequence.
(End of Summary of Opinion by Shumaker Williams, P.C.)
In general, under Section 302(a) of the Internal Revenue Code, dissenting
shareholders will treat any cash they receive from the bank in redemption of
their bank common stock as a capital gain or loss, if the shares are held as a
capital asset. Otherwise, the tax law would require shareholders to treat cash
as ordinary income. It is possible, however, that the provisions of Section
302(a) will not apply to a particular dissenting shareholder due to rules that
treat certain shareholders as owning shares actually owned by other individuals
and entities, including certain individuals related to the shareholder and
certain partnerships, estates, trusts and corporations in which the shareholder
has an interest. If these rules apply, the amounts the bank pays to the
dissenting shareholder may be taxable as dividends.
Under current Pennsylvania personal income tax law, shareholders who
reside in Pennsylvania will not recognize a gain or loss on the exchange of the
bank's common stock for the holding company's common stock, except for
shareholders exercising dissenters' rights and except for fractional shares.
Based on recent developments in Pennsylvania law, the holding company's common
stock may be subject to personal property taxes in the various counties of
Pennsylvania.
In some jurisdictions, the state and local law treats shares of common
stock of a business corporation like the holding company differently from shares
of stock of a banking institution. We urge you to consult your own tax advisors
to make an individual appraisal of the federal, state and local income tax and
personal property and other tax consequences of the reorganization and the
exercise of dissenters' rights.
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Accounting Treatment
We intend to treat the proposed reorganization as a pooling of interests
for financial accounting purposes. The pooling -of-interest method of accounting
for a business combination reflects the union of ownership between the entities
involved. Results of operations are restated for prior periods as if the
entities involved had always been combined. Because Fidelity D & D Bancorp will
be a one-bank holding company, immediately after the reorganization, its
consolidated financial statements will be substantially equivalent to the bank's
financial statements prior to the reorganization. The holding company's
parent-only financial statements will reflect its investment in 100% of the
shares of the bank's common stock.
Trading and Resale of Holding Company Common Stock
The bank's shares are sold from time to time in the over-the-counter
market and in private transactions. Initially, we do not expect that holding
company's common stock will trade on a more established basis following the
merger. Currently, we have no plans to list shares of the holding company's
common stock on any stock exchange, although we may do so in the future.
The holding company is registering its common stock to be issued in the
reorganization with the SEC under the Securities Act of 1933. Following the
reorganization, former shareholders may freely resell or otherwise transfer
their shares, except those former shareholders who are deemed "affiliates" of
the bank, within the meaning of Commission Rules 144 and 145. In general terms,
any person who is an executive officer, director or 10% shareholder of the bank
at the time of the shareholders' meeting may be deemed to be an affiliate of the
bank for purposes of Commission Rules 144 and 145. This proxy
statement/prospectus does not cover resales of shares of the holding company's
common stock to be issued to affiliates of the bank in connection with the
transaction.
The holding company's common stock received by persons who are deemed to
be affiliates of the bank may be resold only:
o in compliance with the resale provisions of Commission Rule145(d);
o in compliance with the provisions of another applicable exemption
from the registration requirements of the Securities Act; or
o pursuant to an effective registration statement filed with the
Commission.
In general terms, Commission Rules 144 and 145(d) permit an affiliate of
the bank to sell shares of the holding company's common stock received by him or
her in ordinary brokerage transactions subject to certain limitations on the
number of shares that may be resold in any consecutive 3- month period.
Generally, the affiliate, not acting in concert with others, may not sell that
number of shares which is more than 1% of the outstanding shares of the holding
company's common stock during the 3-month period.
The ability of affiliates to resell shares of the holding company's common
stock received in the transaction under Rule 144 or Rule 145 is subject to the
holding company's having satisfied its Exchange Act reporting requirements, if
any, for specified periods prior to the time of sale.
Finally, an affiliate of the bank may not, as a general rule and subject
to an exception in a case of certain very small sales:
o sell any shares of the holding company's common stock during the
30-day period immediately preceding the day of the reorganization;
or
o sell any shares of the holding company's common stock received by
him or her in exchange for shares of the bank's common stock until
after the publication of financial results covering at least 30 days
of post-reorganization operations.
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DESCRIPTION OF THE HOLDING COMPANY
Organization and Description of Business
We organized the holding company as a Pennsylvania business corporation on
August 10, 1999, for the purpose of forming a bank holding company. The articles
of incorporation of the holding company authorize the issuance of up to 10
million shares of common stock, without par value, and 5 million shares of
preferred stock, without par value. The holding company issued 5 shares of the
common stock to its incorporators, which are the only outstanding shares. The
holding company will repurchase these shares after the reorganization.
The primary function of the holding company is to own of all of the bank's
common stock. Its profitability will be dependent on the financial results of
its operating subsidiary, the bank. In the future, we may decide to acquire or
form additional subsidiaries, including other banks.
At present, the holding company does not own or lease any property and has
no paid employees. It will not actively engage in business until after the
completion of the proposed reorganization. Until the day of the reorganization,
the holding company will use the bank's space and employees without payment.
After the reorganization, it will reimburse the bank on a fair and reasonable
basis for all services furnished to it and for all expenses which the bank pays
on its behalf
Copies of the amended and restated articles of incorporation and by-laws
of the holding company are attached to this proxy statement/prospectus as
Annexes B and C. Please read them carefully.
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Properties
The holding company does not own or lease any properties. For information
about properties which the bank owns or leases, see "Description of the Bank -
Properties."
Management
The same persons who serve on the board of directors of the bank also
serve on the board of directors of the holding company. See "Description of the
Bank - Directors and Executive Officers" below. After the reorganization, the
holding company will be the sole shareholder of the bank and will elect the
directors of the bank annually. The board of directors of the holding company
will appoint the officers of the holding company to serve for one-year terms.
The following table provides information about the current officers of the
holding company. All of these officers also serve as officers of the bank and
are employees of the bank.
- --------------------------------------------------------------------------------
Age as of
Name November , 1999 Position
---- ---------------- --------
- --------------------------------------------------------------------------------
Michael F. Marranca 67 President and Chief Executive
Officer
- --------------------------------------------------------------------------------
Kevin R. Messett 44 Senior Vice President
- --------------------------------------------------------------------------------
Joseph E. Quinnan 55 Senior Vice President
- --------------------------------------------------------------------------------
John F. Glinsky, Jr. 68 Secretary
- --------------------------------------------------------------------------------
Robert P. Farrell 46 Treasurer
- --------------------------------------------------------------------------------
Executive and Director Compensation
Because the holding company was not in existence in 1998, it paid no
compensation to its directors and officers for that year. Further, the holding
company has paid no compensation to its directors or officers to date during
1999. We anticipate that together the holding company and the bank will pay
directors and officers the same compensation which they currently receive, with
such increases in the future as may have occurred had the proposed
reorganization not occurred. Although the holding company will hold several
board meetings each year, we expect the total amount spent on directors for
their attendance at board meetings to remain the same as before the
reorganization. The holding company will not pay its directors separate
compensation for their attendance at board meetings, but the bank will continue
to compensate directors for their attendance at bank board meetings. See
"Description of the Bank - Executive Compensation" and "Description of the Bank
- - Director Compensation" below.
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Information about Beneficial Ownership of Significant Shareholders, Directors
and Executive Officers
After the reorganization, we anticipate that the percentage ownership of
the holding company by its significant shareholders, directors and executive
officers will be approximately the same as the percentage ownership by the
bank's significant shareholders, directors and executive officers immediately
prior to the reorganization. See "Information about the Special Meeting -
Information about Beneficial Ownership of the Bank's Common Stock by Significant
Shareholders, Directors and Executive Officers."
Certain Relationships and Related Transactions
The information regarding certain relationships between the directors and
officers of the bank and transactions between the directors and officers of the
bank and the bank also applies to the holding company. Please refer to
"Description of the Bank - Certain Relationships and Related Transactions."
Directors' and Officers' Indemnification and Limits on Liability
The holding company's by-laws provide for indemnification of its
directors, officers, employees and agents against liabilities and expenses
incurred in legal proceedings concerning the holding company, to the fullest
extent permitted under Pennsylvania corporate law. Indemnification will only
apply to persons who act in good faith, in a manner he or she reasonably
believed to be in the best interest of the company, without willful misconduct
or recklessness.
We expect to extend the present directors' and officers' liability
insurance policy to cover the holding company's directors and officers without
significant additional cost. This liability policy would cover the typical
errors and omissions liability associated with the activities of the holding
company. The provisions of the insurance policy would probably not indemnify any
of the holding company's officers and directors against liability arising under
the Securities Act of 1933. In the opinion of the SEC, indemnification of
officers, directors or persons controlling the holding company for liabilities
arising under the 1933 Act is against public policy and unenforceable.
The holding company's by-laws also limit the liability of directors for
monetary damages to acts of self-dealing, willful misconduct or recklessness,
unless the act constitutes a crime or involves liability for the payment of
taxes. We believe that these provisions will help reduce baseless litigation,
but they may also make it more difficult for shareholders to sue these persons
on behalf of the company.
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Supervision and Regulation of the Holding Company
The Securities Act of 1933 -The Offer and Sale of Securities. Under
the1933 Act, the holding company will be subject to the jurisdiction of the SEC
and of state securities commissions for matters relating to the offer and sale
of its securities. Presently, the bank is exempt from these registration
requirements. Accordingly, additional issuances of the holding company's stock
to raise capital or for dividend reinvestment, stock option and other plans will
require registration (absent any exemption from registration). Registration will
result in additional costs that the bank does not presently have to incur
because of an exemption for bank stock under the 1933 Act.
The Securities Exchange Act of 1934 -Periodic Reporting Requirements. Due
to its number of shareholders and size of its assets, the bank's common stock is
registered under Section 12 of the Securities Exchange Act of 1934. As a
registered company, the bank is subject to certain periodic reporting
requirements and to regulations regarding proxy solicitations or tender offers.
In accordance with the 1934 Act, the bank files reports, proxy statements and
other information with the FDIC. After the reorganization, Section 12 of the
1934 Act will require that the holding company likewise register its stock. The
holding company will file periodic reports, proxy statements and other
information with the SEC. The reports will include consolidated financial
information about both the holding company and the bank. The bank will cease to
file these reports under the 1934 Act.
The Bank Holding Company Act of 1956 -Supervision by the Federal Reserve
Board. On the day of the reorganization, the holding company will become subject
to the provisions of the Bank Holding Company Act of 1956, as amended, and to
supervision by the Federal Reserve Board. The following restrictions will apply:
o General Supervision by the Federal Reserve Board. As a bank holding
company, our activities will be limited to the business of banking
and activities closely related or incidental to banking. Bank
holding companies are required to file periodic reports with and are
subject to examination by the Federal Reserve Board. The Board has
adopted a risk-focused supervision program for small shell bank
holding companies which is tied to the examination results of the
subsidiary bank. The Federal Reserve Board has issued regulations
under the Bank Holding Company Act that require a bank holding
company to serve as a source of financial and managerial strength to
its subsidiary banks. As a result, the Federal Reserve Board may
require that the holding company stand ready to provide adequate
capital funds to The Fidelity Deposit and Discount Bank during
periods of financial stress or adversity.
o Restrictions on Acquiring Control of other Banks and Companies. A
bank holding company may not
o acquire direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock, or
substantially all of the assets of, any bank, or
o merge or consolidate with another bank holding company
without prior approval of the Federal Reserve Board.
In addition, a bank holding company may not
o engage in a non-banking business, or
o acquire ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company
engaged in a non-banking business
unless the business is determined by the Federal Reserve Board to be
so closely related to banking as to be a proper incident to banking.
In making this determination, the Federal Reserve Board considers
whether these activities offer benefits to the public that outweigh
any possible adverse effects.
o Anti-Tie-In Provisions. A bank holding company and its subsidiaries
may not engage in certain tie-in arrangements in connection with any
extension of credit or provision of any property or services. The
so-called "anti-tie-in" provisions state generally that a bank may
not
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o extend credit,
o lease or sell property, or
o furnish any service to a customer on the condition that the
customer provide additional credit or service to the bank or
its affiliates, or on the condition that the customer not
obtain other credit or service from a competitor of the bank.
o Restrictions on Extensions of Credit by Banks to their Holding
Companies. Subsidiary banks of a bank holding company are also
subject to certain restrictions imposed by the Federal Reserve Act
on
o any extensions of credit to the bank holding company or any of
its subsidiaries,
o investments in the stock or other securities of the bank
holding company, and
o taking these stock or securities as collateral for loans to
any borrower.
o Risk-Based Capital Guidelines. Bank holding companies must comply
with the Federal Reserve Board's risk- based capital guidelines. The
required minimum ratio of total capital to risk-weighted assets,
including certain off-balance sheet activities, such as standby
letters of credit, is 8%. At least half of the total capital is
required to be "Tier I Capital," consisting principally of common
stockholders' equity, less certain intangible assets. The remainder,
"Tier II Capital," may consist of
o certain preferred stock,
o a limited amount of subordinated debt,
o certain hybrid capital instruments,
o other debt securities, and
o a limited amount of the general loan loss allowance.
The risk-based capital guidelines are required to take adequate
account of interest rate risk, concentration of credit risk, and
risks of nontraditional activities.
o Capital Leverage Ratio Requirements. The Federal Reserve Board
requires a banking holding company to maintain a leverage ratio of a
minimum level of Tier I capital (as determined under the risk-based
capital guidelines) equal to 3% of average total consolidated assets
for those bank holding companies that have the highest regulatory
examination rating and are not contemplating or experiencing
significant growth or expansion. All other bank holding companies
are required to maintain a ratio of at least 1% to 2% above the
stated minimum. The Bank is subject to almost identical capital
requirements adopted by the FDIC.
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o Restrictions on Control Changes. The Change in Bank Control Act of
1978 requires persons seeking control of a bank or bank holding
company to obtain approval from the appropriate federal banking
agency before completing the transaction. "Control" is generally
presumed to be the power to vote 10% or more of a company's voting
stock. The Federal Reserve Board is responsible for reviewing
changes in control of bank holding companies. In doing so, the
Federal Reserve Board reviews the financial position, experience and
integrity of the acquiring person and the effect on the financial
condition of the bank holding company, relevant markets and federal
deposit insurance funds.
The Pennsylvania Banking Code of 1965 -Supervision by the Pennsylvania
Department of Banking. As a Pennsylvania bank holding company, the holding
company will also be subject to regulation and examination by the Pennsylvania
Department of Banking. For example, the holding company must obtain the
Department's approval to acquire any additional banks located in Pennsylvania.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
- -Interstate Banking. Prior to the passage of the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994, also known as the Interstate Banking Act,
the Bank Holding Company Act prohibited a bank holding company located in one
state from acquiring a bank located in another state, unless the law of the
state where the bank to be acquired was located specifically authorized the
acquisition. Similarly, prior law generally prohibited interstate branching by a
single bank. The Interstate Banking Act permits an adequately capitalized and
adequately managed bank holding company to acquire a bank in another state
whether or not the law of that other state permits the acquisition, subject to
certain deposit concentration caps and approval by the Federal Reserve Board.
The law permits states to require stricter concentration limitations or to
require that the target be in existence for up to 5 years before an out-of-state
bank or bank holding company may acquire it. In contrast to interstate
acquisitions and mergers, the Interstate Banking Act permits acquisitions of
less than all branches of a bank only if the state's laws permit it.
In addition, under the Interstate Banking Act, an adequately capitalized
and well managed bank can engage in interstate expansion by merging with a bank
in another state, unless the other state affirmatively opted out of the
legislation before June 1, 1997. The Interstate Banking Act also permits the
establishment of new branches in another state, but only if a state
affirmatively opts in by adopting appropriate legislation. Pennsylvania,
Delaware, Maryland and New Jersey, as well as other states, have adopted "opt
in" legislation which allows these transactions.
A bank holding company or bank may not acquire a bank outside its home
state primarily for the purpose of deposit production, and the transaction must
not have a negative impact on the communities that the target bank serves.
Permitted Activities
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The Federal Reserve Board permits bank holding companies to engage in
activities so closely related to banking or managing or controlling banks as to
be a proper incident of banking. In 1997, the Federal Reserve Board
significantly expanded its list of permissible non-banking activities to improve
the competitiveness of bank holding companies. The following list includes
activities that a holding company may presently conduct and is subject to change
by the Federal Reserve Board:
o Making, acquiring or servicing loans and other extensions of credit
for its own account or for the account of others.
o Any activity used in connection with making, acquiring, brokering,
or servicing loans or other extensions of credit, as determined by
the Federal Reserve Board. The Board has determined that the
following activities are permissible:
o Real estate and personal property appraising;
o Arranging commercial real estate equity financing;
o Check-guaranty services;
o Collection agency services;
o Credit bureau services;
o Asset management, servicing, and collection activities;
o Acquiring debt in default, if the holding company
divests shares or assets securing debt in default that
are not permissible investments for bank holding
companies within prescribed time periods, and meets
certain other conditions; and
o Real estate settlement services.
o Leasing personal and real property or acting as agent, broker, or
advisor in leasing property, provided that:
o The lease is a nonoperating lease;
o The initial term of the lease is at least 90 days;
o If real property is being leased, the transaction will
compensate the lessor for at least the lessor's full
investment in the property and costs, with certain other
conditions.
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o Operating nonbank depository institutions, including an industrial
bank or savings association.
o Performing functions or activities that may be performed by a trust
company (including activities of a fiduciary, agency or custodial
nature), in the manner authorized by federal or state law, so long
as the holding company is not a bank.
o Acting as investment or financial advisor to any person, including:
o serving as investment advisor to an investment company
registered under the Investment Company Act of 1940;
o furnishing general economic information and advice, general
economic statistical forecasting services, and industry
studies;
o providing advice in connection with mergers, acquisitions,
divestitures, investments, joint ventures, capital
structuring, financing transactions, and conducting financial
feasibility studies;
o providing general information, statistical forecasting, and
advice concerning any transaction in foreign exchange, swaps
and similar transactions, commodities, and options, futures
and similar instruments;
o providing educational courses and instructional materials to
consumers on individual financial management matters; and
o providing tax planning and tax preparation services to any
person.
o Agency transactional services for customer investments, including:
o Securities brokerage -- Providing securities brokerage
services, whether alone or in combination with investment
advisory services, and incidental activities, including
related securities credit activities compliant with Federal
Reserve Board Regulation T and custodial services, if the
securities brokerage services are restricted to buying and
selling securities solely as agent for the account of
customers and do not include securities underwriting or
dealing.
o Riskless-principal transactions -- Buying and selling all
types of securities in the secondary market on the order of
customers as a "riskless principal".
o Private-placement services -- Acting as agent for the private
placement of securities in accordance with the requirements of
the Securities Act of 1933 and the rules of the Commission.
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o Futures commission merchant -- Acting as a futures commission
merchant for unaffiliated persons in the execution and
clearance of any futures contract and option on a futures
contract traded on an exchange in the United States or abroad
,if the activity is conducted through a separately
incorporated subsidiary of the bank holding company and the
company satisfies certain other conditions.
o Investment transactions as principal:
o Underwriting and dealing in government obligations and money
market instruments, including bankers' acceptances and
certificates of deposit, under the same limitations applicable
if the activity were performed by the bank holding company's
subsidiary member banks.
o Engaging as principal in:
o foreign exchanges, and
o forward contracts, options, futures, options on futures,
swaps, and similar contracts, with certain conditions.
o Buying and selling bullion, and related activities.
o Management consulting and counseling activities:
o Subject to certain limitations, management consulting on any
matter to unaffiliated depository institutions, or on any
financial, economic, accounting, or audit matter to any other
company.
o Providing consulting services to employee benefit,
compensation, and insurance plans, including designing plans,
assisting in the implementation of plans, providing
administrative services to plans, and developing employee
communication programs for plans.
o Providing career counseling services to:
o a financial organization and individuals currently
employed by, or recently displaced from, a financial
organization;
o individuals who are seeking employment at a financial
organization; and
o individuals who are currently employed in or who seek
positions in the finance, accounting, and audit
departments of any company.
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o Support services:
o Providing limited courier services; and
o Printing and selling checks and related items requiring
magnetic ink character recognition.
o Insurance agency and underwriting:
o Subject to certain limitations, acting as principal, agent, or
broker for credit life, accident, health and unemployment
insurance that is directly related to an extension of credit
by the bank holding company or any of its subsidiaries.
o Engaging in any insurance agency activity in a place where the
bank holding company or a subsidiary of the bank holding
company has a lending office and that has a population not
exceeding 5,000 or has inadequate insurance agency facilities,
as determined by the Federal Reserve Board.
o Supervising, on behalf of insurance underwriters, the
activities of retail insurance agents who sell fidelity
insurance and property and casualty insurance on the real and
personal property used in the bank holding company's
operations or its subsidiaries, and group insurance that
protects the employees of the bank holding company or its
subsidiaries.
o Engaging in any insurance agency activities if the bank
holding company has total consolidated assets of $50 million
or less, with the sale of life insurance and annuities being
limited to sales in small towns or as credit insurance.
o Making equity and debt investments in corporations or projects
designed primarily to promote community welfare, and providing
advisory services to these programs.
o Subject to certain limitations, providing others financially
oriented data processing or bookkeeping services.
o Issuing and selling money orders, travelers' checks and United
States savings bonds.
o Providing consumer financial counseling that involves counseling,
educational courses and distribution of instructional materials to
individuals on consumer-oriented financial management matters,
including debt consolidation,
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mortgage applications, bankruptcy, budget management, real estate
tax shelters, tax planning, retirement and estate planning,
insurance and general investment management, so long as this
activity does not include the sale of specific products or
investments.
o Providing tax planning and preparation advice.
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<PAGE>
DESCRIPTION OF THE BANK
History
The Fidelity Deposit and Discount Bank was organized on December 13, 1902,
as a Pennsylvania state-chartered banking institution, in accordance with Act
13th, 1876, entitled "An Act for the Incorporation and Regulation of Deposit and
Discount Banks." The Bank commenced operations in 1903. Deposits held by the
bank are insured by the FDIC to the maximum extent permitted by law. In 1997,
the bank became a bank and trust company when it established a Trust Department.
The Bank's legal headquarters and main office are at Blakely and Drinker
Streets, Dunmore, Lackawanna County, Pennsylvania 18512.
Offices
The bank currently has 9 full-service offices, including its main office,
in the counties of Lackawanna and Luzerne, Pennsylvania, as follows:
o 2 in Dunmore (Main Office and Keystone Industrial Park),
o 3 in Scranton,
o 1 in Clarks Summit,
o 1 in Pittston (at Bruno's Supermarket),
o 1 in West Pittston, and
o 1 in Moosic (opened during the second fiscal quarter, 1999).
The bank also has a limited service branch at the Clarks Summit State
Hospital, Clarks Summit, Pennsylvania. The Clarks Summit State Hospital facility
provides patients and employees of the hospital with check cashing and deposit
taking services, as well as offering for sale money orders and cashier's checks.
The bank has 2 stand-alone automatic tellers, or "money access centers,"
in Scranton, and a third in Moosic.
Description of Business
The bank engages in a full service commercial and consumer banking
business, including the following services:
o accepting time and demand deposits,
o providing personal and business checking accounts at competitive
rates,
o making secured and unsecured commercial and consumer loans, and
o offering trust services.
The bank is a locally managed community bank that seeks to provide
personal attention and professional assistance to its customer base which
consists principally of individuals and
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small and medium-sized businesses. The bank's philosophy includes offering
direct access to its officers and personnel, providing friendly, informed and
courteous service, local and timely decision making, flexible and reasonable
operating procedures, and consistently-applied credit policies.
The bank's primary service area is located in the counties of Lackawanna
and Luzerne, Pennsylvania. Within the defined service area of the bank's main
office, the banking business is highly competitive. The bank is one of the two
financial institutions headquartered in Dunmore, Pennsylvania. Competition is
primarily with this bank and another commercial bank operating in Dunmore.
Additionally, the bank competes with regionally-based commercial banks, which
generally have greater assets, capital and lending limits. Within the bank's
Lackawanna and Luzerne County marketplace, the bank is 1 of ___ commercial banks
and ___ savings banks competing for customers. There are ____ commercial banks
which are either headquartered or have a presence in the Dunmore and Scranton
markets in Lackawanna County. Our Luzerne County offices in Clarks Summit,
Pittston and West Pittston shares many of the same competitors we face in
Lackawanna County. While ___ super-regional banks currently control ____% of the
deposit base in Lackawanna and Luzerne Counties, ______ community banks maintain
the other _____% of the total deposits. The Fidelity Deposit and Discount Bank
has _____% of FDIC-insured deposits in Lackawanna County and _______% of
FDIC-insured deposits in Luzerne County. The bank also competes with other types
of financial institutions, including credit unions, finance companies, brokerage
firms, insurance companies and retailers. Deposit deregulation has intensified
the competition for deposits among banks in recent years.
The bank's acceptance of time demand and savings deposits includes
passbook accounts, statement savings accounts, NOW accounts, money market
accounts, regular savings accounts, certificates of deposit and club accounts.
The bank also offers overdraft protection to its checking customers.
The bank makes secured and unsecured commercial, consumer, installment and
construction loans. Residential mortgages and small business loans have always
been at the core of the bank's portfolio. Consumer loans include revolving
credit lines and commercial lending.
The bank offers the following support services to make financial
management more efficient and convenient for its customers:
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o on-line home and business banking,
o telephone banking,
o direct deposit, drive-in banking,
o discount brokerage services,
o federal tax depository,
o "Money Access Centers" (at every office except 139 Wyoming Avenue,
Scranton, PA),
o MasterCard/Visa credit card services,
o night deposit services,
o notary public services,
o payroll deduction plan,
o safe deposit boxes,
o signature guarantees,
o travelers checks,
o treasury securities,
o U.S. savings bonds,
o individual retirement accounts, and
o utility and municipal payments.
As of June 30, 1999, the bank had
o total assets of approximately $407,371,595,
o total shareholders' equity of approximately $32,578,029, and
o total liabilities of approximately $374,793,566, which includes
$279,729,042 of deposits.
Major classifications of loans and leases are summarized as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
June 30, December 31, December 31, December 31,
1999 1998 1997 1996
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loan and Lease Classifications:
Commercial and Industrial $ 106,371,612 $ 85,425,707 $ 67,201,013 $ 47,832,107
Agricultural 0 0 0 0
Real Estate Mortgages 94,246,871 99,955,640 87,931,770 79,936,722
Real Estate Construction 4,427,731 3,810,975 2,568,997 3,590,175
Loans to Individuals - Consumer 55,430,051 47,549,512 38,673,662 31,555,744
Loans to Municipal Governments 0 0 0 0
Direct Financing Leases 2,693,814 2,248,990 1,536,074 691,098
Less Unearned Income (501,725) (553,033) (585,517) (1,371,625)
Less Allowance for Loan Losses (3,205,142) (3,007,713) (2,809,066) (2,589,976)
------------- ------------- ------------- -------------
Net Loans $ 259,463,214 $ 235,430,077 $ 194,516,933 $ 159,644,245
============= ============= ============= =============
</TABLE>
On September 30, 1999, the bank had approximately 174 employees, including
154 full-time employees and 20 part-time employees. Management considers
relations with our employees to be good.
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Properties
Below is a schedule of all the bank's properties, showing the location,
whether the property is owned or leased and its use:
<TABLE>
<CAPTION>
Type of
Property Location Ownership Use
<S> <C> <C> <C>
1 Blakely and Drinker Streets Own Main Office
Dunmore, PA 18512
2 Keystone Industrial Park Own Dunmore Branch
Dunmore, PA 18512
3 The Fidelity Financial Center Own Scranton Branch
338 North Washington Avenue
Scranton, PA 18503
4 Green Ridge Office Lease Scranton Branch
Green Ridge Plaza
Scranton, PA 18509
5 Central City Office Lease Scranton Branch
139 Wyoming Avenue
Scranton, PA 18640
6 Abington Office Lease Clarks Summit
1311 Morgan Highway Branch
Clarks Summit, PA 18411
7 Clarks Summit State Hospital Lease Clarks Summit State
Office Hospital Limited
1451 Hillside Drive Service Branch
Clarks Summit, PA 18411
8 Pittston Office Lease Pittston Branch
403 Kennedy Boulevard (Bruno's
Pittston, PA 18640 Supermarket)
9 West Pittston Office Lease West Pittston Branch
801 Wyoming Avenue
West Pittston, PA 18640
10 Moosic Office Lease Moosic Branch
4010 Birney Avenue
Moosic, PA 18507
11 Marywood University Lease Free-standing
Nazareth Hall Money Access Center
Scranton, PA 18509
12 Montage Mountain Sky Lodge Lease Free-standing
Scranton, PA 18505 Money Access Center
13 Lackawanna County Stadium Lease Free-standing
Moosic, PA 18507 Money Access Center
</TABLE>
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In addition, the bank owns a building adjacent to The Financial Center in
Scranton, which a non-related entity leases from the bank, and two-residential
properties in Clarks Green, Pennsylvania, which the bank also leases to parties
not affiliated with the bank. The bank owns several residential properties as
foreclosed assets, and these properties are listed for sale.
Supervision and Regulation of the Bank
As an FDIC-insured, Pennsylvania-chartered bank and trust company, the
bank is subject to supervision, regulation and examination by the Pennsylvania
Department of Banking and the Federal Deposit Insurance Corporation. The bank is
also subject to requirements and restrictions under federal and state law,
including
o requirements to maintain reserves against deposits,
o restrictions on the types and amounts of loans that may be granted
and the interest that may be charged on the loans,
o limitations on the types of investments the bank may make and the
types of services the bank may offer, and
o restrictions on loans to insiders of the bank or other insider
transactions.
Various consumer loans regulations also affect the operations of the bank. In
addition, the actions of the Federal Reserve Board, as it attempts to control
the money supply and credit availability in order to influence the economy,
impact commercial banks. The proposed reorganization will not significantly
change the authority of these agencies over the bank. The information below
highlights various aspects of regulation of the bank under Pennsylvania and
federal laws.
Pennsylvania Banking Law
The laws of Pennsylvania applicable to the bank include, among other
things, provisions that:
o limit the scope of the bank's business;
o require the maintenance of certain reserves against deposits;
o limit the type and amount of loans that may be made and the interest
that may be made and that may be charged on loans;
o restrict investments and borrowings by the bank;
o limit the payment of dividends; and
o regulate branching activities and mergers and acquisitions.
Generally, the bank must obtain prior approval from the Banking Department
for the acquisition of shares of stock. Pursuant to Pennsylvania law, the bank
may purchase, sell and hold investments in the form of bonds, notes and
debentures to the extent permitted by federal law.
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Pennsylvania banking law also requires that a bank obtain the approval of
the Banking Department for any merger where the surviving bank would be a
Pennsylvania-chartered bank. In reviewing the merger application, the Banking
Department considers, among other things, whether the merger would be consistent
with adequate and sound banking practices and is in the public interest, on the
basis of several factors, including the potential effect of the merger on
competition and the convenience and needs of the affected communities.
Any person intending to acquire more than 10% of outstanding voting shares
of stock in a financial institution located in Pennsylvania must obtain the
prior approval of the Banking Department.
In addition, the Banking Department conducts regular examinations of the
bank and coordinates these examinations with the FDIC.
Federal Banking Law
The FDIC insures the bank's deposits pursuant to the system of federal
deposit insurance initially established by the Banking Act of 1933. As a
state-chartered bank which is not a member of the Federal Reserve System and
with FDIC-insured deposits, the bank's primary federal regulator is the FDIC.
The FDIC conducts regular examinations of the bank at least every 18 months.
Also, FDIC regulations require the bank to file periodic financial information.
The Federal Deposit Insurance Act of 1950 embodies the basic authority for
the operation of the FDIC and gives the FDIC the power to prohibit institutions
it regulates from engaging in any activity that would be an unsafe and unsound
banking practice. The bank must obtain the FDIC's prior approval for such
activities as the establishment and relocation of branches and offices and for
certain mergers and acquisitions. Also, FDIC regulations generally prohibit the
bank from engaging in activities and investments that are not also permissible
for national banks. Generally, any non-banking activities in which the bank
engages must be so closely related to banking as to be "incidental" to banking.
Capital Adequacy Guidelines. The bank must comply with the FDIC's risk-
based capital guidelines. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, the FDIC has regulations defining the levels at which
an insured institution would be considered:
o well capitalized
o adequately capitalized
o undercapitalized
o significantly undercapitalized
o critically undercapitalized.
To be adequately capitalized, the required minimum ratio of total capital
to risk-weighted assets, including certain off-balance sheet activities, such as
standby letters of credit, is 8%. To be well capitalized, this risk-based ratio
must be at least 10%. At least half of the total capital is
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required to be "Tier I Capital," consisting principally of common stockholders'
equity, less certain intangible assets. The remainder, "Tier II Capital," may
consist of
o certain preferred stock,
o a limited amount of subordinated debt,
o certain hybrid capital instruments,
o other debt securities, and
o a limited amount of the general loan loss allowance.
The risk-based capital guidelines must take into account interest rate risk,
concentration of credit risk, and risks of nontraditional activities. As of June
30, 1999, the bank satisfied the criteria to be classified as "well
capitalized," and we do not expect the proposed reorganization to change the
bank's capitalization.
The FDIC could, under certain circumstances, reclassify a
"well-capitalized" institution as "adequately capitalized" or require an
"adequately capitalized" or "undercapitalized" institution to comply with
supervisory actions as if it were in the next lower category. A reclassification
could be made if the regulatory agency determines that the institution is in an
unsafe or unsound condition (which could include unsatisfactory examination
ratings). In the event an institution's capital deteriorates to the
undercapitalized category or below, the law prescribes an increasing amount of
regulatory intervention.
The Bank is also subject to rules requiring a minimum ratio of classified
assets to capital, minimum earnings necessary to absorb losses, and a minimum
ratio of market value to book value for publicly held institutions.
FDIC Insurance Assessments. The bank's deposits have the maximum insurance
coverage provided by the FDIC, currently $100,000 per account. The bank pays
insurance premiums into the Bank Insurance Fund according to rates established
by the FDIC. The FDIC has discretion to increase premiums in the future in
response to changes in the economic climate of the banking industry. As a
result, the future cost of deposit insurance for the bank is, in large part,
dependent upon the extent of future bank failures and the amount of insurance
coverage provided by the FDIC for each deposit account.
The FDIC has implemented a risk-related premium schedule for all insured
depository institutions that results in the assessment of premiums based on
capital and supervisory measures. Under the risk-related premium schedule, the
FDIC assigns, on a semiannual basis, each depository institution to one of three
capital groups, as follows:
o well-capitalized,
o adequately capitalized or
o undercapitalized,
and further assigns such institutions to a subgroup within a capital group. The
institution's subgroup assignment is based upon the FDIC's judgment of the
institution's strength in light of
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<PAGE>
supervisory evaluations, including examination reports, statistical analyses and
other information relevant to measuring the risk posed by the institution. Only
institutions with a total capital to risk-adjusted assets ratio of 10% or
greater, a Tier I capital to risk-based assets ratio of 6% or greater, and a
Tier I leverage ratio of 5% or greater, are assigned to the well-capitalized
group. As June 30, 1999, the bank was well capitalized for purposes of
calculating insurance assessments.
The Bank Insurance Fund is presently fully funded at more than the minimum
amount required by law. Accordingly, the 1999 BIF assessment rates range from
zero for those institutions with the least risk, to $0.27 for every $100 of
insured deposits for institutions deemed to have the highest risk. The bank is
in the category of institutions that presently pay nothing for deposit
insurance. The FDIC adjusts the rates every six months.
While the bank presently pays no premiums for deposit insurance, it is
subject to assessments to pay the interest on bonds issued by the Financing
Corporation, which is known as FICO. FICO was created by Congress to issue bonds
to finance the resolution of failed thrift institutions. Prior to 1997, only
thrift institutions were subject to assessments to raise funds to pay the FICO
bonds.
On September 30, 1996, as part of the Omnibus Budget Act, Congress enacted
the Deposit Insurance Funds Act of 1996, which recapitalized the Savings
Association Insurance Fund and provided that commercial banks would be subject
to 1/5 of the assessment to which savings and loan associations are subject for
FICO bond payments through 1999. Beginning in 2000, commercial banks and savings
and loan associations will be subject to the same assessment for FICO bonds.
Meeting the Needs of the Community. Under the Community Reinvestment Act
of 1977, the FDIC must determine whether the bank is meeting the credit needs of
the community, including low and moderate income neighborhoods, that it serves
and must take this record into account in its evaluation of most regulatory
applications the bank files with the FDIC. The FDIC makes publicly available its
evaluation of the bank's record of meeting the credit needs of its entire
community. This evaluation includes a descriptive rating of
o outstanding
o satisfactory
o needs to improve, or
o substantial noncompliance.
As of June 30, 1999, the bank had a satisfactory CRA rating.
Truth-In-Savings. The Bank Enterprise Act of 1991" requires
"truth-in-savings" on consumer deposit accounts so that consumers can make
meaningful comparisons between the competing claims of banks with regard to
deposit accounts and products. Under this provision, the bank is required to
provide information to depositors concerning the terms of their deposit
accounts, and in particular, to disclose the annual percentage yield. There are
some operational costs of complying with this law.
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<PAGE>
Restrictions on Control Changes. Under the Federal Change in Banking
Control Act of 1978, no person may acquire control of the bank without giving at
least 60 days prior written notice to the FDIC. "Control" is generally presumed
to be the power to vote 10% or more of the common stock of a bank. The FDIC may
disapprove any such acquisition of control.
Suspicious Activities Reports. Under the bank Secrecy Act, banks must
report to the Internal Revenue Service currency transactions of more than
$10,000 or multiple transactions in any one day that aggregate in excess of
$10,000.
Interstate Banking. The Bank may engage in interstate banking, subject to
certain limitations. See "Description of the Holding Company - Supervision and
Regulation - The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 -Interstate Banking."
Securities Regulation
Due to the number of the bank's shareholders and the size of its assets,
the bank has registered its common stock under Section 12 of the Securities
Exchange Act of 1934. As a registered company, the bank is subject to the
General Rules and Regulations of the SEC and to FDIC regulations for certain
state banks registered under the 1934 Act. These rules and regulations relate to
periodic financial reporting, reporting to shareholders, proxy solicitation and
insider trading. The bank files reports, proxy statements and other information
with the FDIC. After the reorganization, the holding company must register its
stock under the 1934 Act and will be subject to the obligations for registered
companies under the federal securities laws. It will file periodic financial and
other business reports with the SEC on a consolidated basis, including
information about the bank. The bank will terminate the registration of its
common stock under the 1934 Act because it will cease to be publicly held after
the reorganization.
New Legislation
Proposed legislation is introduced in almost every legislative session
that would dramatically affect the regulation of the banking industry. At this
time, we cannot predict whether or not Congress will enact legislation and what
effect the legislation might have on the bank. For example, we cannot predict
whether financial services reform legislation, which Congress is currently
considering, will become law, and if so, what its full impact will be. The
legislation would allow either bank subsidiaries or bank holding companies,
depending upon the form of legislation adopted, to participate fully in
insurance, securities underwriting, and merchant banking.
Legal Proceedings
The nature of the bank's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. In the opinion of
management of the bank, however, no legal proceedings are pending, which, if
determined adversely to the bank, would materially affect the bank's undivided
profits or financial condition. There are no proceedings pending other than
ordinary routine litigation incidental to the business of the bank. In addition,
to management's knowledge, no government authorities have initiated or
contemplated any material legal actions against the bank.
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<PAGE>
Directors
The bank's board of directors presently consists of 10 members, one-third
(as nearly equal in number as possible) of whom shareholders elect annually to
serve for a term of 3 years. The same directors who serve on the bank's board of
directors currently serve on the holding company's board of directors. After the
reorganization, the shareholders of the bank will become shareholders of the
holding company and will elect the board of directors of the holding company.
The holding company will be the sole shareholder of the bank and will elect the
bank's board of directors. We anticipate that the same persons will serve as
directors of the bank and of the holding company for the foreseeable future. The
following table provides selected information about the directors of the bank:
<TABLE>
<CAPTION>
Age as of
Name and Position November Director of
with Bank ____, 1999 Principal Occupation for last Five Years Bank Since
--------- ---------- ---------------------------------------- ----------
<S> <C> <C> <C>
Paul A. Barrett, Director 66 Attorney - O'Malley & Harris, P.C. 1988
Samuel C. Cali, 83 Retired proprietor of S.C. Cali Agency 1958
Director (insurance agency), Chairman of the Board,
The Fidelity Deposit and Discount Bank
Patrick A. Calvey, Jr., 71 Retired President of Calvey Enterprises, Inc. 1980
Director (real estate holding company), Secretary and
Treasurer of American Janitor and Paper
Supply Co., Inc.
John T. Cognetti, 49 President of the Hinerfeld Realty Co. 1988
Director (licensed real estate broker), former Chief
Executive Officer of Cognetti Enterprises,
Inc. (licensed real estate broker, now
dissolved)
Patrick J. Dempsey, 65 President/General Manager of Dempsey 1985
Director Uniform & Supply, Inc., President/General
Manager of Gonzaga Realty, Inc.
John F. Glinsky, Jr., 68 Proprietor, Funeral Director of John F. 1972
Director, Secretary Glinsky Funeral Home
Michael F. Marranca, 67 President/Chief Executive Officer, The 1976
Director, President/ Fidelity Deposit and Discount Bank
Chief Executive Officer
Herbert M. McDonald, 87 Retired surgeon 1976
Director
Michael J. McDonald 45 Attorney - Foley, McLane, Foley, McDonald 1994
and MacGregor
David L. Tressler, Sr. 63 Executive Director/Chief Executive Officer of 1998
Northeastern Pennsylvania Physicians
</TABLE>
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<PAGE>
Principal Officers
The following table shows selected information about the principal
officers of the bank. The board of directors elects the officers for one-year
terms, and the board has the discretionary authority to remove these individuals
from office.
<TABLE>
<CAPTION>
Age as of
Bank Number of Shares November
Office and Position Held Employee Beneficially ____,
Name with the bank Since Since Owned 1999
---- ------------- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Michael F. Marranca President, Chief 1988 1967 25,159 67
Executive Officer
Joseph E. Quinnan Senior Vice 1995 1995 1,276 55
President, Chief
Operating Officer
John J. Keeler Vice President 1990 1990 622 48
Kevin R. Messett Senior Vice 1991 1991 456 44
President
Robert P. Farrell Cashier/ 1989 1987 255 46
Comptroller
</TABLE>
Executive Compensation
The following table provides the annual compensation for services in all
capacities to the bank for the fiscal years ended December 31, 1998, 1997, and
1996, for those persons who were at December 31, 1998,
o the Chief Executive Officer, and
o the 4 other most highly compensated executive officers of the bank
to the extent such person's total annual salary and bonus exceeded
$100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Restricted Underlying All other
Annual Stock Options/ LTIP Compen-
Name and Principal Salary Bonus Compen- Award(s) SARs Payouts sation
Position Year ($) ($) sation ($) (#) ($) ($)(1)(2)
-------- ---- --- --- ------ --- --- --- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael F. Marranca 1998 171,560 12,000 0 0 0 0 30,089
President and Chief 1997 160,410 18,000 0 0 0 0 27,813
Executive Officer 1996 133,769 18,000 0 0 0 0 18,067
</TABLE>
- ----------
(1) Figure includes the bank's contributions to the 401(k) and deferred profit
sharing plan of $18,934, $17,278, and $15,312 on behalf of Mr. Marranca
for 1998, 1997, and 1996, respectively. It also includes membership dues
of $9,237 and $7,710 paid on behalf of Mr. Marranca in 1998 and 1997,
respectively. No membership dues were paid on behalf of Mr. Marranca in
1996.
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<PAGE>
(2) In addition to annual salary, Mr. Marranca receives some or all of the
following benefits: medical, dental, life and disability insurance, and
other customary benefits. Figure includes payments made by the bank, on
behalf of Mr. Marranca, of $1,918, $2,825, and $2,755 in 1998, 1997, and
1996, respectively.
Stock Option Awards
The following table provides certain information relating to non-qualified
stock options granted to the non-employee directors on January 4, 1999, by the
bank pursuant to the 1998 Independent Directors Stock Option Plan. No options
were granted or exercised during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
NON-QUALIFIED STOCK OPTION GRANTS
TO NON-EMPLOYEE DIRECTORS
Individual Grants
-----------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Non- Exercise or
Options/SARs Employee Base Price
Name Granted (#) Directors ($/Sh) Expiration Date
---- ----------- --------- ------ ---------------
<S> <C> <C> <C> <C>
Samuel C. Cali 250 11.11% $62.00 01/04/09
Herbert M. McDonald 250 11.11% $62.00 01/04/09
John F. Glinsky, Jr. 250 11.11% $62.00 01/04/09
Patrick A. Calvey, Jr. 250 11.11% $62.00 01/04/09
Patrick J. Dempsey 250 11.11% $62.00 01/04/09
Paul A. Barrett 250 11.11% $62.00 01/04/09
John T. Cognetti 250 11.11% $62.00 01/04/09
Michael J. McDonald 250 11.11% $62.00 01/04/09
David L. Tressler, Sr. 250 11.11% $62.00 01/04/09
</TABLE>
The following table provides certain information relating to qualified
stock options granted to key employees on January 4, 1999, by the bank pursuant
to the 1998 Stock Incentive Plan. No options were granted or exercised during
the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
QUALIFIED STOCK OPTION GRANTS
TO KEY OFFICERS
Individual Grants
-----------------
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise or
Name Options/SARs Employees Base Price Expiration
- ---- Granted (#) in Fiscal Year ($/Sh) Date
----------- -------------- ------ ----
<S> <C> <C> <C> <C> <C>
Michael F. Marranca 350 23.33% $62.00 01/04/09
Joseph E. Quinnan 250 16.66% $62.00 01/04/09
Kevin R. Messett 250 16.66% $62.00 01/04/09
Diane M. Wylam 250 16.66% $62.00 01/04/09
Robert P. Farrell 200 13.33% $62.00 01/04/09
John J. Keeler 200 13.33% $62.00 01/04/09
</TABLE>
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<PAGE>
Compensation of Directors
During 1998, the bank paid a monthly retainer of $2000 to non-employee
bank directors for attending and participating in board of director's meetings
and committee meetings. The bank does not compensate employee directors for
attendance at board of directors' meetings or committee meetings. The bank
awarded every non-employee director a bonus of $2,500 in 1998. Directors are
entitled to have up to four paid absences per year from scheduled Board meetings
or committee meetings. In the aggregate, the bank paid to the board of directors
$232,500 for all services rendered in 1998. The board of directors held 35
regular meetings in 1998.
Certain Relationships between Officer and Directors and Certain Transactions
between Officer and Directors and the Bank
Family Relationships
Dr. Herbert M. McDonald, a director and vice president of the board of
directors, is the uncle of Michael J. McDonald, a director of the bank.
Indebtedness of Management
Except as described below, the bank has not entered into and does not
intend to enter into any material transactions with any director or executive
officer of the bank or their associates.
Some of our directors and officers and the companies with which they are
associated had banking transactions with the bank in the ordinary course of its
business during 1998, and the bank expects to continue such banking transactions
in the future.
Total loans outstanding from the bank at December 31, 1998, to the bank's
officers and directors as a group, members of their immediate families and
companies in which they had an ownership interest of 10% or more, amounted to
$4,337,908, or approximately 9.75% of the total equity capital of the bank. The
Bank made these loans in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and they did not involve
more than the normal risk of collection or present other unfavorable features.
The largest total amount of indebtedness outstanding during 1998 to the
above described group was approximately $5,250,468. The aggregate amount of
indebtedness outstanding as of the latest practicable date, September 30, 1999,
to the above group was approximately $4,068,201.
The Bank paid a total of $12,125 to Samuel Cali and Patrick Calvey, Jr.
for appraisals they performed for the bank in 1998. The Bank paid a total of
$38,807 in 1998 to the law firms of O'Malley & Harris, P.C., and Foley, McLane,
Nealon, Foley and McDonald for legal services performed on behalf of the bank.
Further, in 1998, the bank paid $346 to Dempsey Uniform & Supply, Inc. for
linens for the bank.
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<PAGE>
Year 2000 Computer Problem
The following section contains forward-looking statements which involve
risks and uncertainties. The actual impact of the Year 2000 issue on the bank
could materially differ from that which is anticipated in these forward-looking
statements as a result of certain factors identified below.
Description of the Problem
The "Year 2000 problem" is the result of computer programs having been
written using two digits rather than four to define the applicable year. Any of
the bank's computer systems that have date-sensitive software or date-sensitive
hardware may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, generate statements, compute payments, interest or
delinquencies, or engage in similar normal business activities. In addition to
affecting information technology systems, the Year 2000 problem affects embedded
controllers, which are microprocessors located within a piece of machinery, such
as a fax machine, power switch, elevator, or railroad switch.
Because of the interdependence of businesses, public utilities and other
entities, and the possible widespread nature of the Year 2000 problem, its
extent is difficult to determine. The Year 2000 problem could cause a
significant economic disruption. Because of their dependence on technology and
date-sensitive data, financial institutions may be particularly vulnerable. As a
result, various regulators have issued guidelines concerning the Year 2000
problem. Also, the bank is subject to the regulation and oversight of the FDIC,
whose oversight includes the provision of specific timetables, programs and
guidance regarding Year 2000 issues. Regulatory examination of the bank's Year
2000 readiness is conducted on a quarterly basis.
The worst case scenario for the bank is that the Year 2000 problem could
result in an inability to operate the bank using any computer-related systems,
services, or products for an indefinite period, as well as a loss of business
from customers affected by the Year 2000 problem. Many calculations which rely
on date-sensitive information, such as interest and payment calculations, could
become unreliable or inoperable, and the bank could lose the ability to process
transactions and perform other basic banking functions. Also, the bank could
lose access to its normal supply of products and services, and its borrowers
could suffer losses affecting their creditworthiness. A basic break-down in
communications or transportation is also possible and would, of course, affect
the bank as well as other businesses.
The Bank's State of Readiness
The bank has initiated an enterprise-wide program to prepare its computer
systems, applications and staff for the Year 2000 transition. Following
regulatory guidelines the bank's program encompasses:
o Awareness - Internal recognition of Year 2000 issues
o Assessment - Determination of the problem's complexity and
addressing solutions
o Renovation - System upgrades and replacements
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<PAGE>
o Validation - Testing and validating solutions
o Monitoring - Solution implementation and result testing in actual
production environment
At December 31, 1998, the bank had entered into the validation and
monitoring phases of the program. Included in the process are non-information
technology items such as security and facilities systems. Management expects the
program to be completed within regulatory time frames.
Ongoing contingency planning is also a part of the Year 2000 program.
Action plans are being developed to address "what if" scenarios. These scenarios
include system failures, supply failures and liquidity. The plans are being
formulated in accordance with regulatory guidelines.
The bank expects to incur internal staff costs as well as consulting and
other expenses related to the enhancements necessary to prepare its systems for
compliance. At December 31, 1998, the bank had capitalized approximately
$309,000 in testing and conversion of system applications. The bank anticipates
expenditures approximating $665,000 during 1999 to complete this project. Most
of these costs are related to the acquisition of computer hardware and software.
The costs, for the most part, will be capitalized and then depreciated over
their expected useful life.
Year 2000 also creates risk for the bank from unforeseen problems with
third parties with whom the bank deals. Failures of the bank's or third party
systems could have a material effect on the bank's ability to conduct business.
The bank is communicating with its customers through information letters,
statement inserts and FDIC newsletters. The communications are designed to
promote customer awareness and preparedness. Vendors who provide products and
services to the bank are being requested to provide written assurances of the
Year 2000 compliance.
The bank has a Project 2000 committee that reports to the board of
directors on Year 2000 issues.
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<PAGE>
FINANCIAL INFORMATION ABOUT THE REORGANIZATION
Capitalization
Set forth below is the capitalization
o of the bank on June 30, 1999,
o of the interim bank at its organization on _________, 1999, and
o of the holding company at initial formation on August 10, 1999.
<TABLE>
<CAPTION>
The Fidelity Fidelity Deposit
Deposit and and Discount Fidelity D & D
Discount Bank Interim Bank Bancorp, Inc.
------------- ------------ -------------
Prior to Merger
- ---------------
<S> <C> <C> <C>
Number of Shares Authorized,
Common Stock, par value
$1.5625 for Bank, $2.00 for Interim
Bank and without par value
for Holding Company................ 5,000,000 5,000,000 10,000,000
Number of Shares Authorized,
Preferred Stock, Holding
Company only, without
par value.......................... (Not applicable) (Not applicable) 5,000,000
Number of Shares outstanding:
Common Stock....................... 896,487 50,000 (1) 5 (2)
Preferred Stock.................... (Not applicable) (Not applicable) 0
Capital Accounts:
Common Stock....................... 1,400,761 100,000 (1) 5.00 (2)
Preferred Stock.................... (Not applicable) (Not applicable) 0
Capital Surplus.................... 7,000,313 55,000 (1)
Undivided Profits.................. 26,825,462 0
Net Unrealized Holding Gains
(Losses) on Available-for-
Sale Securities................ (2,648,507) 0 0
----------- --------- ----------
Total Equity Capital..................... 32,578,029 155,000 5.00
</TABLE>
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<PAGE>
Set forth below is the same information, as adjusted to reflect the
reorganization and the merger of the interim bank into the bank:
<TABLE>
<CAPTION>
After Merger
- ------------
<S> <C> <C> <C>
Number of Shares Outstanding:
Common Stock par value
$1.5625 for Bank, $2.00 for
Interim Bank and without
par value for Holding
Company.......................... 896,487 (3) 1,792,974 (4)
Preferred Stock (Holding
Company only, without par
value)........................... -- -- 0
Capital Accounts:
Common Stock........................ 1,400,761 -- 1,400,761
Preferred Stock..................... -- -- 0
Capital Surplus..................... 7,000,313 -- 7,000,313
Undivided Profits................ 26,825,462 -- 26,825,462
Net Unrealized Holding Gains
(Losses) on Available-for-
Sale Securities............... (2,648,507) -- (2,648,507)
----------- --- -----------
Total Equity Capital..................... 32,578,029 (5) 0 32,578,029 (6)
=========== === ===========
</TABLE>
- ----------
(1) Represents shares issued upon the initial capitalization of the interim
bank for $3.10 per share. The organizers of the interim bank subscribed
for 5,000 shares, and Fidelity D & D Bancorp subscribed for 45,000 shares.
At the time the merger is completed, the organizers will transfer their
5,000 shares to Fidelity D & D Bancorp at the same purchase price, $3.10
per share. The $55,000 in capital surplus includes a $5,000 expense fund,
as required by the Pennsylvania Banking Code of 1965.
(2) Represents 5 shares issued to the incorporators of the holding company for
$1.00 per share. At the time of the merger, Fidelity D & D Bancorp will
repurchase these shares at the same purchase price, $1.00 per share, and
retire them.
(3) Represents the merger of the interim bank into the bank. At the time of
the merger, the 50,000 shares of interim bank common stock owned by
Fidelity D & D Bancorp will be exchanged for 896,487 shares of bank common
stock, resulting in the bank's equity remaining the same.
(4) Represents the maximum number of shares to be issued to the holders of
common stock of the bank as the result of the merger. No fractional shares
of holding company common stock will be issued in the reorganization. Cash
will be paid in lieu of fractional shares. The payment of cash to
fractional shareholders and to shareholders who exercise their dissenters'
rights could reduce the number of outstanding shares the holding company
issues.
(5) Total equity capital reflects the capital accounts after payment of the
$155,000 dividend to the holding company to repay its loan to purchase the
shares that provided the funds for the initial capitalization of the
interim bank. This borrowing will be through an unaffiliated bank in
Pennsylvania at approximately prime rate. If the proposed reorganization
had occurred on January 1, 1998, the payment of the dividend to repay the
holding company' s loan would have reduced interest income for the bank's
1998 fiscal year by approximately $________.
(6) Amounts after the merger are on a consolidated basis.
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<PAGE>
Other Financial Information
We have not included complete pro forma and comparative financial
information concerning the proposed bank holding company because immediately
following the effective time of the reorganization, the consolidated financial
statements of Fidelity D & D Bancorp will be substantially the same as the
bank's financial statements immediately prior to the reorganization. Prior to
the closing of the reorganization, Fidelity D & D Bancorp will not have
commenced operations and will have no material assets or liabilities.
For the bank's condensed balance sheet as of December 31, 1998, and income
statement for the 1998 fiscal year, see the bank's Annual Report on Form 10-K
for the year ended December 31, 1998. For the bank's balance sheet as of June
30, 1999, and income statement for the six months ended June 30, 1999, see the
bank's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. See
"Where You Can Find More Information."
DESCRIPTION OF THE BANK'S CAPITAL SECURITIES
Common Stock
The Fidelity Deposit and Discount Bank is authorized to issue 5 million
shares of common stock, par value $1.5625 per share, of which 897,736 shares
were issued and outstanding as of _________, 1999. No other shares were issued
or outstanding. The bank is not authorized to issue any other class of stock. As
of ______, 1999, the bank had approximately 1,219 shareholders.
Voting Rights. Each share of common stock is entitled to one vote on all
matters that may be brought before shareholders' meetings, except that the
holders of common stock have cumulative voting rights in the election of
directors. Cumulative voting for the election of directors entitles each
shareholder to multiply the number of votes to which the shareholder is entitled
by the total number of directors to be elected, and the shareholder may cast the
whole number of these votes for one candidate or may distribute them among two
or more candidates.
Preemptive Rights. The bank's common stock does not carry preemptive
subscription rights.
Liquidation. In the event of liquidation, dissolution or winding up of the
bank, shareholders are entitled to share ratably in all assets remaining after
payment of liabilities.
Liability for Further Assessments. The bank's shareholders are not subject
to further assessments by the bank on their shares.
Sinking Fund Provision. The bank's shares do not require a "sinking fund"
which is a separate capital reserve maintained to pay shareholders with certain
preferential rights for their investment in the event of liquidation or
redemption.
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<PAGE>
Redemption Provision. The bank's shareholders do not have a right of
redemption, which is the right to sell their shares back to the bank.
Capital Requirements under State Banking Law. Under the Pennsylvania
Banking Code of 1965, the bank must maintain capital surplus in an amount at
least equal to the amount if its capital consisting of the total par value of
its common stock. The bank must also maintain an expense fund not less than 5%
of par value capital.
Dividends. Each shareholder is entitled to receive dividends that may be
declared by the board of directors out of legally available funds. The bank has
historically paid quarterly cash dividends to its shareholders, as well as a
special dividend in the fourth fiscal quarter. Payment of dividends is subject
to the restrictions in the Pennsylvania Banking Code of 1965 and the Federal
Deposit Insurance Act. The Pennsylvania Banking Code provides that a bank may
declare and pay dividends only out of accumulated net earnings and only if the
bank meets certain capital requirements. Directors are specifically liable for
unlawful dividends.
The Federal Deposit Insurance Act generally prohibits payment of dividends
that would be an "unsafe or unsound banking practice." Further, an insured bank
may not declare and pay dividends if the FDIC obtains a cease and desist order
for the bank.
The following table sets forth the dividends which the bank has paid its
shareholders since January 1997.
AMOUNTS OF DIVIDENDS PAID
Regular Cash Special Cash In the
Month/Year Dividend Per Share Dividend Per Share Aggregate
- ---------- ------------------ ------------------ ---------
March 1997 $ 0.275 $ $ 228,463.59
June 1997 0.275 228,934.53
September 1997 0.275 229,309.07
December 1997 0.275 0.175 375,820.86
March 1998 0.300 251,177.84
June 1998 0.300 251,595.77
September 1998 0.300 251,986.68
December 1998 0.300 0.200 445,649.00
March 1999 0.300 268,094.36
June 1999 0.300 268,493.53
September 1999 0.300 268,920.69
Comparative Market Prices
There has never been an organized public trading market for the bank's
outstanding common stock. The bank's common stock is traded over-the-counter
from time to time, primarily in the bank's geographic service area. As of
__________, 1999, the highest trade price known to management for transactions
of the bank's common stock was for a trade of _______ shares at $______ per
share on _________, 1999. The most recent sale price as of ________, 1999, was
$_______ per share. The last reported sale of the bank's common stock prior to
the public announcement of the proposed reorganization was a trade of 110 shares
at $69.50 per share on October 5, 1999. This price may include retail markups,
markdowns or
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<PAGE>
commissions. Due to the infrequency of trading and the fact that these trades
are generally private transactions, we are unable to determine actual trading
prices on any given date.
Because the holding company has no substantial assets or liabilities, the
holding company's common stock had no market value at the time of the public
announcement. We anticipate that after the reorganization, the per share market
value of the holding company's common stock will be approximately 1/2 of the per
share market value of the bank's common stock immediately after the
reorganization, based on the 2-for-1 stock exchange ratio. Any estimate or
expectation, however, may not be realized.
Trade Price High's and Low's
Bid price information for the bank's common stock is not available.
However, the bank does have information on trade prices. The following table
shows quarterly high and low trade prices for the bank's common stock:
Trade Prices: Bank's Common Stock
(Price per share)
High Low
For Quarter Ended:
- ------------------
March 1997 $ 45.00 $ 44.00
June 1997 46.00 45.00
Sept. 1997 50.00 47.00
Dec. 1997 52.00 49.00
March 1998 54.00 52.00
June 1998 62.00 60.00
Sept. 1998 60.00 60.00
Dec. 1998 62.00 60.00
March 1999 65.00 64.50
June 1999 65.00 62.00
Sept. 1999 69.50 65.00
Stock Option Plans
The Bank's common stock is subject to outstanding options to purchase
common stock of the bank issued to directors and key employees under the 1998
Independent Directors Stock Option Plan and the 1998 Stock Incentive Plan. As of
September 30, 1999, the bank had issued options to purchase 3,750 shares at an
exercise price of $62.00. Shares issued under these plans may dilute the
ownership interests and voting power of existing shareholders. After the
proposed reorganization, Fidelity D & D Bancorp will assume the bank's
obligations under these plans. Further, we will adjust the number of shares
which participants may purchase under their outstanding options, the exercise
price of the options, and the number of shares which the holding company may
issue under the plans according to the 2-for-1 exchange ratio of holding
73
<PAGE>
company common stock for Bank common stock. See "Information about the
Reorganization Stock Option Plans."
1998 Independent Directors Stock Option Plan. The Bank has reserved 25,000
shares of Bank common stock for issuance under the Directors Stock Option Plan.
The purposes of the Directors Plan are
o to attract, retain and compensate, as directors of the bank, highly
qualified individuals, who are not executives or employees of the
bank,
o to more significantly align the interests of the members of the
board of directors with those of the bank's shareholders by
underscoring their common interests,
o to encourage directors to have a greater personal financial stake in
the bank through the ownership of Bank common stock, and
o to increase the long-term value of the bank's stock.
The Directors Plan has the following significant terms:
o Duration of Plan. The Directors Plan will terminate upon the earlier
of the Board's adoption of a resolution terminating the Director
Plan or 10 years from the date the Directors Plan was approved and
adopted by shareholders of the bank, which occurred on May 5, 1998.
o Shares Issued. The Bank may issue no more than 25,000 shares of
common stock under the plan, and this number may be adjusted from
time to time due to stock splits, payments of stock dividends or
other changes in the structure of the bank's capital. Also, the
shares under the plan may be exchanged for the securities of another
entity, for example, if a merger occurs.
o Eligible Participants, Annual Awards. Directors who are not
employees of either the bank or its affiliates ("outside directors")
are eligible to receive awards under the plan. For the term of the
Directors Plan, each outside director shall annually receive a stock
option to purchase 250 shares of the bank's common stock on the
first business day of January. However, prior to any such grant, the
board of directors, by majority vote, may deny the awards scheduled
for the upcoming January. In such an event, directors will not
receive awards under the plan for the year in question. However, the
Board's decision to forgo the current year's awards will not affect
awards scheduled for any future years.
o Purchase Price. The purchase price of Bank common stock subject to a
stock option is the fair market value at the time of grant.
o Term of Stock Options. No stock option is exercisable after 10 years
from the date of grant.
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o Vesting Periods. The Bank may grant stock options with varying
vesting periods, but must provide for a minimum vesting period of 6
months from the date of grant.
o Change in Control Provisions. The Directors Plan contains certain
change in control provisions which would permit the options granted
to become exercisable upon the occurrence of a change in control of
the bank as described in the plan.
o Plan Administration. The entire board of directors or a committee
comprised of at least 3 directors administers the Directors Plan. It
is possible for directors participating in such administration to
receive awards under the plan. The body established to administer
the Directors Plan is vested with the authority and discretion to
interpret the Director Plan, and to make any rules or regulations
pertaining to it. Any of these interpretations and decisions of the
administrative body are final and binding.
o Death, Retirement or Disability of Director. In the event that a
participant ceases to be a director of the bank for any cause other
than retirement, death or disability, the remaining portion of a
participant's unexercised stock options shall terminate 1 year after
the date of termination as a director, subject to the 10-year
limitation on exercisability. In the event that a participant
retires, dies or becomes disabled prior to the expiration of the
participant's stock options, and without having fully exercised such
stock options, the participant or his legal representative shall
have the right to exercise the stock options during their respective
terms within 12 months after the termination of Board membership,
subject to the 10-year limitation on exercisability.
o Non-transferability. Except as otherwise provided by the board of
directors, awards made to directors under the Directors Plan are
non-transferrable other than by will or the laws of descent and
distribution. During the director's lifetime, only the director may
exercise his or her stock options granted under the plan, or, in the
event of his or her disability or death, a legal representative may
exercise the options.
o Capital Changes. The Directors Plan provides that, if the bank, at
any time, increases or decreases the number of its outstanding
shares of common stock or changes, in any way, the rights and
privileges of such shares through a stock dividend, or through a
stock split, reclassification or other recapitalization involving
the bank's common stock, then the bank shall increase, decrease or
change, in like manner, the numbers, rights and privileges of shares
issuable under the Directors Plan.
o Amendments. The board of directors may amend the Directors Plan at
any time without shareholder approval, provided, however, that
amendment of the Directors Plan may not materially and adversely
affect any right of a participant with respect to shares of common
stock previously issued without the participant's written consent.
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1998 Stock Incentive Plan. The Bank has reserved 25,000 shares of Bank
common stock for issuance under the Stock Incentive Plan. The purposes of the
Incentive Plan are
o to advance the development, growth and financial condition of the
bank by providing incentives through participation in the
appreciation of common stock of the bank in order to secure, retain
and motivate personnel responsible for the operation and management
of the bank;
o to attract and retain individuals of outstanding ability as
employees of the bank;
o to encourage employees to acquire a proprietary interest in the
bank; and
o to encourage employees to continue their employment with the bank
and to render superior performance during such employment.
The Incentive Plan has the following significant terms:
o Duration of Plan. The Incentive Plan will terminate upon the earlier
of the Board's adoption of a resolution terminating the Incentive
Plan or 10 years from the date the plan was approved and adopted by
shareholders of the bank, which occurred on May 5, 1998. In
addition, qualified options may not be awarded more than 10 years
after February 24, 1998, the date the board of directors adopted the
plan.
o Shares Issued. The Bank may issue no more than 25,000 shares of
common stock under the plan, and this number may be adjusted from
time to time due to stock splits, payments of stock dividends or
other changes in the structure of the bank's capital. Also, the
shares under the plan may be exchanged for the securities of another
entity, for example, if a merger occurs.
o Eligible Participants. Key officer and other management employees of
the bank are eligible to receive an award under the Incentive Plan,
as the committee administering the plan determines.
o Awards. Awards made under the Stock Incentive Plan may be in the
form of:
o options to purchase stock intended to qualify as incentive
stock options under Sections 421 and 422 of the Internal
Revenue Code (or "qualified options"), which means that the
plan participant will not recognize any taxable income on the
exercise of the options; or
o options which do not so qualify (or "non-qualified options").
o Purchase Price. The purchase price of Bank common stock subject to a
non-qualified stock option will be not less than the stock's par
value at the time of grant. The purchase price of stock subject to a
qualified option will be no less than the fair market value of the
stock at the time it is exercised.
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o Term of Stock Options. No option is exercisable after 10 years from
the date of grant.
o Vesting Periods. The Bank may grant stock options with varying
vesting periods, but must provide for a minimum vesting period of 6
months from the date of grant.
o Change in Control Provisions. The Incentive Plan contains certain
change in control provisions which would permit the options granted
to become exercisable upon the occurrence of a change in control of
the bank as described in the plan.
o Plan Administration. A committee consisting of 3 or more
non-employee directors administers the plan. Generally, recent or
current participants in the plan may not serve on this committee.
o Termination of Employment. If a recipient of a non-qualified option
ceases to be eligible under the Stock Incentive Plan before the
option lapses or before it is fully exercised, the committee may
permit the recipient to exercise the option during its remaining
term, to the extent that the option was then and remains
exercisable. If the bank ceases to employ the recipient of a
qualified option, the committee administering the plan may permit
the recipient to exercise his or her option during its remaining
term for a period of not more than 3 months. This period may be
extended to a 12 month period if the employment cessation was due to
the recipient's disability. If the recipient dies, the committee may
permit the recipient's qualified personal representatives, or any
persons who acquire the options under his or her will or the laws of
descent and distribution, to exercise his or her option during its
remaining term for a period not to exceed 12 months after the
recipient's death.
o Non-transferability. Except as otherwise provided by the board of
directors or committee administering the plan, awards under the
Incentive Plan are non-transferrable other than by will or the laws
of descent and distribution.
o Capital Changes. The Incentive Plan provides that, if the bank, at
any time, increases or decreases the number of its outstanding
shares of common stock or changes, in any way, the rights and
privileges of such shares through a stock dividend, or through a
stock split, reclassification or other recapitalization involving
the bank's common stock, then the bank shall increase, decrease or
change, in like manner, the numbers, rights and privileges of shares
issuable under the plan.
o Amendments. The board of directors may amend the plan at any time
without shareholder approval, provided, however, that amendment of
the Directors Plan may not materially and adversely affect any right
of a participant with respect to shares of common stock previously
issued without the participant's written consent.
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Dividend Reinvestment Plan
The bank's common stock is also subject to The Fidelity Deposit and
Discount Bank Dividend Reinvestment Plan. The purpose of this plan is to provide
shareholders a convenient method of investing cash dividends in additional
shares of bank common stock. Shareholders who elect to participate in the plan
direct any cash dividends the bank pays on their designated shares toward
automatic investment in additional shares of bank common stock. Under this plan,
the bank is authorized to issue up to 50,000 shares of its common stock, par
value $1.5626 per share. Rather than issuing new shares, the bank has the option
of using shares purchased in the open market or in negotiated transactions for
the plan. A participant may withdraw at any time, and the bank may terminate the
plan at any time. As of September 30, 1999, the bank had issued approximately
22,455 new shares under the plan. The issuance of additional shares under this
plan may dilute the ownership interests and voting power of existing
shareholders. The bank will terminate the plan at the time the reorganization is
completed. After the proposed reorganization, Fidelity D & D Bancorp expects to
implement a dividend reinvestment plan with substantially similar terms to the
bank's plan. See "Information about the Reorganization Dividend Reinvestment
Plan."
DESCRIPTION OF THE HOLDING COMPANY'S CAPITAL SECURITIES
The authorized capital stock of Fidelity D & D Bancorp consists of 10
million shares of common stock, without par value, and 5 million shares of
preferred stock, without par value. If the reorganization had been completed on
September 30, 1999, the holding company would have about 1,795,472 shares
outstanding, which is twice the number of shares of bank common stock
outstanding on that date. Except for the common stock issued in the
reorganization, upon completion of the reorganization, no other shares of
capital stock, common or preferred, will be issued or outstanding.
Common Stock
Voting Rights. Each share of common stock entitles its holder to one vote
on all matters upon which shareholders have the right to vote. The holders of
common stock are not entitled to cumulate votes in the election of directors.
Prior to the issuance of any preferred stock which possesses voting rights, the
holders of common stock will possess exclusive voting rights in the holding
company.
Preemptive Rights. The holding company's common stock does not carry
preemptive subscription rights.
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Liquidation. In the event of liquidation, dissolution or winding up of the
holding company, the holders of common stock are entitled to share ratably in
all assets remaining after payment of liabilities and after payment of preferred
stock shareholders with liquidation priority, if any.
Liability for Further Assessments. The holding company will not subject
shareholders to further assessments on their shares of common stock.
Sinking Fund Provision. The common stock does not require a "sinking fund"
which is a separate capital reserve maintained to pay shareholders with certain
preferential rights for their investment in the event of liquidation or
redemption. However, in the future the holding company may issue preferred
shares that require such a fund, in which case legal restrictions may require
the holding company to maintain the fund prior to paying dividends.
Redemption or Conversion Rights. The holders of common stock do not have a
right of redemption, which is the right to sell their shares back to the holding
company, nor do they have a right to convert their shares to other classes or
series of stock, such as preferred stock.
Dividends. Each shareholder is entitled to receive dividends that may be
declared by the board of directors out of legally available funds. The Bank has
paid continuous quarterly cash dividends since 1996. We presently intend to
retain the dividend policy of paying a quarterly dividend after the
reorganization. However, further dividends depend upon future earnings,
financial condition, appropriate legal restrictions and other relevant factors.
Under the Pennsylvania Business Corporation Law, the holding company may
not pay a dividend if afterwards:
o the holding company would be unable to pay its debts as they become
due, or
o the holding company's total assets would be less than its total
liabilities plus an amount needed to satisfy any preferential rights
of shareholders.
Cash available for dividend distribution to shareholders of the holding
company must initially come from dividends which the bank pays the holding
company. As a result, the legal restrictions on the bank's dividend payments
also affect the ability of the holding company to pay dividends. See
"Description of the Bank's Capital Securities - Common Stock."
Stock Option Plans. The holding company will assume the bank's obligations
under its 1998 Independent Directors Plan and1998 Stock Incentive Plan. See
"Description of the Bank's Capital Securities - Stock Option Plans."
Dividend Reinvestment Plan. The holding company expects to implement a
dividend reinvestment plan with substantially the same terms as the bank's
dividend reinvestment plan. See "Description of the Bank's Capital Securities -
Dividend Reinvestment Plan." The holding company expects to be able to issue up
to 100,000 shares of its common stock under the new plan.
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Preferred Stock
The holding company's articles of incorporation authorize the board of
directors to approve the issuance of preferred stock, without prior shareholder
approval. The board will determine the rights, qualifications, limitations and
restrictions on each series of preferred stock at the time of issuance and may
include, among other things, rights to participating dividends, voting rights
and convertibility into shares of common stock. The holding company may issue
shares of preferred stock with dividend, redemption, voting and liquidation
rights taking priority over the common stock. The board may also grant preferred
shareholders the right to convert their shares of preferred stock into shares of
common stock. Provisions granting directors this type of authority are known as
"blank check" provisions.
Voting Rights. The Board will determine the voting rights of preferred
shareholders upon the issuance of these shares. The issuance of preferred stock
with voting rights would dilute the voting power of common stock shareholders.
Preemptive Rights. The holding company's preferred stock does not carry
preemptive subscription rights.
Liquidation. The board will determine the specific liquidation rights of
preferred shareholders upon the issuance of these shares. In the event of
liquidation, dissolution or winding up of the holding company, the holders of
preferred stock will likely rank prior to the holders of common stock for the
right to share ratably in all assets remaining after payment of liabilities. The
Board may issue several series of preferred stock with different rankings with
respect to liquidation rights.
Liability for Further Assessments. The holding company will not subject
shareholders to further assessments on their shares of preferred stock, if
issued.
Sinking Fund Provision. The preferred stock may require a "sinking fund,"
which is a separate capital reserve maintained to pay shareholders with certain
preferential rights for their investment in the event of liquidation or
redemption. Pennsylvania corporate law would require the holding company to
maintain this fund prior to paying dividends.
Redemption or Conversion Rights. Upon the issuance of preferred stock, the
board of directors will determine shareholders' right of redemption, which is
the right to sell shares back to the holding company. The Board will also
determine whether to grant conversation rights, which would permit the preferred
stock shareholders to convert their shares to common stock at a prescribed
ratio.
Dividends. Upon issuance, the board of directors will determine any rights
of the shareholders of a particular series of preferred stock to receive
dividends. The right to receive dividends may be cumulative or non-cumulative.
The same legal restrictions which apply to dividends payable on shares of common
stock apply to dividends payable on shares of preferred stock. See "Description
of the Holding Company's Capital Securities - Common Stock Dividends" above.
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Issuance of Additional Securities
Because the holding company has authorized common stock and preferred
stock substantially in excess of the number of shares that it will issue in
connection with the reorganization, we will have the flexibility to raise
additional capital and to make acquisitions through the issuance of holding
company common stock or preferred stock without prior approval by the holding
company's shareholders. Issuance of these shares could dilute the book value per
share and the voting power of the prior shareholders because the holding company
has the right to issue new shares without first offering the shares to
shareholders in proportion to their current ownership percentages. Further, the
issuance of preferred stock could also affect common stock shareholders' ability
to receive dividends and their rights upon liquidation of the company. We
currently have no plans for issuing additional shares of common stock or
preferred stock.
Legal Opinion
Shumaker Williams, P.C., 3425 Simpson Ferry Road, Camp Hill, Pennsylvania
17011, special counsel to the bank and the holding company, has delivered an
opinion stating that the shares of common stock of the holding company to be
issued in connection with the reorganization will be fully paid and
non-assessable by the holding company. "Non-assessable" means that the holding
company will not be able to assess fees for ownership of the shares.
Anti-Takeover Provisions in Articles and By-laws
The holding company's articles of incorporation and by-laws contain a
number of provisions that could be considered anti-takeover in purpose and
effect. Only a few of these are shared by the bank. For a full description of
the risks associated with these anti-takeover provisions, please refer to "RISKS
- - Risks Related to the Reorganization" above.
Authorized Capital. The anti-takeover provisions include:
o the authorization of 10 million shares of common stock and 5 million
shares of preferred stock, and
o the lack of preemptive rights for shareholders to subscribe to
purchase additional shares of stock on a pro rata basis.
These provisions generally permit the board of directors to have as much
flexibility as possible to issue additional shares, without prior shareholder
approval, for proper corporate purposes, including financing, acquisitions,
stock dividends, stock splits, and employee incentive plans. However, these
additional shares may also be used by the board of directors to deter future
attempts to gain control over the holding company. By comparison, the bank has 5
million shares of authorized common stock and also does not guarantee preemptive
rights.
Classified Board. Like the by-laws of the bank, the by-laws of the holding
company provide for a classified or staggered board. A classified board has the
effect of moderating the pace of any change in control of the board of directors
by extending the time required to elect a majority of the directors to at least
two successive annual meetings. However, this extension of time also tends to
discourage a tender offer or takeover bid. Article 9 of the by-laws of the
holding company provides that at its 2000 Annual Meeting of Shareholders, the
shareholders shall elect 10 directors as follows:
o 4 Class A directors to serve until the 2001 Annual Meeting of
Shareholders,
o 3 Class B directors to serve until the 2002 Annual Meeting of
Shareholders, and
o 3 Class C directors to serve until the 2003 Annual Meeting of
Shareholders.
Shareholders shall elect each class in a separate election. At each
following annual meeting, shareholders will elect successors to the class of
directors whose term is then expiring
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to hold office for a term of 3 years. The board of directors will fill vacancies
which occur during the year for the remainder of the full term.
No Cumulative Voting. Another provision is the elimination of cumulative
voting. Cumulative voting entitles each shareholder to as many votes as equal
the number of shares owned by him or her multiplied by the number of directors
to be elected. A shareholder may cast all of these votes for one candidate or
distribute them among any two or more candidates. The Bank's shareholders may
cumulate their votes in the election of directors. However, Article 8 of the
holding company's articles of incorporation eliminates cumulative voting rights
in the election of directors. We believe that each director should represent and
act in the interest of all shareholders and not any special group of
shareholders. The absence of cumulative voting means that a majority of the
outstanding shares can elect all the members of the board of directors. The
absence of cumulative voting may make it more difficult for minority
shareholders' nominees to be elected to the board of directors.
Supermajority Vote for Approval of Extraordinary Transactions. Another
anti-takeover provision is the requirement in the articles of incorporation that
the affirmative vote of the holders of at least 75% of the outstanding shares
entitled to vote must approve any merger, consolidation, dissolution or
liquidation of the holding company or the sale of all or substantially all of
its assets. However, if at least 80% of the board of directors have approved
this type of transaction, then the holders of at least 51% of the outstanding
shares entitled to vote may approve the transaction. We included these
provisions to ensure that any extraordinary corporate transaction could happen
only if it receives a clear mandate from the shareholders. However, these
provisions give the holding company's directors and/or the holders of a minority
of the holding company's outstanding shares a veto power over such mergers and
consolidations unless 75% of the shareholders believe that the transaction is
desirable or beneficial. By comparison, the holders of 66 2/3% of the bank's
outstanding shares may approve an extraordinary business transaction.
Authorization to Consider Various Factors in Tender Offers. Another
anti-takeover provision in the articles of incorporation enables the board of
directors to oppose a tender offer on the basis of factors other than economic
benefit to shareholders, such as:
o the impact the acquisition of the holding company would have on the
community,
o the effect of the acquisition upon shareholders, employees,
depositors, suppliers and customers, and
o the reputation and business practices of the tender offeror.
We included this provision in the articles of incorporation to permit us,
as directors of the holding company, to recognize our responsibilities to these
constituent groups of the holding company and its subsidiaries and to the
communities that they serve. Pennsylvania corporate law specifically authorizes
this type of provision. By comparison, banking law does not specifically
authorize this provision.
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Supermajority Vote for Amendment of By-laws. The Holding Company's By-laws
may be amended by the affirmative vote of at least 75% of the outstanding shares
entitled to vote at any regular or special meeting or by a majority vote of the
members of the board of directors, subject to the affirmative vote of at least
75% of the shares to change any amendment to the By-laws previously approved by
the board of directors. However, the board of directors may not make or alter
any by-laws fixing their qualification, classification or term of office. We
included these provisions in the by-laws of the holding company to make it more
difficult for a potential acquiror to change the by-laws. By comparison, the
holders of a majority of shares may amend the bank's by-laws.
Supermajority Vote for Amendment of Certain Articles. A final
anti-takeover provision in the articles of incorporation of the holding company
requires the affirmative vote of the holders of at least 75% of the outstanding
shares entitled to vote for an amendment of the following provisions:
o the voting requirements for approval of mergers,
o the elimination of cumulative voting rights,
o the ability of shareholders entitled to cast 20% of votes to call
special meetings, or the board of directors, to call special
meetings, and
o the ability of the board of directors to consider non-economic
factors in opposing a tender offer.
By comparison, the holders of a majority of shares may amend the bank's
articles.
Anti-takeover Provisions Applicable to Registered Corporations
The shares that Fidelity D & D Bancorp proposes to issue in connection
with the reorganization are registered on a Registration Statement filed under
the Securities Act of 1933. Upon completion of the reorganization, Section 15(d)
of the Securities Exchange Act of 1934 requires the holding company to file
periodic reports with the SEC under Section 13. In addition, the holding company
will be required to register with the SEC under Section 12 of the Securities
Exchange Act of 1934 within 120 days of the end of the calender year 1999
because it will have more than 500 shareholders of record and $10 million in
assets.
Pennsylvania law gives certain strong anti-takeover provisions to
corporations that have their securities registered with the SEC under Section 12
of the Securities Exchange Act of 1934. The law calls these "Registered
Corporations." Although the holding company will not attain the status of
"Registered Corporation" on the day of the reorganization, upon registering its
stock under the Securities Exchange Act of 1934, the holding company will obtain
"Registered Corporation" status under the Pennsylvania Business Corporation Law
and the following statutory provisions will be applicable to the holding
company. These provisions are in addition to provisions contained in the
company's articles of incorporation and by-laws. These provisions do not apply
to the bank because it is not a business corporation, although its common stock
is registered under the 1934 Act.
One of these statutory provisions eliminates the rights of the
shareholders of registered corporations to call a meeting of shareholders. This
provision will not apply to the holding company because it has opted out of this
provision. Article 9 of its articles of incorporation provides that one or more
shareholders entitled to cast at least 20% of the vote that all shareholders are
entitled to cast at a particular meeting shall be entitled to call a special
meeting
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of shareholders. The board of directors may also call a special meeting of
shareholders. Article 9 provides shareholders of the holding company with the
same right to call a special meeting as that of the bank's shareholders.
Another of these statutory provisions eliminates the rights of the
shareholders of registered corporations to propose an amendment to the articles
of incorporation of the holding company. In the opinion of the board of
directors, the elimination of this right will make the holding company less
attractive as a potential takeover target because a potential acquiror will not
be able to propose changes to the articles of incorporation simply by purchasing
shares of the holding company.
Another provision to which the holding company will be subject, upon
obtaining registered corporation status, assures that all shareholders will
receive the "fair value" for their shares as the result of a "control
transaction." "Fair Value" means not less than the highest price paid per share
by a controlling person or group at any time during the 90-day period ending on
and including the date of the control transaction. Alternatively, if a
shareholder believes the value of his or her shares is higher, he or she may
demand an appraisal procedure to receive the fair value of the shares as the
date of the control transaction, taking into account all relevant factors which
may not be reflected in the price paid for the shares. "Control Transaction"
means the acquisition by a person who has, or a group of persons acting in
concert that has, voting power over voting shares of the holding company that
would entitle the holders of the shares to cast at least 20% of the votes that
all shareholders would be entitled to cast in an election of directors of the
holding company. After the occurrence of a control transaction, any shareholder
may, within a specified time period, make written demand on the person or group
controlling at least 20% of the voting power of the shares of the holding
company for payment in an amount equal to the fair value of each voting share as
of the date on which the control transaction occurs.
It is a relatively common practice in corporate takeovers to pay cash to
acquire controlling equity in a company and then to acquire the remaining equity
interest in the company by paying the balance of the shareholders a price for
their shares which is lower than the price paid to acquire control or is in a
less desirable form of payment, such as securities of the purchaser that do not
have an established trading market. The board of directors considers these
"two-tier pricing" tactics to be unfair to the holding company's shareholders.
By their very nature, these tactics tend to cause concern on the part of
shareholders that if they do not act promptly, they risk either being relegated
to the status of minority shareholders in a controlled company or being forced
to accept a lower price for all of their shares. Thus, two-tier pricing unduly
pressures shareholders into selling as many of their shares as quickly as
possible, either to the purchaser or in the open market, without having genuine
opportunity to make a considered investment choice between remaining a
shareholder of the company or disposing of their shares. These sales in turn
facilitate the purchaser's acquisition of a sufficient interest in the company
to enable the purchaser to force the exchange of remaining shares for a lower
price in a business combination.
While the fair price provision in Pennsylvania law is designed to help
assure fair treatment of all shareholders vis-a-vis other shareholders in the
event of a takeover, it is not the purpose of the fair price provision to assure
that shareholders will receive a premium price for their shares in a takeover.
Accordingly, the fair price provision would not preclude the board of directors'
opposition to any future takeover proposal which it believes not to be in the
best
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interests of the holding company and its shareholders, whether or not the
proposal satisfies the minimum price, form of payment and procedural
requirements of the fair price provision.
Another provision of Pennsylvania law relates to a "Business Combination"
involving a Registered Corporation. Business Combination includes the following
transactions involving an "Interested Shareholder":
o a merger or consolidation of the holding company with an interested
shareholder;
o a sale, lease, exchange, mortgage, pledge, transfer or other
disposition with the interested shareholder of the assets of the
holding company or certain of its subsidiaries;
o the issuance or transfer by the holding company or its subsidiary of
any shares of the holding company or its subsidiary which has a
total market value at least equal to 5% of the total market value of
all the company's outstanding shares to an interested shareholder;
o the adoption of any plan for the liquidation or dissolution of the
holding company proposed by, or under any agreement with, the
interested shareholder;
o a reclassification of securities or recapitalization of the holding
company or any merger or consolidation of the holding company with
any subsidiary of the holding company or any other transaction
proposed by, or under any agreement with the interested shareholder
which has the effect of increasing the interested shareholder's
proportionate share of the outstanding shares of the holding
company; or
o the interested shareholder's receipt of the benefit, directly or
indirectly, of any loans or other financial assistance or any tax
credits or other tax advantages provided by the holding company.
An "Interested Shareholder" is any person that is the beneficial owner,
directly or indirectly, of shares entitling that person to cast at least 20% of
the votes that all shareholders would be entitled to cast in an election of
directors of the holding company. The above definitions also apply to an
interested shareholder's affiliate or associate.
Under Pennsylvania law, the holding company shall not engage in a business
combination with an interested shareholder other than:
o a business combination approved by the board of directors prior to
the date the interested shareholder acquires at least 20% of the
shares or where the board of directors of the holding company has
approved the purchase of shares by the interested shareholder;
o a business combination approved by a majority of the votes that all
shareholders would be entitled to cast not including those shares
held by the interested shareholder, at a meeting called for that
purpose within 3 months after the
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interested shareholder became the beneficial owner of shares
entitling it to cast at least 80% of the votes in an election of
directors, and if the business combination satisfies certain minimum
conditions, which are discussed below;
o a business combination approved by the affirmative vote of all of
the shareholders of the outstanding shares;
o a business combination approved by a majority of the votes that all
shareholders would be entitled to cast not including those shares
beneficially owned by the interested shareholder at a meeting called
for that purpose no earlier than 5 years after the interested
shareholder's share acquisition date; and
o a business combination approved at a shareholders' meeting called
for that purpose no earlier than 5 years after the interested
shareholder's share acquisition date and that meets certain minimum
conditions, which are discussed below.
The certain minimum conditions discussed above generally require that the
total amount of the cash and the market value of any payments other than cash,
such as stock, bonds or debentures, to the shareholders of the holding company
be at least equal to the higher of the following:
o the highest price paid by the interested shareholder when the
interested shareholder was the beneficial owner of shares entitling
him to cast at least 5% of the votes in an election of directors
within the 5-year period immediately prior to the announcement date
of the business combination or within the 5-year period prior to
time the interested shareholder became an interested shareholder,
whichever is higher, plus interest; or
o the market value per common share on the announcement date of the
business combination or on the share acquisition date, whichever is
higher, plus interest.
The Pennsylvania provision relating to business combinations is designed
to help assure that if, despite the holding company's best efforts to remain
independent, the holding company is nevertheless taken over, each shareholder
will be treated fairly vis-a-vis every other shareholder and that professional
investors will not profit at the expense of the holding company's long-term
public shareholders. While the business combination provision is designed to
help assure fair treatment of all shareholders vis-a-vis other shareholders in
the event of a takeover, it is not the purpose of the business combination
provision to assure that shareholders will receive premium price for their
shares in a takeover. Accordingly, we believe that the business combination
provision would not preclude our opposition to any future takeover proposal
which we believe not to be in the best interests of the holding company and its
shareholders, whether or not the proposal satisfied the requirements of the
business combination provision, fair price provision or both.
Subchapter G of Chapter 25 of the Pennsylvania Business Corporation Law
also applies to registered corporations. Under Subchapter G, the acquisition of
shares that increase the shareholder's control of the corporation above 20, 33
or 50% of the voting power able to elect
86
<PAGE>
the board of directors cannot be voted until a majority of disinterested
shareholders approves the restoration of the voting rights of those shares in
two separate votes:
o all disinterested shares of the corporation, and
o all voting shares of the corporation.
Voting rights which are restored by shareholder approval will lapse if any
proposed control-share-acquisition which is approved is not consummated within
90 days after shareholder approval is obtained. Furthermore, control-shares that
are not accorded voting rights or whose rights lapse will regain their voting
rights on transfer to another person who is not an affiliate. If the shares
constitute control-shares for the transferee, this subchapter must be applied to
that person as well. If the acquiring shareholder does not request a shareholder
meeting to approve restoration of voting rights within 30 days of the
acquisition or if voting rights are denied by the shareholders or if they lapse,
the corporation may redeem the control shares at the average of the high and low
price on the date of the notice of redemption.
Subchapter H of Chapter 25 of the BCL likewise applies to registered
corporations. Under Subchapter H, a "control person" (a person who owns shares
with 20% or more voting power) must disgorge to the corporation any profits from
the disposition of any equity securities if the disposition occurs within 18
months of becoming a control person, and the securities were acquired 24 months
before to 18 months after becoming a control person. This provision seeks to
prevent speculative takeover attempts.
Finally, Pennsylvania law grants a registered corporation the express
authority to treat individual shareholders differently and therefore may take
advantage of "poison pills." "Poison pills" generally consist of a shareholder
rights plan in which a corporation gives its shareholders the right to buy
common stock when certain specified events occur, such as a merger, which
decreases the value of the acquiror's holdings and the acquiror's percentage of
ownership.
The overall effect of these provisions may be to deter a future offer or
other merger or acquisition proposal that a majority of the shareholders might
view to be in their best interests as the offer might include a substantial
premium over the market price of the holding company's common stock at that
time. In addition, these provisions may have the effect of assisting the holding
company's management in retaining its position and placing it in a better
position to resist changes that the shareholders may want to make if
dissatisfied with the conduct of the holding company's business.
A vote in favor of the Plan of Reorganization and Plan of Merger is a vote
in favor of the anti-takeover provisions contained in the holding company's
articles and by-laws and under Pennsylvania law.
87
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
After the reorganization, the shareholders of the bank will become
shareholders of the holding company Fidelity D & D Bancorp. There are certain
differences in the rights of shareholders of these two entities. These
differences arise from differences in the laws that govern the two entities and
differences in their articles and by-laws. The Pennsylvania Banking Code of 1965
presently governs the rights of shareholders of the bank, but the Pennsylvania
Business Corporation Law of 1988 will govern the rights of shareholders of the
holding company. The most significant differences relate to anti-takeover
protection. For a full description of these anti-takeover provisions, including
comparisons between the holding company and the bank, please refer to
"Description of the Holding Company's Capital Securities - Anti-Takeover
Provisions in Articles and By-laws, Anti-Takeover Provisions Applicable to
Registered Corporations" above.
The following table shows the material differences between the rights of
shareholders of the bank and the rights of shareholders of the holding company:
================================================================================
The Holding Company's
The Bank's Common Stock Common Stock
================================================================================
Authorized and 5,000,000 shares, par 10,000,000 shares, without par
Outstanding value $1.5625 per share, value, authorized; of which
authorized; of which approximately 1,795,472 shares
approximately 897,736 were would be outstanding if the
outstanding on September reorganization occurred on
30, 1999. September 30, 1999.
(In addition, there are
5,000,000 unauthorized shares,
without par value of preferred
stock; none are outstanding.)
- --------------------------------------------------------------------------------
Voting 1 vote per share with 1 vote per share with no
cumulative voting for cumulative voting for directors.
directors. (Board of directors may
determine the voting rights of
any preferred stock which may be
issued.)
- --------------------------------------------------------------------------------
Preemptive Rights No preemptive rights to No preemptive rights to
subscribe for additional subscribe for additional shares
shares on a pro rata on a pro rata basis; board of
basis; board of directors directors may grant preemptive
may grant preemptive rights in stock offerings if it
rights in stock offerings so chooses.
if it so chooses.
- --------------------------------------------------------------------------------
Dividends As declared by the board As declared by the board of
of directors; may be paid directors; the bank's dividend
only out of accumulated restrictions apply indirectly to
net earnings. Also, the the holding company because cash
bank must have made any available for dividend
required transfers of net distributions will initially
earnings to surplus in come from dividends the bank
order to maintain surplus pays to the holding company. In
at least equal to capital, addition, the holding company
prior to declaring the may not pay a dividend if, after
dividend. Surplus must issuing the dividend:
not be reduced. Directors
are specifically liable o the holding company would
for unlawful dividends. be unable to pay its
debts as they become
due, or
o the holding company's
total assets would
be less than its
total liabilities
plus the amount
needed to satisfy
any preferential
rights of
shareholders.
(The issuance of preferred
shares could affect the holding
company's ability to pay common
stock shareholders dividends.)
- --------------------------------------------------------------------------------
88
<PAGE>
================================================================================
The Holding Company's
The Bank's Common Stock Common Stock
================================================================================
Amendment of Approval by the Approval by the affirmative vote
by-laws affirmative vote of the of the holders of at least 75%
majority of shares of the outstanding shares
represented at a legally entitled to vote, or by a
called meeting of majority vote of the board of
shareholders, or by a directors, subject to the power
unanimous vote of members of shareholders to change such
of the board of directors action of the Board by the same
present at any regular 75% affirmative vote. (Note:
meeting of the Board, Directors may not amend by-laws
subject to the power of which fix their qualification
shareholders to change classification or term of
such action. office.)
- --------------------------------------------------------------------------------
Shareholder Approval by a vote of at Approval by vote of at least 75%
Action to Approve least 66 2/3% of of outstanding shares entitled
Mergers, outstanding shares. to vote; or approval of at least
Consolidations, 51% of outstanding shares if
Liquidation, such transaction has received
Sales of the prior approval of at least
Substantially All 80% of the board of directors.
Assets
- --------------------------------------------------------------------------------
Right to Call Upon request by a majority Upon request by a majority of
Special of the board of directors the board of directors or one or
Shareholder or one or more more shareholders entitled to
Meetings shareholders entitled to cast at least 20% of the votes
cast at least 20% of the that all shareholders are
votes that all entitled to cast at a particular
shareholders are entitled meeting.
to cast at a particular
meeting.
- --------------------------------------------------------------------------------
Increase in Approval by vote of a Approval by vote of a majority
Capital Stock majority of the directors. of the directors.
through Issuance
of Additional
Outstanding
shares (shares
already
authorized under
articles of
incorporation)
- --------------------------------------------------------------------------------
Authorization of Approval by vote of Approval by vote of a majority
Additional Shares shareholders entitled to of votes cast by all
(through cast at least a majority shareholders entitled to vote
amendment of of votes which all and the affirmative vote of a
articles of shareholders are entitled majority of the votes cast in a
incorporation) to cast and the vote of the holders of
affirmative vote of the outstanding shares of the
holders of a majority of affected class or series of
the outstanding shares of stock.
the affected class or
series of stock.
- --------------------------------------------------------------------------------
Right to Propose Yes No
Amendment to
Articles
- --------------------------------------------------------------------------------
Amendment of Approval by of a majority Approval by a majority of the
articles of the votes which all votes cast except for certain
incorporation shareholders are entitled provisions, then 75% of the
(other than to cast. outstanding shares entitled to
authorization of vote, or 51% if 80% of the
additional shares) directors have approved the
amendment.
- --------------------------------------------------------------------------------
Indemnification Yes Yes
of Directors and
Officers
- --------------------------------------------------------------------------------
Registered Under Yes- files reports and Yes-will register and file
Section 12 of other information with reports and other information
the Securities the FDIC with the SEC
Exchange Act of
1934
- --------------------------------------------------------------------------------
89
<PAGE>
================================================================================
The Holding Company's
The Bank's Common Stock Common Stock
================================================================================
Repurchase of Cannot reduce or retire Stock can be repurchased if,
Shares any part of its stock after the repurchase:
without prior regulatory
approvals and shareholder o the holding company would
approval; surplus must still be able to pay
remain at least equal to its debts as they
the amount of capital become due or
(defined as sum of par
value of issued and o the holding company's
outstanding shares). total assets would
still be more than
its total
liabilities plus an
amount needed to
satisfy any
preferential rights
of shareholders; no
more than 10% of the
outstanding shares
can be repurchased
in any 12 month
period without prior
regulatory approval;
the bank's
restrictions on
reduction of capital
will indirectly
apply to the holding
company as cash for
distributions will
come from the bank.
- --------------------------------------------------------------------------------
Terms of Directors serve staggered Directors serve staggered terms;
Directors terms; board is board is "classified."
"classified." Directors Eventually, all directors shall
serve 3-year terms, with serve 3-year terms, with
approximately one-third of approximately one-third of the
the directors coming up directors coming up for election
for election each year. each year.
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
and
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
[intentionally omitted]
INDEPENDENT AUDITORS
Parente, Randolph, Orlando, Carey & Associates, Certified Public
Accountants, of Wilkes Barre, Pennsylvania, served as the bank's independent
auditors for the 1998 fiscal year. In addition to performing customary audit
services, Parente Randolph assisted the bank with the preparation of its federal
and state tax returns and assisted with various regulatory matters, charging the
bank at its customary hourly billing rates. The Bank's board of directors
approved these non-audit services after due consideration of the auditors'
objectivity and after finding them to be wholly independent. Parente Randolph
has advised the bank that none of its members has any financial interest in the
bank. Parente Randolph has been engaged as the independent' auditor for the
fiscal year ending December 31, 1999. If the proposed reorganization is approved
and implemented, it is anticipated that the holding company will also select
Parente Randolph as its auditor.
90
<PAGE>
SHAREHOLDER PROPOSALS
In the event the proposed reorganization is approved and the holding
company becomes the one-bank holding company for the bank, any shareholder who,
in accordance with the proxy rules of the SEC, wishes to submit a proposal for
inclusion in the holding company's proxy statement for its 2000 Annual Meeting
of Shareholders must deliver the proposal in writing to John F. Glinsky, Jr.,
Secretary, at the holding company's principal executive offices, Blakely and
Drinker Streets, Dunmore, Pennsylvania 18512, no later than December 3, 1999.
Also, if the holding company does not receive notice of a shareholder
proposal by February 16, 2000, the proxy holders at the 2000 Annual Meeting may
vote on the proposal at their discretion, as they consider in the best interests
of the holding company.
If the reorganization does not occur, then any shareholder of the bank who
wishes to submit a proposal for inclusion in the bank's proxy statement for its
2000 Annual Meeting of Shareholders, must submit the proposal in writing to John
F. Glinsky, Jr., Secretary, at the holding company's principal executive
offices, Blakely and Drinker Streets, Dunmore, Pennsylvania 18512, no later than
December 3, 1999.
OTHER MATTERS
The board of directors does not know of any matters to be presented for
consideration other than the matters described in this proxy
statement/prospectus. However, if any other matters are properly presented for
consideration and voting at the Special Meeting of shareholders, the persons
named as proxy holders will vote the proxies in what they determine to be the
best interests of the bank. See "Where You Can Find More Information" below.
91
<PAGE>
-----------------------------------
Where You Can Find More Information
-----------------------------------
The Holding Company's Registration Statement
Fidelity D & D Bancorp has filed with the Securities and Exchange
Commission in Washington, D.C., a registration statement under the Securities
Act of 1933 for its common stock to be issued in the proposed reorganization.
This document is a part of the registration statement.
This document does not contain all of the information, exhibits and
undertakings contained in the registration statement, which is on file with the
SEC in Washington, D.C. The registration statement and exhibits may be examined
during normal business hours, or copies obtained by mail at prescribed rates, at
the SEC's public reference room located at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the public reference room by calling the SEC at 1-800-SEC-0330. The
registration statement may also be examined at the SEC's regional offices:
o 7 World Trade Center, Suite 1300, New York, New York 10048
(telephone: 212-748-8000);
o The Curtis Center, Independence Square West, 601 Walnut Street,
Suite 1005E, Philadelphia, Pennsylvania 19106 (telephone:
215-597-3100);
o and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 (telephone: 312-353-7390).
The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. The address of the SEC's Web site is http://www.sec.gov. The
registration statement may be accessed from this Web site.
Prior Annual Reports Sent to Shareholders and Information Filed with the FDIC
The Fidelity Deposit and Discount Bank previously mailed a copy of the
bank's Annual Report for the fiscal year ended December 31, 1998, to
shareholders with proxy materials for the 1999 Annual Meeting of Shareholders.
You may obtain a copy of the bank's 1996, 1997 or 1998 Annual Report, audited in
accordance with generally accepted auditing standards and containing financial
information prepared in accordance with generally accepted accounting
principles, promptly and without charge by contacting Robert P. Farrell, Cashier
and Comptroller, The Fidelity Deposit and Discount Bank, Blakely and Drinker
Streets, Dunmore, Pennsylvania 18512 (telephone 570- 342-8281).
The bank is subject to the information requirements of the Securities
Exchange Act of 1934. In accordance with the 1934 Act, the bank files periodic
reports, proxy statements and other information with the FDIC, including the
bank's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. You may
review or obtain copies of these documents at the public reference section of
the FDIC's Division of Supervision, located at 1776 F Street, N.W.,
92
<PAGE>
Room F6043, Washington, D.C. 20429, but with a mailing address of 550 17th
Street, N.W., Washington, D.C. 20429 (telephone 202-898-8913).
Periodic Reports and Information Filed with the SEC Following the Reorganization
Following the reorganization, Fidelity D & D Bancorp will be subject to
the information reporting requirements of the Securities Exchange Act of 1934,
and will file periodic reports, proxy statements and other information with the
SEC. The financial information filed with the SEC will be consolidated with the
bank's financial information. You may inspect and copy such reports, proxy
statements and other information at the SEC's public reference facilities
described above. You may also obtain these documents at the SEC's Web site at
http://www.sec.gov. In addition, the holding company will provide consolidated
annual financial reports to shareholders.
93
<PAGE>
FIDELITY D & D BANCORP, INC.
INDEX TO FINANCIAL STATEMENTS
AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
----
Selected Financial Data 21
Management's Discussion and Analysis
of Financial Condition and Results of Operations and
Quantitative and Qualitative Disclosures about Market Risk 90
INDEPENDENT AUDITOR'S REPORT (F-2*)
AS OF AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 (unaudited)
Consolidated Statement of Condition (F-3*)
Consolidated Statement of Income (F-4*)
Consolidated Statement of Cash Flows (F-5*)
Consolidated Statement of Changes in Stockholders' Equity (F-7*)
YEARS ENDED DECEMBER 31, 1998 AND 1997
Consolidated Statement of Condition (F-8*)
Consolidated Statement of Income (F-9*)
Consolidated Statement of Cash Flows (F-10*)
Consolidated Statement of Changes in Stockholders' Equity (F-12*)
* - Page intentionally omitted from this document.
F-1
<PAGE>
ANNEX A
PLAN OF REORGANIZATION
AND EXHIBIT A, PLAN OF MERGER
A-1
<PAGE>
PLAN OF REORGANIZATION
THIS AGREEMENT made as of this ____ day of _______, 1999, among FIDELITY D
& D BANCORP, INC., a Pennsylvania business corporation (the "Holding Company"),
THE FIDELITY DEPOSIT AND DISCOUNT BANK, Dunmore, Pennsylvania, a
Pennsylvania-chartered bank and trust company (the "Bank"), and THE FIDELITY
DEPOSIT AND DISCOUNT INTERIM BANK (In Organization), a Pennsylvania-chartered
banking institution and a subsidiary of the Holding Company (the "Interim
Bank"),
WITNESSETH:
WHEREAS, the Holding Company, the Bank and the Interim Bank desire to
effect the formation of a bank holding company whereby Bank and the Interim Bank
will be merged, the surviving bank will become a wholly-owned subsidiary of the
Holding Company, and the present shareholders of the Bank (except for those who
perfect dissenters' rights) will become shareholders of the Holding Company, on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound hereby, the parties agree as
follows:
SECTION 1. MERGER.
1.1. Agreement to Merge. Subject to the terms and conditions hereinafter
set forth, the parties hereto agree to effect a merger of the Bank and the
Interim Bank (the "Merger") pursuant to the provisions of the Pennsylvania
Banking Code of 1965, as amended, (the "Banking Code") in accordance with the
Plan of Merger attached hereto as Exhibit A and made a part hereof (the "Plan of
Merger").
1.2. Holding Company Common Stock. The Holding Company shall make
available to the Bank and the Interim Bank a sufficient number of shares of the
Holding Company's Common Stock to effect the Merger pursuant to the Plan of
Merger.
SECTION 2. SHARES OF THE HOLDING COMPANY AND OF THE SURVIVING BANK.
2.1. Conversion of Shares. The manner of converting the shares of Common
Stock of the Bank into shares of Common Stock of the Holding Company and the
shares of Common Stock of the Interim Bank into shares of Common Stock of the
surviving bank in the Merger shall be as set forth in Section 2 of the Plan of
Merger.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE HOLDING COMPANY.
The Holding Company represents, warrants and agrees as follows:
A-2
<PAGE>
3.1. Organization and Standing. The Holding Company is a corporation duly
organized and validly existing under the Pennsylvania Business Corporation Law
of 1988, as amended.
3.2. Capitalization. The Holding Company is authorized to issue Ten
Million (10,000,000) shares of Common Stock, without par value, of which five
(5) shares are issued and outstanding, and Five Million (5,000,000) shares of
Preferred stock, without par value, of which no shares are issued and
outstanding. There are no outstanding options, warrants, calls, convertible
securities, subscriptions or other commitments or rights of any nature with
respect to the Common Stock of the Holding Company.
3.3. Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by the Board of
Directors of the Holding Company. Subject to appropriate shareholder and
regulatory approvals, neither the execution and delivery of this Agreement nor
the consummation of the transactions provided for herein will violate any
agreement to which the Holding Company is a party or by which it is bound or any
law, order or decree or any provision of its Articles of Incorporation or
By-laws.
3.4. Absence of Liabilities. Prior to the effective time of the Merger,
the Holding Company will have engaged only in the transactions contemplated by
this Agreement and the Plan of Merger, will have no material liabilities and
will have incurred no material obligations except in connection with its
performance of the transactions provided for in this Agreement and in the Plan
of Merger.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BANK.
The Bank represents, warrants and agrees as follows:
4.1. Organization and Standing. The Bank is a state-chartered bank and
trust company duly organized and validly existing under the Pennsylvania Banking
Code of 1965, as amended (the "Banking Code").
4.2. Capitalization. The Bank is authorized to issue Five Million
(5,000,000) shares of Common Stock, par value $1.5625 per share, of which
897,736.20888 shares are issued and outstanding. As of the date of this
Agreement, the Bank has issued 3,750 options at an exercise price of $62.00 per
share under its 1998 Independent Directors Stock Option Plan and 1998 Stock
Incentive Plan. Each such option is exercisable for one share of Common Stock of
the Bank. The Bank may issue up to 25,000 shares of Common Stock under each of
these stock option plans. The Bank also has a Dividend Reinvestment Plan by
which participants' dividends are invested in additional shares of Common Stock.
The Bank may issue up to 50,000 shares of Common Stock under the Dividend
Reinvestment Plan. Other than as disclosed in this Section 4.2, there are no
other outstanding options, warrants, calls, convertible securities,
subscriptions or other commitments or rights of any nature with respect to the
Common Stock of Bank.
4.3. Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement and the Plan of Merger have been duly authorized
by the Board of Directors of the Bank. Subject to appropriate shareholder and
regulatory approvals, neither the execution
A-3
<PAGE>
and delivery of this Agreement or the Plan of Merger nor the consummation of the
transactions provided for herein or therein will violate any agreement to which
the Bank is a party or by which it is bound or any law, order, or decree or any
provision of its Articles of Incorporation or Bylaws.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE INTERIM BANK.
The Interim Bank represents, warrants and agrees as follows:
5.1. Organization and Standing. The Interim Bank is a state-chartered
banking institution in the process of formation under the Banking Code.
5.2. Capitalization. Upon formation, the Interim Bank will be authorized
to issue Five Million (5,000,000) shares of Common Stock, par value $2.00 per
share, of which 50,000 shares will be issued and outstanding and owned by the
Holding Company and ten organizers immediately prior to the Merger.
5.3. Authority Relative to this Agreement. The execution, delivery and
performance of this Agreement and the Plan of Merger have been duly authorized
by the Board of Directors of the Interim Bank. Subject to appropriate
shareholder and regulatory approvals, neither the execution and delivery of this
Agreement or the Plan of Merger nor the consummation of the transactions
provided for herein or therein will violate any agreement to which the Interim
Bank is a party or by which it is bound or any law, order, decree or any
provision of its Articles of Incorporation or By-laws.
5.4. Absence of Liabilities. Prior to the effective time of the Merger,
the Interim Bank will have engaged only in the transactions contemplated by this
Agreement and the Plan of Merger, will have no material liabilities and will
have incurred no material obligations except in connection with its performance
of the transactions provided for in this Agreement and in the Plan of Merger.
SECTION 6. COVENANTS OF THE HOLDING COMPANY.
The Holding Company agrees that between the date hereof and the effective
time of the Merger:
6.1. Capitalization of the Interim Bank. The Holding Company shall
purchase a total of 45,000 shares of Common Stock, par value $2.00 per share, of
Interim Bank for $3.10 per share, and shall cause the Interim Bank to do all
things necessary to obtain a charter as a state banking institution pursuant to
the Banking Code so as to permit the consummation of the Merger provided for in
the Plan of Merger. The Holding Company shall also purchase the 5,000 shares of
Common Stock of the Organizers of the Interim Bank upon consummation of the
Merger for $3.10 per share.
A-4
<PAGE>
6.2. Approval of Merger. The Holding Company, as a shareholder of the
Interim Bank, shall approve this Agreement and the Plan of Merger in accordance
with applicable law.
6.3. Assumption of Stock Options and Stock Option Plans. The Holding
Company shall assume the obligations of the Bank under all stock options
outstanding as of the date of this Agreement to purchase 3,750 shares of Common
Stock of the Bank, to the extent that such options remain unexercised on the
effective date of this Agreement, as set forth in Section 2.4 of the Plan of
Merger. The Holding Company shall also assume the obligations of the Bank under
the Bank's 1998 Independent Directors Stock Option Plan and 1998 Stock Incentive
Plan, as set forth in Section 2.4 of the Plan of Merger.
6.4. Best Efforts. The Holding Company will use its best efforts to take,
or cause to be taken, all actions or do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Plan of Merger, subject, however, to the requisite vote of the
shareholders of the Bank in accordance with the requirements of the Banking Code
and applicable law.
SECTION 7. COVENANTS OF THE BANK.
The Bank agrees that between the date hereof and the effective time of the
Merger:
7.1. Shareholders' Meeting. The Bank shall submit this Agreement and the
Plan of Merger to the vote of its shareholders as provided by the Banking Code
and other applicable laws at a meeting of shareholders to be held as soon as
practicable, and any adjournment or postponement thereof.
7.2. Best Efforts. The Bank will use its best efforts to take, or cause to
be taken, all actions or do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Plan of
Merger, subject, however, to the requisite vote of the shareholders of the Bank
in accordance with the requirements of the Banking Code and applicable law.
SECTION 8. COVENANTS OF THE INTERIM BANK.
The Interim Bank agrees that between the date hereof and the effective
time of the Merger:
8.1. Shareholder Approval. The Interim Bank shall submit this Agreement
and the Plan of Merger to its shareholder(s) for approval and adoption as
provided by the Banking Code and other applicable laws.
8.2. Best Efforts. The Interim Bank will use its best efforts to take, or
cause to be taken, all actions or do, or cause to be done, all things necessary,
proper or advisable under
A-5
<PAGE>
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement and the Plan of Merger, subject,
however, to the requisite approval of the shareholder(s) of the Interim Bank in
accordance with the requirements of the Banking Code and applicable law.
SECTION 9. CONDITIONS TO OBLIGATIONS OF THE PARTIES.
The obligations of the parties to consummate this Agreement and the Plan
of Merger shall be subject to the following conditions:
9.1. Representations and Warranties: Performance of Covenants. The
representations and warranties and covenants contained in Sections 3, 4, 5, 6, 7
and 8 hereof shall be true as of and at the effective time of the Merger, and
each party shall have performed all obligations required hereby to be performed
by it prior to the effective time of the Merger.
9.2. Bank Shareholder Approval. The shareholders of Bank shall have duly
approved this Agreement and the Plan of Merger in accordance with applicable
laws.
9.3. Regulatory Approvals. Any federal or state regulatory agency having
jurisdiction (banking or otherwise), to the extent that any consent or approval
is required by applicable laws or regulations for the consummation of this
Agreement and the Plan of Merger, shall have granted any necessary consent or
approval.
9.4. Registration Statement. The registration statement (the "Registration
Statement") filed by the Holding Company, if required pursuant to the Securities
Act of 1933, as amended, covering the shares of the Holding Company's Common
Stock to be issued pursuant to the Plan of Merger shall have been declared
effective by the Securities and Exchange Commission; and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or, to the
knowledge of the Holding Company, shall be contemplated or threatened by the
Securities and Exchange Commission.
9.5. Litigation. There shall be no litigation or proceeding pending or
threatened for the purpose of enjoining, restraining or preventing the
consummation of the Merger, this Agreement or the Plan of Merger or otherwise
claiming that such consummation is improper.
9.6. Tax Opinion. A tax opinion shall have been obtained from Shumaker
Williams, P.C. of Camp Hill, Pennsylvania, Special Counsel to the Bank that the
conversion of Bank's Common Stock into the Holding Company's Common Stock will
be tax free for federal income tax purposes; provided, however, that the
requirements of this Section 9.6 may be waived by the affirmative vote of a
majority of the Board of Directors of each of the parties hereto.
SECTION 10. TERMINATION, WAIVER AND AMENDMENT.
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10.1. Circumstances of Termination. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement and the Plan of Merger may be
terminated at any time before the effective time of the Merger (whether before
or after action with respect thereto by the Bank's shareholders) only:
(a) by the mutual consent of the Board of Directors of the Bank, the
Interim Bank and the Holding Company evidenced by an instrument in writing
signed on behalf of each by any two of their respective officers; or
(b) by the Board of Directors of the Bank if in its sole judgment
the Merger would be inadvisable because of the number of shareholders of
the Bank who perfect their dissenter's rights in accordance with
applicable law and the Plan of Merger, or if, in the sole judgment of such
Board, the Merger would not be in the best interests of the Bank or its
employees, depositors or shareholders for any reason whatsoever.
10.2. Effect of Termination. In the event of the termination and
abandonment hereof, this Agreement and the Plan of Merger shall become void and
have no effect, without any liability on the part of any of the parties, their
directors, officers or shareholders, except as set forth in Section 11 hereof.
10.3. Waiver. Any of the terms or conditions of this Agreement and the
Plan of Merger may be waived in writing at any time by the Bank by action taken
by its Board of Directors, whether before or after action by the Bank's
shareholders; provided, however, that such action shall be taken only if, in the
judgment of the Board of Directors, such waiver will not have a materially
adverse effect on the benefits intended to be granted hereunder to the
shareholders of the Bank.
10.4. Amendment. Anything herein or elsewhere to the contrary
notwithstanding, to the extent permitted by law, this Agreement and the Plan of
Merger may be amended at any time by the affirmative vote of a majority of the
Board of Directors of each of the Bank, the Holding Company and the Interim
Bank, whether before or after action with respect thereto by the Bank's
shareholders and without further approval of such amendment by the shareholders
of the parties hereto; provided, however, that Section 2.1 of this Agreement and
Section 2 of the Plan of Merger may not be amended after the meeting of the
Bank's shareholders referred to in Section 7.1 hereof except by the vote of Bank
shareholders required for the approval of the Merger by such shareholders.
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SECTION 11. EXPENSES.
11.1. General. Each party hereto will pay its own expenses incurred in
connection with this Agreement and the Plan of Merger, whether or not the
transactions contemplated herein are effected.
11.2. Special Dividend. Upon the effective time of the Merger, the
surviving bank shall pay a special dividend to the Holding Company in an amount
equal to the sum of:
(a) the expenses of the Holding Company in connection with the
transactions contemplated herein, if any;
(b) the principal amount of any loan that the Holding Company shall
have obtained to purchase shares of Common Stock of the Interim Bank as
provided in 6.1 hereof; and
(c) the amount of any interest incurred by the Holding Company on
account of any loans obtained by it for the purchase of shares of Common
Stock of the Interim Bank as provided in Section 6.1 hereof.
SECTION 12. MISCELLANEOUS.
12.1. Restrictions on Affiliates. The Holding Company may cause stock
certificates representing any shares issued to any shareholder who may be deemed
to be an affiliate of the Bank, within the meaning of Rule 145 under the
Securities Act of 1933, as amended, to bear a legend setting forth any
applicable restrictions on transfer thereof under Rule 145 and may cause
stop-transfer orders to be entered with its transfer agent with respect to any
such certificates.
12.2. No Brokers. Each of the parties represents to the other that it has
not incurred and will not incur any liability for brokerage fees or agents'
commissions in connection with this Agreement, the Plan of Merger and the
transactions contemplated hereby.
12.3. Right to Withhold Dividends. The Board of Directors of the Holding
Company reserves the right to withhold dividends from any former shareholder of
the Bank who fails to exchange certificates representing the shares of the Bank
for certificates representing the shares of the Holding Company in accordance
with Section 2 of the Plan of Merger.
12.4. Failure to Surrender Certificates. Shareholders of the Holding
Company shall surrender certificates representing the shares of the Bank for
certificates representing the shares of the Holding Company within two (2) years
of the date of the letter of transmittal as provided in Section 2 of the Plan of
Merger. In the event that any certificates are not surrendered for exchange
within such two (2) year period, the shares, represented by appropriate
certificates of the Holding Company that would otherwise have been delivered in
exchange for the unsurrendered certificates, may be sold and the net proceeds of
the sale shall be held for the shareholders of the unsurrendered certificates to
be paid to them upon surrender of their outstanding certificates. From and after
such sale, the sole right of the holders of the
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unsurrendered outstanding certificates shall be the right to collect the net
sales proceeds held for their account.
12.5. Entire Agreement. This Agreement (including the Plan of Merger
attached as an exhibit hereto) contains the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto.
12.6. Captions. Descriptive headings are for convenience only and shall
not control or affect the meaning or construction of any provisions of this
Agreement or the Plan of Merger.
12.7. Applicable Law. This Agreement and the Plan of Merger shall be
governed by the laws of the Commonwealth of Pennsylvania applicable to contracts
executed in and to be performed exclusively within the Commonwealth of
Pennsylvania, regardless of where they are executed.
12.8. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
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IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above mentioned.
(SEAL)
ATTEST: FIDELITY D & D BANCORP, INC.
________________________________ By: _______________________________
John F. Glinsky, Jr., Secretary Michael F. Marranca, President
(SEAL)
ATTEST: THE FIDELITY DEPOSIT AND
DISCOUNT BANK
________________________________ By: _______________________________
John F. Glinsky, Jr., Secretary Michael F. Marranca, President
(SEAL)
ATTEST: THE FIDELITY DEPOSIT AND
DISCOUNT INTERIM BANK
(In Organization)
________________________________ By: _______________________________
John F. Glinsky, Jr., Secretary Michael F. Marranca, President
A-10
<PAGE>
EXHIBIT A
PLAN OF MERGER
THE FIDELITY DEPOSIT AND DISCOUNT INTERIM BANK
with, into and under the charter of
THE FIDELITY DEPOSIT AND DISCOUNT BANK
THIS PLAN OF MERGER made between The Fidelity Deposit and Discount Bank
(the "Bank"), a Pennsylvania-chartered bank and trust company, located at
Blakely and Drinker Streets, Dunmore, County of Lackawanna, in the Commonwealth
of Pennsylvania, and The Fidelity Deposit and Discount Interim Bank (in
organization) (the "Interim Bank"), a Pennsylvania-chartered bank, located at
Blakely and Drinker Streets, Dunmore, County of Lackawanna, in the Commonwealth
of Pennsylvania (the two parties being sometimes collectively referred to herein
as the "Constituent Banks").
WHEREAS, Bank, Interim Bank and Fidelity D&D Bancorp, Inc. (the "Holding
Company"), a Pennsylvania business corporation of which Interim Bank is a
subsidiary, have entered into a Plan of Reorganization of even day herewith (the
"Plan of Reorganization"), providing for, among other things, the execution of
the Plan of Merger and for the merger (the "Merger") of Bank and Interim Bank in
accordance with the terms and conditions hereinafter set forth;
NOW, THEREFORE, the Constituent Banks, intending to be legally bound
hereby, agree to effect the Merger in accordance with the terms and conditions
hereinafter set forth.
Section 1. General.
1.1 The Merger. On the Effective Date, as hereinafter defined, Interim Bank
shall be merged with, into and under the charter of the bank under the
Pennsylvania Banking Code of 1965, as amended (the "Banking Code"), the
separate existence of Interim Bank shall cease, and Bank shall be the
surviving Bank (the "Surviving Bank"), in accordance with this Plan of
Merger.
1.2 Name. The name of the surviving Bank shall be The Fidelity Deposit and
Discount Bank, and the location of its principal office shall be Blakely
and Drinker Streets, Dunmore, Pennsylvania 18512.
1.3 Articles of Incorporation. At the Effective Date, the Articles of
Incorporation of the bank, as in effect immediately prior to the Effective
Date, shall be the Articles of Incorporation of the Surviving Bank.
1.4 By-laws. At the Effective Date, the by-laws of the bank, as in effect
immediately prior to the Effective Date, shall be the by-laws of the
Surviving Bank.
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1.5 Effect of Merger. On the Effective Date, the Surviving Bank shall succeed,
without further act or deed, to all of the property, rights, powers,
duties and obligations of the Constituent Banks in accordance with the
banking Code. Any claim existing or action pending by or against either of
the Constituent Banks may be prosecuted to judgment as if the Merger had
not taken place, and the Surviving Bank may be substituted in its place.
1.6 Continuation in Business. The Surviving Bank shall continue in business
with the assets and liabilities of each of the Constituent Banks. The
Surviving Bank shall be a bank and trust company organized and having
perpetual existence under the laws of the Commonwealth of Pennsylvania.
Any branch offices of the Surviving Bank shall consist of the bank's
present branch offices and any other branch office or offices that Bank
may be authorized to have as of the Effective Date.
1.7 Board of Directors. The Board of Directors of Bank immediately prior to
the consummation of the Merger shall serve as the Board of Directors of
the Surviving Bank from and after the Effective Date and until such time
as their successors have been duly elected and qualified.
1.8 Officers. The persons who are executive or other officers of Bank
immediately prior to the consummation of the Merger shall serve as the
officers of the Surviving Bank from and after the Effective Date and until
such time as the Board of Directors of the Surviving Bank shall otherwise
determine.
1.9 Employees. On the Effective Date, all persons who are employees of Bank
and of Interim Bank shall become employees of the Surviving Bank.
Section 2. Conversion of Shares. The manner and basis of converting shares of
Common Stock of the Constituent Banks shall be as follows:
2.1 Stock of Interim Bank. The shares of Common Stock, par value $2.00 per
share, of Interim Bank issued and outstanding immediately prior to the
Effective Date shall be converted into fully paid and non-assessable
shares of Common Stock of the Surviving Bank so that the number of
outstanding shares of Common Stock of the Surviving Bank at and after the
Effective Date shall equal the number of outstanding shares of Common
Stock of the bank prior to the Effective Date and resulting in all
outstanding shares of Common Stock of the Surviving Bank being held by the
holding company at and after the Effective Date.
2.2 Stock of the bank. Each share of Common Stock, par value $1.5625 per
share, of Bank issued and outstanding immediately prior to the Effective
Date (except for shares owned by shareholders who shall have duly
perfected dissenters' rights in accordance with this Plan of Merger and
applicable law and except for fractional shares) shall, on the Effective
Date, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become two (2) shares of fully paid
and nonassessable Common Stock, without par value, of the holding company.
No fractional shares of Common Stock and no scrip or certificates
therefor, shall be issued in connection with the Merger. In lieu of the
issuance of any fractional share to which a shareholder would otherwise be
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<PAGE>
entitled, each former shareholder of Bank shall receive, in cash, an
amount equal to the fair market value of his or her fractional interest.
From and after the Effective Date, each certificate which, prior to the
Effective Date, represented shares of Common Stock of the bank shall
evidence ownership of shares of Common Stock of the holding company on the
basis set forth herein.
2.3 Treasury Stock. Each share of Common Stock, par value $1.5625 per share,
of Bank held as a treasury share immediately prior to the Effective Date,
if any, shall thereupon and without notice be canceled.
2.4 Assumption of Stock Options. Holding Company shall assume the obligations
of Bank under stock options outstanding to the extent that such options
remain unexercised on the Effective Date, and further shall assume the
obligations of Bank under the bank's 1998 Independent Directors Stock
Option Plan and 1998 Stock Incentive Plan (the "Plans"). Such outstanding
stock options shall automatically be converted into the right to purchase
double the number of shares at half of the option exercise price per
share, had the option or warrant been exercised prior to the Merger, and
in accordance with the terms of the Plans. No fractional shares of Holding
Company Common Stock, and no scrip or certificates therefor, shall be
issued in connection with the assumption or exercise of such stock
options. The obligations of the bank, as assumed by the holding company,
under the Plans will automatically be adjusted to reflect the two-for-one
exchange ratio of Holding Company Common Stock for the bank's Common
Stock. Similarly, the number of shares which may be issued under the Plans
will automatically be adjusted.
2.5 Exchange Agent. Bank shall designate the Secretary or another officer of
the holding company or Bank to act as exchange agent to receive from the
holders thereof, certificates that, immediately prior to the Effective
Date, represented Bank's Common Stock and to exchange such certificates
for Common Stock of the holding company, as provided herein and, if
applicable, to pay cash for fractional shares of Bank Common Stock
pursuant to Section 2.2 above.
2.6 Exchange Procedure. If appointed pursuant to Section 2.5 hereof, the
exchange agent shall promptly mail to each record holder as of the date of
exchange of an outstanding certificate or certificates that, prior to the
Effective Date, represented shares of Bank's Common Stock, a letter of
transmittal (which shall specify how delivery shall be effected, and that
risk of loss and title to such certificate or certificates shall pass only
upon proper delivery of such certificate or certificates, together with a
properly executed letter of transmittal to the exchange agent at is
address stated therein) and instructions for use in effecting the
surrender of such certificate or certificates for exchange therefor. Upon
surrender to the exchange agent of such certificate or certificates,
together with such letter of transmittal, properly executed, the exchange
agent shall exchange such certificate or certificates for shares of common
stock of the holding company, as provided herein.
2.7 Failure to Surrender Certificates. Shareholders will be required to
surrender certificates representing shares of the bank for certificates
representing shares of the holding company. All Bank Common Stock
certificates must be surrendered within two (2) years after notice that
surrender will be required. In the event that any former shareholder of
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<PAGE>
Bank shall not have properly surrendered his Common Stock certificates
within two (2) years after such notice, the shares of Holding Company
Common Stock that would otherwise have been issued to him may, at the
option of the holding company, be sold, and the net proceeds of such sale,
together with the cash (if any) to which he is entitled in lieu of the
issuance of a fractional share and any previously accrued dividends, shall
be held in a noninterest bearing account for his benefit. From and after
any such sale, the sole right of such former shareholder of Bank shall be
right to collect such net proceeds, cash and accumulated dividends.
Subject to all applicable laws of escheat, such net proceeds, cash and
accumulated dividends shall be paid to such former shareholder of Bank,
without interest, upon proper surrender of his Common Stock certificates.
2.8 Dissenters' Rights. Shareholders of Bank shall be entitled to exercise the
rights provided in Subchapter D of Chapter 15 of the Pennsylvania Business
Corporation Law of 1988, as amended, (15 PA C.S.A. Section 1571 et. seq.)
("Dissenters' Rights") with respect to the Plan of Merger.
Section 3. Miscellaneous.
3.1 Conditions. The obligations of Bank and Interim Bank to effect the Merger
shall be subject to all of the terms and conditions contained in the Plan
of Reorganization.
3.2 Termination and Agreement. This Plan of Merger may be terminated or
amended prior to the Effective Date in the manner and upon the conditions
set forth in the Plan of Reorganization. If the Plan of Reorganization is
terminated pursuant to the terms thereof, this Plan of Merger shall
terminate simultaneously, and the Merger shall be abandoned without
further action of the parties hereto.
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<PAGE>
WITNESS the signatures and seals of said merging banks this _____ day of
______________, 1999, each hereunto set by its President or a Vice President and
attested by its Cashier or Secretary, pursuant to a resolution of its Board of
Directors, acting by a majority thereof.
ATTEST: THE FIDELITY DEPOSIT AND
DISCOUNT BANK
________________________________ By: _______________________________
John F. Glinsky, Jr., Secretary Michael F. Marranca, President
ATTEST: THE FIDELITY DEPOSIT AND
DISCOUNT INTERIM BANK
________________________________ By: _______________________________
John F. Glinsky, Jr., Secretary Michael F. Marranca, President
A-15
<PAGE>
ANNEX B
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIDELITY D & D BANCORP, INC.
B-1
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIDELITY D & D BANCORP, INC.
1. The name of the Corporation is Fidelity D & D Bancorp, Inc.
2. The address, including street and number, if any, of this Corporation's
initial registered office in the Commonwealth of Pennsylvania is Blakely &
Drinker Streets, Dunmore, Pennsylvania 18512, and the county of venue is
Lackawanna.
3. The Corporation is incorporated under the provisions of the
Pennsylvania Business Corporation Law of 1988 (15 PA C.S.A. Section 1101 et
seq.), as the same may be amended.
4. The purpose or purposes of the Corporation are to have unlimited power
to engage in and to do any lawful act concerning any or all business for which
corporations may be incorporated under the provisions of the Pennsylvania
Business Corporation Law of 1988, as the same may be amended.
5. (a) The aggregate number of shares that the Corporation shall have
authority to issue is Fifteen Million (15,000,000) shares, without
par value, divided into a class of Ten Million (10,000,000) shares
of common stock, without par value, and a class of Five Million
(5,000,000) shares of preferred stock, without par value. The
preferred stock shall be divided into one or more series as the
Board of Directors may determine as provided herein.
(b) The holders of common stock shall have one vote per share. The
common stock shall be subject to the prior rights of holders of any
series of preferred stock outstanding, according to the preferences,
if any, of such series.
(c) Each series of preferred stock may have full, limited, multiple
or fractional or no voting rights, and such designations,
preferences, limitations, and special rights as determined by the
board of directors as provided herein. The division of the preferred
stock into series, the determination of the designation and the
number of shares of any such series and the determination of the
voting rights, preferences, limitations, and special rights of the
shares of any such series may be accomplished by an amendment to
this Article 5, which amendment may be made solely by action of the
board of directors, which shall have the full authority permitted by
law to make such division and determinations.
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<PAGE>
(d) Unless otherwise provided in a resolution or resolutions
establishing any particular series of preferred stock, the aggregate
number of authorized shares of preferred stock may be increased by
an amendment to the articles approved solely by the holders of the
common stock and of any preferred stock who are entitled under
voting rights designated by the board to vote thereon, if at all,
voting together as a class.
6. The name and address, including street and number, if any, of each of
the Incorporators, and the number and class of shares subscribed to by each
Incorporator is:
Number and
Name Address Class of Shares
---- ------- ---------------
Paul A. Barrett 2209 Jefferson Ave. 1 share of
Dunmore, PA 18509 common stock
Samuel C. Cali 303 W. Elm Street 1 share of
Dunmore, PA 18512 common stock
Patrick J. Dempsey 100 Swinck Drive 1 share of
Dunmore, PA 18512 common stock
Michael F. Marranca 119 Johnson Street 1 share of
Pittston, PA 18640 common stock
Michael J. McDonald 2016 Green Ridge Street 1 share of
Dunmore, PA 18512 common stock
7. No merger, consolidation, liquidation or dissolution of the
Corporation, nor any action that would result in the sale or other
disposition of all or substantially all of the assets of the
Corporation shall be valid unless first approved by the affirmative
vote of:
(a) the holders of at least seventy-five percent (75%) of the
outstanding shares of stock of the Corporation entitled to vote
thereon; or
(b) the holders of at least fifty-one percent (51%) of the
outstanding shares of stock of the Corporation entitled to vote
thereon, provided that such transaction has received the prior
approval of at least eighty percent (80%) of all of the members of
the Board of Directors.
8. Cumulative voting rights shall not exist with respect to the election
of directors.
9. A majority of the Board of Directors of this Corporation, or one or
more shareholders entitled to cast at least twenty percent (20%) of the votes
that all shareholders are entitled to cast at a particular meeting, shall be
entitled to call special meetings of the shareholders.
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10. (a) The Board of Directors may, if it deems advisable, oppose a tender
or other offer for the corporation's securities, whether the offer is in cash or
in the securities of a corporation or otherwise. When considering whether to
oppose an offer, the Board of Directors may, but is not legally obligated to, in
considering the best interests of the corporation, consider any relevant,
germane or pertinent issue to the extent the Directors deem appropriate; by way
of illustration, but not to be considered any limitation on the power of the
Board of Directors to oppose a tender or other offer for this Corporation's
securities, the Board of Directors may, but shall not be legally obligated to,
consider any or all of the following:
(i) Whether the offer price is acceptable based on the historical
and present operating results or financial condition of the Corporation;
(ii) Whether a more favorable price could be obtained for this
corporation's securities in the future;
(iii) The social and economic effects of the offer or transaction on
this Corporation and any of its subsidiaries, employees, depositors, loan
and other customers, creditors, shareholders and other elements of the
communities in which this Corporation and any of its subsidiaries operate
or are located;
(iv) The reputation and business practice of the offeror and its
management and affiliates as they would affect the shareholders,
employees, depositors and customers of the Corporation and its
subsidiaries and the future value of the Corporation's stock;
(v) The value of the securities (if any) which the offeror is
offering in exchange for the Corporation's securities, based on an
analysis of the worth of the Corporation or other entity whose securities
are being offered;
(vi) The business and financial conditions and earnings prospects of
the offeror, including, but not limited to, debt service and other
existing or likely financial obligations of the offeror, and the possible
effect of such conditions upon this Corporation and any of its
subsidiaries and the other elements of the communities in which this
Corporation and any of its subsidiaries operate or are located;
(vii) Any antitrust or other legal and regulatory issues that are
raised by the offer.
(b) If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purpose including, but
not limited to, any or all of the following: advising shareholders not to accept
that offer; litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the offeror corporation's
securities; selling or otherwise issuing authorized but unissued securities or
treasury stock or granting options with respect thereto; acquiring a company to
create an antitrust or other regulatory problem for the offeror; and obtaining a
more favorable offer from another individual or entity.
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<PAGE>
11. Articles 7, 8, 9, 10 and 11 shall not be amended unless first approved
by the affirmative vote of:
(a) the holders of at least seventy-five percent (75%) of the
outstanding shares of stock of the Corporation entitled to vote
thereon; or
(b) the holders of at least fifty-one percent (51%) of the
outstanding shares of stock of the Corporation entitled to vote
thereon, provided that such amendment has received the prior
approval of at least eighty percent (80%) of all of the members of
the Board of Directors.
B-5
<PAGE>
ANNEX C
BY-LAWS OF FIDELITY D & D BANCORP, INC.
C-1
<PAGE>
BY-LAWS
of
FIDELITY D & D BANCORP, INC.
Article 1
CORPORATION OFFICE
Section 1.1 The Corporation shall have and continuously maintain in
Pennsylvania a registered office. The registered office shall be Blakely and
Drinker Streets, Dunmore, Pennsylvania 18512. The principal place of business of
the Corporation may be, but need not be, the same as the registered office. The
address of the registered office may be changed from time to time by the Board
of Directors.
Section 1.2 The Corporation may also have offices at such other places as
the Board of Directors may from time to time designate or the business of the
Corporation may require.
Article 2
SHAREHOLDERS MEETINGS
Section 2.1 All meetings of the shareholders shall be held at the
registered office of the Corporation or at such other place as may be fixed from
time to time by the Board of Directors, and such meetings shall be held at such
time as may be fixed from time to time by the Board of Directors.
Section 2.2 The annual meeting of the shareholders shall be held no later
than the thirty-first day of May in each year, when the shareholders shall elect
members to the Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 2.3 Special meetings of the shareholders may be called at any time
by a majority of the Board of Directors or by one or more shareholders entitled
to cast at least twenty percent (20%) of the votes which all shareholders are
entitled to cast at a particular meeting. At any time, upon written request of
any person who has called a special meeting, it shall be the duty of the
Secretary to fix the time of the meeting which, if the meeting is called
pursuant to a statutory right, shall be held not more than sixty (60) days after
the receipt of the request. If the Secretary refuses to fix the time of the
meeting or neglects to fix the time of the meeting within thirty (30) days after
the receipt of such a request, the person or persons making the request may
issue the call.
Section 2.4 Written notice of all shareholder meetings (other than
adjourned meetings of shareholders), shall state the place, date, hour, the
purpose thereof and shall be served upon, or mailed, postage prepaid, or
telegraphed, charges prepaid, at least ten (10) days before such meeting, unless
a greater period of notice is required by statute or by these By-laws, to each
shareholder entitled to vote thereat at such address as appears on the transfer
books for shares of the Corporation.
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<PAGE>
Section 2.5 When a meeting of shareholders is adjourned, it shall not be
necessary to give any notice of the adjourned meeting or of the business to be
transacted at an adjourned meeting, other than by announcement at the meeting at
which the adjournment is taken, unless the Board of Directors fixes a new record
date for the adjourned meeting.
Article 3
QUORUM OF SHAREHOLDERS
Section 3.1 The presence, in person or by proxy, of shareholders entitled
to cast at least a majority of the votes which all shareholders are entitled to
cast on the particular matter shall constitute a quorum for purposes of
considering such matter, and unless otherwise provided by statute the acts of
such shareholders at a duly organized meeting shall be the acts of the
shareholders.
Section 3.2 If, however, any meeting of shareholders cannot be organized
because of lack of a quorum, those present, in person or by proxy, shall have
the power, except as otherwise provided by statute, to adjourn the meeting to
such time and place as they may determine, without notice other than an
announcement at the meeting, until the requisite number of shareholders for a
quorum shall be present, in person or by proxy, except that those shareholders
entitled to vote who attend a meeting of shareholders:
(1) At which directors are to be elected that has been previously
adjourned for lack of a quorum, although less than a quorum, shall
nevertheless constitute a quorum for the purpose of electing
directors;
(2) That has been previously adjourned for one or more periods
aggregating at least fifteen (15) days because of an absence of a
quorum, although less than a quorum, shall nevertheless constitute a
quorum for the purpose of acting upon any matter set forth in the
notice of the meeting if the notice states that those shareholders
who attend the adjourned meeting shall nevertheless constitute a
quorum for the purpose of acting upon the matter.
Section 3.3 At any adjourned meeting at which a quorum shall be present or
so represented, any business may be transacted which might have been transacted
at the original meeting if a quorum had been present. The shareholders present,
in person or by proxy, at a duly organized meeting can continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
Article 4
VOTING RIGHTS
Section 4.1 Except as may be otherwise provided by statute or by the
Articles of Incorporation, at every shareholders meeting, every shareholder
entitled to vote thereat shall have the right to one vote for every share having
voting power standing in his name on the transfer books for shares of the
Corporation on the record date fixed for the meeting.
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<PAGE>
Section 4.2 When a quorum is present at any meeting the voice vote of the
holders of a majority of the stock having voting power, present, in person or by
proxy, shall decide any question brought before such meeting except as provided
differently by statute or by the Articles of Incorporation.
Section 4.3 Upon demand made by a shareholder entitled to vote at any
election for directors before the voting begins, the election shall be by
ballot.
Article 5
PROXIES
Section 5.1 Every shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Every proxy shall be executed in writing by the shareholder or his duly
authorized attorney in fact and filed with the Secretary of the Corporation.
Section 5.2 A proxy, unless coupled with an interest, shall be revocable
at will, notwithstanding any other agreement or any provision in the proxy to
the contrary, but the revocation of a proxy shall not be effective until notice
thereof has been given to the Secretary of the Corporation. No unrevoked proxy
shall be valid after eleven (11) months from the date of its execution, unless a
longer time is expressly provided therein, but in no event shall a proxy, unless
coupled with an interest, be voted after three (3) years from the date of its
execution. A proxy shall not be revoked by the death or incapacity of the maker,
unless before the vote is counted or the authority is exercised, written notice
of such death or incapacity is given to the Secretary of the Corporation.
Article 6
RECORD DATE
Section 6.1 The Board of Directors may fix a time, not more than ninety
(90) days prior to the date of any meeting of shareholders, or the date fixed
for the payment of any dividend or distribution, or the date for the allotment
of rights, or the date when any change or conversion or exchange of shares will
be made or go into effect, as a record date for the determination of the
shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such dividend or distribution, or to receive
any such allotment of rights, or to exercise the rights in respect to any such
change, conversion or exchange of shares. In such case, only such shareholders
as shall be shareholders of record on the date so fixed shall be entitled to
notice of, or to vote at, such meeting or to receive payment of such dividend or
distribution or to receive such allotment of rights or to exercise such rights,
as the case may be, notwithstanding any transfer of any shares on the transfer
books for shares of the Corporation after any record date fixed as aforesaid.
Section 6.2 The Board of Directors may close the transfer books for shares
of the Corporation against transfers of shares during the whole or any part of
such period, and in such case written or printed notice thereof shall be mailed
at least ten (10) days before closing thereof
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to each shareholder of record at the address appearing on the records of the
Corporation or supplied by him to the Corporation for the purpose of notice.
While the transfer books for shares of the Corporation are closed, no transfer
of shares shall be made thereon. If no record date is fixed by the Board of
Directors for the determination of shareholders entitled to receive notice of,
and vote at, a shareholders meeting, transferees of shares which are transferred
on the books of the Corporation within ten (10) days next preceding the date of
such meeting shall not be entitled to notice of or to vote at such meeting.
Article 7
VOTING LISTS
Section 7.1 The Secretary shall have charge of the transfer books for
shares of the Corporation and shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical order,
with the address of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting for
the purposes thereof.
Section 7.2 Failure to comply with the requirements of Section 7.1 shall
not affect the validity of any action taken at a meeting prior to a demand at
the meeting by any shareholder entitled to vote thereat to examine the list. The
original share register or transfer book, or a duplicate thereof kept in the
Commonwealth of Pennsylvania shall be prima facie evidence as to who are the
shareholders entitled to examine the list or share register or transfer book or
to vote an any meeting of shareholders.
Article 8
JUDGES OF ELECTION
Section 8.1 In advance of any meeting of shareholders, the Board of
Directors may appoint judges of election, who need not be shareholders, to act
at the meeting or any adjournment thereof. If judges of election are not so
appointed, the presiding officer of the meeting may, and on the request of any
shareholder shall, appoint judges of election at the meeting. The number of
judges shall be one or three. A person who is a candidate for office to be
filled at the meeting shall not act as a judge.
Section 8.2 In case any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the convening of the meeting or at the meeting
by the presiding officer thereof.
Section 8.3 The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies,
receive votes or ballots, hear and determine all challenges and questions in any
way arising in connection with the right to vote, count and tabulate all votes,
determine the result and do such acts as may be proper to conduct the election
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or vote with fairness to all shareholders. The judges of election shall perform
their duties impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of election, the
decision, act or certificate of a majority shall be effective in all respects as
the decision, act or certificate of all.
Section 8.4 On request of the presiding officer of the meeting, or of any
shareholder, the judges of election shall make a report in writing of any
challenge or question or matter determined by them, and execute a certificate of
any fact found by them. Any report or certificate made by them shall be prima
facie evidence of the facts stated therein.
Article 9
DIRECTORS
Section 9.1 Nominations for election to the Board of Directors may be made
by the Board of Directors or by any shareholder of any outstanding class of
capital stock of the Corporation entitled to vote for the election of directors.
Any shareholder who intends to nominate or to cause to have nominated any
candidate for election to the Board of Directors (other than any candidate
proposed by the Corporation's then existing Board of Directors) shall so notify
the Secretary of the Corporation in writing not less than sixty (60) days prior
to the date of any meeting of shareholders called for the election of directors.
Such notification shall contain the following information to the extent known by
the notifying shareholder.
(a) the name and address of each proposed nominee;
(b) the age of each proposed nominee;
(c) the principal occupation of each proposed nominee;
(d) the number of shares of the Corporation owned by each proposed
nominee;
(e) the total number of shares that to the knowledge of the
notifying shareholder will be voted for each proposed nominee;
(f) the name and residence address of the notifying shareholder;
and
(g) the number of shares of the Corporation owned by the notifying
shareholder.
Any nomination for director not made in accordance with this Section shall
be disregarded by the presiding officer of the meeting, and votes cast for each
such nominee shall be disregarded by the judges of election. In the event that
the same person is nominated by more
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than one shareholder, if at least one nomination for such person complies with
this Section, the nomination shall be honored and all votes cast for such
nominee shall be counted.
Section 9.2 The number of directors that shall constitute the whole Board
of Directors shall be not less than three (3). The Board of Directors shall be
classified into three (3) classes, each class to be elected for a term of three
(3) years. The terms of the respective classes shall expire in successive years
as provided in Section 9.3 hereof. Within the foregoing limits, the Board of
Directors may from time to time fix the number of directors and their respective
classifications.
Section 9.3 At the 2000 annual meeting of shareholders of the Corporation,
the shareholders shall elect ten (10) directors as follows: four (4) Class A
directors to serve until the 2001 annual meeting of shareholders, three (3)
Class B directors to serve until the 2002 annual meeting of shareholders, and
three (3) Class C directors to serve until the 2003 annual meeting of
shareholders. Each class shall be elected in a separate election. At each annual
meeting of shareholders thereafter, successors to the class of directors whose
term shall then expire shall be elected to hold office for a term of three (3)
years, so that the term of office of one class of directors shall expire in each
year. The Board of Directors shall have the sole discretion to increase the
number of Directors that shall constitute the whole Board of Directors; provided
however, that the total number of Directors in each class remains relatively
proportionate to the others.
Section 9.4 The Board of Directors may declare vacant the office of a
director who has been judicially declared of unsound mind or who has been
convicted of an offense punishable by imprisonment for a term of more than one
year or for any other proper cause which these By-laws may specify or if, within
sixty (60) days or such other time as these By-laws may specify after notice of
his selection, he does not accept the office either in writing or by attending a
meeting of the Board of Directors and fulfill such other requirements of
qualification as these By-laws may specify.
Section 9.5 Upon application of any shareholder or director, the court may
remove from office any director in case of fraudulent or dishonest acts, or
gross abuse of authority or discretion with reference to the Corporation, or for
any other proper cause, and may bar from office any director so removed for a
period prescribed by the court. The Corporation shall be made a party to the
action and, as a prerequisite to the maintenance of an action under this Section
9.5, a shareholder shall comply with Section 1782 of the Business Corporation
Law of 1988, and any amendments or supplements thereto.
Section 9.6 An act of the Board of Directors done during the period when a
director has been suspended or removed for cause shall not be impugned or
invalidated if the suspension or removal is thereafter rescinded by the
shareholders or by the Board of Directors or by the final judgment of a court.
Section 9.7 The Board of Directors may appoint a person who previously
held the position of Director to be a Director Emeritus. A Director Emeritus may
attend meetings of the Board of Directors and shall have such other rights and
privileges as may be determined from time to time by resolution of the Board of
Directors.
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Article 10
VACANCIES ON BOARD OF DIRECTORS
Article 10.1 Vacancies on the Board of Directors, including vacancies
resulting from an increase in the number of directors, shall be filled by a
majority of the remaining members of the Board of Directors, or by a sole
remaining director, though less than a quorum, and each person so appointed
shall be a director until the expiration of the term of office of the class of
directors to which he was appointed.
Article 11
POWERS OF BOARD OF DIRECTORS
Section 11.1 The business and affairs of the Corporation shall be managed
by its Board of Directors, which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by the Articles
of Incorporation or by these By-laws directed or required to be exercised and
done by the shareholders.
Section 11.2 A director shall stand in a fiduciary relation to the
Corporation and shall perform his duties as a director, including his duties as
a member of any committee of the Board of Directors upon which he may serve, in
good faith, in a manner he reasonably believes to be in the best interests of
the Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. In performing his duties, a director shall be entitled to rely in
good faith on information, opinions, reports or statements, including financial
statements and other financial data, in each case prepared or presented by any
of the following:
(a) One or more officers or employees of the Corporation whom the director
reasonably believes to be reliable and competent in the matters presented.
(b) Counsel, public accountants or other persons as to matters which the
director reasonably believes to be within the professional or expert competence
of such persons.
(c) A committee of the Board of Directors upon which he does not serve,
duly designated in accordance with law, as to matters within its designated
authority, which committee the director reasonably believes to merit confidence.
A director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause his reliance to be
unwarranted.
In assessing whether the standard set forth herein has been satisfied,
there shall not be any greater obligation to justify, or higher burden of proof
with respect to, any act as the board of directors, any committee of the board
or any individual director relating to or affecting an acquisition or potential
or proposed acquisition of control of the corporation than is applied to any
other act as a board of directors, any committee of the board or any individual
director.
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Section 11.3 In discharging the duties of their respective positions, the
Board of Directors, committees of the Board of Directors and individual
directors may, in considering the best interests of the Corporation, consider
the effects of any action upon employees, upon suppliers, upon creditors and
customers of the Corporation and upon communities in which offices or other
establishments of the Corporation are located, and all other pertinent factors.
The consideration of those factors shall not constitute a violation of Section
11.2.
Section 11.4 Absent breach of fiduciary duty, lack of good faith or
self-dealing, actions taken as a director or any failure to take any action
shall be presumed to be in the best interests of the Corporation.
Section 11.5 A director shall not be personally liable, as such, for
monetary damages for any action taken, or any failure to take any action,
unless:
(a) the director has breached or failed to perform the duties of his
office under this Article 11; and
(b) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
Section 11.6 The provisions of Section 11.5 shall not apply to:
(a) the responsibility or liability of a director pursuant to any criminal
statute; or
(b) the liability of a director for the payment of taxes pursuant to
local, State or Federal law.
Section 11.7 A director of the Corporation who is present at a meeting of
the Board of Directors, or of a committee of the Board of Directors, at which
action on any corporate matter is taken shall be presumed to have assented to
the action taken unless his dissent is entered in the minutes of the meeting or
unless he files his written dissent to the action with the Secretary of the
Corporation before the adjournment thereof or transmits the dissent in writing
to the Secretary of the Corporation immediately after the adjournment of the
meeting. The right to dissent shall not apply to a director who voted in favor
of the action. Nothing in this Section 11.7 shall bar a director from asserting
that minutes of any meeting incorrectly omitted his dissent if, promptly upon
receipt of a copy of such minutes, he notifies the Secretary of the Corporation,
in writing, of the asserted omission or inaccuracy.
Article 12
COMMITTEES OF THE BOARD OF DIRECTORS
Section 12.1 The Board of Directors may, by resolution adopted by a
majority of the directors in office, establish one or more committees to consist
of one or more directors of the Corporation. Any committee, to the extent
provided in the resolution of the Board of Directors or in these By-laws, shall
have and may exercise all of the powers and authority of the Board of Directors,
except that a committee shall not have any power or authority as to the
following:
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(a) The submission to shareholders of any action requiring approval of
shareholders under applicable law, the Articles of Incorporation or
these By-laws.
(b) The creation or filling of vacancies in the Board of Directors.
(c) The adoption, amendment or repeal of these By-laws.
(d) The amendment or repeal of any resolution of the Board of Directors
that by its terms is amendable or repealable only by the Board of
Directors.
(e) Action on matters committed by these By-laws or resolution of the
Board of Directors to another committee of the Board of Directors.
Section 12.2 The Board of Directors may designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee or for the purposes of any written action
by the committee. In the absence or disqualification of a member and alternate
member or members of a committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in the
place of the absent or disqualified member.
Section 12.3 Each committee of the Board of Directors shall serve at the
pleasure of the Board of Directors. The term "Board of Directors," when used in
any provision of this Article 12 relating to the organization or procedures of
or the manner of taking action by the Board of Directors, shall be construed to
include and refer to any executive or other committee of the Board of Directors.
Any provision of this Article 12 relating or referring to action to be taken by
the Board of Directors or the procedure required therefor shall be satisfied by
the taking of corresponding action by a committee of the Board of Directors to
the extent authority to take the action has been delegated to the committee
pursuant to this Article 12.
Article 13
MEETINGS OF THE BOARD OF DIRECTORS
Section 13.1 An organization meeting may be held immediately following the
annual shareholders meeting without the necessity of notice to the directors to
constitute a legally convened meeting, or the directors may meet at such time
and place as may be fixed by either a notice or waiver of notice or consent
signed by all of such directors.
Section 13.2 Regular meetings of the Board of Directors shall be held not
less often than semi-annually at a time and place determined by the Board of
Directors at the preceding meeting. One or more directors may participate in any
meeting of the Board of Directors, or of any committee thereof, by means of a
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear one another.
Section 13.3 Special meetings of the Board of Directors may be called by
the President on one (1) day's notice to each director, either personally or in
the manner set forth under Article
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32 hereof; special meetings shall be called by the President in like manner and
on like notice upon the written request of three (3) directors.
Section 13.4 At all meetings of the Board of Directors, a majority of the
directors shall constitute a quorum for the transaction of business, and the
acts of a majority of the directors present at a meeting in person or by
conference telephone or similar communications equipment at which a quorum is
present in person or by such communications equipment shall be the acts of the
Board of Directors, except as may be otherwise specifically provided by statute
or by the Articles of Incorporation or by these By-laws. If a quorum shall not
be present in person or by communications equipment at any meeting of the
directors, the directors present may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or as permitted herein.
Article 14
INFORMAL ACTION BY THE BOARD OF DIRECTORS
Section 14.1 Any action required or permitted to be taken at a meeting of
the directors may be taken without a meeting if, prior or subsequent to the
action, a consent or consents thereto by all of the directors in office is filed
with the Secretary of the Corporation.
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Article 15
COMPENSATION OF DIRECTORS
Section 15.1 Directors, as such, may receive a stated salary for their
services or a fixed sum and expenses for attendance at regular and special
meetings, or any combination of the foregoing as may be determined from time to
time by resolution of the Board of Directors, and nothing contained herein shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Article 16
OFFICERS
Section 16.1 The officers of the Corporation shall be elected by the Board
of Directors at its organizational meeting and shall be a President, Secretary
and Treasurer. The Board of Directors may elect one of its members as Chairman
of the Board. The Board of Directors may also elect one or more Vice Presidents
and such other officers and appoint such agents as it shall deem necessary, who
shall hold their offices for such terms, have such authority and perform such
duties as may from time to time be prescribed by the Board of Directors. Any
number of offices may be held by the same person, except that the offices of
President, Treasurer and Chief Financial Officer, if any, shall not be held by
the same person or persons.
Section 16.2 The compensation of all officers of the Corporation shall be
fixed by the Board of Directors.
Section 16.3 Each officer shall hold office for a term of one year and
until his successor has been selected and qualified or until his earlier death,
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. The resignation shall be effective upon receipt thereof by
the Corporation or at such subsequent time as may be specified in the notice of
resignation. The Corporation may secure the fidelity of any or all of the
officers by bond or otherwise.
Section 16.4 Any officer or agent of the Corporation may be removed by the
Board of Directors with or without cause. The removal shall be without prejudice
to the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
Section 16.5 An officer shall perform his duties as an officer in good
faith, in a manner he reasonably believes to be in the best interests of the
Corporation and with such care, including reasonable inquiry, skill and
diligence, as a person of ordinary prudence would use under similar
circumstances. A person who so performs his duties shall not be liable by reason
of having been an officer of the Corporation.
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Article 17
THE PRESIDENT
Section 17.1 The Board of Directors shall appoint one of its members to be
President. He shall be the chief executive officer of the Corporation. He shall
supervise the carrying out of the policies adopted or approved by the Board of
Directors; shall have general and active management of the business of the
Corporation; shall see that all orders and resolutions of the Board of Directors
are put into effect, subject, however, to the right of the Board of Directors to
delegate any specific powers, except such as may be by statute exclusively
conferred on any particular officer or officers of the Corporation. The
President shall execute bonds, mortgages and other contracts requiring a seal
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board of Directors to some other
officer or agent of the Corporation. He shall have general executory powers in
addition to those specific powers conferred by these by-laws. He shall also have
and may exercise such further powers and duties as from time to time may be
conferred upon or assigned to him by the Board of Directors. In the absence or
incapacity of the Chairman of the Board, the President shall preside at meetings
of the shareholders and the directors.
Article 18
THE CHAIRMAN OF THE BOARD
Section 18.1 The Board of Directors may appoint one of its members to be
the Chairman of the Board. If elected, he shall preside at all meetings of the
shareholders and directors; shall supervise the carrying out of the policies
adopted or approved by the Board; shall have general executory powers in
addition to those specific powers conferred by these by-laws; and shall also
have and may exercise such further powers and duties as from time to time may be
conferred upon or assigned to him by the Board of Directors.
Article 19
THE VICE PRESIDENT
Section 19.1 The Vice President or, if more than one, the Vice Presidents
in the order established by the Board of Directors shall, in the absence or
incapacity of the President, exercise all powers and perform the duties of the
President. The Vice Presidents, respectively, shall also have such other
authority and perform such other duties as may be provided in these By-laws or
as shall be determined by the Board of Directors or the President. Any Vice
President may, in the discretion of the Board of Directors, be designated as
"executive," "senior," or by departmental or functional classification.
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Article 20
THE SECRETARY
Section 20.1 The Secretary shall attend all meetings of the Board of
Directors and of the shareholders and keep accurate records thereof in one or
more minute books kept for that purpose, shall attend to the giving of all
notices required by these by-laws to be given, and shall perform the duties
customarily performed by the secretary of a corporation and such other duties as
may be assigned to him by the Board of Directors or the President.
Article 21
THE TREASURER
Section 21.1 The Treasurer shall have the custody of the corporate funds
and securities; shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall perform such other
duties as may be assigned to him by the Board of Directors or the President. He
shall give bond in such sum and with such surety as the Board of Directors may
from time to time direct.
Article 22
ASSISTANT OFFICERS
Section 22.1 Each assistant officer shall assist in the performance of the
duties of the officer to whom he is assistant and shall perform such duties in
the absence of the officer. He shall perform such additional duties as the Board
of Directors, the President, the Chairman of the Board or the officer to whom he
is assistant may from time to time assign him. Such officers may be given such
functional titles as the Board of Directors shall from time to time determine.
Article 23
INDEMNIFICATION
Section 23.1 (Third Party Actions) The Corporation shall have power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a
representative of the Corporation, or is or was serving at the request of the
Corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action or proceeding if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action or proceeding by judgment,
order, settlement or conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in
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good faith and in a manner that he reasonably believed to be in, or not opposed
to, the best interests of the Corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Section 23.2 (Derivative Actions) The Corporation shall have power to
indemnify any person who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was a representative of the Corporation or is or was serving at the request
of the Corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation. Indemnification
shall not be made under this section in respect of any claim, issue or matter as
to which the person has been adjudged to be liable to the Corporation unless and
only to the extent that the court of common pleas of the judicial district
embracing the county in which the registered office of the Corporation is
located or the court in which the action was brought determines upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for the
expenses that the court of common pleas or other court deems proper.
Section 23.3 (Mandatory Indemnification) To the extent that a
representative of the Corporation has been successful on the merits or otherwise
in defense of any action or proceeding referred to in Sections 23.1 (relating to
third party actions) or 23.2 (relating to derivative actions) or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
Section 23.4 (Procedure for Effecting Indemnification) Unless ordered by a
court, any indemnification under Sections 23.1 (relating to third party actions)
or 23.2 (relating to derivative actions) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of
the person is proper in the circumstances because he has met the applicable
standard of conduct set forth in those sections. The determination shall be
made:
(a) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action or proceeding;
(b) if such a quorum is not obtainable or if obtainable and a majority
vote of a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
(c) by the shareholders.
Section 23.5 (Advancing Expenses) Expenses (including attorneys' fees)
incurred in defending any action or proceeding referred to in this Article 23
may be paid by the Corporation in advance of the final disposition of the action
or proceeding upon receipt of an undertaking by
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or on behalf of the person to repay the amount if it is ultimately determined
that he is not entitled to be indemnified by the Corporation as authorized in
this Article 23 or otherwise.
Section 23.6 (Supplementary Coverage) (a) The indemnification and
advancement of expenses provided by, or granted pursuant to, the other sections
of this Article 23 shall not be deemed exclusive of any other rights to which a
person seeking indemnification or advancement of expenses may be entitled under
any By-law, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding that office. The Corporation may create a fund of
any nature, which may, but need not be, under the control of a trustee, or
otherwise secure or insure in any manner its indemnification obligations,
whether arising under or pursuant to this Section 23.6 or otherwise.
(b) Indemnification pursuant to subsection (a) of this Section 23.6 shall
not be made in any case where the act or failure to act giving rise to the claim
for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
(c) Indemnification pursuant to subsection (a) of this Section 23.6 under
any By-law, agreement, vote of shareholders or directors or otherwise, may be
granted for any action taken or any failure to take any action and may be made
whether or not the Corporation would have the power to indemnify the person
under any other provision of law except as provided in this Section 23.6 and
whether or not the indemnified liability arises or arose from any threatened,
pending or completed action by or in the right of the Corporation.
Section 23.7 (Power to Purchase Insurance) The Corporation shall have
power to purchase and maintain insurance on behalf of any person who is or was a
representative of the Corporation or is or was serving at the request of the
Corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against that liability under the
provisions of this Article 23.
Section 23.8 (Application to Surviving or New Corporations) For the
purpose of this Article 23, references to "the Corporation" include all
constituent corporations absorbed in a consolidation, merger or division, as
well as the surviving or new corporations surviving or resulting therefrom, so
that any person who is or was a representative of the constituent, surviving or
new corporation, or is or was serving at the request of the constituent,
surviving or new corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions of this
Article 23 with respect to the surviving or new corporation as he would if he
had served the surviving or new corporation in the same capacity.
Section 23.9 (Application to Employee Benefit Plans) For purposes of this
Article 23:
(a) References to "other enterprises" shall include employee benefit plans
and references to "serving at the request of the Corporation" shall include any
service as a representative of the Corporation that imposes duties on, or
involves services by, the representative with respect to an employee benefit
plan, its participants or beneficiaries.
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(b) Excise taxes assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be deemed "fines."
(c) Action with respect to an employee benefit plan taken or omitted in
good faith by a representative of the Corporation in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of the plan
shall be deemed to be action in a manner that is not opposed to the best
interests of the Corporation.
Section 23.10 (Duration and Extent of Coverage) The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article 23
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a representative of the Corporation and shall inure
to the benefit of the heirs and personal representative of that person.
Article 24
SHARE CERTIFICATES
Section 24.1 The share certificates of the Corporation shall be numbered
and registered in a share register as they are issued; shall bear the name of
the registered holder, the number and class of shares represented thereby, the
par value of each share or a statement that such shares are without par value,
as the case may be; shall be signed by the Chairman of the Board or the
President and the Secretary or the Treasurer or any other person properly
authorized by the Board of Directors, and shall bear the corporate seal, which
seal may be a facsimile engraved or printed. Where the certificate is signed by
a transfer agent or a registrar, the signature of any corporate officer on such
certificate may be a facsimile engraved or printed. In case any officer who has
signed, or whose facsimile signature has been placed upon, any share certificate
shall have ceased to be such officer because of death, resignation or otherwise
before the certificate is issued, it may be issued by the Corporation with the
same effect as if the officer had not ceased to be such at the date of its
issue.
Article 25
TRANSFER OF SHARES
Section 25.1 Upon surrender to the Corporation of a share certificate duly
endorsed by the person named in the certificate or by attorney duly appointed in
writing and accompanied where necessary by proper evidence of succession,
assignment or authority to transfer, a new certificate shall be issued to the
person entitled thereto and the old certificate cancelled and the transfer
recorded upon the transfer books for shares of the Corporation. No transfer
shall be made if it would be inconsistent with the provisions of Article 8 of
the Pennsylvania Uniform Commercial Code.
Article 26
LOST CERTIFICATES
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Section 26.1 Where a shareholder of the Corporation alleges the loss,
theft or destruction of one or more certificates for shares of the Corporation
and requests the issuance of a substitute certificate therefor, the Board of
Directors may direct a new certificate of the same tenor and for the same number
of shares to be issued to such person upon such person's making of an affidavit
in form satisfactory to the Board of Directors setting forth the facts in
connection therewith, provided that prior to the receipt of such request the
Corporation shall not have either registered a transfer of such certificate or
received notice that such certificate has been acquired by a bona fide
purchaser. When authorizing such issue of a new certificate the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
heirs or legal representatives, as the case may be, to advertise the same in
such manner as it shall require and/or give the Corporation a bond in such form
and with surety or sureties, with fixed or open penalty, as shall be
satisfactory to the Board of Directors, as indemnity for any liability or
expense which it may incur by reason of the original certificate remaining
outstanding.
Article 27
DIVIDENDS
Section 27.1 The Board of Directors may, from time to time, at any duly
convened regular or special meeting or by unanimous consent in writing, declare
and pay dividends upon the outstanding shares of capital stock of the
Corporation in cash, property or shares of the Corporation, so long as any
dividend shall not be in violation of law and the Articles of Incorporation.
Section 27.2 Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in their absolute discretion, think proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purposes as the Board of Directors shall believe to be for the best interests of
the Corporation, and the Board of Directors may reduce or abolish any such
reserve in the manner in which it was created.
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Article 28
FINANCIAL REPORT TO SHAREHOLDERS
Section 28.1 The President and the Board of Directors shall present prior
to each annual meeting of the shareholders a full and complete statement of the
business and affairs of the Corporation for the preceding year.
Article 29
INSTRUMENTS
Section 29.1 Any note, mortgage, evidence of indebtedness, contract or
other document, or any assignment or endorsement thereof, executed or entered
into between the Corporation and any other person, when signed by one or more
officers or agents having actual or apparent authority to sign it, or by the
President or the Vice President and Secretary or Assistant Secretary or
Treasurer or Assistant Treasurer of the Corporation, shall be held to have been
properly executed for and in behalf of the Corporation.
Section 29.2 The affixation of the corporate seal shall not be necessary
to the valid execution, assignment or endorsement by the Corporation of any
instrument or other document.
Article 30
FISCAL YEAR
Section 30.1 The fiscal year of the Corporation shall be the calendar
year.
Article 31
SEAL
Section 31.1 The President, the Treasurer, the Secretary and any Assistant
Treasurer or Assistant Secretary, or any other officer designated by the Board
of Directors, shall have the authority to affix the corporate seal to any
document requiring such seal and to attest the same. The corporate seal shall
have inscribed thereon the name of the Corporation, the year of its organization
and the words "Corporate Seal, Pennsylvania." Such seal may be used by causing
it or a facsimile thereof to be impressed or affixed in any manner reproduced.
Article 32
NOTICES AND WAIVERS THEREOF
Section 32.1 Whenever written notice is required to be given to any person
under the provisions of applicable law, by the Articles of Incorporation or of
these By-laws, it may be given to the person either personally or by sending a
copy thereof by first class or express mail,
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postage prepaid, or by telegram (with messenger service specified), telex or TWX
(with answer-back received) or courier service, charges prepaid, or by
telecopier, to his address (or to his telex, TWX, telecopier or telephone
number) appearing on the books of the Corporation or, in the case of directors,
supplied by him to the Corporation for the purpose of notice. If the notice if
sent by mail, telegraph or courier service, it shall be deemed to have been
given to the person entitled thereto when deposited in the United States mail or
with a telegraph office or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched. A notice of meeting shall specify the
place, day and hour of the meeting and any other information required by any
other provision of these By-laws.
Section 32.2 Whenever any written notice is required to be given under the
provisions of applicable law, the Articles of Incorporation or of these By-laws,
a waiver thereof in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of the notice. Except as otherwise required by these
By-laws, neither the business to be transacted at, nor the purpose of, a meeting
need be specified in the waiver of notice of the meeting. In the case of a
special meeting of shareholders, the waiver of notice shall specify the general
nature of the business to be transacted.
Section 32.3 Attendance of a person at any meeting shall constitute a
waiver of notice of the meeting except where a person attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened.
Section 32.4 Whenever any notice or communication is required to be given
to any person under the provisions of applicable law, the Articles of
Incorporation, these By-laws, the terms of any agreement and any other
instrument or as a condition precedent to taking any corporate action, and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required and there shall be no duty to
apply for a license or other permission to do so. Any action or meeting that is
taken or held without notice or communication to that person shall have the same
validity as if the notice or communication had been duly given. If the action
taken is such as to require the filing of any document with respect thereto
under any provision of law or any agreement or other instrument, it shall be
sufficient, if such is the fact and if notice or communication in required, to
state therein that notice or communication was given to all persons entitled to
receive notice or communication except persons with whom communication was
unlawful.
Section 32.5 Section 32.4 shall also be applicable to any shareholder with
whom the Corporation has been unable to communicate for more than twenty-four
(24) consecutive months because communications to the shareholder are returned
unclaimed or the shareholder has otherwise failed to provide the Corporation
with a current address. Whenever the shareholder provides the Corporation with a
current address, Section 32.4 shall cease to be applicable to the shareholder
under this Section 32.5.
Article 33
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EMERGENCIES
Section 33.1 The Board of Directors may adopt emergency By-laws, subject
to repeal or change by action of the shareholders, which shall, notwithstanding
any different provisions of law, of the Articles of Incorporation or of these
By-laws, be effective during any emergency resulting from an attack on the
United States, a nuclear disaster or another catastrophe as a result of which a
quorum of the Board of Directors cannot readily be assembled. The emergency
By-laws may make any provision that may be appropriate for the circumstances of
the emergency including, procedures for calling meetings of the Board of
Directors, quorum requirements for meetings and procedures for designating
additional or substitute directors.
Section 33.2 The Board of Directors, either before or during any
emergency, may provide, and from time to time modify, lines of succession in the
event that during the emergency any or all officers or agents of the Corporation
shall for any reason be rendered incapable of discharging their duties and may,
effective in the emergency, change the head offices or designate several
alternative head offices or regional offices of the Corporation or authorize the
officers to do so.
Section 33.3 A representative of the Corporation acting in accordance with
any emergency By-laws shall not be liable except for willful misconduct and
shall not be liable for any action taken by him in good faith in an emergency in
furtherance of the ordinary business affairs of the Corporation even though not
authorized by the emergency or other By-laws then in effect.
Section 33.4 To the extent not inconsistent with any emergency By-laws so
adopted, the By-laws of the Corporation shall remain in effect during any
emergency and, upon its termination, the emergency By-laws shall cease to be
effective.
Section 33.5 Unless otherwise provided in emergency By-laws, notice of any
meeting of the Board of Directors during an emergency shall be given only to
those directors to whom it is feasible to reach at the time and by such means as
are feasible at the time, including publication, radio or television. To the
extent required to constitute a quorum at any meeting of the Board of Directors
during any emergency, the officers of the Corporation who are present shall,
unless otherwise provided in emergency By-laws, be deemed, in order of rank and
within the same rank in order of seniority, directors for the meeting.
Article 34
AMENDMENTS
Section 34.1 These By-laws may be altered, amended or repealed by the
affirmative vote of the holders of at least seventy-five percent (75%) of the
outstanding shares of Common Stock at any regular or special meeting duly
convened after notice to the shareholders of that purpose, or by a majority vote
of the members of the Board of Directors at any regular or special meeting
thereof duly convened after notice to the directors of that purpose (except that
the directors shall not make or alter any by-laws fixing their qualification,
classification or term of office), subject always to the power of the
shareholders to change such action of the Board of Directors by the
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affirmative vote of the holders of seventy-five percent (75%) of the outstanding
shares of Common Stock.
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ANNEX D
STATUTES REGARDING
DISSENTERS' RIGHTS
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PENNSYLVANIA BANKING CODE OF 1965, AS AMENDED
Excerpt from Chapter 12
Section 1222. Rights of Dissenting Shareholders.
If a shareholder of an institution shall object to a proposed plan of
action of the institution authorized under a section of this act and such
section provides that the shareholder shall be entitled to rights and remedies
of a dissenting shareholder, the rights and remedies of such shareholder shall
be governed by the provisions of the Business Corporation Law(1) applicable to
dissenting shareholders and shall be subject to the limitations on such rights
and remedies under those provisions. Shares acquired by an institution as a
result of the exercise of such rights by a dissenting shareholder may be held
and disposed of as treasury shares, or, in the case of a merger or
consolidation, as otherwise provided in the plan of merger or consolidation.
Excerpt from Chapter 16
Section 1607. Rights of Dissenting Shareholders.
(a) A shareholder of an institution which is a party to a plan in which
the proposed merger or consolidation will result in an institution subject to
this act who objects to the plan shall be entitled to the rights and remedies of
a dissenting shareholder provided under, and subject to compliance with, the
provisions of section 1222 of this act.
THE PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988, AS AMENDED
Excerpt from Subchater 19C
Section 1930. Dissenters Rights
(a) General Rule. If any shareholder of a domestic business corporation
that is to be a party to a merger or consolidation pursuant to a
plan of merger or consolidation objects to the plan of merger or
consolidation and complies with the provisions of Subchapter D of
Chapter 15 (relating to dissenters rights), the shareholder shall be
entitled to the rights and remedies of dissenting shareholders
therein provided, if any. See also section 1906(c) (relating to
dissenters rights upon special treatment).
Subchapter 15D - Dissenters Rights
Section 1571. Application and effect of subchapter.
(a) General rule. Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares,
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(1) 15 Pa. C.S.A. Section 1001 et seq.
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where this part expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of
qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.
(1) Except as otherwise provided in paragraph (2), the holders of
the shares of any class or series of shares that, at the record date
fixed to determine the shareholders entitled to notice of and to
vote at the meeting at which a plan specified in any of section
1930, 1931(d), 1932(c) or 1952(d) is to be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders; shall
not have the right to obtain payment of the fair value
of any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph
in the case of:
(i) shares converted by a plan if the shares are not
converted solely into shares of the acquiring,
surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares;
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(ii) shares of any preferred or special class unless the
articles, the plan or the terms of the transaction
entitle all shareholders of the class to vote thereon
and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of
a majority of the votes cast by all shareholders of the
class;
(iii) shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special
treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the
liabilities of the other corporation and with or without the
intervention of another corporation or other person, shall not be
entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the
case, that the acquisition was accomplished by the issuance of
voting shares of the corporation to be outstanding immediately after
the acquisition sufficient to elect a majority or more of the
directors of the corporation.
(c) Grant of optional dissenters rights. The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights. Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair
value of their shares by complying with the terms of this
subchapter; and
(2) a copy of this subchapter.
(e) Other statutes. The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective. This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references. See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
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Section 1572. Definitions.
The following words and phrases when used in this subchapter shall have
the meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the
dissenter before the corporate action or the successor by merger,
consolidation, division, conversion or otherwise of that issuer. A plan of
division may designate which of the resulting corporations is the
successor corporation for the purposes of this subchapter. The successor
corporation in a division shall have sole responsibility for payments to
dissenters and other liabilities under this subchapter except as otherwise
provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to
and does assert dissenters rights under this subchapter and who has
performed every act required up to the time involved for the assertion of
those rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
of the circumstances, taking into account all relevant factors including
the average rate currently paid by the corporation on its principal bank
loans.
Section 1573. Record and beneficial holders and owners.
(a) Record holders of shares. A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares
beneficially owned by any one person and discloses the name and address of the
person or persons on whose behalf he dissents. In that event, his rights shall
be determined as if the shares as to which he has dissented and his other shares
were registered in the names of different shareholders.
(b) Beneficial owners of shares. A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
Section 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand
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that he be paid the fair value of his shares if the proposed action is
effectuated, must effect no change in the beneficial ownership of his shares
from the date of such filing continuously through the effective date of the
proposed action and must refrain from voting his shares in approval of such
action. A dissenter who fails in any respect shall not acquire any right to
payment of the fair value of his shares under this subchapter. Neither a proxy
nor a vote against the proposed corporate action shall constitute the written
notice required by this section.
Section 1575. Notice to demand payment.
(a) General rule. If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to
obtain payment.
(2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for payment
is received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on
whose beneficial shareholder dissents, acquired beneficial ownership
of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment. The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act. A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares. If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder. The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
Section 1577. Release of restrictions or payment for shares.
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(a) Failure to effectuate corporate action. Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment. When uncertified shares have been
released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares. Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter or a fiscal year ending
not more than 16 months before the date of remittance or notice
together with the latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of
this subchapter.
(d) Failure to make payment. If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been so made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those which the original dissenter had
after making demand for payment of their fair value.
Section 1578. Estimate by dissenter of fair value of shares.
(a) General rule. If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
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(b) Effect of failure to file estimate. Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
Section 1579. Valuation proceedings generally.
(a) General rule. Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under Section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to Section 1578
(relating to estimate by dissenter of fair value of shares).
If any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of the
shares be determined by the court.
(b) Mandatory joinder of dissenters. All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pacs Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) Jurisdiction of the court. The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery. Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application. If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
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Section 1580. Costs and expenses of valuation proceedings.
(a) General rule. The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally) including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears. Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses arc assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) Award of fees for benefits to other dissenters. If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefitted.
D-9
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law of
1988, as amended (15 PA. C.S.A. Sections 1741-1750) provides that a business
corporation shall have the power under certain circumstances to indemnify
directors, officers, employees and agents against certain expenses incurred by
them in connection with any threatened, pending or completed action, suit or
proceeding. The full text of Subchapter D of Chapter 17 of the Pennsylvania
Business Corporation Law of 1988 is attached as Exhibit 99.4.
Section 1741 (relating to third party actions) provides that a business
corporation shall have the power to indemnify any person who was or is a party,
or is threatened to be made a party to any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that such person is or was a representative of the corporation, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
the action or proceeding if such person acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action or
proceeding by judgment, order, settlement or conviction or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that the
person did not act in good faith and in a manner that he reasonably believed to
be in, or not opposed to, the best interests of the corporation, and with
respect to any criminal proceeding, had reasonable cause to believe that his
conduct was not unlawful.
Section 1742 (relating to derivative actions) provides that a business
corporation shall have the power to indemnify any person who was or is a party,
or is threatened to be made a party, to any threatened, pending or completed
action by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person is or was a representative of the
corporation, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of the action if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to the best interests of the corporation.
Indemnification shall not be made under this section in respect of any claim,
issue or matter as to which such person has been adjudged to be liable to the
corporation unless, and only to the extent that, the court of common pleas of
the judicial district embracing the county in which the registered office of the
corporation is located or the court in which such action was brought determines
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court of common pleas or such other court
shall deem proper.
Section 1743 (relating to mandatory indemnification) provides for
mandatory indemnification of directors and officers such that to the extent that
a representative of the business corporation has been successful on the merits
or otherwise in defense of any action or proceeding referred to in Sections 1741
(relating to third party actions) or 1742 (relating to derivative actions), or
in defense of any claim, issue or matter therein, such person shall be
II-1
<PAGE>
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
Section 1744 (relating to procedure for effecting indemnification)
provides the procedure for effecting indemnification. Under this section unless
ordered by a court, any indemnification under Section 1741 (relating to third
party actions) or 1742 (relating to derivative actions) shall be made by the
business corporation only as authorized in the specific case upon a
determination that indemnification of the representative is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in those sections. The determination shall be made:
1. by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the action or proceeding;
2. if such quorum is not obtainable, or, if obtainable and a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
3. by the shareholders.
Section 1745 (relating to advancing expenses) provides that expenses
(including attorneys' fees) incurred in defending any action or proceeding
referred to above may be paid by the business corporation in advance of the
final disposition of the action or proceeding upon receipt of an undertaking by
or on behalf of the representative to repay such amount if it is ultimately
determined that such person is not entitled to be indemnified by the
corporation.
Section 1746 (relating to supplementary coverage) provides that the
indemnification and advancement of expenses provided by or granted pursuant to
the other sections of the BCL shall not be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any other by-law, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
Section 1746 also provides that indemnification referred to above shall
not be made in any case where the act or failure to act giving rise to the claim
for indemnification is determined by a court to have constituted willful
misconduct or recklessness.
Section 1746 further declares that indemnification under any bylaw,
agreement, vote of shareholders or directors or otherwise, may be granted for
any action taken or any failure to take any action and may be made whether or
not the corporation would have the power to indemnify the person under any other
provision of law except as provided in this section and whether or not the
indemnified liability arises or arose from any threatened, pending or completed
action by or in the right of the corporation. Such indemnification is declared
to be consistent with the public policy of the Commonwealth of Pennsylvania.
Section 1747 (relating to the power to purchase insurance) provides that a
business corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a representative of the corporation against
any liability asserted against him and incurred
II-2
<PAGE>
by him in any such capacity, or arising out of his status as such, whether or
not the corporation would have the power to indemnify him against that liability
under the provisions of the Business Corporation Law. Such insurance is declared
to be consistent with the public policy of the Commonwealth of Pennsylvania.
Article 23 of the By-laws of the Registrant provides for the
indemnification of its directors, officers, employees and agents in accordance
with, and to the maximum extent permitted by, the provision of Subchapter D of
Chapter 17 of the Pennsylvania Business Corporation Law of 1988, as amended. In
addition, Registrant intends to purchase and maintain insurance against
liability for acts by these persons, as permitted by law.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits:
2.1 Plan of Reorganization dated as of __________, 1999, among
Registrant, The Fidelity Deposit and Discount Bank and The
Fidelity Deposit and Discount Interim Bank (included as Annex
A to the Proxy Statement/Prospectus contained herein).
2.2 Plan of Merger dated as of ____________, 1999, between The
Fidelity Deposit and Discount Bank and The Fidelity Deposit
and Discount Interim Bank (included as Exhibit A to the Plan
of Reorganization, which is included in Annex A to the Proxy
Statement/Prospectus contained herein).
3(i) Amended and Restated Articles of Incorporation of Registrant
(included as Annex B to the Proxy Statement/Prospectus
contained herein).
3(ii) By-laws of Registrant (included as Annex C to the Proxy
Statement/Prospectus contained herein).
5 Opinion of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant, dated ____________, 1999, as to
the legality of the shares of Registrant's stock being
registered.
8 Opinion of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant, dated __________, 1999, as to
the tax treatment of the proposed transactions.
10.1 1998 Independent Directors Stock Option Plan of The Fidelity
Deposit and Discount Bank.
10.2 1998 Stock Incentive Plan of The Fidelity Deposit and Discount
Bank.
10.3 The Fidelity Deposit and Discount Bank Dividend Reinvestment
Plan.
23.1 Consent of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant (included in Opinion Letter as
Exhibit 5).
II-3
<PAGE>
23.2 Consent of Parente, Randolph, Orlando, Carey and Associates,
Certified Public Accountants (intentionally omitted).
24 Power of Attorney given by the Officers and Directors of the
Registrant (included on Signature Page of the Registration
Statement).
99.1 Letter to Shareholders of The Fidelity Deposit and Discount
Bank
99.2 Notice of Special Meeting of Shareholders of The Fidelity
Deposit and Discount Bank.
99.3 Form of Proxy for use by the Shareholders of The Fidelity
Deposit and Discount Bank.
99.4 Subchapter D of Chapter 17 of the Pennsylvania Business
Corporation Law of 1988, as amended, (15 PA. C.S.A. Sections
1741-1750) relating to indemnification.
99.5 Statutes Relating to Dissenters' Rights (included as Annex D
to the Proxy Statement/Prospectus contained herein).
(b) Financial Statement Schedules:
None required.
(c) Opinions:
The opinions of Shumaker Williams, P.C., Special Counsel to
Registrant, are included as Exhibits 5 and 8.
Item 22. Undertakings.
(a) Undertakings furnished pursuant to Item 512 of Regulation S-K:
(1) The undersigned Registrant hereby undertakes:
(A) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Proxy Statement/Prospectus any
facts or events arising after the effective date of the
registration statement (or the most recent
post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease
in volume
II-4
<PAGE>
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) (Section 230.424(b) of this
chapter) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(B) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) (1) The undersigned Registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable
II-5
<PAGE>
registration form with respect to reofferings by persons who may be
deemed underwriters, in addition to the information called for by
the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule
415 (ss.230.415 of this chapter), will be filed as part of an
amendment to the registration statement and will not be used until
such amendment is effective, and that, for the purposes of
determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(b) Undertakings furnished pursuant to Item 22(b) and (c):
(1) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
Proxy Statement/ Prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(2) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement
when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Dunmore, Lackawanna
County, Commonwealth of Pennsylvania, on the 29th day of October, 1999.
FIDELITY D & D BANCORP, INC.
(Registrant)
By: /s/ Michael F. Marranca
----------------------------------
Michael F. Marranca,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Michael F. Marranca and Robert B. Farrell, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the SEC,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or either of them, or their or his substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature and Capacity Date
---------------------- ----
/s/ Michael F. Marranca October 29, 1999
- -------------------------------------------
Michael F. Marranca, President and
Chief Executive Officer, Director
(Principal Executive Officer)
/s/ Robert P. Farrell October 29, 1999
- -----------------------------------------------
Robert P. Farrell, Treasurer
(Principal Financial and Accounting Officer)
/s/ Samuel C. Cali October 29, 1999
- -----------------------------------------------
Samuel C. Cali, Chairman of the Board, Director
II-7
<PAGE>
/s/ Paul A. Barrett October 29, 1999
- -----------------------------------------------
Paul A. Barrett, Director
/s/ Patrick A. Calvey, Jr. October 29, 1999
- -----------------------------------------------
Patrick A. Calvey, Jr., Director
/s/ John T. Cognetti October 29, 1999
- -----------------------------------------------
John T. Cognetti, Director
/s/ Patrick J. Dempsey October 29, 1999
- -----------------------------------------------
Patrick J. Dempsey, Director
/s/ John F. Glinsky, Jr. October 29, 1999
- -----------------------------------------------
John F. Glinsky, Jr., Secretary, Director
/s/ Herbert M. McDonald October 29, 1999
- -----------------------------------------------
Herbert M. McDonald, Director
/s/ Michael J. McDonald October 29, 1999
- -----------------------------------------------
Michael J. McDonald, Director
/s/ David L. Tressler, Sr. October 29, 1999
- -----------------------------------------------
David L. Tressler, Sr., Director
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C> <C>
2.1 Plan of Reorganization dated as of __________, 1999,
among Registrant, The Fidelity Deposit and Discount Bank and
The Fidelity Deposit and Discount Interim Bank (included as
Annex A to the Proxy Statement/Prospectus contained herein).
2.2 Plan of Merger dated as of ____________, 1999, between The
Fidelity Deposit and Discount Bank and The Fidelity Deposit and
Discount Interim Bank (included as Exhibit A to the Plan of
Reorganization, which is included in Annex A to the Proxy
Statement/Prospectus contained herein).
3(i) Amended and Restated Articles of Incorporation of Registrant
(included as Annex B to the Proxy Statement/Prospectus
contained herein).
3(ii) By-laws of Registrant (included as Annex C to the Proxy
Statement/Prospectus contained herein).
5 Opinion of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant, dated ____________, 1999, as to
the legality of the shares of Registrant's stock being registered.
8 Opinion of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant, dated __________, 1999, as to the
tax treatment of the proposed transactions.
10.1 1998 Independent Directors Stock Option Plan of The Fidelity Deposit
and Discount Bank.
10.2 1998 Stock Incentive Plan of The Fidelity Deposit and Discount
Bank.
10.3 The Fidelity Deposit and Discount Bank Dividend Reinvestment
Plan.
23.1 Consent of Shumaker Williams, P.C. of Camp Hill, Pennsylvania,
Special Counsel to Registrant (included in Opinion Letter as
Exhibit 5).
23.2 Consent of Parente, Randolph, Orlando, Carey and Associates,
Certified Public Accountants (intentionally omitted).
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
24 Power of Attorney given by the Officers and Directors of the
Registrant (included on Signature Page of the Registration
Statement).
99.1 Letter to Shareholders of The Fidelity Deposit and Discount Bank
99.2 Notice of Special Meeting of Shareholders of The Fidelity Deposit
and Discount Bank.
99.3 Form of Proxy for use by the Shareholders of The Fidelity Deposit
and Discount Bank.
99.4 Subchapter D of Chapter 17 of the Pennsylvania Business Corporation
Law of 1988, as amended, (15 PA C.S.A. Sections 1741-1750)
relating to indemnification.
99.5 Statutes Relating to Dissenters' Rights (included as Annex D
to the Proxy Statement/Prospectus contained herein).
</TABLE>
ii
EXHIBIT 5
OPINION OF SHUMAKER WILLIAMS, P.C. OF
CAMP HILL, PENNSYLVANIA, SPECIAL COUNSEL TO
REGISTRANT, DATED ____________, 1999, AS TO
THE LEGALITY OF THE SHARES OF REGISTRANT'S
STOCK BEING REGISTERED
<PAGE>
SHUMAKER WILLIAMS, P.C.
P. O. Box 88
Harrisburg, Pennsylvania 17108
___________________, 1999
Mr. Michael F. Marranca
President and Chief Executive Officer
THE FIDELITY DEPOSIT AND DISCOUNT BANK
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
RE: The Fidelity Deposit and Discount Bank
Formation of a One-Bank Holding Company
Dear Mr. Marranca:
We have been engaged as Special Counsel to The Fidelity Deposit and
Discount Bank (the "Bank") and Fidelity D & D Bancorp, Inc., a Pennsylvania
business corporation (the "Company"), in connection with the organization of the
Company as a bank holding company and the preparation and filing of all relevant
documents with the Pennsylvania Department of Banking, the Federal Reserve
Board, the Federal Deposit Insurance Corporation, applicable state securities
law administrators, and the Securities and Exchange Commission ("SEC").
We have prepared a Registration Statement on Form S-4 to be filed with the
SEC, that includes a Proxy Statement/Prospectus, under the provisions and
regulations of the Securities Act of 1933, as amended, relating to the offering
by the Company of a maximum of 1,901,472 shares of its common stock, without par
value (the "Common Stock"). The Common Stock will be issued pursuant to the Plan
of Reorganization dated _____________________ (the "Plan of Reorganization")
among the Company, the Bank, and The Fidelity Deposit and Discount Interim Bank
(the "Interim Bank"). Under the Plan of Reorganization, the Interim Bank will
merge with and into the Bank, and each whole share of the Bank's outstanding
common stock, par value $1.5625 per share, (other than shares as to which
dissenters' rights have been perfected) will be exchanged for 2 shares of the
Common Stock, without par value, of the Company.
As Special Counsel to the Company and the Bank, we have supervised all
corporate proceedings in connection with the preparation and filing of the
Registration Statement,
1
<PAGE>
including the Proxy Statement/Prospectus, with the SEC and with the appropriate
state securities administrators. We have reviewed the Company's Articles of
Incorporation and By-Laws, as presently in effect. We have prepared and reviewed
an executed copy of the Plan of Reorganization, copies of the Company's
corporate minutes and other proceedings and records relating to the
authorization and issuance of the Common Stock, and such other documents and
matters of law as we have deemed necessary in order to render this opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that,
upon the consummation of the Plan of Reorganization and the Plan of Merger in
accordance with their respective terms, each of the shares of Common Stock
issued pursuant to the Registration Statement will be duly authorized, legally
and validly issued and outstanding, and fully paid and non-assessable on the
basis of present legislation.
We hereby consent to the use of this opinion in the Registration
Statement, and we further consent to the reference to our name in the Proxy
Statement/Prospectus included in the Registration Statement under the caption
"Description of the Holding Company's Capital Securities - Legal Opinion."
Sincerely yours,
SHUMAKER WILLIAMS, P.C.
By _________________________
Nicholas Bybel, Jr.
2
EXHIBIT 8
OPINION OF SHUMAKER WILLIAMS, P.C.
OF CAMP HILL, PENNSYLVANIA,
SPECIAL COUNSEL TO REGISTRANT, DATED , 1999,
AS TO THE TAX TREATMENT OF PROPOSED TRANSACTIONS
<PAGE>
___________, 1999
The Board of Directors The Board of Directors
FIDELITY D & D BANCORP, INC. THE FIDELITY DEPOSIT AND
Blakely and Drinker Streets DISCOUNT BANK
Dunmore, Pennsylvania 18512 Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
Re: Merger of The Fidelity Deposit and Discount Interim Bank,
a Subsidiary of Fidelity D & D Bancorp, Inc. with and into
The Fidelity Deposit and Discount Bank
Dear Members of the Boards:
You have asked for our opinion regarding certain federal income tax
consequences of the merger of The Fidelity Deposit and Discount Interim Bank
(the "Interim Bank") with and into The Fidelity Deposit and Discount Bank (the
"Bank") pursuant to which the shareholders of the Bank on the effective date of
the merger will receive voting common stock of the Interim Bank's parent,
Fidelity D & D Bancorp, Inc. (the "Holding Company").
In rendering our opinion, we have examined and relied upon the accuracy
and completeness of the facts, information, covenants, and representations
contained in originals or copies, certified or otherwise identified to our
satisfaction, of the Plan of Reorganization, dated _______________, 1999, among
the Holding Company, the Bank and the Interim Bank, the Plan of Merger, dated
_______________, 1999, by and between the Bank and the Interim Bank, the
Registration Statement of Fidelity D & D Bancorp, Inc. on Form S-4, filed with
the SEC on _________, 1999, and such other documents as we have deemed necessary
or appropriate as a basis for the opinion set forth below. In addition, we have
relied upon the facts contained in certain statements and representations
previously made by executives of the Holding Company and the Bank, including
facts contained in certain statements and representations made in letters
received by us from Fidelity D & D Bancorp, Inc. and The Fidelity Deposit and
Discount Bank dated as of the date of this opinion. The transactions under the
Plan of Reorganization and the Plan of Merger are hereinafter collectively
referred to as the "merger transaction."
In rendering our opinion, we have assumed: (a) that all parties have the
legal right, power, capacity and authority to enter into and perform all
obligations under the Plan of Reorganization and the Plan of Merger; (b) the due
and proper execution and delivery of all relevant or necessary instruments and
documents; (c) the receipt of all federal and state regulatory approvals
necessary to consummate the merger transaction; and (d) the satisfaction or
proper waiver of any other conditions under the Plan of Reorganization and the
Plan of Merger so that the merger transaction may be
1
<PAGE>
consummated. All statements in this letter regarding the federal income tax
consequences of this merger transaction are based upon the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury Regulations promulgated by the
United States Department of Treasury (the "Regulations"), current positions of
the Internal Revenue Service (the "IRS") as contained in published Revenue
Rulings and Procedures, current published administrative positions of the IRS,
and existing court decisions, all as in effect as of this date and each of which
is subject to change at any time.
Our opinion is based upon and assumes the following factual background and
assumptions relating to the merger transaction:
I. Factual Background
A. The Bank is a Pennsylvania-chartered bank and trust company. The
Bank is a full-service commercial bank which commenced operations
in 1903. In 1997 the Pennsylvania Department of Banking granted the
Bank trust powers. Its principal place of business is located at
Blakely and Drinker Streets, Dunmore, Pennsylvania 18512. The Bank
is authorized to issue 5,000,000 shares of common stock, par value
$1.5625 per share, of which on September 30, 1999, 897,736.20888
shares were issued and outstanding (the "Bank Common Stock"). The
Bank Common Stock is the only class of security, authorized or
outstanding, of the Bank. The Bank has approximately 1,219
shareholders. The Bank Common Stock is publicly traded in the local
over-the-counter market, and price quotes are not readily available.
Recent sales of the Bank Common Stock have occurred solely between
individuals in limited over-the-counter transactions and in direct,
privately negotiated transactions. The most recent sale prior to the
public announcement of the merger on October 18, 1999, as to which
management of the Bank is aware of the sales price, occurred on
October 5, 1999, at a price of Sixty-Nine Dollars and Fifty Cents
($69.50) per share.
B. The Interim Bank is a Pennsylvania-chartered banking institution.
The Interim Bank is being organized solely to engage in the merger
transaction. The Interim Bank is authorized to issue 5,000,000
shares of common stock, par value Two Dollars ($2.00) per share (the
"Interim Bank Common Stock"). The Interim Bank Common Stock is the
only class of security, authorized or outstanding, of the Interim
Bank. In accordance with the Pennsylvania Banking Code of 1965, as
amended, ten organizers of the Interim Bank each have subscribed to
purchase 500 shares of Interim Bank Common Stock for Three Dollars
and Ten Cents ($3.10) per share. The organizers have executed a
Stock Repurchase Agreement which requires that, at consummation of
the merger transaction, the Holding Company will purchase the 5,000
shares held or to be purchased by these ten organizers for Three
Dollars and Ten Cents ($3.10) per share. In addition, the Holding
Company will purchase 45,000 shares of Interim Bank Common Stock for
Three Dollars and Ten Cents ($3.10) per share.
C. The Holding Company is a business corporation organized on August
10, 1999, under the laws of the Commonwealth of Pennsylvania. The
Holding Company is
2
<PAGE>
solely organized to engage in the business and activities associated
with bank holding companies. The Holding Company is authorized to
issue 10,000,000 shares of common stock, without par value (the
"Holding Company Common Stock") and 5,000,000 shares of preferred
stock, without par value. The Board of Directors has the authority
to issue preferred stock without prior shareholder approval and to
determine the rights, qualifications, limitations and restrictions
on each series of preferred stock at the time of issuance. If the
reorganization had occurred as of September 30, 1999, the Holding
Company would have issued approximately 1,795,472 shares of Holding
Company Common Stock to be exchanged for approximately 897,736
outstanding shares of Bank Common Stock on a 2 to 1 basis in
connection with the merger transaction pursuant to Section 2.2 of
the Plan of Merger. The five incorporators of the holding company
have each purchased one share of Holding Company Common Stock for
One Dollar ($1.00) per share. The five incorporators have executed a
Stock Repurchase Agreement which requires that, at consummation of
the merger transaction, the Holding Company will purchase the 5
shares held by these five incorporators for One Dollar ($1.00) per
share. After the consummation of the merger transaction, the holding
company will have approximately 1,219 shareholders of record, less
any dissenting shareholders who exercise their rights of appraisal
and payment in cash for their stock pursuant to the Pennsylvania
Banking Code of 1965, as amended, and the Pennsylvania Business
Corporation Law of 1988, as amended.
D. In order to comply with minimum capitalization requirements under
state banking laws, the Interim Bank will be initially capitalized
as follows: One Hundred Thousand Dollars ($100,000.00) in capital
stock and Fifty-Five Thousand Dollars ($55,000.00) in surplus, which
amount shall include an expense fund of Five Thousand Dollars
($5,000.00). In order to provide the Interim Bank with this required
minimum capitalization at the time of the consummation of the merger
transaction, the holding company temporarily will borrow One Hundred
Fifty-Five Thousand Dollars ($155,000.00) from a non-affiliated
Pennsylvania bank. The Holding Company will then purchase 45,000
shares of Interim Bank Common Stock for Three Dollars and Ten Cents
($3.10) per share. Under the Stock Repurchase Agreement, the
organizers of the Interim Bank may transfer their subscription
rights for 5,000 shares of Interim Bank Common Stock to the Holding
Company prior to the effective date of the merger transaction so
that the Holding Company can purchase such shares for Fifteen
Thousand Five Hundred Dollars ($15,500.00), or Three Dollars and Ten
Cents ($3.10) per share.
E. In accordance with the Banking Code of 1965, the Interim Bank will
merge with and into the Bank. Upon the effective date of the merger:
(a) the separate corporate existence of the Interim Bank will
terminate; (b) the Bank will survive and acquire all of the assets
and assume all of the liabilities of the Interim Bank; (c) the
surviving bank will continue to operate under the name, "The
Fidelity Deposit and Discount Bank"; and (c) the surviving bank will
continue to carry on the Bank's banking
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business at the same principal offices. The approval of shareholders
owning at least two-thirds of the outstanding stock of both the Bank
and the Interim Bank are required by law to approve the merger.
F. The shareholders of the Bank will be entitled to receive 2 shares of
Holding Company Common Stock in exchange for each whole share of the
Bank Common Stock held by the shareholder on the effective date of
the merger. Pursuant to Section 2.2 of the Plan of Merger, each
outstanding whole share of the Bank will be deemed to be exchanged
for 2 shares of the Holding Company Common Stock without any action
on the part of the shareholder, and the outstanding certificates
representing shares of stock of the Bank will thereafter represent
shares of stock of the Holding Company at the one-to-two exchange
ratio.
G. Shareholders of the Bank who dissent to the merger, if any, will
receive cash for their shares of stock in the Bank, pursuant to the
Pennsylvania Business Corporation Law of 1988.
H. After the consummation of the merger transaction, the Bank and the
Holding Company will file a consolidated return for federal income
tax purposes.
II. Assumptions
A. The operation of the Bank, via the merger with the Interim Bank and
as a subsidiary of the Holding Company, will provide greater
flexibility in financing, in engaging in non-banking activities, in
protecting against an unfriendly takeover, and in responding to
changes in Pennsylvania and federal law that provide for expanded
branching and multi-bank holding companies.
B. The fair market value of the Holding Company Common Stock and other
consideration received by each shareholder of the Bank will be
approximately equal to the fair market value of the Bank Common
Stock surrendered in exchange.
C. There is no plan or intention by the shareholders of Bank to sell,
exchange or otherwise dispose of a number of shares of Holding
Company Common Stock received in the transaction that would reduce
the Bank shareholders' ownership of Holding Company Common Stock to
a number of shares having a value, as of the effective date of the
merger transaction, of less than fifty percent (50%) of the value of
all of the formerly outstanding Bank Common Stock as of the same
date. In addition, there have not been to date any transfers of Bank
Common Stock by any shareholders thereof which have been made in
contemplation of the merger transaction.
D. The Bank will acquire at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of
the fair market value of the gross
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assets held by the Interim Bank immediately prior to the merger
transaction. For the purposes of this assumption, amounts paid by
the Bank to shareholders who receive cash or other property, assets
of the Bank used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends)
made by the Bank immediately preceding the merger transaction, are
and will be included as assets of the Bank held immediately prior to
the merger transaction. The Bank has not redeemed any Bank Common
Stock, has not made any distribution with respect to any Bank Common
Stock, and has not disposed of any of its assets in anticipation of
or as a part of a plan for the acquisition of the Interim Bank by
the Bank.
E. The Holding Company has no plan or intention to redeem or otherwise
reacquire any of its stock to be issued in the merger transaction.
F. The assumption by the Bank of the liabilities of Interim Bank
pursuant to the merger transaction will be for a bona fide business
purpose and the principal purpose of any such assumption will not be
the avoidance of federal income tax on the transfer of assets of the
Interim Bank to the Bank pursuant to the merger transaction.
G. The liabilities of the Interim Bank assumed by the Bank and the
liabilities to which the transferred assets of the Interim Bank are
subject will be incurred by the Bank in the ordinary course of its
business, and will be associated with the assets to be transferred.
No liabilities of any person other than Interim Bank will be assumed
by the Bank or Holding Company in the merger transaction, and none
of the shares of Bank to be surrendered in exchange for Holding
Company Common Stock in the merger transaction will be subject to
any liabilities.
H. Following the merger transaction, the Bank will continue the
historic business of the Bank or use a significant portion of the
Bank's business assets in a business.
I. The Holding Company, the Interim Bank, the Bank and the shareholders
of the Bank will pay their respective expenses, if any, incurred in
connection with the merger transaction.
J. There is no intercorporate indebtedness existing between the Holding
Company and the Interim Bank or between the Bank and the Interim
Bank that was issued or acquired, or will be settled at a discount.
K. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
L. On the date of the Merger, the fair market value of the assets of
the Interim Bank will exceed the sum of its liabilities (including
any liabilities to which its assets are subject).
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M. No stock of the Bank will be issued to any of the shareholders of
the Bank in the merger transaction.
N. There is no larger integrated transaction of which the merger
transaction constitutes only one step.
O. The expenses of the merger transaction and the amount to be paid to
dissenters, if any, will not exceed ten percent (10%) of the fair
market value of the net assets of the bank.
P. No fractional shares will be issued or redeemed in the merger
transaction. Holders of fractional interests in Bank Common Stock
will receive cash in lieu thereof.
Q. The payment of cash in lieu of fractional shares of stock of Bank
was not separately bargained for consideration and is being made for
the purpose of saving Holding Company the expense and inconvenience
of issuing fractional shares.
R. None of the compensation received by any shareholder-employees of
the Bank will be separate consideration for, or allocable to, any of
their shares of the Bank Common Stock; none of the shares of the
Holding Company Common Stock received by any shareholder-employees
will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employees
will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's-length for similar
services.
S. There is no present plan or intention to issue any of the authorized
common stock of the Holding Company in excess of the amounts
described in this letter in the merger transaction, nor is there any
present plan or intention to issue any of the authorized preferred
stock of the Holding Company.
T. Prior to the effective date of the merger transaction, neither the
Holding Company nor the Interim Bank will hold either directly or
indirectly any stock or securities in the Bank.
U. The Interim Bank has no liabilities.
V. Holding Company, Interim Bank and Bank will pay their respective
expenses, if any, incurred in connection with the Merger. None of
Holding Company, Interim Bank, and Bank will pay any of the expenses
of the shareholders of Bank incurred in connection with the Merger.
W. Interim Bank has not done business prior to the Merger.
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Based on the foregoing and subject to and specifically relying upon the
aforesaid factual background and assumptions and other matters herein referred
to, and to the extent that this factual background and these assumptions remain
unchanged between the date of this opinion and the date of the merger, it is our
opinion that:
1. No gain or loss will be recognized to either the Holding Company,
the Bank or the Interim Bank on the transfer of substantially all of
the Interim Bank's assets to the Bank in exchange for the Holding
Company Common Stock and the assumption by the Bank of all of the
liabilities of the Interim Bank plus the liabilities to which the
acquired assets of the Interim Bank may be subject.
2. No gain or loss will be recognized to the shareholders of the Bank
upon the exchange of their Bank Common Stock solely for the Holding
Company Common Stock pursuant to the Plan of Reorganization and Plan
of Merger, except for that gain or loss which is recognized due to
the receipt of cash which is received in lieu of the issuance of
fractional shares of Holding Company Common Stock.
3. The shareholders of the Bank who dissent to the merger, if any, and
who receive cash for their shares of Bank Common Stock will
recognize gain or loss to the extent of the difference between the
amount the cash received and the adjusted tax basis of such shares,
provided that the surrender of Bank Common Stock is treated as a
redemption of stock to which Section 302(a) of the Code applies. It
is possible, however, that the provisions of Section 302(a) will not
apply to a particular dissenting shareholder due to Code rules that
require that certain shareholders be treated as owning shares
actually owned by other individuals and entities (i.e., certain
individuals related to the shareholder and certain partnerships,
estates, trusts and corporations in which the shareholder has an
interest); if so, the amounts paid to the dissenting shareholder may
be taxable as dividends because they would be treated as
distributions to which Code Section 301 applies and not as a
redemption under Code Section 302(a).
4. The basis of the shares of the Holding Company Common Stock to be
received by the shareholders of the Bank will be the same as the
basis of the shares of Bank Common Stock exchanged therefor.
5. The holding period of the shares of the Holding Company Common Stock
to be received by the shareholders of the Bank will include the
period during which the Bank Common Stock, surrendered in exchange
therefor, was held by the shareholders of the Bank, provided the
Bank Common Stock was held as a capital asset in the hands of the
shareholders of the Bank at the time of the exchange.
6. Subject to limitations under Code Sections 381 and 382 and certain
U. S. Treasury Regulations promulgated under Code Section 1502,
where applicable, the Bank, as the surviving bank to the merger,
will carry-over and take into account all accounting
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items and tax attributes, and tax basis and holding periods of the
assets of the Interim Bank.
The opinions set forth in this letter are given and based upon the factual
background and the existence of the assumed facts as hereinabove set forth, all
as of the date of this letter. Should any facts or assumptions be otherwise than
as hereinabove set forth or change after the date of this letter, no opinion is
made or expressed with respect thereto or as to the legal, tax or other
consequences thereof. We make no and disclaim any opinion as to any facts
occurring after the date of this letter or as to the legal, tax or other
consequences thereof. We assume no obligation to investigate, research or
determine any facts or laws, rules or regulations occurring, existing or in
effect after the date hereof, or to update or supplement any of the opinions
herein expressed to reflect any facts or circumstances or changes in law that
hereafter may occur or come to our attention.
The Holding Company, the Interim Bank, the Bank and their respective
shareholders may rely upon this opinion letter. No other person, whether natural
or otherwise, may rely upon this opinion letter, and it may not be disclosed to
any other persons without our prior written consent. The opinions set forth in
this opinion letter are not binding on the Internal Revenue Service.
Sincerely,
____________________________
SHUMAKER WILLIAMS, P.C.
8
EXHIBIT 10.1
THE FIDELITY DEPOSIT AND DISCOUNT BANK
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN
<PAGE>
THE FIDELITY DEPOSIT AND DISCOUNT BANK
1998 INDEPENDENT DIRECTORS STOCK OPTION PLAN
1. Purpose. The 1998 Independent Directors Stock Option Plan (the "Plan")
is established to advance the development, growth and financial condition of The
Fidelity Deposit and Discount Bank (the "Bank") and its subsidiaries, by
providing an incentive, through participation in the appreciation of the capital
stock of the Bank, and thereby securing, retaining and motivating members of the
Bank's Board of Directors who are not officers or employees of the Bank or any
subsidiary thereof ( the "Outside Directors").
2. Term. The Plan shall become effective as of the date the Bank's
shareholders duly approve the Plan (the "Effective Date"). If the Plan is so
approved, it shall continue in effect until any stock options granted under the
Plan have either lapsed or been exercised, satisfied or canceled according to
their terms. Unless previously terminated by the Board, the Plan shall terminate
on, and no options shall be granted after the tenth anniversary of the Effective
Date of the Plan, however, the Plan and all Awards made under the Plan prior to
such date shall remain in effect until such Awards have been satisfied or
terminated in accordance with the Plan and the terms of such Awards.
3. Stock. The shares of the Bank's common stock, par value $1.5625 per
share (the "Common Stock") issuable under the Plan shall not exceed 25,000
shares. The amount of Common Stock issuable under the Plan may be adjusted
pursuant to Section 10 hereof. The Common Stock issuable hereunder may be either
authorized and unissued shares of Common Stock, or authorized shares of Common
Stock issued by the Bank and subsequently reacquired by it as treasury stock, or
shares purchased in open market transactions. Except as may be otherwise
provided in the Plan, any Stock subject to an Award that, for any reason, lapses
or terminates prior to exercise, shall again become available for grant under
the Plan. Under no circumstances shall fractional shares be issued under the
Plan. The Bank's failure to obtain any governmental authority deemed necessary
by the Bank's legal counsel for the proper grant of the stock options under this
Plan and/or the issuance of Common Stock under the Plan shall relieve the Bank
of any duty or liability for the failure to grant stock options under the Plan
and/or issue Common Stock under the Plan as to which such authority has not been
obtained.
4. Stock Options. Provided that the Board of Directors does not vote to
deny the annual grants contemplated under the Plan, stock options shall be
granted under the Plan to each Outside Director of the Bank, annually, on the
first business day of January (the "Grant Date"), with the first award of
options to be made hereunder on January 2, 1999. Each Outside Director who is a
member of the Bank's Board of Directors on the Grant Date shall be awarded stock
options to purchase 250 shares of Common Stock (the "Stock Options") under the
following terms and conditions:
(a) The time period during which any Stock Option is exercisable
shall be ten (10) years after the date of grant, but not prior to six (6)
months from the date of grant.
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(b) If a director, who has received an award pursuant to the Plan,
ceases to be a member of the Board of Directors for any reason, the
director may exercise the Stock Option not more than twelve (12) months
after such cessation. If a director, who has received an award pursuant to
the Plan dies, the director's qualified personal representative, or any
person who acquires a Stock Option pursuant to the director's Will or the
laws of descent and distribution, may exercise such Stock Option during
its remaining term for a period of not more than twelve (12) months after
the director's death to the extent that the Stock Option would then be and
remains exercisable.
(c) The purchase price of a share of Common Stock subject to a Stock
Option shall be the fair market value of the Common Stock on the date of
grant, as determined under Section 6 hereof.
(d) The Stock Option shall be made by a written agreement in the
form, attached hereto as Exhibit "A," with such changes therein as may be
determined by the Committee ( as such term is defined in Section 12
hereof) (the "Stock Option Agreement").
Subject to the terms of the Plan, in the event that the Board of Directors, for
any reason, decides to deny the granting of the annual awards contemplated by
the Plan, no awards shall be granted under this Plan the January immediately
following such a vote. However, the decision to deny grants in the current year
will have no effect on awards scheduled in future years. Awards denied by such a
vote of the Board of Directors will not accumulate.
5. Exercise. Except as otherwise provided in the Plan, a Stock Option may
be exercised in whole or in part by giving written notice thereof to the
Secretary of the Bank, or his designee, identifying the Stock Option being
exercised, the number of shares of Common Stock with respect thereto, and other
information pertinent to the exercise of the Stock Option. The purchase price of
the shares of Common Stock with respect to which a Stock Option is exercised
shall be paid with the written notice of exercise, either in cash or in Common
Stock, which has been held by the director for at least six (6) months, at its
then current fair market value, or any combination of cash or Common Stock.
Funds received by the Bank from the exercise of any Stock Option shall be used
for its general corporate purposes. The number of shares of Common Stock subject
to a Stock Option shall be reduced by the number of shares of Common Stock with
respect to which the director has exercised rights under the related Stock
Option Agreement.
If the Bank or its shareholders execute an agreement to dispose of all or
substantially all of the Bank's assets or capital stock by means of sale,
merger, consolidation, reorganization, liquidation or otherwise, as a result of
which the Bank's shareholders as of immediately before such transaction will not
own at least fifty percent (50%) of the total combined voting power of all
classes of voting capital stock of the surviving entity (be it the Bank or
otherwise) immediately after the execution of such transaction, thereupon any
and all outstanding Stock Options shall immediately become exercisable until the
consummation of such transaction, or if not consummated, until the agreement
therefor expires or is terminated, in which case thereafter all Stock Options
shall be treated as if the agreement never had been executed. If during any
period of two (2) consecutive years, the
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<PAGE>
individuals, who at the beginning of such period, constituted the Board of
Directors, cease for any reason to constitute at least a majority of the Board
of Directors (unless the election of each director of the Board of Directors,
who was not a director of the Board of Directors at the beginning of such
period, was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) thereupon
any and all outstanding Stock Options shall immediately become exercisable. If
there is an actual, attempted or threatened change in the ownership of at least
twenty-five percent (25%) of any class of voting stock of the Bank through the
acquisition of, or an offer to acquire, such percentage of the Bank's voting
stock by any person or entity, or persons or entities acting in concert or as a
group, and such acquisition or offer has not been duly approved by the Board of
Directors, thereupon any and all outstanding Stock Options shall immediately
become exercisable.
6. Value. Where used in the Plan, the "Fair Market Value" of Common Stock
shall mean and be determined as follows: (i) in the event that the Common Stock
is listed on an established exchange, the closing price of the Common Stock on
the Stock Option's Grant Date or, if no trade occurred on that day, on the next
preceding day on which a trade occurred; or (ii) in the event that the Common
Stock is not listed on an established exchange, but is then quoted on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the average of the average of the closing bid and asked quotations
of the Common Stock for the five (5) trading days immediately preceding the
Grant Date. In either case, in the event that no closing bid or asked quotation
is available on one (1) or more of such trading days, the fair market value
shall be determined by reference to the five (5) trading days immediately
preceding the Grant Date on which closing bid and asked quotations are
available.
7. Continued Relationship. Nothing in the Plan or in any Stock Option
shall confer upon any director any right to continue his/her relationship with
the Bank as a director, or limit or affect any rights, powers or privileges that
the Bank or its affiliates may have to supervise, discipline and terminate such
director, and the relationships thereof.
8. General Restrictions. The Board of Directors may require, in its
discretion, (a) the listing, registration or qualification of the Common Stock
issuable pursuant to the Plan on any securities exchange or under any federal or
state securities or other laws, (b) the approval of any governmental authority,
or (c) an execution of an agreement by any director with respect to disposition
of any Common Stock (including, without limitation, that at the time of the
director's exercise of the Stock Option, any Common Stock thereby acquired is
being and will be acquired solely for investment purposes and without any
intention to sell, transfer or distribute the Common Stock). If the Board of
Directors so requires, then Stock Options shall not be exercised, in whole or in
part, unless such listing, registration, qualification, approval or agreement
has been appropriately effected or obtained to the satisfaction of the Board of
Directors and legal counsel for the Bank. Notwithstanding anything to the
contrary herein, a director shall not sell, transfer or otherwise dispose of any
shares of Common Stock acquired pursuant to a Stock Option unless at least six
(6) months have elapsed from the date the Stock Option was granted and, in any
event, the transfer or disposition is made in accordance with Section 16 of the
Securities Exchange Act of 1934, as amended, and as the same may be amended from
time to time.
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<PAGE>
9. Rights. Except as otherwise provided in the Plan, a director shall have
no rights as a holder of the Common Stock subject to a Stock Option unless and
until one or more certificates for the shares of Common Stock are issued and
delivered to the director. No Stock Option, or the grant thereof, shall limit or
affect the right or power of the Bank or its affiliates to adjust, reclassify,
recapitalize, reorganize or otherwise change its or their capital or business
structure, or to merge, consolidate, dissolve, liquidate or sell any or all of
its or their business, property or assets.
10. Adjustments. In the event that the shares of Common Stock of the Bank,
as presently constituted, shall be changed into or exchanged for a different
number or kind of shares of Common Stock or other securities of the Bank or of
other securities of the Bank or of another corporation or entity (whether by
reason of merger, consolidation, recapitalization, reclassification, split-up,
combination of shares or otherwise) or if the number of such shares of Common
Stock shall be increased through the payment of a stock dividend, stock split or
similar transaction, then, there shall be substituted for or added to each share
of Common Stock of the Bank that was theretofore appropriated, or that
thereafter may become subject to a Stock Option under the Plan, the number and
kind of shares of Common Stock or other securities into which each outstanding
share of the Common Stock of the Bank shall be so changed or for which each such
share shall be exchanged or to which each share shall be entitled, as the case
may be. Each outstanding Stock Option shall be appropriately amended as to price
and other terms, as may be necessary to reflect the foregoing events.
If there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Bank, or of any Common Stock or other
securities into which such Common Stock shall have been changed, or for which it
shall have been exchanged, and if a majority of the members of the Board of
Directors shall, in their sole discretion, determine that the change equitably
requires an adjustment in any Stock Option that was theretofore granted or that
may thereafter be granted under the Plan, then such adjustment shall be made in
accordance with the determination.
The grant of a Stock Option pursuant to the Plan shall not affect, in any
way, the right or power of the Bank to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge, to
consolidate, to dissolve, to liquidate or to sell or transfer all or any part of
its business or assets. Fractional shares resulting from any adjustment in a
Stock Option pursuant to this Section 10 may be settled as a majority of the
members of the Board of Directors shall determine. To the extent that the
foregoing adjustments relate to Common Stock or securities of the Bank, such
adjustments shall be made by a majority of the members of the Board of
Directors, whose determination in that respect shall be final, binding and
conclusive. Notice of any adjustment shall be given by the Bank to each holder
of a Stock Option that is so adjusted.
11. Forfeiture. Notwithstanding anything to the contrary in this Plan, if
an option holder is engaged in fraud, embezzlement, theft, commission of a
felony, or dishonesty in the course of his relationship with the Bank or its
affiliates, or has disclosed trade secrets of the Bank or its affiliates, the
option holder shall forfeit all rights under and to all unexercised Stock
Options, and all exercised Stock Options for which the Bank has not yet
delivered certificates for shares of Common Stock, and all rights to receive
Stock Options shall be automatically canceled.
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<PAGE>
12. Administration. The ability to control and manage the operation and
administration of the Plan shall be vested in the Board of Directors or in a
committee of three (3) or more members of the Board of Directors, selected by
the Board of Directors (the "Committee"). The Committee shall have the authority
and discretion to interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan, to determine the terms and provisions of
any agreements made pursuant to the Plan, and to make any and all determinations
that may be necessary or advisable for the administration of the Plan. Any
interpretation of the Plan by the Committee and any decision made by it under
the Plan is final and binding.
13. Miscellaneous. Any reference contained in this Plan to a particular
section or provision of law, rule or regulation shall include any subsequently
enacted or promulgated section or provision of law, rule or regulation, as the
case may be. With respect to persons subject to Section 16 of the Securities
Exchange Act of 1934, as amended, transactions under this Plan are intended to
comply with all applicable conditions of the rules and the regulations
promulgated thereunder or any successor rules that may be promulgated by the
Securities and Exchange Commission. To the extent any provision of this Plan
fails to so comply, it shall be deemed null and void, to the extent permitted by
applicable law, subject to the provisions of Section 15, below. Where used in
this Plan, the plural shall include the singular, and, unless the context
otherwise clearly requires, the singular shall include the plural and the
masculine shall include the feminine. The captions of the numbered Sections
contained in this Plan are for convenience only, and shall not limit or affect
the meaning, interpretation or construction of any of the provisions of the
Plan.
14. Transferability. Except as otherwise provided by the Board of
Directors, Stock Options granted under the Plan are not transferable except as
designated by the participant by will and the laws of descent and distribution.
15. Amendment. The Plan may be amended, suspended or terminated, without
notice, by a majority vote of the Board of Directors of the Bank.
Notwithstanding the foregoing, no amendment of the Plan shall, without the
consent of the effected participant, alter or impair any rights or obligations
enjoyed by such participant under any unexercised Stock Option.
16. Taxes. The issuance of shares of Common Stock under the Plan shall be
subject to any applicable taxes or other laws or regulations of the United
States of America and any state or local authority having jurisdiction there
over.
17. Indemnification. In and with respect to the administration of the
Plan, the Bank shall indemnify each member of the Committee and/or of the Board,
each of whom shall be entitled, without further action on his or her part, to
indemnification from the Bank for all damages, losses, judgments, settlement
amounts, punitive damages, excise taxes, fines, penalties, costs and expenses
(including without limitation attorneys' fees and disbursements) incurred by the
member in connection with any threatened, pending or completed action, suit or
other proceedings of any nature, whether civil, administrative, investigative or
criminal, whether formal or informal, and whether by or in the right or name of
the Bank, any class of its security holders, or otherwise, in which the
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<PAGE>
member may be or may have been involved, as a party or otherwise, by reason of
his or her being or having been a member of the Committee and/or of the Board,
whether or not he or she continues to be a member of the Committee or of the
Board. The provisions, protection and benefits of this Section 17 shall apply
and exist to the fullest extent permitted by applicable law to and for the
benefit of all present and future members of the Committee and/or of the Board
and their respective heirs, personal and legal representatives, successors and
assigns, in addition to all other rights that they may have as a matter of law,
by contract, or otherwise, except (a) to the extent there is entitlement to
insurance proceeds under insurance coverages provided by the Bank on account of
the same matter or proceeding for which indemnification hereunder is claimed, or
(b) to the extent there is entitlement to indemnification from the Bank, other
than under this Section 17, on account of the same matter or proceeding for
which indemnification hereunder is claimed.
6
EXHIBIT 10.2
THE FIDELITY DEPOSIT AND DISCOUNT BANK
1998 STOCK INCENTIVE PLAN
<PAGE>
THE FIDELITY DEPOSIT AND DISCOUNT BANK
1998 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to
advance the development, growth and financial condition of The Fidelity
Deposit and Discount Bank (the "Bank") and each subsidiary thereof, as
defined in Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code"), by providing incentives through participation in the
appreciation of the common stock of the Bank to secure, retain and
motivate personnel who may be responsible for the operation and for
management of the affairs of the Bank and any subsidiary now or hereafter
existing ("Subsidiary").
2. Term. The Plan shall become effective as of the date it is duly approved
by the shareholders of the Bank. Any and all options and rights awarded
under the Plan (the "Awards") before it is approved by the Bank's
shareholders shall be conditioned upon, and may not be exercised before,
receipt of shareholder approval, and shall lapse upon failure to receive
such approval. Unless previously terminated by the Board, the Plan shall
terminate on, and no options shall be granted after the tenth anniversary
of the effective date of the Plan.
3. Stock. Shares of the Bank's common stock, par value $1.5625 per share (the
"Stock"), that may be issued under the Plan shall not exceed, in the
aggregate, 25,000 shares, as may be adjusted pursuant to Section 16
hereof. Shares may be either authorized and unissued shares, or authorized
shares, issued by and subsequently reacquired by the Bank as treasury
stock. Under no circumstances shall any fractional shares be awarded under
the Plan. Except as may be otherwise provided in the Plan, any Stock
subject to an Award that, for any reason, lapses or terminates prior to
exercise, shall again become available for grant under the Plan. While the
Plan is in effect, the Bank shall reserve and keep available the number of
shares of Stock needed to satisfy the requirements of the Plan. The Bank
shall apply for any requisite governmental authority to issue shares under
the Plan. The Bank's failure to obtain any such governmental authority,
deemed necessary by the Bank's legal counsel for the lawful issuance and
sale of Stock under the Plan, shall relieve the Bank of any duty, or
liability for the failure to issue or sell the Stock.
4. Administration. The ability to control and manage the operation and
administration of the Plan shall be vested in the Board or in a committee
of three or more non-employee members of the Board, selected by the Board
(the "Committee"). The Committee shall have the authority and discretion
to interpret the Plan, to establish, amend and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of
any agreements made pursuant to the Plan, and to make any and all
determinations that may be necessary or advisable for the administration
of the Plan. Any interpretation of the Plan by the Committee and any
decision made by the Committee under the Plan is final and binding.
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<PAGE>
The Committee shall be responsible and shall have full, absolute and
final power of authority to determine what, to whom, when and under what
facts and circumstances Awards shall be made, and the form, number, terms,
conditions and duration thereof, including but not limited to when
exercisable, the number of shares of Stock subject thereto, and the stock
option exercise prices. The Committee shall make all other determinations
and decisions, take all actions and do all things necessary or appropriate
in and for the administration of the Plan. No member of the Committee or
of the Board shall be liable for any decision, determination or action
made or taken in good faith by such person under or with respect to the
Plan or its administration.
5. Awards. Awards may be made under the Plan in the form of: (a) "Qualified
Options" to purchase Stock, which are intended to qualify for certain tax
treatment as incentive stock options under Sections 421 and 422 of the
Code, or (b) "Non-Qualified Options" to purchase Stock, which are not
intended to qualify under Sections 421 through 424 of the Code. More than
one Award may be granted to an eligible person, and the grant of any Award
shall not prohibit the grant of any other Award, either to the same person
or otherwise, or impose any obligation to exercise on the participant. All
Awards and the terms and conditions thereof shall be set forth in written
agreements, in such form and content as approved by the Committee from
time to time, and shall be subject to the provisions of the Plan whether
or not contained in such agreements. Multiple Awards for a particular
person may be set forth in a single written agreement or in multiple
agreements, as determined by the Committee, but in all cases each
agreement for one or more Awards shall identify each of the Awards thereby
represented as a Qualified Option or Non-Qualified Option, as the case may
be.
Unless otherwise stated, in the event that an award of Qualified
Option, or any part thereof, for any reason fails to qualify under
Sections 421 and 422 of the Code, then that award or part thereof shall be
deemed a grant of a Non-Qualified Option.
6. Eligibility. Persons eligible to receive Awards shall be those key
officers and other employees of the Bank and each Subsidiary, as
determined by the Committee. A person's eligibility to receive an Award
shall not confer upon him or her any right to receive an Award. Except as
otherwise provided, a person's eligibility to receive, or actual receipt
of an Award under the Plan shall not limit or affect his or her benefits
under or eligibility to participate in any other incentive or benefit plan
or program of the Bank or of its affiliates.
7. Qualified Options. In addition to other applicable provisions of the Plan,
all Qualified Options and Awards thereof shall be under and subject to the
following terms and conditions:
(a) No Qualified Option shall be awarded more than ten (10) years after
the date the Plan is adopted by the Board or the date the Plan is
approved by the Bank's shareholders, whichever is earlier;
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<PAGE>
(b) The time period during which any Qualified Option is exercisable, as
determined by the Committee, shall not commence before the
expiration of six (6) months or continue beyond the expiration of
ten (10) years after the date the Qualified Option is awarded;
(c) If a participant, who was awarded a Qualified Option, ceases to be
employed by the Bank or any Subsidiary for any reason other than his
or her death, the Committee may permit the participant thereafter to
exercise the option during its remaining term for a period of not
more than three (3) months after cessation of employment to the
extent that the Qualified Option was then and remains exercisable,
unless such employment cessation was due to the participant's
disability, as defined in Section 22(e)(3) of the Code, in which
case the three (3) month period shall be twelve (12) months; if the
participant dies while employed by the Bank or a Subsidiary, the
Committee may permit the participant's qualified personal
representatives, or any persons who acquire the Qualified Option
pursuant to his or her Will or laws of descent and distribution, to
exercise the Qualified Option during its remaining term for a period
of not more than twelve (12) months after the participant's death to
the extent that the Qualified Option was then and remains
exercisable; the Committee may impose terms and conditions upon and
for the exercise of a Qualified Option after the cessation of the
participant's employment or his or her death;
(d) The purchase price of Stock subject to any Qualified Option shall
not be less than the Stock's Fair Market Value (pursuant to Section
11 hereof) at the time the Qualified Option is awarded or less than
the Stock's par value; and
(e) Qualified Options may not be sold, transferred or assigned by the
participant except by will or the laws of descent and distribution.
8. Non-Qualified Options. In addition to other applicable provisions of the
Plan, all NonQualified Options and Awards thereof shall be under and
subject to the following terms and conditions:
(a) The time period during which any Non-Qualified Option is exercisable
shall not commence before the expiration of six (6) months or
continue beyond the expiration of ten (10) years after the date the
Non-Qualified Option is awarded;
(b) If a participant, who was awarded a Non-Qualified Option, ceases to
be eligible under the Plan, before lapse or full exercise of the
option, the Committee may permit the participant to exercise the
option during its remaining term, to the extent that the option was
then and remains exercisable, or for such time period and under such
terms and conditions as may be prescribed by the Committee;
(c) The purchase price of a share of Stock subject to any Non-Qualified
Option shall not be less than the Stock's par value; and
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<PAGE>
(d) Except as otherwise provided by the Committee, Non-Qualified Stock
Options granted under the Plan are not transferable except as
designated by the participant by Will and the laws of descent and
distribution.
9. Exercise. Except as otherwise provided in the Plan, Awards may be
exercised in whole or in part by giving written notice thereof to the
Secretary of the Bank, or his or her designee, identifying the Award to be
exercised, the number of shares of Stock with respect thereto, and other
information pertinent to exercise of the Award. The purchase price of the
shares of Stock with respect to which an Award is exercised shall be paid
with the written notice of exercise, either in cash or in securities of
the Bank (which has been owned by the optionee for at least six (6) months
prior to the date of exercise), including securities issuable hereunder,
at its then current Fair Market Value (pursuant to Section 11 hereof), or
any combination thereof, as the Committee shall determine. Funds received
by the Bank from the exercise of any Award shall be used for its general
corporate purposes.
The Committee may permit an acceleration of previously established
exercise terms of any Awards as, when, under such facts and circumstances,
and subject to such other or further requirements and conditions as the
Committee may deem necessary or appropriate. In addition:
(a) if the Bank or its shareholders execute an agreement to dispose of
all or substantially all of the Bank's assets or stock by means of
sale, merger, consolidation, reorganization, liquidation or
otherwise, as a result of which the Bank's shareholders, immediately
before the transaction, will not own at least fifty percent (50%) of
the total combined voting power of all classes of voting stock of
the surviving entity (be it the Bank or otherwise) immediately after
the consummation of the transaction, then any and all outstanding
Awards shall immediately become and remain exercisable or, if the
transaction is not consummated, until the agreement relating to the
transaction expires or is terminated, in which case, all Awards
shall be treated as if the agreement was never executed;
(b) if there is an actual, attempted or threatened change in the
ownership of at least twenty-five percent (25%) of all classes of
voting stock of the Bank through the acquisition of, or an offer to
acquire such percentage of the Bank's voting stock by any person or
entity, or persons or entities acting in concert or as a group, and
the acquisition or offer has not been duly approved by the Board; or
(c) if during any period of two (2) consecutive years, the individuals
who at the beginning of such period constituted the Board cease, for
any reason, to constitute at least a majority of the Board, (unless
the election of each director of the Board, who was not a director
of the Board at the beginning of such period, was approved by a vote
of at least two-thirds of the directors then still in office who
were directors at the beginning of such period) thereupon any and
all Awards immediately shall become and remain exercisable.
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<PAGE>
10. Withholding. When a participant exercises a stock option awarded under the
Plan, the Bank, in its discretion and as required by law, may require the
participant to remit to the Bank an amount sufficient to satisfy fully any
federal, state and other jurisdictions' income and other tax withholding
requirements prior to the delivery of any certificates for shares of
Stock, at the Committee's discretion remittance may be made in cash,
shares already held by the participant or by the withholding by the Bank
of sufficient shares issuable pursuant to the option to satisfy the
participant's withholding obligation.
11. Value. Where used in the Plan, the "Fair Market Value" of Stock or any
options or rights with respect thereto, including Awards, shall mean and
be determined by (a) the average of the highest and lowest reported sales
prices thereof on the principal established domestic securities exchange
on which listed, and if not listed, then (b) the average of the dealer
"bid" and "ask" prices thereof on the New York over-the-counter market, as
reported by the National Association of Securities Dealers, Inc., in
either case as of the specified or otherwise required or relevant time, or
if not traded as of such specified, required or relevant time, then based
upon such reported sales or "bid" and "ask" prices before and/or after
such time in accordance with pertinent provisions of and principles under
the Code and the regulations promulgated thereunder.
12. Amendment. To the extent permitted by applicable law, the Board may amend,
suspend, or terminate the Plan at any time. The amendment or termination
of this Plan shall not, without the consent of the participants, alter or
impair any rights or obligations under any Award previously granted
hereunder.
From time to time, the Committee may rescind, revise and add to any
of the terms, conditions and provisions of the Plan or of an Award as
necessary or appropriate to have the Plan and any Awards thereunder be or
remain qualified and in compliance with all applicable laws, rules and
regulations, and the Committee may delete, omit or waive any of the terms
conditions or provisions that are no longer required by reason of changes
of applicable laws, rules or regulations, but not limited to, the
provisions of Sections 421 and 422 of the Code, Section 16 of the
Securities Exchange Act of 1934, as amended, (the "1934 Act") and the
rules and regulations promulgated by the Securities and Exchange
Commission. Without limiting the generality of the preceding sentence,
each Qualified Option shall be subject to such other and additional terms,
conditions and provisions as the Committee may deem necessary or
appropriate in order to qualify as a Qualified Option under Section 422 of
the Code, including, but not limited to, the following provisions:
(a) At the time a Qualified Option is awarded, the aggregate Fair Market
Value of the Stock subject thereto and of any Stock or other capital
stock with respect to which incentive stock options qualifying under
Sections 421 and 422 of the Code are exercisable for the first time
by the participant during any calendar year under the Plan and any
other plans of the Bank or its affiliates, shall not exceed
$100,000.00; and
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(b) No Qualified Option, shall be awarded to any person if, at the time
of the Award, the person owns shares of the stock of the Bank
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Bank or its affiliates, unless,
at the time the Qualified Option is awarded, the exercise price of
the Qualified Option is at least one hundred and ten percent (110%)
of the Fair Market Value of the Stock on the date of grant and the
option, by its terms, is not exercisable after the expiration of
five (5) years from the date it is awarded.
13. Continued Employment. Nothing in the Plan or any Award shall confer upon
any participant or other persons any right to continue in the employ of,
or maintain any particular relationship with, the Bank or its affiliates,
or limit or affect any rights, powers or privileges that the Bank or its
affiliates may have to supervise, discipline and terminate the
participant. However, the Committee may require, as a condition of making
and/or exercising any Award, that a participant agree to, and in fact
provide services, either as an employee or in another capacity, to or for
the Bank or any Subsidiary for such time period as the Committee may
prescribe. The immediately preceding sentence shall not apply to any
Qualified Option, to the extent such application would result in
disqualification of the option under Sections 421 and 422 of the Code.
14. General Restrictions. If the Committee or Board determines that it is
necessary or desirable to: (a) list, register or qualify the Stock subject
to the Award, or the Award itself, upon any securities exchange or under
any federal or state securities or other laws, (b) obtain the approval of
any governmental authority, or (c) enter into an agreement with the
participant with respect to disposition of any Stock (including, without
limitation, an agreement that, at the time of the participant's exercise
of the Award, any Stock thereby acquired is and will be acquired solely
for investment purposes and without any intention to sell or distribute
the Stock), then such Award shall not be consummated in whole or in part
unless the listing, registration, qualification, approval or agreement, as
the case may be, shall have been appropriately effected or obtained to the
satisfaction of the Committee and legal counsel for the Bank.
15. Rights. Except as otherwise provided in the Plan, participants shall have
no rights as a holder of the Stock unless and until one or more
certificates for the shares of Stock are issued and delivered to the
participant.
16. Adjustments. In the event that the shares of common stock of the Bank, as
presently constituted, shall be changed into or exchanged for a different
number or kind of shares of common stock or other securities of the Bank
or of other securities of the Bank or of another corporation or entity
(whether by reason of merger, consolidation, recapitalization,
reclassification, split-up, combination of shares or otherwise) or if the
number of such shares of common stock shall be increased through the
payment of a stock dividend, stock split or similar transaction, then,
there shall be substituted for or added to each share of common stock of
the Bank that was theretofore appropriated, or which thereafter may become
subject to an option under the Plan, the number and kind of shares of
common stock or other
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securities into which each outstanding share of the common stock of the
Bank shall be so changed or for which each such share shall be exchanged
or to which each such shares shall be entitled, as the case may be. Each
outstanding Award shall be appropriately amended as to price and other
terms, as may be necessary to reflect the foregoing events.
If there shall be any other change in the number or kind of the
outstanding shares of the common stock of the Bank, or of any common stock
or other securities in which such common stock shall have been changed, or
for which it shall have been exchanged, and if a majority of the
disinterested members of the Committee shall, in its sole discretion,
determine that such change equitably requires an adjustment in any Award
that was theretofore granted or that may thereafter be granted under the
Plan, then such adjustment shall be made in accordance with such
determination.
The grant of an Award under the Plan shall not affect in any way the
right or power of the Bank to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge,
to consolidate, to dissolve, to liquidate or to sell or transfer all or
any part of its business or assets.
Fractional shares resulting from any adjustment in Awards pursuant
to this Section 16 may be settled as a majority of the disinterested
members of the Board of Directors or of the Committee, as the case may be,
shall determine.
To the extent that the foregoing adjustments relate to common stock
or securities of the Bank, such adjustments shall be made by a majority of
the members of the Board, whose determination in that respect shall be
final, binding and conclusive. Notice of any adjustment shall be given by
the Bank to each holder of an Award that is so adjusted.
17. Forfeiture. Notwithstanding anything to the contrary in this Plan, if the
Committee finds, after full consideration of the facts presented on behalf
of the Bank and the involved participant, that he or she has been engaged
in fraud, embezzlement, theft, commission of a felony, or dishonesty in
the course of his or her employment by the Bank or by any Subsidiary and
such action has damaged the Bank or the Subsidiary, as the case may be, or
that the participant has disclosed trade secrets of the Bank or its
affiliates, the participant shall forfeit all rights under and to all
unexercised Awards, and under and to all exercised Awards under which the
Bank has not yet delivered payment or certificates for shares of Stock (as
the case may be), all of which Awards and rights shall be automatically
canceled. The decision of the Committee as to the cause of the
participant's discharge from employment with the Bank or any Subsidiary
and the damage thereby suffered shall be final for purposes of the Plan,
but shall not affect the finality of the participant's discharge by the
Bank or Subsidiary for any other purposes. The preceding provisions of
this paragraph shall not apply to any Qualified Option to the extent such
application would result in disqualification of the option as an incentive
stock option under Sections 421 and 422 of the Code.
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18. Indemnification. In and with respect to the administration of the Plan,
the Bank shall indemnify each member of the Committee and/or of the Board,
each of whom shall be entitled, without further action on his or her part,
to indemnification from the Bank for all damages, losses, judgments,
settlement amounts, punitive damages, excise taxes, fines, penalties,
costs and expenses (including without limitation attorneys' fees and
disbursements) incurred by the member in connection with any threatened,
pending or completed action, suit or other proceedings of any nature,
whether civil, administrative, investigative or criminal, whether formal
or informal, and whether by or in the right or name of the Bank, any class
of its security holders, or otherwise, in which the member may be or may
have been involved, as a party or otherwise, by reason of his or her being
or having been a member of the Committee and/or of the Board, whether or
not he or she continues to be a member of the Committee or of the Board.
The provisions, protection and benefits of this Section 18 shall apply and
exist to the fullest extent permitted by applicable law to and for the
benefit of all present and future members of the Committee and/or of the
Board and their respective heirs, personal and legal representatives,
successors and assigns, in addition to all other rights that they may have
as a matter of law, by contract, or otherwise, except (a) to the extent
there is entitlement to insurance proceeds under insurance coverages
provided by the Bank on account of the same matter or proceeding for which
indemnification hereunder is claimed, or (b) to the extent there is
entitlement to indemnification from the Bank, other than under this
Section 18, on account of the same matter or proceeding for which
indemnification hereunder is claimed.
19. Miscellaneous. (a) Any reference contained in this Plan to particular
section or provision of law, rule or regulation, including but not limited
to the Code and the 1934 Act, shall include any subsequently enacted or
promulgated section or provision of law, rule or regulation, as the case
may be. With respect to persons subject to Section 16 of the 1934 Act,
transactions under this Plan are intended to comply with all applicable
conditions of Section 16 and the rules and regulations promulgated
thereunder, or any successor rules and regulations that may be promulgated
by the Securities and Exchange Commission, and to the extent any provision
of this Plan or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by applicable law and deemed
advisable by the Committee.
(b) Where used in this Plan: the plural shall include the singular, and
unless the context otherwise clearly requires, the singular shall
include the plural; and the term "affiliates" shall mean each and
every Subsidiary and any parent of the Bank.
(c) The captions of the numbered Sections contained in this Plan are for
convenience only, and shall not limit or affect the meaning,
interpretation or construction of any of the provisions of the Plan.
8
EXHIBIT 10.3
THE FIDELITY DEPOSIT AND DISCOUNT BANK
DIVIDEND REINVESTMENT PLAN
<PAGE>
EXPLANATION OF THE DIVIDEND REINVESTMENT PLAN
The following explanation comprises The Fidelity Deposit and Discount Bank
Dividend Reinvestment Plan.
Purpose
1. What is the purpose of the Plan?
The Plan provides holders of record of shares of the Bank's Common Stock
(or "Shares") a simple and convenient method of investing cash dividends in
additional Shares without payment of brokerage commissions.
Advantages to Participants
2. What are the advantages of the Plan to participants?
Participants in the Plan may purchase Shares at each dividend payment date
with reinvested cash dividends on all or a portion (but not less than 40 unless
such lesser number represents all of the Shares registered in the participant's
name) of the Shares registered in their names.
All brokerage fees and commissions incurred in connection with purchases
of Shares under the Plan will be paid by the Bank. Full investment of funds is
possible under the Plan because the Plan permits fractions of Shares, as well as
full Shares, to be credited to a participant's account. In addition, dividends
in respect of such full and fractional Shares will be credited to a
participant's account and automatically reinvested in additional Shares. The
plan administrator will provide participants with periodic statements of
account.
Administration
3. Who administers the Plan?
Subject to the Bank's right to terminate and appoint in its place another
bank or corporation to serve as "Plan Agent", the Bank will initially serve in
such capacity. The Plan Agent will administer the Plan, keep records, send
statements of account to participants and perform other duties relating to the
Plan. All correspondence relating to the Plan should be directed to:
The Fidelity Deposit and Discount Bank
Dividend Reinvestment Plan
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
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Participation
4. Who is eligible to participate?
All holders of record are eligible to participate and may join the Plan by
signing the Authorization Form, additional copies of which may be obtained at
any time by contacting the Bank, and returning the form to the Bank. Partial
participation is permissible for shareholders who hold of record more than forty
(40) Shares. Refer to Question 6, below. The Bank reserves the right, however,
to terminate the Plan for any reason whatsoever and to refuse to offer the Plan
to those shareholders of the Bank who are residents of a state which may require
registration, qualification or exemption of the Shares to be issued under the
Plan, or registration or qualification of the Bank or any of its officers or
employees as a broker, dealer, salesman or agent, and the Plan Agent determines,
at its discretion, that the number of shareholders or number of Shares held in
such state does not justify the expense of registration and other fees in said
state.
5. When may a shareholder join the Plan?
Subject to the conditions set forth in question and answer 4., above, a
shareholder may join the Plan at any time. Dividends on all participating Shares
will be reinvested on the next reinvestment date (see Question 9) after the Bank
receives the Authorization Form, provided the form is received on or before the
dividend record date. Otherwise, purchases of Shares under the Plan will begin
on the next subsequent reinvestment date. Dividend payment dates are expected to
be at the end of each of March 10, June 10, September 10, December 10, and
dividend record dates generally precede dividend payment dates by about ten
days.
6. What does the Authorization Form provide?
By signing and returning the Authorization Form to the Bank, a participant
directs the Plan Agent to reinvest dividends on all or a portion of the Shares
held of record by the participant in additional Shares. Participants electing
partial enrollment must participate with respect to at least 40 Shares unless
the participant has 40 Shares or less registered in his or her name, in which
case the participant must participate, if at all, with respect to all Shares
registered in his or her name. Shares in a participant's account under the Plan
will have cash dividends received on such Shares automatically reinvested to
purchase additional Shares.
Records
7. What reports will be sent to participants?
Each participant will receive a periodic statement of his or her account
describing cash dividends, the number of Shares purchased, the average price per
Share and total Shares accumulated under the Plan. In addition, each participant
will receive copies of any of the Bank's annual and periodic reports sent to
shareholders, proxies and proxy statements and other
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correspondence sent to shareholders generally. Each participant will also
receive any supplements to or updates of the Offering Circular for the Plan.
8. Are there any expenses to participants in connection with purchases under the
Plan?
All brokerage fees and commissions incurred in connection with purchases
of Shares and all other costs of administration of the Plan will be paid by the
Bank. A $3.00 service charge may be deducted, however, from a participant's
account at the time of his or her termination from the Plan or at the time any
stock certificate is requested by a participant.
Purchases
9. How will purchases be made?
On each dividend payment date, the Bank will pay to the Plan Agent the
total amount of dividends payable on Shares which a participant has specified
are to be included in the Plan. The Plan Agent will use that amount to purchase
Shares in the open market or in negotiated transactions at such prices and other
terms, and from or through such brokers or dealers, as the Plan Agent may
determine from time to time. The Bank reserves the right to direct the Plan
Agent to make all or part of its purchases under the Plan for that particular
quarter from the Bank's authorized but unissued Common Stock. Purchases of
Shares will be made as soon as practicable on or after each dividend payment
date, but in no event more than 30 days after each such date. Full and
fractional Shares will be allocated to each participant's account after the date
on which the Plan Agent has purchased sufficient Shares to cover the purchases
for all participants under the Plan for the applicable dividend date.
10. How will the price of Shares be determined?
The purchase price of Shares purchased in the open market or in negotiated
transactions will be the price paid by the Plan Agent to the independent
broker-dealer (the "Independent Plan Purchasing Agent") who purchases the Shares
at the request of the Plan Agent. The purchase price shall be the actual cost of
such Shares (not including brokerage fees or commissions). The Bank will bear
the cost of all brokerage fees and commissions on purchases under the Plan. The
price of Shares purchased from the Bank will be the average of the low bid and
high asked quotations for the Shares obtained by the Plan Agent on the purchase
date or if no such bid and asked prices are quoted on that date, the most recent
prior date on which such prices were quoted. The purchase price per Share
allocated to each participant will be the participant's pro rata portion of the
actual price of all Shares purchased under the Plan at each dividend date.
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<PAGE>
11. Will participants be credited with dividends on fractional Shares?
Each participant's account will be credited with that number of full and
fractional Shares derived by dividing the amounts to be invested for such
participants by the total amount invested for all participants for that
particular dividend payment date and multiplying the resulting quotient by the
total number of Shares purchased.
12. Will certificates be issued for Shares purchased?
Shares purchased under the Plan will be registered in the name of the Plan
Agent or its nominee, as agent for participants in the Plan, and certificates
for such Shares will not be issued to participants unless requested in writing.
This procedure protects against loss, theft or destruction of stock
certificates.
Certificates for any number, greater than or equal to ten (10), of full
Shares credited to an account under the Plan will be issued after receipt of a
written request to the Plan Agent (see Question 3) signed by the participant (or
participants if a joint registration) and accompanied by a $3.00 payment for the
service charge. Any remaining full and fractional Shares will continue to be
held in the participant's account. Certificates for fractional Shares will not
be issued under any circumstance.
Withdrawal from the Plan
13. How does a participant withdraw from the Plan?
Participation in the Plan may be terminated at any time by either the
participant or by the Bank. Participants who wish to terminate may do so by
writing to the Plan Agent at the address provided in Question 3. After the Plan
Agent's receipt of such notice, or after the termination of the Plan by the
Bank, a certificate for full Shares will be issued to the participant and the
Bank will return any uninvested dividends. A participant's written notice of
termination received by the Plan Agent less than 10 days in advance of the next
dividend record date will not be effective until after the cash dividend for
such period is paid. Fractional Shares held in a participant's account will be
paid in cash based on the average of the low bid and high asked quotations on
the day the Plan Agent receives written notice of termination or termination of
the Plan by the Bank, or if no such bid and asked prices are quoted on that
date, the most recent prior date on which such prices were quoted. A $3.00
service charge may be deducted from a participant's account upon receipt of a
participant's notice of termination.
14. Can a participant re-enter the Plan after terminating his or her
participation?
Yes. A shareholder may rejoin at any time upon submission of a new
Authorization Form.
Other Information
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15. May the Plan be changed or discontinued?
The Bank reserves the right to amend the Plan from time to time, at its
sole discretion, and to terminate the Plan at any time upon written notice of
termination or of any such amendment that is deemed by the Plan Agent in its
sole discretion to be a material amendment, mailed to each participant at the
address which appears on the Plan Agent's records.
16. What are the federal income tax consequences of participating in the Plan?
For federal income tax purposes, a participant in the Plan will be treated
as having received a dividend equal to the purchase price of the full and
fractional Shares purchased with reinvested dividends plus the brokerage
commissions and service charges attributable to such Shares which are paid by
the Company. Each periodic statement of account will indicate the purchase price
of the Shares purchased with reinvested dividends. The portion of commissions
and charges paid by the Bank allocated to the participant's Shares will be
listed on the annual tax statement.
17. When and how are gains and losses determined?
A participant will realize gain or loss whenever full Shares purchased
under the Plan are sold or exchanged or whenever the participant receives a cash
payment for a fractional Share credited to his or her account. The amount of
gain or loss will be the difference between the amount received by the
participant for his or her full or fractional Shares and his or her tax basis
therefor. The tax basis of a Share will be its purchase price under the Plan
plus the portion of commissions paid by the Bank attributable to such Shares.
18. When does the holding period begin?
The holding period for Shares acquired pursuant to the Plan will begin on
the day the Shares are purchased, which will be no later than the date on which
Shares are allocated to a participant's account under the Plan.
All participants in the Plan are urged to consult their own tax advisers
to determine the particular tax consequences which may result from their
participation in the Plan and the subsequent disposal of Shares acquired under
the Plan.
19. How is a rights offering, stock dividend or stock split treated under the
Plan?
If the Bank sells additional Shares through a rights offering, the rights
will be forwarded to the participants for their disposition. Likewise, any stock
dividend or Shares resulting from a stock dividend or split in respect of a
participant's Shares held under the Plan will be credited to the participant's
account. Similarly, the Shares available for issuance pursuant to the Plan will
be adjusted pro rata to give effect to any stock split.
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20. How will a participant's Shares held under the Plan be voted?
The Plan Agent will forward proxies to participants and will vote a
participant's full Shares held under the Plan in accordance with instructions
received from the participant. If a participant does not return a proxy, his or
her Shares will not be voted.
21. What is the responsibility of the Bank and the Plan Agent under the Plan?
Neither the Bank nor the Plan Agent shall be liable under the Plan for any
act performed by it in good faith or for any good faith omission to act,
including, without limitation, any claims of liability: (i) arising out of the
termination of or failure to terminate a participant's account; (ii) with
respect to the purchase of Shares, the prices at which Shares are purchased for
the participant's account, the time such purchases are made, the decision
whether to purchase Shares from the Bank, fluctuations in the market value of
Shares; or (iii) concerning any matters relating to the operation or management
of the Plan.
6
EXHIBIT 99.1
LETTER TO SHAREHOLDERS OF
THE FIDELITY DEPOSIT AND DISCOUNT BANK
<PAGE>
THE FIDELITY DEPOSIT AND DISCOUNT BANK
Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
(570) 342-8281
- --------------------------------------------------------------------------------
November ____, 1999
TO OUR SHAREHOLDERS:
The Board of Directors of The Fidelity Deposit and Discount Bank cordially
invites you to attend a Special Meeting of Shareholders at ______ ___.m.,
Eastern Standard Time, on __________, December ____, 1999, at the main office of
The Fidelity Deposit and Discount Bank, Blakely and Drinker Streets, Dunmore,
Pennsylvania 18512.
At this Special Meeting of Shareholders, the Board of Directors recommends
that you vote in favor of the proposal to approve and adopt a Plan of
Reorganization and related Plan of Merger that will reorganize the bank into a
bank holding company. The Board of Directors believes that the formation of a
bank holding company at this time is an important and necessary part of the
bank's plans for the future.
Under the proposed Plan of Reorganization, we will exchange each share of
common stock of the bank presently held by you into 2 shares of common stock of
Fidelity D & D Bancorp, Inc., a bank holding company whose only substantial
asset will be all of the common stock of the bank. If you approve and adopt the
Plan of Reorganization, the bank's shareholders will automatically become
shareholders of the holding company. The holding company will own all of the
outstanding shares of the bank.
Therefore, your interest in the bank after the reorganization will remain
essentially the same, except that it will be an indirect interest rather than a
direct interest. The exchange of common stock of the bank into common stock of
the holding company will be tax free for federal income tax purposes.
To facilitate the reorganization, we established an interim bank as a
subsidiary of the holding company. The interim bank will merge with the bank as
provided for by the Plan of Merger. The proposal does NOT involve a merger
between the bank and another bank or company already in operation. After the
proposed reorganization, the bank will continue its banking business
substantially unchanged and under the same management.
The Board of Directors believes that the Plan of Reorganization and Plan
of Merger are in the best interests of the bank and its shareholders and urges
you to vote in favor of these agreements and the reorganization they provide.
The approval and adoption of the Plan of
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<PAGE>
Reorganization and Plan of Merger requires an affirmative vote of the holders of
at least 2/3 of the outstanding shares of the bank's common stock.
You are, of course, welcome to attend this Special Meeting, but we
understand that this may not be possible. It is important that your shares be
represented and voted at the meeting whether or not you plan to attend. If
enough shareholders do not return their proxies, the company may have to incur
the expense of additional solicitation. Please take a moment to sign, date and
promptly mail the enclosed proxy in the pre-addressed and stamped envelope
supplied for your convenience.
We urge you to carefully review the enclosed proxy statement/prospectus
that describes the reorganization proposal in detail. The reorganization
involves elements of risk that are described under "Risk Factors" beginning on
page 9.
Again, the Board of Directors strongly recommends that you vote FOR the
proposal. On behalf of the Board of Directors, thank you for your cooperation
and continued support.
Very truly yours,
Michael F. Marranca, President and
Chief Executive Officer
2
EXHIBIT 99.2
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
THE FIDELITY DEPOSIT AND DISCOUNT BANK
3
<PAGE>
-----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER ____, 1999
-----------------------------------------
TO THE SHAREHOLDERS OF THE FIDELITY DEPOSIT AND DISCOUNT BANK:
The Board of Directors will hold a Special Meeting of Shareholders of The
Fidelity Deposit and Discount Bank will be at ______ ___.m., Eastern Standard
Time, on __________, December ____, 1999, at the bank's main office at Blakely
and Drinker Streets, Dunmore, Pennsylvania 18512, for the following purposes:
1. To consider and act upon a proposal to approve and adopt the Plan
of Reorganization and Plan of Merger, providing for:
o the reorganization of the bank as the wholly owned subsidiary
of Fidelity D & D Bancorp, Inc., a Pennsylvania corporation
organized by the bank to become the bank's holding company,
through the merger of the bank with The Fidelity Deposit and
Discount Interim Bank, a Pennsylvania chartered banking
institution and subsidiary of Fidelity D & D Bancorp, Inc.;
o and the exchange of each share of common stock of the bank for
2 shares of common stock of Fidelity D & D Bancorp, Inc.;
2. Adjournment of the meeting to a later date, if necessary, to
permit further solicitation of proxies if there are not sufficient votes
at the time of the meeting to constitute a quorum or to approve the Plan
of Reorganization and Plan of Merger; and
3. To transact any other business that lawfully comes before the
meeting and any adjournment of the meeting.
We describe the reorganization to be voted upon at the meeting more fully
in the attached proxy statement/prospectus. Annex A is a copy of the Plan of
Reorganization and Plan of Merger.
Approval and adoption of the Plan of Reorganization and Plan of Merger
requires an affirmative vote of the holders of at least 2/3 of the bank's
outstanding shares. Only those shareholders of record at the close of business
on November ___, 1999, will be entitled to vote at the meeting.
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Whether or not you expect to attend the meeting in person, you are urged
to sign, date and promptly return the enclosed proxy. We enclose a
self-addressed stamped envelope for your convenience. The prompt return of your
signed proxy, regardless of the number of shares you hold, will aid the bank in
reducing the expense of additional proxy solicitation. Signing and returning the
proxy does not affect your right to vote in person if you attend the meeting and
give notice to the Secretary of the bank.
By Order of the Board of Directors,
Michael F. Marranca, President and
Chief Executive Officer
November ____, 1999
2
EXHIBIT 99.3
FORM OF PROXY FOR USE BY THE SHAREHOLDERS OF
THE FIDELITY DEPOSIT AND DISCOUNT BANK
<PAGE>
THE FIDELITY DEPOSIT AND DISCOUNT BANK
PROXY
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER ___, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints _______________________
and _____________________ and each or any of them, proxies of the undersigned,
with full power of substitution, to vote all of the shares of The Fidelity
Deposit and Discount Bank (the "Bank") that the undersigned may be entitled to
vote at the Special Meeting of Shareholders of the bank to be held at the Bank's
main office at Blakely and Drinker Streets, Dunmore, Pennsylvania 18512 on
__________, December ____, 1999, at ______ ___.m., Eastern Standard Time, and at
any adjournment or postponement thereof as follows:
1. To consider and act upon a proposal to approve and adopt the Plan of
Reorganization and Planof Merger, providing for:
o the reorganization of the Bank as the wholly owned subsidiary
of Fidelity D & D Bancorp, Inc., a Pennsylvania corporation
organized by the Bank to become the Bank's holding company,
through the merger of the Bank with the Fidelity Deposit and
Discount Interim Bank, a Pennsylvania chartered banking
institution and subsidiary of Fidelity D & D Bancorp, Inc.;
o and the Exchange of each share of common stock of the Bank for
2 Shares of common stock of Fidelity D & D Bancorp, Inc.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
____________________________________________________________________
2. Proposal to adjourn the special meeting of shareholders to a later date
to permit further solicitation of proxies if there are not sufficient
votes at the time of the meeting to constitute a quorum or to approve the
Plan of Reorganization and Plan of Merger.
/ / FOR / / AGAINST / / ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
____________________________________________________________________
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3. In their discretion, the proxy holders are authorized to vote upon such
other business as may properly come before the Special Meeting of
Shareholders and any adjournment.
This proxy, when properly signed, will be voted in the manner directed
herein by the undersigned shareholder(s). If no direction is made, this proxy
will be voted FOR proposals 1 and 2.
Dated: ________________________, 1999
_____________________________________
Signature
_____________________________________
Signature
Number of Shares Held of
Record on November ___, 1999:
_______________
This proxy must be dated, signed by the shareholder(s) and returned
promptly to the Bank in the enclosed envelope. When signing as attorney,
executor, administrator, trustee or guardian, please give full title. If more
than one trustee, all should sign. If stock is held jointly, each owner should
sign.
2
EXHIBIT 99.4
SUBCHAPTER D OF CHAPTER 17 OF THE PENNSYLVANIA
BUSINESS CORPORATION LAW OF 1988, AS AMENDED,
(15 PA. C.S.A. SECTIONS 1741-1750) RELATING TO INDEMNIFICATION
<PAGE>
STATUTES RELATING TO INDEMNIFICATION
Subchapter D of Chapter 17 of the
Pennsylvania Business Corporation
Law of 1988, (15 PA C.S.A. Section Section 1741-
1750), as amended
Subchapter D. Indemnification
Section 1741. Third-party actions.
Unless otherwise restricted in its bylaws, a business corporation shall
have power to indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a representative of the corporation, or is or was serving at the request of the
corporation as a representative of another domestic or foreign corporation for
profit or not-for-profit, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action or proceeding if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action or proceeding by judgment,
order, settlement or conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did not act
in good faith and in a manner that he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal proceeding, had reasonable cause to believe that his conduct was
unlawful.
Section 1742. Derivative and corporate actions.
Unless otherwise restricted in its bylaws, a business corporation shall
have power to indemnify any person who was or is a party, or is threatened to be
made a party, to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
he is or was a representative of the corporation or is or was serving at the
request of the corporation as a representative of another domestic or foreign
corporation for profit or not-for-profit, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation. Indemnification
shall not be made under this section in respect of any claim, issue or matter as
to which the person has been adjudged to be liable to the corporation unless and
only to the extent that the court of common pleas of the judicial district
embracing the county in which the registered office of the corporation is
located or the court in which the action was brought determines upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, the person is fairly and reasonably entitled to indemnity for the
expenses that the court of common pleas or other court deems proper.
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Section 1743. Mandatory indemnification.
To the extent that a representative of a business corporation has been
successful on the merits or otherwise in defense of any action or proceeding
referred to in section 1741 (relating to third-party actions) or 1742 (relating
to derivative and corporate actions) or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Section 1744. Procedure for effecting indemnification.
Unless ordered by a court, any indemnification under section 1741
(relating to third-party actions) or 1742 (relating to derivative and corporate
actions) shall be made by the business corporation only as authorized in the
specific case upon a determination that indemnification of the representative is
proper in the circumstances because he has met the applicable standard of
conduct set forth in those sections. The determination shall be made:
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to the action or proceeding;
(2) if such a quorum is not obtainable or if obtainable and a majority
vote of a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
(3) by the shareholders.
Section 1745. Advancing expenses.
Expenses (including attorneys' fees) incurred in defending any action or
proceeding referred to in this subchapter may be paid by a business corporation
in advance of the final disposition of the action or proceeding upon receipt of
an undertaking by or on behalf of the representative to repay the amount if it
is ultimately determined that he is not entitled to be indemnified by the
corporation as authorized in this subchapter or otherwise.
Section 1746. Supplementary coverage.
(a) General rule. The indemnification and advancement of expenses provided
by, or granted pursuant to, the other sections of this subchapter shall not be
deemed exclusive of any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding that
office. Section 1728 (relating to interested directors or officers; quorum) and,
in the case of a registered corporation, section 2538 (relating to approval of
transactions with interested shareholders) shall be applicable to any bylaw,
contract or transaction authorized by the directors under this section. A
corporation may create a fund of any nature, which may, but need not be, under
the control of a trustee, or otherwise secure or insure in any manner its
indemnification obligations, whether arising under or pursuant to this section
or otherwise.
2
<PAGE>
(b) When indemnification is not to be made. Indemnification pursuant to
subsection (a) shall not be made in any case where the act or failure to act
giving rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. The articles may not provide for
indemnification in the case of willful misconduct or recklessness.
(c) Grounds. Indemnification pursuant to subsection (a) under any bylaw,
agreement, vote of shareholders or directors or otherwise may be granted for any
action taken or any failure to take any action and may be made whether or not
the corporation would have the power to indemnify the person under any other
provision of law except as provided in this section and whether or not the
indemnified liability arises or arose from any threatened, pending or completed
action by or in the right of the corporation. Such indemnification is declared
to be consistent with the public policy of this Commonwealth.
Section 1747. Power to purchase insurance.
Unless otherwise restricted in its bylaws, a business corporation shall
have power to purchase and maintain insurance on behalf of any person who is or
was a representative of the corporation or is or was serving at the request of
the corporation as a representative of another domestic or foreign corporation
for profit or not-for-profit, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against that liability under
the provisions of this subchapter. Such insurance is declared to be consistent
with the public policy of this Commonwealth.
Section 1748. Application to surviving or new corporations.
For the purposes of this subchapter, references to "the corporation"
include all constituent corporations absorbed in a consolidation, merger or
division, as well as the surviving or new corporations surviving or resulting
therefrom, so that any person who is or was a representative of the constituent,
surviving or new corporation, or is or was serving at the request of the
constituent, surviving or new corporation as a representative of another
domestic or foreign corporation for profit or not-for-profit, partnership, joint
venture, trust or other enterprise, shall stand in the same position under the
provisions of this subchapter with respect to the surviving or new corporation
as he would if he had served the surviving or new corporation in the same
capacity.
Section 1749. Application to employee benefit plans.
For purposes of this subchapter:
(1) References to "other enterprises" shall include employee benefit plans
and references to "serving at the request of the corporation" shall include any
service as a representative of the business corporation that imposes duties on,
or involves services by, the representative with respect to an employee benefit
plan, its participants or beneficiaries.
(2) Excise taxes assessed on a person with respect to an employee benefit
plan pursuant to applicable law shall be deemed "fines."
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(3) Action with respect to an employee benefit plan taken or omitted in
good faith by a representative of the corporation in a manner he reasonably
believed to be in the interest of the participants and beneficiaries of the plan
shall be deemed to be action in a manner that is not opposed to the best
interests of the corporation.
Section 1750. Duration and extent of coverage.
The indemnification and advancement of expenses provided by, or granted
pursuant to, this subchapter shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a representative of the
corporation and shall inure to the benefit of the heirs and personal
representative of that person.
4
