Registration No. 333-_________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NATIONAL PENN BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 6021 23-2215075
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification No.)
organization)
Reading and Philadelphia Avenues
Boyertown, PA 19512
(610) 367-6001
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------
Lawrence T. Jilk, Jr.
Chairman
Reading and Philadelphia Avenues
Boyertown, PA 19512
(610) 367-6001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
H. Anderson Ellsworth William G. Lawlor
Jay W. Waldman Martha E. Morse
Ellsworth, Wiles, Carlton & Waldman, P.C. Dechert Price & Rhoads
1105 Berkshire Blvd., Suite 320 4000 Bell Atlantic Tower
Wyomissing, PA 19610 1717 Arch Street
(610) 374-1135 Philadelphia, PA 19103-2793
(215) 994-4000
Approximate Date of Commencement of Proposed Sale to the Public: As
soon as practicable after the effectiveness of this Registration Statement and
upon consummation of the merger of Elverson National Bank with and into a
subsidiary of the Registrant.
<PAGE>
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]________________
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]________________
If the 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. [_]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered(1) per unit(1) offering price(2) fee (2)
<S> <C> <C> <C> <C>
Common Stock, without par value 4,200,000 $19.50 $81,898,435 $24,160.04
(and associated stock purchase rights)(3)
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<FN>
(1) Based on the maximum number of shares of the Registrant's common stock that
may be issued in connection with the proposed merger (the "Merger") of
Elverson National Bank ("Elverson") with and into a subsidiary of the
Registrant. In accordance with Rule 416, this Registration Statement shall
also register any additional shares of the Registrant's common stock which
may become issuable to prevent dilution resulting from stock splits, stock
dividends or similar transactions, as provided by the agreement relating to
the Merger.
(2) Estimated solely for purposes of calculating the registration fee. Computed
in accordance with Rule 457(f) (1), based on the average of the bid and
asked price per share of common stock of Elverson on October 12, 1998 of
$31, and based on 2,597,995 shares of Elverson common stock to be exchanged
in the Merger and unexercised options to purchase 43,890 shares of Elverson
common stock. Pursuant to Rule 457(b), the required fee is reduced by the
$17,436.44 filing fee paid at the time of filing preliminary proxy
materials in connection with this transaction on September 25, 1998.
(3) Prior to the occurrence of certain events, the stock purchase rights will
not be evidenced separately from the common stock.
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</FN>
</TABLE>
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.
===============================================================================
<PAGE>
NATIONAL PENN BANCSHARES, INC.
Philadelphia and Reading Avenues
Boyertown, PA 19512
__________, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of the
shareholders of National Penn Bancshares, Inc. ("NPB") which will be held at
NPB's main office, located at Reading and Philadelphia Avenues, Boyertown,
Pennsylvania, at _____________, local time, on __________________________, 1998.
At the meeting, shareholders will be asked to approve and adopt an
Amended Agreement and Plan of Merger providing for the merger of Elverson
National Bank with and into National Penn Bank, NPB's national bank subsidiary.
Your Board of Directors believes combining these two entities with $2 billion in
assets presents an excellent opportunity to expand market share and provide
greater resources to the benefit of both organizations.
The proposed merger is described in the accompanying Joint Proxy
Statement/Prospectus and its Annexes. Please read all of these materials
carefully.
NPB'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
IN THE BEST INTERESTS OF NPB AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AT THE MEETING.
Because of the significance of these matters to NPB, your participation
in the meeting, in person or by proxy, is especially important. We hope you will
be able to attend the meeting. However, whether or not you anticipate attending
in person, we urge you to complete, sign and return the enclosed proxy card
promptly to ensure that your shares will be represented at the meeting. If you
plan to attend in person, please also return the enclosed attendance card.
Thank you very much for your continued interest and support. We look
forward to seeing you at the meeting.
Sincerely,
LAWRENCE T. JILK, JR.
Chairman & CEO
WAYNE R. WEIDNER
President
<PAGE>
ELVERSON NATIONAL BANK
83 WEST MAIN STREET
ELVERSON, PENNSYLVANIA 19520
__________________, 1998
Dear Shareholder:
We invite you to attend a Special Meeting (the "Meeting") of Shareholders
of Elverson National Bank ("Elverson"), to be held at the Holiday Inn,
Morgantown, Pennsylvania _____ on ________, __________ __, 1998 at ______, local
time.
At the Meeting, shareholders will be asked to consider and vote upon the
Amended Agreement and Plan of Merger dated as of July 21, 1998 (the "Merger
Agreement") among Elverson, National Penn Bancshares, Inc. ("NPB") and National
Penn Bank ("NP Bank"), a national bank subsidiary of NPB, as well as the merger
(the "Merger") of Elverson with and into NP Bank as contemplated therein. NPB
and NP Bank are headquartered in Boyertown, Pennsylvania. NP Bank operates
offices throughout Chester, Berks and Lancaster Counties, Pennsylvania.
In connection with the Merger and as more fully described in the
accompanying Proxy Statement, each share of Elverson common stock, par value
$1.25 per share (the "Elverson Common Stock"), issued and outstanding as of the
effective time of the Merger will be converted into and become a right to
receive 1.46875 shares of NPB common stock for each share of Elverson Common
Stock (subject to possible increase under certain circumstances).
Your attention is directed to the attached Proxy Statement/Prospectus which
contains a more complete description of the terms of the Merger and provides
detailed financial, business and other information concerning Elverson, NPB and
NP Bank.
ELVERSON'S BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS
IN THE BEST INTERESTS OF ELVERSON AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE MERGER AT THE MEETING.
It is very important that your shares be represented at the Meeting,
whether or not you plan to attend in person. The affirmative vote of the holders
of two-thirds of all outstanding shares of Elverson Common Stock is required to
approve the Merger and the Merger Agreement. WE URGE YOU TO EXECUTE, DATE AND
RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS
POSSIBLE TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE MEETING. On behalf of
the Board of Directors, we thank you for your support and urge you to vote "FOR"
approval of the Merger and the Merger Agreement.
Sincerely,
Joseph A. Rigg
Chairman
Glenn E. Moyer
President and Chief
Executive Officer
<PAGE>
NATIONAL PENN BANCSHARES, INC.
Philadelphia and Reading Avenues
Boyertown, PA 19512
NOTICE
OF
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders
(including any adjournment or postponement, the "NPB Meeting") of National Penn
Bancshares Inc. ("NPB") will be held on ____________________, 1998, at __:__
a.m./p.m., local time, at NPB's main office, Reading and Philadelphia Avenues,
Boyertown, Pennsylvania, for the following purposes:
(1) to consider and act upon the Amended Agreement and Plan of Merger
dated as of July 21, 1998 (the "Merger Agreement"), among NPB, National Penn
Bank, NPB's national bank subsidiary ("NP Bank"), and Elverson National Bank
("Elverson"), which provides, among other things, for the merger of Elverson
with and into NP Bank, and the conversion of each share of common stock of
Elverson outstanding immediately prior to the Merger (other than any dissenting
shares under the National Bank Act) into the right to receive a number of shares
of common stock of NPB determined in the manner set forth in the Merger
Agreement plus cash in lieu of any fractional share; and
(2) to consider such other matters as may properly be presented at the
NPB Meeting.
Shareholders of record at the close of business on ___________, 1998,
shall be entitled to notice of, and to vote at, the NPB Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Boyertown, Pennsylvania SANDRA L. SPAYD
____________________, 1998 Secretary
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED RETURN ENVELOPE. IF YOU ATTEND THE NPB MEETING, YOU MAY VOTE IN PERSON
EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
ELVERSON NATIONAL BANK
83 West Main Street
Elverson, Pennsylvania 19520
(610) 286-8200
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Meeting") of Elverson National Bank ("Elverson") will be held at the Holiday
Inn, Morgantown, Pennsylvania _____ on ______, ________, 1998 at _______, local
time. A Proxy Card and a Proxy Statement/Prospectus for the Meeting are
enclosed. The Meeting is for the purpose of considering and acting upon:
1. Approval of the Amended Agreement and Plan of Merger dated as of July
21, 1998 (the "Merger Agreement") among Elverson, National Penn Bancshares, Inc.
("NPB"), and National Penn Bank ("NP Bank"), a national bank subsidiary of NPB,
as well as the merger (the "Merger") of Elverson with and into NP Bank as
contemplated therein. Pursuant to the Merger Agreement and as more fully
described in the accompanying Proxy Statement/Prospectus, each outstanding share
of Elverson common stock, par value $1.25 per share (the "Elverson Common
Stock"), will be converted into and become a right to receive 1.46875 shares of
NPB common stock for each share of Elverson Common Stock (subject to possible
increase under certain circumstances).
2. Such other matters as may properly come before the Meeting or any
adjournment thereof.
Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Meeting may be adjourned. Only shareholders
of record at the close of business on ____________, 1998, shall be entitled to
notice of and to vote at the Meeting or any adjournments or postponements
thereof.
Elverson shareholders are entitled to dissent from the Merger and receive
cash for their shares of Elverson Common Stock rather than NPB Common Stock.
Elverson shareholders may dissent by following the procedures and requirements
set forth in Section 215a(b)-(d) of the National Bank Act, a copy of which is
attached as Annex D to the Proxy Statement/Prospectus.
You are requested to complete, sign and date the enclosed Proxy Card, which
is solicited by the Board of Directors, and to promptly mail it in the enclosed
envelope. The giving of such proxy does not affect your right to vote in person
in the event you attend the Meeting.
BY ORDER OF THE
BOARD OF DIRECTORS
John A. Koury, Jr.
Secretary
Elverson, Pennsylvania
______________, 1998
IMPORTANT: PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY. THE PROMPT
RETURN OF PROXIES WILL SAVE ELVERSON THE EXPENSE OF FURTHER REQUESTS FOR PROXIES
TO ENSURE A QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
NATIONAL PENN BANCSHARES, INC. AND ELVERSON NATIONAL BANK
JOINT PROXY STATEMENT
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NATIONAL PENN BANCSHARES, INC.
PROSPECTUS
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This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to shareholders of Elverson National Bank ("Elverson") and to
shareholders of National Penn Bancshares, Inc. ("NPB"), in connection with the
solicitation of proxies by the respective Boards of Directors of Elverson and
NPB for use at the special meeting of shareholders of Elverson (including any
adjournments or postponements thereof, the "Elverson Meeting") and the special
meeting of shareholders of NPB (including any adjournments or postponements
thereof, the "NPB Meeting" and, together with the Elverson Meeting, the
"Meetings") to be held on ____________________, 1998.
This Proxy Statement/Prospectus is also being furnished by NPB to
shareholders of Elverson as a prospectus with respect to the shares of common
stock, without par value, of NPB (together with the NPB Rights (as hereinafter
defined) attached thereto, the "NPB Common Stock") to be issued upon the merger
(the "Merger") of Elverson with and into National Penn Bank, NPB's national bank
subsidiary ("NP Bank"), pursuant to an Amended Agreement and Plan of Merger
dated as of July 21, 1998 (the "Merger Agreement"), among NPB, NP Bank and
Elverson.
Upon consummation of the Merger, each outstanding share of common
stock, $1.25 par value, of Elverson (the "Elverson Common Stock"), other than
any dissenting shares under the National Bank Act, will be converted into and
become the right to receive 1.46875 shares of NPB Common Stock (subject to
possible increase under certain circumstances, the "Exchange Ratio") (see "The
Merger--Termination; Possible Exchange Ratio Increase"), with cash being paid in
lieu of any fractional share interest.
On July 21, 1998, the last business day prior to public announcement of
the execution of the Merger Agreement, the last sale price of NPB Common Stock,
as reported on the National Market tier of The Nasdaq Stock Market, was $26.60
per share (as adjusted for the NPB Stock Split (as hereinafter defined)). On ,
1998, the last sale price of NPB Common Stock, as so reported, was $ per share.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of Elverson and NPB on or about __________,
1998.
------------------------------------
THE SHARES OF NPB COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF NPB COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
-------------------------------------
The date of this Proxy Statement/Prospectus is ___________, 1998.
1
<PAGE>
No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
and, if given or made, such information or representations must not be relied
upon as having been authorized by Elverson or NPB. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom it is not lawful to make any such
offer or solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor the distribution of securities made hereunder shall,
under any circumstances, create an implication that there has been no change in
the affairs of Elverson or NPB since the date hereof or that the information
herein is correct as of any time subsequent to its date.
All information concerning NPB and its subsidiaries contained herein or
incorporated herein has been furnished by NPB, and all information concerning
Elverson and its subsidiaries contained herein has been furnished by Elverson.
2
<PAGE>
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION 6
INCORPORATION OF DOCUMENTS BY REFERENCE 6
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS 7
SUMMARY 8
The Companies 8
Elverson National Bank 8
National Penn Bancshares, Inc. 8
National Penn Bank 8
The Meetings 9
Dates, Places and Times 9
Matters to be Considered at the Meetings 9
Record Dates; Shares Outstanding; Quorums 9
Votes Required; Voting Agreements and Other Agreements 10
Recommendations of Boards of Directors 10
The Merger 11
Terms of the Merger 11
Opinions of Financial Advisors 11
Accounting Treatment 12
Federal Income Tax Consequences 12
Conditions to the Merger; Regulatory Approvals 12
Termination 12
Management and Operations After the Merger 12
Interest of Certain Persons in the Merger 13
Comparison of Shareholders' Rights 13
Appraisal Rights of Dissenting Shareholders 14
Market Price and Dividend Information 14
Selected Historical Financial Data 17
NPB 17
Elverson 19
Unaudited Pro Forma Combined Selected Financial Data 20
Comparative Per Share Data 21
THE MEETINGS 22
Dates, Places and Times 22
Matters to be Considered at the Meetings 22
Record Dates; Shares Outstanding; Quorums 22
Votes Required; Voting Agreements 22
Voting of Proxies 23
Effect of Abstentions and Broker Non-Votes 24
Revocability of Proxies 25
Solicitation of Proxies 25
3
<PAGE>
THE MERGER 26
Background of the Merger 26
Reasons for the Merger; Recommendations of the
Boards of Directors 27
Terms of the Merger 29
Opinions of Financial Advisors 31
Effective Date 36
Representations and Warranties 36
Conduct of Business Pending the Merger 37
Dividends 38
Conditions to the Merger 38
Amendment; Waiver 39
Termination; Possible Exchange Ratio Increase 39
Termination Fees 40
Expenses 41
No Solicitation of Other Transactions 41
Nasdaq Listing 41
Exchange of Elverson Stock Certificates 41
Regulatory Approvals 42
Management and Operations after the Merger 43
Employee Benefits and Severance 43
Interests of Certain Persons in the Merger 45
Accounting Treatment 47
Certain Federal Income Tax Consequences 48
Resale of NPB Common Stock 49
Appraisal Rights of Dissenting Shareholders 49
CERTAIN REGULATORY CONSIDERATIONS 51
INFORMATION WITH RESPECT TO NPB AND NP BANK 54
DESCRIPTION OF NPB CAPITAL SECURITIES 55
Common Stock 55
Preferred Stock 56
Shareholder Rights Plan 56
Anti-Takeover Charter and Law Provisions 56
COMPARISON OF SHAREHOLDERS' RIGHTS 58
Directors 58
Nomination 58
Election 58
Cumulative Voting 59
Qualification 59
Removal 59
Vacancies 59
Limited Liability 60
Indemnification 60
Shareholder Meetings 60
Call 60
Notice 60
Quorum 61
Required Shareholder Vote 61
General 61
Fundamental Changes 61
Amendment of Articles of Incorporation 61
Amendment of Bylaws 62
Inspection Rights 62
Shareholder Rights Plan 62
Anti-Takeover Provisions 62
Dissenters Rights 63
4
<PAGE>
Pre-Emptive Rights 64
Dividends 64
Voluntary Dissolution 65
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION 66
Unaudited Pro Forma Combined Condensed Balance
Sheet as of June 30, 1998 67
Unaudited Pro Forma Combined Condensed Income
Statements for the Six-Months Ended June 30,
1998 and 1997, and the Years Ended December 31,
1997, 1996, and 1995 68
ELVERSON: SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA 73
ELVERSON: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 73
ELVERSON: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS AS OF OR FOR SIX MONTHS
ENDED JUNE 30, 1998 AND 1997 88
INFORMATION WITH RESPECT TO ELVERSON 91
Business 91
Legal Proceedings 91
Security Ownership of Certain Beneficial Owners and Management 92
EXPERTS 93
LEGAL MATTERS 93
OTHER MATTERS 93
SHAREHOLDER PROPOSALS 93
INDEX TO ELVERSON'S FINANCIAL STATEMENTS F-0
ANNEXES
A. Amended Agreement and Plan of Merger II-1
B. Opinion of Berwind Financial, L.P. II-39
C. Opinion of LSC Financial Services, Inc. II-41
D. Dissenting Shareholders' Rights Under 12 United States
Code Section 215a(b)-(d) II-43
E. OCC Banking Circular on Stock Appraisals (BC-259) II-44
5
<PAGE>
AVAILABLE INFORMATION
NPB is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission are available for inspection and copying
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, and at the Commission's
Regional Offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and at Seven World Trade Center, New York, New
York 10048. Copies of such documents may also be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, DC 20549, at prescribed rates, and from the web site that the
Commission maintains at http://www.sec.gov.
NPB has filed with the Commission a Registration Statement on Form S-4
(including all amendments and exhibits thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the NPB Common Stock issuable pursuant to the Merger Agreement. This
Proxy Statement/Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. The Registration Statement,
including any amendments and exhibits thereto, is available for inspection and
copying as set forth above. Statements contained in this Proxy
Statement/Prospectus as to the contents of any contract or other document are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
RELATING TO NPB WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (NOT INCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST DIRECTED TO THE SECRETARY, NATIONAL PENN
BANCSHARES, INC., READING AND PHILADELPHIA AVENUES, BOYERTOWN, PENNSYLVANIA
19512. IN ORDER TO INSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE APPLICABLE
MEETING, REQUESTS SHOULD BE SENT IN TIME TO BE RECEIVED BY ________________,
1998.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by NPB with the Commission pursuant to
the Exchange Act are hereby incorporated by reference in this Proxy
Statement/Prospectus:
1. NPB's Annual Report on Form 10-K for the year ended December 31,
1997.
2. NPB's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
3. NPB's Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, as amended by Form 10-Q/A No. 1 dated October 9, 1998.
4. NPB's Report on Form 8-K dated July 21, 1998.
In addition, all documents filed by NPB pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
consummation of the Merger shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing thereof. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
6
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Proxy Statement/Prospectus (including information set forth or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and business of each of NPB and Elverson,
including (i) statements relating to revenues and cost savings estimated to
result from the Merger, and (ii) statements preceded by, followed by or that
include the words "believes," "expects," "anticipates," "estimates" or similar
expressions. See "Summary", "Unaudited Pro Forma Combined Financial
Information", "The Merger--Background of the Merger", and "The Merger--Reasons
for the Merger; Recommendations of the Boards of Directors". These
forward-looking statements involve certain risks and uncertainties. Factors that
may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among other things, the following
possibilities: (a) expected cost savings from the Merger may not be fully
realized or realized within the expected time frame; (b) revenues following the
Merger may be lower than expected, or deposit attrition, operating costs or
customer loss and business disruption following the Merger may be greater than
expected; (c) competitive pressures among depository and other financial
institutions may increase significantly; (d) costs or difficulties related to
the integration of the businesses of NPB and Elverson may be greater than
expected; (e) changes in the interest rate environment may reduce margins; (f)
general economic or business conditions, either nationally or in Pennsylvania,
may be less favorable than expected resulting in, among other things, a
deterioration in credit quality or a reduced demand for credit; (g) legislative
or regulatory changes may adversely affect the business in which NPB is engaged
and (h) changes may occur in the securities markets.
7
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus and in the documents incorporated herein by
reference. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained or incorporated by reference in this
Proxy Statement/Prospectus and the Annexes hereto. A copy of the Merger
Agreement (including exhibits thereto) is set forth in Annex A to this Proxy
Statement/Prospectus and is incorporated herein by reference; reference is made
thereto for a complete description of the terms of the Merger. Shareholders of
Elverson and NPB are urged to read carefully this entire Proxy
Statement/Prospectus, including the Annexes hereto.
All ratios and share data relating to NPB and all share price
information relating to the Merger Agreement have been adjusted to reflect NPB's
5-for-4 stock split effected on July 31, 1998 (the "NPB Stock Split").
The Companies
Elverson National Bank
Elverson is a banking corporation organized on August 16, 1915 under
the national banking laws and headquartered in the Borough of Elverson,
Pennsylvania. Elverson engages in commercial banking authorized by the National
Bank Act (as amended, the "NBA"), offering a full range of personal and
corporate services, including deposit accounts (such as checking, NOW, money
market savings and certificates of deposit) and loan accounts (such as
commercial, installment and student loans and fixed and adjustable rate
residential mortgages).
As of December 31, 1997, Elverson had assets of $274,838,000.
Elverson's principal executive office is located at 83 West Main Street,
Elverson, Pennsylvania 19520-9403, and the telephone number at such address is
(610) 286-8200. Elverson engages in general commercial and retail banking
business through its nine banking offices in Chester, Berks and Lancaster
Counties, Pennsylvania.
National Penn Bancshares, Inc.
National Penn Bancshares, Inc. ("NPB") is a Pennsylvania business
corporation and bank holding company headquartered at Reading and Philadelphia
Avenues, Boyertown, Pennsylvania 19512. NPB owns all of the outstanding capital
stock of National Penn Bank, formerly named National Bank of Boyertown, and
Investors Trust Company. NPB also has two other wholly-owned non-bank
subsidiaries engaged in activities closely related to the business of banking
and has, indirectly through one of such subsidiaries, equity investments in two
other banks. In 1998, NPB formed a new wholly-owned non-bank subsidiary, a de
novo full service securities brokerage firm for which regulatory approvals are
pending.
The principal executive offices of NPB are located at Reading and
Philadelphia Avenues, Boyertown, Pennsylvania 19512, and its telephone number is
(610) 367-6001.
For further information concerning NPB and its subsidiaries, see
"Available Information," "Incorporation of Documents by Reference," and
"Description of NPB Capital Securities."
National Penn Bank
National Penn Bank ("NP Bank") is a national bank chartered under the
National Bank Act. Prior to August 1, 1993, NP Bank's name was National Bank of
Boyertown. On that date, the bank's name was changed to National Penn Bank. NP
Bank also operates through Chestnut Hill National Bank ("CHNB Division"), lst
Main Line Bank ("lst MLB Division"), and National Asian Bank ("NAB Division"),
each a banking division of NP Bank. The CHNB Division was established in
December 1993 after the Company's acquisition of Chestnut Hill National Bank;
the 1st MLB Division was started in April 1995; and the NAB Division was
established in June 1998.
At June 30, 1998, NP Bank conducted operations through 52 full-service
branches and 3 loan production offices, of which 2 branches and 1 loan
production office constitute the CHNB Division, 4 branches constitute the 1st
MLB Division, and one branch constitutes the NAB Division. In May 1998, NP
Bank's wholly-owned subsidiary, Link Financial Services, Inc., was authorized by
the Office of the Comptroller of the Currency and the Pennsylvania Department of
Insurance to engage in business as a life insurance agency.
8
<PAGE>
NP Bank is engaged in the commercial and retail banking business. NP
Bank provides checking and savings accounts, time deposits, personal, business,
residential mortgage, educational loans, interbank credit cards, and safe
deposit and night depository facilities. NP Bank offers certain non-deposit
(non-FDIC insured) investment products through unaffiliated third-party vendors.
The Meetings
Dates, Places and Times
Elverson. The special meeting of shareholders of Elverson (the
"Elverson Meeting") will be held at the Holiday Inn, located at Morgantown,
Pennsylvania, at ______________, local time, on _________, 1998.
NPB. The special meeting of shareholders of NPB (the "NPB Meeting")
will be held at NPB's Main Office, located at Reading and Philadelphia Avenues,
Boyertown, Pennsylvania, at ______________, local time, on _________, 1998.
Matters to be Considered at the Meetings
Elverson. At the Elverson Meeting, holders of Elverson Common Stock
will consider and vote upon a proposal to approve the Amended Agreement and Plan
of Merger dated as of July 21, 1998 (the "Merger Agreement"), among Elverson,
NPB and NP Bank, providing for the merger (the "Merger") of Elverson with and
into NP Bank on the terms and conditions set forth therein. Shareholders will
also consider and vote upon such other business, if any, as may properly come
before the Elverson Meeting or any adjournment thereof. See "The
Meetings--Matters to be Considered at the Meetings."
NPB. At the NPB Meeting, holders of NPB Common Stock will consider and
vote upon a proposal to approve the Merger Agreement. Shareholders will also
consider and vote upon such other business, if any, as may properly come before
the NPB Meeting or any adjournment thereof. See "The Meetings--Matters to be
Considered at the Meetings."
Record Dates; Shares Outstanding; Quorum
Elverson. Only holders of record of shares of Elverson Common Stock at
the close of business on __________, 1998 (the "Elverson Record Date"), will be
entitled to notice of, and to vote at, the Elverson Meeting. As of the Elverson
Record Date, there were __________ shares of Elverson Common Stock outstanding
and entitled to be voted at the Elverson Meeting, held by approximately
__________ shareholders of record. The presence, in person or by proxy, of
shareholders entitled to cast a majority of all the votes entitled to be cast at
the Elverson Meeting will constitute a quorum at the Elverson Meeting. See "The
Meetings--Record Dates; Shares Outstanding; Quorums."
NPB. Only holders of record of shares of NPB Common Stock at the close
of business on __________, 1998 (the "NPB Record Date"), will be entitled to
notice of, and to vote at, the NPB Meeting. As of the NPB Record Date, there
were __________ shares of NPB Common Stock outstanding and entitled to be voted
at the NPB Meeting, held by approximately __________ shareholders of record. The
presence, in person or by proxy, of shareholders entitled to cast a majority of
all the votes entitled to be cast at the NPB Meeting will constitute a quorum at
the NPB Meeting. See "The Meetings--Record Dates; Shares Outstanding; Quorums."
9
<PAGE>
Votes Required; Voting Agreements and Other Agreements
Elverson. The approval of the Merger Agreement will require the
affirmative vote, in person or by proxy, of the holders of two-thirds of the
outstanding shares of Elverson Common Stock entitled to vote thereon at the
Elverson Meeting. Each holder of shares of Elverson Common Stock outstanding on
the Elverson Record Date will be entitled to one vote for each share held of
record.
The directors of Elverson have agreed with NPB to vote all shares of
Elverson Common Stock for which they have sole voting power on the Elverson
Record Date in favor of approval of the Merger Agreement. On the Elverson Record
Date, directors of Elverson had sole voting power over approximately 537,153
shares of Elverson Common Stock, or approximately 20.7% of the shares of
Elverson Common Stock outstanding on the Elverson Record Date.
Management of Elverson is not aware of any person or entity beneficially
owning 5% or more of the outstanding shares of Elverson Common Stock, as of
September 2, 1998, except for (i) 179,097 shares of Elverson Common Stock
(approximately 6.89% of Elverson's outstanding shares) held by Robert E. Rigg,
an Elverson director, (ii) 247,906 shares of Elverson Common Stock
(approximately 9.54% of Elverson's outstanding shares) held by Boyd C. Davis,
Jr., an Elverson director, and (iii) approximately 176,527 shares of Elverson
Common Stock (approximately 6.79% of Elverson's outstanding shares) held by The
Jacobs Family Limited Partnership.
All shares of Elverson Common Stock held under the Elverson National
Bank Employee Stock Ownership Plan (the "ESOP") will be voted by the ESOP
trustee, Bank of Lancaster County, N.A., in accordance with the directions of
the participants to whose accounts such shares are allocated. Any unallocated
shares of Elverson Common Stock held under the ESOP or allocated shares as to
which no direction is received will be voted in proportion to the allocated
shares for which direction is received. All shares of Elverson Common Stock held
under the Elverson National Bank 401(k) Profit Sharing Plan (the "401(k) Plan")
will be voted as determined by the 401(k) Plan trustee, Bank of Lancaster
County, N.A.
See "The Meetings--Votes Required; Voting Agreements."
NPB. The approval of the Merger Agreement will require the affirmative
vote of a majority of the votes cast, in person or by proxy, by all shareholders
entitled to vote thereon at the NPB Meeting. Each holder of shares of NPB Common
Stock outstanding on the NPB Record Date will be entitled to one vote for each
share held of record.
The directors of NPB have agreed to vote all shares of NPB Common Stock
for which they have sole voting power on the NPB Record Date in favor of
approval of the Merger Agreement. On the NPB Record Date, directors of NPB had
sole voting power over approximately 437,672 shares of NPB Common Stock, or
approximately 3.3% of the shares of NPB Common Stock outstanding on the NPB
Record Date.
Management of NPB is not aware of any person or entity owning 5% or
more of the outstanding shares of NPB Common Stock, except for (i) 1,812,194
shares of NPB Common Stock (approximately 13.7% of NPB's outstanding shares)
held by James K. Overstreet or persons or entities affiliated with him, and (ii)
812,353 shares of NPB Common Stock (approximately 6.17% of NPB's outstanding
shares) held of record by Investors Trust Company ("ITC"), a wholly-owned
subsidiary of NPB, as trustee or executor on behalf of various trusts and
estates.
See "The Meetings--Votes Required; Voting Agreements."
Recommendations of Boards of Directors
Elverson. The Board of Directors of Elverson believes that the terms of
the Merger are fair and in the best interests of the shareholders of Elverson
and has unanimously approved the Merger Agreement. The Board of Directors of
Elverson unanimously recommends that the shareholders of Elverson approve the
Merger Agreement.
NPB. The Board of Directors of NPB believes that the terms of the
Merger are fair and in the best interests of the shareholders of NPB and has
unanimously approved the Merger Agreement. The Board of Directors of NPB
unanimously recommends that the shareholders of NPB approve the Merger
Agreement.
10
<PAGE>
The Merger
Terms of the Merger
On the Effective Date of the Merger, as defined below, each outstanding
share of Elverson Common Stock (other than any dissenting shares) will be
automatically converted into, and become a right to receive, 1.46875 shares of
NPB Common Stock (the "Exchange Ratio"), provided that the NPB Market Value (as
hereinafter defined) is greater than or equal to $24.30. If the NPB Market Value
is less than $24.30, the Exchange Ratio will be adjusted in certain
circumstances and the Exchange Ratio may be adjusted at NPB's discretion in
other circumstances as follows: (a) if the NPB Market Value is less than $24.30
but either (i) the NPB Market Value is greater than or equal to $21.60 or (ii)
the NPB Market Value Quotient (as hereinafter defined) is not less than the
Index Group Standard (as hereinafter defined) by 5% or more, each outstanding
share of Elverson Common Stock (other than any dissenting shares or any treasury
shares) will be converted into, and become a right to receive, 1.5 shares of NPB
Common Stock; and (b) if (i) the NPB Market Value is less than $21.60, (ii) the
NPB Market Value Quotient is less than the Index Group Standard by 5% or more,
and (iii) Elverson has properly elected to terminate the Merger Agreement (see
"The Merger--Termination; Possible Exchange Ratio Increase"), NPB will have the
option to increase the Exchange Ratio to 1.5625 and thereby nullify Elverson's
election to terminate the Merger Agreement.
As further described herein under "The Merger--Terms of the Merger,"
for purposes of the adjustment described above and the right of Elverson to
terminate the Merger Agreement as described above, (a) the "NPB Market Value"
will be calculated by averaging the closing sale price of a share of NPB Common
Stock over a period of 20 trading days ending on the trading day that is 31 days
prior to the Elverson Meeting, (b) the "NPB Market Value Quotient" will be the
quotient obtained by dividing the NPB Market Value by $27.00, and (c) the "Index
Group Standard" will be the quotient obtained by dividing the average of the
closing sale prices of a group of bank and thrift holding companies (on any
date, the "Index Price") over the same 20 trading day period used to calculate
NPB Market Value by the Index Price on July 20, 1998.
The number of shares of NPB Common Stock issuable in exchange for
outstanding shares of Elverson Common Stock will be further adjusted to prevent
dilution in the event of additional stock splits, reclassifications or other
similar events.
NPB will in all events pay cash to Elverson shareholders in lieu of
issuing fractional shares of NPB Common Stock.
In connection with the Merger, all outstanding options to purchase
Elverson Common Stock issued under Elverson's stock option plans generally will
be converted on the Effective Date into options to acquire shares of NPB Common
Stock. On and after the Effective Date, each such option shall represent the
right to acquire that number of shares of NPB Common Stock equal to (a) the
number of shares of Elverson Common Stock covered by such option multiplied by
(b) the Exchange Ratio (as it may be adjusted). The exercise price per share of
each such option shall be (a) its stated exercise price per share divided by (b)
the Exchange Ratio (as it may be adjusted).
The Effective Date will be the date on which all conditions to the
Merger have been fulfilled or waived or as soon as practicable thereafter. ENB
and NPB currently anticipate that the Effective Date will occur in early 1999.
Opinions of Financial Advisors
Elverson. Berwind Financial, L.P. ("Berwind") has delivered its written
opinion, dated _______________, 1998, to the Board of Directors of Elverson
that, as of the date of such opinion, and subject to the assumptions and
considerations set forth therein, the financial terms of the Merger are fair to
Elverson shareholders from a financial point of view. A copy of Berwind's
opinion is attached to this Proxy Statement/Prospectus as Annex B. The opinion
should be read in its entirety with respect to the assumptions made and other
matters considered by Berwind in delivering such opinion. See "The
Merger--Opinions of Financial Advisors."
NPB. LSC Financial Services, Inc. ("LSC") has delivered its written
opinion, dated _______________, 1998, to the Board of Directors of NPB that, as
of the date of such opinion, and subject to the assumptions and considerations
set forth therein, the Exchange Ratio is fair to NPB shareholders from a
financial point of view. A copy of LSC's opinion is attached to this Proxy
Statement/Prospectus as Annex C. The opinion should be read in its entirety with
respect to the assumptions made and other matters considered by LSC in
delivering such opinion. See "The Merger--Opinions of Financial Advisors."
11
<PAGE>
Accounting Treatment
The Merger is intended to qualify as a pooling of interests for
accounting and financial reporting purposes. See "The Merger--Accounting
Treatment."
Federal Income Tax Consequences
The obligation of each of NPB and Elverson to consummate the Merger is
conditioned upon the receipt of an opinion from its respective special counsel
or independent certified public accountants substantially to the effect that the
Merger will be treated, for federal income tax purposes, as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and that no gain or loss will be recognized by the holders of Elverson
Common Stock in connection with the Merger, except to the extent of any cash
received in lieu of a fractional share of NPB Common Stock. See "The
Merger--Certain Federal Income Tax Consequences."
Conditions to the Merger; Regulatory Approvals
The obligations of NPB and Elverson to complete the Merger are subject
to various conditions that are usual and customary in transactions similar to
the Merger, including, among other things, obtaining regulatory approval (which
has been obtained), obtaining approvals of both the shareholders of Elverson and
the shareholders of NPB, and obtaining opinions that the Merger will qualify as
a tax-free reorganization for federal income tax purposes and as a pooling of
interests for financial accounting purposes. There is no assurance that all
conditions to the Merger will be satisfied. See "The Merger--Regulatory
Approvals" and "The Merger--Conditions to the Merger."
Termination
The Merger Agreement may be terminated at any time prior to the
Effective Date by mutual consent of NPB and Elverson or by either party if (i)
the other party, in any material respect, breaches any representation, warranty,
covenant or other obligation contained in the Merger Agreement and such breach
has not been cured within 30 days from the date written notice of such breach
was given to the party committing the breach, (ii) the closing of the Merger
shall not have occurred on or before February 28, 1999, unless the failure of
such occurrence shall be due to the failure of the party seeking to terminate
the Merger Agreement to perform or observe any agreements required to be
performed by such party on or before the closing, (iii) if any regulatory
authority whose approval or consent is required for the consummation of the
Merger issues a definitive written denial of such approval or consent and the
time periods for appeals or requests for reconsideration have expired; or (iv)
shareholders of Elverson or NPB do not approve the Merger Agreement at their
respective Meetings.
In addition, Elverson may terminate the Merger Agreement at any time
during the ten-day period following the Determination Date (which, under the
Merger Agreement, will be the trading day that is 31 days prior to the Elverson
Meeting), if both (a) the NPB Market Value is less than $21.60 and (b) the NPB
Market Value Quotient is less than the Index Group Standard by 5% or more,
subject to NPB's right to nullify such termination of the Merger Agreement by
increasing the Exchange Ratio to 1.5625. Elverson may also terminate the Merger
Agreement at any time during the ten-day period following the Determination
Date, if the NPB Market Value is less than $20.25.
Elverson may terminate the Merger Agreement if NPB or any of its
subsidiaries enters into an agreement with a third party concerning any merger
of NPB with or into such third party or the acquisition of all of NPB's assets,
or if any person or entity acquires 19.9% or more of the outstanding shares of
NPB Common Stock. Finally, Elverson may terminate the Merger Agreement following
receipt of an Acquisition Proposal (see "The Merger--No Solicitation of Other
Transactions"), but only if the Elverson Board of Directors has concluded in
good faith after consultation with its legal and financial advisors that such
Acquisition Proposal, if consummated pursuant to its terms, would result in an
alternative transaction more favorable to Elverson's shareholders than the
Merger, in which case Elverson would owe an immediately payable $5,000,000
termination fee to NPB. See "The Merger--Termination Fees".
Management and Operations After the Merger
NP Bank, as the surviving bank in the Merger (the "Surviving Bank"),
will establish a separate banking division called "Elverson National Bank, A
Division of National Penn Bank" (the "Elverson Division") and the "Elverson
Division Board of Directors" (the "Elverson Division Board") to advise the
Surviving Bank from time to
12
<PAGE>
time regarding sales, marketing and expansion of the Elverson Division. NPB has
agreed to operate the Elverson Division and maintain the Elverson Division Board
in existence for at least five years after the Effective Date, except in certain
circumstances set forth in the Merger Agreement.
The directors and executive officers of NP Bank prior to the Merger
will continue, in their respective capacities, as directors and executive
officers of the Surviving Bank. In addition, two persons (each an "Elverson
Nominee") proposed by Elverson's Board of Directors and approved by NPB will be
elected as directors of the Surviving Bank. NPB and NP Bank have agreed to take
all steps necessary to ensure that each Elverson Nominee (or any successor
selected by the Elverson Division Board and approved by NPB) is re-elected to
the Surviving Bank's Board of Directors for each of the five years following the
Effective Date, if he is in office as a director of the Surviving Bank on the
annual election dates. The selection of the Elverson Nominees has not been
finalized pursuant to the Merger Agreement. Glenn E. Moyer, President and CEO of
ENB and a member of the ENB Board, will become President of the Elverson
Division and President of the Berks County and Montgomery County regions of NP
Bank. Mr. Moyer will also become an Executive Vice President of NP Bank, with
additional corporate responsibilities.
Upon completion of the Merger and subject to all applicable legal
requirements, NPB has agreed that its Board of Directors will appoint two
persons (each an "Elverson NPB Nominee") proposed by Elverson's Board of
Directors and approved by NPB to serve as directors of NPB effective as of the
Effective Date for terms expiring in April 2000, and April 2001, respectively.
NPB has also agreed to cause each Elverson NPB Nominee (or any successor
selected by the Elverson Division Board and approved by NPB) to be re-nominated
for at least one additional three-year term thereafter. The selection of the
Elverson NPB Nominees has not been finalized pursuant to the Merger Agreement.
Interest of Certain Persons in the Merger
Certain directors and officers of Elverson have interests in the Merger
in addition to any interests they may have as shareholders of Elverson
generally. These include NPB's agreement to indemnify Elverson's officers and
directors against all losses, claims and damages arising out of actions or
omissions or alleged actions or omissions occurring at or prior to the Effective
Date and to provide insurance covering Elverson's officers and directors for a
period of six years from the Effective Date. In addition, as provided in the
Elverson 1996 Stock Incentive Plan, as of the date of the Merger Agreement
certain outstanding options to acquire ENB Common Stock held by the officers
became 100 percent vested. All outstanding options to acquire ENB Common Stock
will be converted into options to purchase NPB Common Stock. Further, all
benefits accrued under the Elverson retirement plans will become 100 percent
vested as of the Effective Date and benefits accrued under the Elverson deferred
compensation arrangement will become immediately distributable. See "The
Merger--Interests of Certain Persons in the Merger." Following the Merger, two
persons selected by the Board of Directors of ENB and approved by NPB will be
appointed as directors of NPB and two persons selected by the Board of Directors
of ENB and approved by NPB will be appointed as directors of the Surviving Bank.
Additionally, the Surviving Bank will undertake to create a separate banking
division which will have a board of directors composed primarily of the present
Elverson Board of Directors and whose primary purpose will be to advise the
Surviving Bank from time to time regarding sales, marketing and expansion of the
separate banking division. Mr. Moyer will become the President of the Elverson
Division and of the Berks County and Montgomery County regions and an Executive
Vice President of NP Bank, with additional corporate responsibilities. Mr.
Moyer's change of control agreement with ENB provides that if his employment is
terminated due to a change of control, he will receive a payment equal to his
salary for the preceding twelve month period. See "The Merger--Terms of the
Merger," "The Merger--Management and Operations After the Merger" and "The
Merger--Interests of Certain Persons in the Merger."
Comparison of Shareholders' Rights
NPB is a Pennsylvania corporation subject to the provisions of the
Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"); Elverson
is a national banking association governed by the National Bank Act (the "NBA").
Upon completion of the Merger, shareholders of Elverson will become shareholders
of NPB, and their rights as such will be governed by the BCL and by NPB's
articles of incorporation and bylaws. The rights of shareholders of NPB are
different in certain respects from the rights of shareholders of Elverson. The
most significant of these differences include the following: (i) NPB has in
effect a shareholder rights plan, pursuant to which holders of NPB Common Stock
are entitled under certain circumstances relating to an attempt to acquire
control of NPB to acquire shares of NPB Common Stock or stock of a potential
acquiror at a substantially reduced price (Elverson has not adopted a similar
shareholder rights plan); (ii) certain provisions of NPB's articles of
incorporation are designed to deter a non-negotiated attempt to obtain control
of NPB and certain provisions of the BCL are similarly intended for Pennsylvania
corporations generally; and (iii) provisions of Elverson's articles of
association grant its shareholders pre-emptive rights to purchase shares of
Elverson Common Stock (NPB shareholders have no pre-emptive rights). See
"Comparison of Shareholders' Rights."
13
<PAGE>
Appraisal Rights of Dissenting Shareholders
As required by the NBA, any Elverson shareholder who has voted against
the Merger Agreement at the Elverson Meeting, or has given notice to Elverson in
writing at or prior to the Elverson Meeting that such shareholder dissents from
the Merger, shall be entitled to receive the "value" of the shares held by that
shareholder at the time the Merger Agreement is approved by the Office of the
Comptroller of the Currency (the "OCC"), upon written request made to NPB at any
time within 30 days following the Effective Date, accompanied by the surrender
of such shareholder's Elverson stock certificates. The relevant portions of the
statutory dissenters procedures are attached to this Proxy Statement/Prospectus
as Annex D. Elverson shareholders electing to exercise their dissenters rights
under the National Bank Act may not vote for the Merger Agreement. If an
Elverson shareholder returns a signed proxy but does not specify a vote against
the Merger Agreement or does not give a direction to abstain, the proxy will be
voted for the Merger Agreement, which will have the effect of waiving that
shareholder's dissenters rights. Failure to take any of the steps required by
the National Bank Act on a timely basis may result in the loss of the
shareholder's dissenters rights. See "The Merger--Appraisal Rights of Dissenting
Shareholders."
Shareholders of NPB do not have any statutory dissenters rights.
Market Price and Dividend Information
Elverson Common Stock is not listed on the Nasdaq Stock Market's
National Market or SmallCap Market or any stock exchange, and Elverson is not
subject to the reporting requirements of the Exchange Act. Elverson believes the
trading market for Elverson Common Stock is thin. The following table set forth
below represents the high and low bid quotations obtained from F. J. Morrissey &
Company, a brokerage firm, based upon monthly reports generated by F. J.
Morrissey & Company. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual sales
transactions. The following table also includes the dividends paid per share for
such periods by Elverson, after giving retroactive effect to a 5% stock dividend
paid on April 10, 1998 and a 2-for-1 stock split paid on May 16, 1997.
14
<PAGE>
<TABLE>
<CAPTION>
Cash Dividend
High Bid Low Bid Per Share
<S> <C> <C> <C>
1996
First quarter............................ $ 18.29 $ 17.93 $ .038
Second quarter............................ 19.00 18.53 .038
Third quarter............................. 19.48 19.00 .038
Fourth quarter............................ 19.59 19.48 .038
1997
First quarter............................. 19.95 19.71 .043
Second quarter............................ 21.38 20.43 .043
Third quarter............................. 21.85 21.38 .043
Fourth quarter............................ 22.33 21.85 .090
1998
First quarter............................. 22.56 22.56 .060
Second quarter............................ 23.50 22.50 .060
Third quarter ............................ 33.25 30.00 .060
Fourth quarter (through __, 1998)......... ____ ____ ____
</TABLE>
See "The Merger-Dividends"
The ask and bid quotations obtained from F.J. Morrissey & Company for
July 21, 1998, the last full trading day prior to announcement of the execution
of the Merger Agreement, were $26.50 and $24.50, respectively. Information for
high and low prices for Elverson Common Stock does not exist for July 21, 1998.
The last trade by F.J. Morrissey & Company prior to the announcement of the
execution of the Merger Agreement occurred on July 16, 1998, and was for $25.75.
F.J. Morrissey & Company did not perform any Elverson Common Stock trades on
July 21, 1998.
The shares of NPB Common Stock are traded on the National Market tier
of the Nasdaq Stock Market. The following table sets forth the high and low
closing sale prices for shares of NPB Common Stock for the periods indicated
below and the cash dividends paid per share for such periods by NPB, after
giving retroactive effect to a 5-for-4 stock split paid on July 31, 1998 and a
4-for-3 stock split paid on July 31, 1997.
<TABLE>
<CAPTION>
Cash Dividend
High Low Per Share
<S> <C> <C> <C>
1996
First quarter............................. $14.71 $13.57 $.14
Second quarter............................ 15.71 13.71 .14
Third quarter............................. 15.90 15.00 .14
Fourth quarter............................ 16.50 15.30 .14
1997
First quarter............................. 17.25 15.67 .14
Second quarter............................ 20.25 16.35 .17
Third quarter............................. 27.50 19.95 .17
Fourth quarter............................ 27.00 24.80 .17
1998
First quarter............................. 29.60 23.80 .17
Second quarter............................ 28.85 26.40 .18
Third quarter ............................ 27.20 20.88 .19
Fourth quarter (through __, 1998)......... _____ _____ .19
</TABLE>
15
<PAGE>
On July 21, 1998, the reported high and low sales prices and the last
sale price of NPB Common Stock on the Nasdaq National Market were as follows:
July 21, 1998
High Low Last Sale Price
----------------- --------------- -----------------
NPB $ 26.80 $ 26.60 $ 26.60
On _______, 1998, the last full trading day prior to the date of this
Proxy Statement/Prospectus, the reported high and low bid quotations and the
last sale price of Elverson Common Stock as reported by F. J. Morrissey &
Company and the reported high and low sales prices and the last sale price of
NPB Common Stock on the Nasdaq National Market were as follows:
_____________, 1998
High Low Last Sale Price
---------------- ---------------- ---------------
Elverson.............$ ____ $ ____ $ ____
NPB..................$ ____ $ ____ $ ____
Shareholders are urged to obtain current market quotations for shares of
Elverson Common Stock and NPB Common Stock.
16
<PAGE>
Selected Historical Financial Data
The following tables set forth certain selected unaudited historical
financial information for NPB and Elverson for six months ended June 30, 1998
and 1997, and for each of the five years in the period ended December 31, 1997.
This data is derived from and should be read in conjunction with the
consolidated financial statements of NPB and Elverson, including the notes
thereto, and the management's discussion and analysis of financial condition and
results of operations of each NPB and Elverson incorporated by reference and
included in this Proxy Statement/Prospectus, respectively.
NPB
<TABLE>
<CAPTION>
As of and for the Six
Months Ended June 30, As of and for the Years Ended December 31,
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
STATEMENTS OF CONDITION (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $1,699,705 $1,431,491 $1,534,378 $1,358,013 $1,251,378 $1,137,174 $ 933,736
Total deposits 1,129,611 1,069,510 1,115,600 980,808 914,890 864,640 748,229
Loans and leases, net 1,141,132 1,071,793 1,097,662 1,028,334 918,699 811,302 719,856
Total investments (1) 426,610 249,715 321,760 236,814 240,902 238,102 144,488
Total shareholders'equity 123,513 117,925 123,188 114,721 106,615 84,871 82,222
EARNINGS
Total interest income $ 63,889 $ 57,031 $ 119,027 $ 106,558 $ 99,020 $ 84,259 $ 71,272
Total interest expense 31,910 25,320 54,620 46,018 43,836 28,848 23,839
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 31,979 31,711 64,407 60,540 55,184 55,411 47,433
Provision for loan and lease losses 2,400 2,400 4,575 3,900 3,200 3,200 5,145
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan and lease losses 29,579 29,311 59,832 56,640 51,984 52,211 42,288
Other income 7,702 5,929 12,082 9,088 7,608 5,409 4,931
Other expenses 24,409 22,292 46,147 41,258 37,542 36,914 28,629
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 12,872 12,948 25,767 24,470 22,050 20,706 18,590
Income taxes 3,044 4,029 7,151 7,548 6,668 6,057 5,782
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
change in accounting for income taxes 9,828 8,919 18,616 16,922 15,382 14,649 12,808
Cumulative effect of change
in accounting for income taxes (2) -- -- -- -- -- -- 500
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 9,828 $ 8,919 $ 18,616 $ 16,922 $ 15,382 $ 14,649 $ 13,308
========== ========== ========== ========== ========== ========== ==========
Return on average assets (3) 1.23% 1.30% 1.31% 1.31% 1.30% 1.41% 1.60%
Return on average shareholders'
equity (3) 16.0% 15.4% 15.9% 15.6% 16.3% 17.3% 17.4%
Percent shareholders' equity to assets 7.27% 8.24% 8.03% 8.45% 8.52% 7.46% 8.81%
PER SHARE DATA
Book value per share $9.37 $8.82 $9.29 $8.60 $8.02 $6.44 $6.21
Basic earnings (4) 0.74 0.67 1.40 1.27 1.16 1.10 1.01
Diluted earnings (4) 0.73 0.66 1.37 1.25 1.14 1.08 0.99
Dividends paid in cash 0.34 0.28 0.62 0.53 0.47 0.40 0.34
Dividends paid in stock --- --- 4-for-3 5% 5% 5% 7%
stock split
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Effective January 1, 1994, NPB adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The adoption of such standard had no
effect on NPB's financial position or results of operations. Includes investment
securities held for trading purposes of $20,388,000 as of June 30, 1998. There
are no investment securities held for trading purposes prior to June 30, 1998.
(2) Effective January 1, 1993, NPB adopted SFAS No. 109, "Accounting for Income
Taxes." As a result of adopting SFAS 109, NPB recognized a cumulative benefit in
1993 of $500,000, or $.04 in both basic and diluted earnings per share.
(3) Interim ratios have been annualized for purposes of comparability with
year-end data.
17
<PAGE>
(4) Effective January 1, 1997, NPB adopted SFAS No. 128, "Earnings Per Share,"
which eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share in conjunction with the
disclosure of the methodology used in computing such earnings per share. Net
income per share calculations for prior periods have been restated to reflect
the adoption of SFAS No. 128. Basic net income per share is based upon the
respective weighted average number of shares of NPB Common Stock outstanding, as
follows: 13,199,215 (June 30, 1998); 13,358,435 (June 30, 1997); 13,339,318
(December 31, 1997); 13,349,418 (December 31, 1996); 13,282,685 (December 31,
1995); 13,260,403 (December 31, 1994) and 13,216,043 (December 31, 1993).
Diluted net income per share in all years presented gives effect to the dilution
resulting from stock options granted by NPB or acquired companies. Per share
amounts in all years have been adjusted to reflect retroactively prior stock
dividends and splits. NPB declared a 5-for-4 stock split payable on July 31,
1998. All weighted average shares and per share data have been retroactively
restated.
</FN>
</TABLE>
18
<PAGE>
Elverson
<TABLE>
<CAPTION>
As of and for the Six
Months Ended June 30, As of and for the Years Ended December 31,
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ----------
STATEMENTS OF CONDITION (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $ 301,814 $ 259,268 $ 274,838 $ 246,553 $ 222,510 $ 197,247 $ 176,093
Total deposits 263,649 219,100 237,923 210,168 191,994 168,308 151,920
Loans receivables, net 190,081 193,073 194,939 183,770 160,536 147,742 127,295
Total investments (1) 70,215 39,814 49,704 41,751 39,915 30,734 30,253
Total shareholders'equity 27,401 24,181 25,740 22,798 20,282 18,126 15,557
EARNINGS
Total interest income $ 10,943 $ 9,908 $ 20,477 $ 18,113 $ 16,426 $ 13,240 $ 12,466
Total interest expense 4,696 4,170 8,627 7,896 7,574 4,988 4,773
--------- --------- --------- --------- --------- --------- ---------
Net interest income 6,247 5,738 11,850 10,217 8,852 8,252 7,693
Provision for loan losses 330 518 988 600 700 330 616
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for loan losses 5,917 5,220 10,862 9,617 8,152 7,922 7,077
Other income 760 681 1,532 1,065 870 1,528 1,354
Other expenses 4,525 4,096 8,270 7,332 6,789 6,190 5,354
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes 2,152 1,805 4,124 3,350 2,233 3,260 3,077
Income taxes (2) 547 516 1,193 983 611 906 739
--------- --------- --------- --------- --------- --------- ---------
Net income $ 1,605 $ 1,289 $ 2,931 $ 2,367 $ 1,622 $ 2,354 $ 2,338
========= ========= ========= ========= ========= ========= =========
Return on average assets (3) 1.15% 1.05% 1.14% 1.02% 0.75% 1.27% 1.39%
Return on average shareholders' equity (3) 12.2% 11.1% 12.1% 11.0% 8.4% 13.8% 16.20%
Percent shareholders' equity to assets 9.08% 9.33% 9.37% 9.25% 9.12% 9.19% 8.83%
Cash Dividend Payout Ratio 19.35% 18.00% 19.30% 16.13% 21.54% 11.58% 10.31%
PER SHARE DATA
Book value per share $ 10.55 $ 9.40 $ 9.96 $ 8.90 $ 8.01 $ 7.26 $ 6.39
Basic earnings (4) 0.62 0.50 1.14 0.93 0.65 0.95 0.97
Diluted earnings (4) 0.62 0.50 1.14 0.93 0.65 0.95 0.97
Dividends paid in cash 0.12 0.09 0.22 0.15 0.14 0.11 0.10
Dividends paid in stock 5% -- (5) 10% 10% 10% (6)
<FN>
(1) Effective January 1, 1994, Elverson adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The adoption of such
standard had no effect on Elverson's financial position or results of
operations. There are no investment securities held for trading purposes.
(2) Effective January 1, 1993, Elverson adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of adopting SFAS 109 was not material.
(3) Interim ratios have been annualized for purposes of comparability with
year-end data.
(4) Effective January 1, 1997, Elverson adopted SFAS No. 128, "Earnings Per
Share," which eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share in conjunction
with the disclosure of the methodology used in computing such earnings per
share. Net income per share calculations for prior periods have been restated to
reflect the adoption of SFAS No. 128. Basic net income per share is based upon
the respective weighted average number of shares of Elverson Common Stock
outstanding, as follows: 2,591,956 (June 30, 1998); 2,563,920 (June 30, 1997);
2,570,642 (December 31, 1997); 2,543,915 (December 31, 1996); 2,510,907
(December 31, 1995); 2,467,595 (December 31, 1994) and 2,425,065 (December 31,
1993). Diluted net income per share in all years presented gives effect to the
dilution resulting from stock options granted by Elverson. The effect of stock
options on diluted earnings per share for Elverson is immaterial and results in
the same amount reported as basic earnings per share for all periods presented.
Per share amounts in all years have been adjusted to reflect retroactively prior
stock dividends and splits. All weighted average shares and per share data have
been retroactively restated.
(5) 2-for-1 stock split.
(6) 10-for-1 stock split.
</FN>
</TABLE>
19
<PAGE>
Unaudited Pro Forma Combined Selected Financial Data
The following table sets forth unaudited pro forma selected financial
data for Elverson and NPB which gives effect to the Merger, accounted for as a
pooling of interests, as if it had been consummated as of the beginning of each
period presented. The pro forma selected data is not necessarily indicative of
the results that would have been achieved had the transaction been consummated
on such date and should not be construed as representative of future operations.
This presentation is subject to the assumptions set forth in the Unaudited Pro
Forma Condensed Financial Information appearing elsewhere in this Proxy
Statement/Prospectus, including the assumed Exchange Ratio of 1.46875 shares of
NPB Common Stock for each share of Elverson Common Stock. The Exchange Ratio is
subject to possible adjustment. See "The Merger--Terms of the Merger." The
information presented should be read in conjunction with such pro forma
financial statements, and the notes thereto, and the historical financial
statements, including the notes thereto of Elverson and NPB appearing elsewhere
in or incorporated by reference in this Proxy/Statement Prospectus.
<TABLE>
<CAPTION>
For the Six Months
Ended June 30, For the Years Ended December 31,
1998 1997 1997 1996 1995
------------ ------------ ----------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
EARNINGS
Total interest income $ 74,832 $ 66,939 $ 139,504 $ 124,671 $ 115,446
Total interest expense 36,606 29,490 63,247 53,914 51,410
----------- ----------- ----------- ----------- -----------
Net interest income 38,226 37,449 76,257 70,757 64,036
Provision for loan and lease losses 2,730 2,918 5,563 4,500 3,900
----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan and lease losses 35,496 34,531 70,694 66,257 60,136
Other income 8,462 6,610 13,614 10,153 8,478
Other expenses 28,934 26,388 54,417 48,590 44,331
----------- ----------- ----------- ----------- -----------
Income before income taxes 15,024 14,753 29,891 27,820 24,283
Income taxes 3,591 4,545 8,344 8,531 7,279
----------- ----------- ----------- ----------- -----------
Net income $ 11,433 $ 10,208 $ 21,547 $ 19,289 $ 17,004
=========== =========== =========== =========== ===========
PER SHARE DATA
Basic earnings $ 0.67 $ 0.60 $ 1.26 $ 1.13 $ 1.00
Diluted earnings $ 0.66 $ 0.59 $ 1.24 $ 1.12 $ 0.99
Average shares outstanding - basic 17,006,150 17,124,193 17,114,948 17,085,793 16,970,580
Average shares outstanding - diluted 17,344,631 17,338,242 17,407,059 17,223,337 17,208,353
June 30,
OTHER DATA 1998
-----------
Total assets $ 2,001,519
Total deposits 1,393,260
Total loans - net 1,331,213
Long-term borrowings 250,610
Total shareholders' equity 150,914
</TABLE>
20
<PAGE>
Comparative Per Share Data
The following table sets forth certain unaudited historical pro forma
per share data for NPB Common Stock and historical and equivalent pro forma per
share data for Elverson Common Stock. The information presented should be read
in conjunction with such pro forma financial statements, and the notes thereto,
and the historical financial statements, including the notes thereto of Elverson
and NPB appearing elsewhere in or incorporated by reference in this
Proxy/Statement Prospectus. The Exchange Ratio is subject to possible
adjustment. See "The Merger--Terms of the Merger." Such pro forma data is not
necessarily indicative of results that would have been achieved had the Merger
been consummated on such date.
<TABLE>
<CAPTION>
For the Six Months For the
Ended June 30, Year Ended December 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash Dividends Per Common Share:
NPB actual $ 0.34 $ 0.28 $ 0.62 $ 0.53 $ 0.47
Elverson actual 0.12 0.09 0.22 0.15 0.14
Elverson pro forma equivalent (1) 0.50 0.41 0.91 0.78 0.69
Net Income Per Common Share - Basic:
NPB actual 0.74 0.67 1.40 1.27 1.16
Elverson actual 0.62 0.50 1.14 0.93 0.65
NPB and Elverson pro forma (2) 0.67 0.60 1.26 1.13 1.00
Elverson pro forma equivalent (3) 0.98 0.88 1.85 1.66 1.47
Net Income Per Common Share - Diluted:
NPB actual 0.73 0.66 1.37 1.25 1.14
Elverson actual 0.62 0.50 1.14 0.93 0.65
NPB and Elverson pro forma (2) 0.66 0.59 1.24 1.12 0.99
Elverson pro forma equivalent (3) 0.97 0.87 1.82 1.65 1.45
As of
June 30, 1998
-------------
Book Value Per Common Share:
NPB actual $ 9.37
Elverson actual 10.55
NPB and Elverson pro forma (4) 8.88
Elverson pro forma equivalent (5) 13.04
<FN>
(1) Represents the dividends declared on NPB Common Stock during the
respective periods multiplied by the Exchange Ratio (1.46875)
(2) Represents net income per share of NPB Common Stock on a pro forma basis.
Such amounts, for purposes of determining basic net income per share of
NPB Common Stock, have been determined by dividing pro forma net income by
the sum of (i) the weighted average number of shares of NPB Common Stock
outstanding during each period retroactively adjusted for stock dividends
and splits and (ii) shares of NPB Common Stock assumed to be issued
pursuant to the Merger. Such amounts for purposes of determining diluted
net income per common share have been determined by dividing pro forma net
income by the sum of (i) the weighted average number of shares of NPB
Common Stock and stock options outstanding during each period
retroactively adjusted for stock dividends and splits and (ii) shares of
NPB Common Stock and the NPB Options assumed to be issued pursuant to the
Merger.
(3) Represents the amount computed pursuant to Note 2 above multiplied by the
Exchange Ratio (1.46875).
(4) Represents the pro forma combined net book value of NPB and Elverson
attributable to shares of NPB Common Stock, divided by the sum of (i) the
number of shares of NPB Common Stock outstanding during each period
retroactively adjusted for stock dividends and splits and (ii) shares of
NPB Common Stock assumed to be issued pursuant to the Merger.
(5) Represents the amount computed pursuant to Note 4 above multiplied by the
Exchange Ratio (1.46875).
</FN>
</TABLE>
21
<PAGE>
THE MEETINGS
Dates, Places, and Times
Elverson. This Proxy Statement/Prospectus is being furnished to holders
of Elverson Common Stock in connection with the solicitation of proxies by the
Board of Directors of Elverson to be used at the special meeting of shareholders
of Elverson (the "Elverson Meeting") to be held at the Holiday Inn, Morgantown,
Pennsylvania, at __________, local time, on __________, 1998.
NPB. This Proxy Statement/Prospectus is being furnished to holders of
NPB Common Stock in connection with the solicitation of proxies by the Board of
Directors of NPB to be used at the special meeting of shareholders of NPB (the
"NPB Meeting") to be held at NPB's Main Office located at Reading and
Philadelphia Avenues, Boyertown, Pennsylvania, at ___________, local time, on
__________, 1998.
Matters to be Considered at the Meetings
Elverson. At the Elverson Meeting, shareholders of Elverson will
consider and vote upon a proposal to approve the Amended Agreement and Plan of
Merger dated as of July 21, 1998 (the "Merger Agreement"), among Elverson, NPB,
and NP Bank, providing for the merger (the "Merger") of Elverson with and into
NP Bank on the terms and conditions set forth therein. Shareholders will also
consider and vote upon such other business, if any, as may properly come before
the Elverson Meeting or any adjournment thereof.
The Board of Directors of Elverson unanimously recommends that
shareholders of Elverson vote FOR approval of the Merger Agreement.
NPB. At the NPB Meeting, shareholders of NPB will consider and vote
upon a proposal to approve the Merger Agreement. Shareholders will also consider
and vote upon such other business, if any, as may properly come before the NPB
Meeting or any adjournment thereof.
The Board of Directors of NPB unanimously recommends that shareholders
of NPB vote FOR approval of the Merger Agreement.
Record Dates; Shares Outstanding; Quorums
Elverson. Only shareholders of record of Elverson Common Stock at the
close of business on _________, 1998 (the "Elverson Record Date") will be
entitled to notice of, and to vote at, the Elverson Meeting. On _________, 1998,
Elverson had outstanding ________ shares of Elverson Common Stock. There is no
other class of Elverson stock issued or outstanding. Each share of Elverson
Common Stock entitles the holder to one vote. The presence at the Elverson
Meeting, in person or by proxy, of shareholders entitled to cast a majority of
all the votes entitled to be cast at the Elverson Meeting will constitute a
quorum.
NPB. Only shareholders of record of NPB Common Stock at the close of
business on _________, 1998 (the "NPB Record Date") will be entitled to notice
of, and to vote at, the NPB Meeting. On _________, 1998, NPB had outstanding
_____ shares of NPB Common Stock. There is no other class of NPB stock issued or
outstanding. Each share of NPB Common Stock entitles the holder to one vote. The
presence at the NPB Meeting, in person or by proxy, of shareholders entitled to
cast a majority of all the votes entitled to be cast at the NPB Meeting will
constitute a quorum.
Votes Required; Voting Agreements
Elverson. The approval of the Merger Agreement will require the
affirmative vote, in person or by proxy, of the holders of two-thirds of the
outstanding shares of Elverson Common Stock entitled to vote thereon at the
Elverson Meeting. The affirmative vote of a majority of the shares present, in
person or by proxy, at the Elverson Meeting, even if a quorum is not present,
will be required to adjourn the Elverson Meeting.
22
<PAGE>
The directors of Elverson have agreed with NPB to vote all shares of
Elverson Common Stock for which they have sole voting power on the Elverson
Record Date in favor of approval of the Merger Agreement. As of the Elverson
Record Date, directors of Elverson had sole voting power over approximately
537,153 shares of Elverson Common Stock, or approximately 20.7% of the shares of
Elverson Common Stock outstanding on the Elverson Record Date.
Management of Elverson is not aware of any person or entity
beneficially owning 5% or more of the outstanding shares of Elverson Common
Stock, as of September 2, 1998, except for (i) 179,097 shares of Elverson Common
Stock (approximately 6.89% of Elverson's outstanding shares) held by Robert E.
Rigg, an Elverson director, (ii) 247,906 shares of Elverson Common Stock
(approximately 9.54% of Elverson's outstanding shares) held by Boyd C. Davis,
Jr., an Elverson director, and (iii) approximately 176,527 shares of Elverson
Common Stock (approximately 6.79% of Elverson's outstanding shares) held by The
Jacobs Family Limited Partnership.
All shares of Elverson Common Stock held under the Elverson National
Bank Employee Stock Ownership Plan (the "ESOP") will be voted by the ESOP
trustee, Bank of Lancaster County, N.A., in accordance with the directions of
the participants to whose accounts such shares are allocated. Any unallocated
shares of Elverson Common Stock held under the ESOP or allocated shares as to
which no direction is received will be voted in proportion to the allocated
shares for which direction is received. All shares of Elverson Common Stock held
under the Elverson National Bank 401(k) Profit Sharing Plan (the "401(k) Plan")
will be voted as determined by the 401(k) Plan trustee, Bank of Lancaster
County, N.A.
NPB. The approval of the Merger Agreement will require the affirmative
vote of a majority of the votes cast, in person or by proxy, by all shareholders
entitled to vote thereon at the NPB Meeting. The affirmative vote of a majority
of the shares present, in person or by proxy, at the NPB Meeting, even if a
quorum is not present, will be required to adjourn the NPB Meeting.
The directors of NPB have agreed with Elverson to vote all shares of
NPB Common Stock for which they have sole voting power on the NPB Record Date in
favor of approval of the Merger Agreement. As of the NPB Record Date, directors
of NPB had sole voting power over approximately 437,672 shares of NPB Common
Stock, or approximately 3.3% of the shares of NPB Common Stock outstanding on
the NPB Record Date.
Management of NPB is not aware of any person or entity owning 5% or
more of the outstanding shares of NPB Common Stock, except for (i) 1,812,194
shares of NPB Common Stock (approximately 13.7% of NPB's outstanding shares)
held by James K. Overstreet or persons or entities affiliated with him, as
identified by him in filings made by him with regulatory authorities and with
NPB, and (ii) 810,280 shares of NPB Common Stock (approximately 6.15% of NPB's
outstanding shares) held of record by Investors Trust Company ("ITC"), a
wholly-owned subsidiary of NPB, as trustee or executor on behalf of various
trusts and estates, as trustee under NPB's Capital Accumulation Plan, or as
custodian. Pursuant to the provisions of the applicable governing instruments,
and/or in accordance with the applicable principles of fiduciary law, ITC has
the right and power, exercisable alone, to vote and to dispose of 101,414 of
these shares, and exercisable with a co-fiduciary, to vote and to dispose of
345,577 of these shares, so long as such action is in the best interest of such
trust or estate and the beneficiaries or principals thereof. 278,802 of these
shares are held by ITC as trustee under NPB's Capital Accumulation Plan. Under
the terms of NPB's Capital Accumulation Plan, shares of NPB Common Stock held by
ITC, as Plan trustee, are allocated to the accounts of Plan participants for
purposes of voting on any matter submitted to NPB's shareholders. The Plan
requires ITC, as Plan trustee, to vote all allocated shares in accordance with
the instructions of Plan participants, and to vote all allocated shares for
which participants do not give voting instructions and unallocated shares, if
any, for and against any matter in the same proportions as shares are voted for
which voting instructions are given. ITC has no power to vote 84,486 shares held
by it as custodian.
Voting of Proxies
Elverson. All shares represented by properly executed proxies received
in time for the Elverson Meeting will be voted at the Elverson Meeting in the
manner specified by the holders thereof, unless such proxies are revoked prior
to the vote. Properly executed proxies which do not contain voting instructions
will be voted in favor of the Merger Agreement.
23
<PAGE>
It is not expected that any matter other than that referred to herein
will be brought before the Elverson Meeting. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their best judgment with respect to such matters.
If a quorum is not obtained, or if fewer shares are voted in favor of
approval of the Merger Agreement than the number required for approval, the
Elverson Meeting may be adjourned for the purpose of obtaining additional
proxies or votes or for any other purpose, and, at any subsequent reconvening of
the Elverson Meeting, all proxies will be voted in the same manner as such
proxies would have been voted at the original convening of the meeting (except
for any proxies which have theretofore effectively been revoked or withdrawn),
notwithstanding that they may have been effectively voted on the same or any
other matter at a previous meeting.
NPB. All shares represented by properly executed proxies received in
time for the NPB Meeting will be voted at the NPB Meeting in the manner
specified by the holders thereof, unless such proxies are revoked prior to the
vote. Properly executed proxies which do not contain voting instructions will be
voted in favor of the Merger Agreement.
It is not expected that any matter other than that referred to herein
will be brought before the NPB Meeting. If, however, other matters are properly
presented, the persons named as proxies will vote in accordance with their best
judgment with respect to such matters.
If a quorum is not obtained, or if fewer shares are voted in favor of
approval of the Merger Agreement than the number required for approval, the NPB
Meeting may be adjourned for the purpose of obtaining additional proxies or
votes or for any other purpose, and, at any subsequent reconvening of the NPB
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the meeting (except for any proxies
which have theretofore effectively been revoked or withdrawn), notwithstanding
that they may have been effectively voted on the same or any other matter at a
previous meeting.
Effect of Abstentions and Broker Non-Votes
Elverson. Abstention from voting on the Merger Agreement may be
specified on an executed proxy. Such abstentions will be considered shares
present and entitled to vote at the Elverson Meeting, but will not be counted as
votes cast at the Elverson Meeting.
Under the applicable rules of the New York Stock Exchange and the
National Association of Securities Dealers, Inc., brokers and/or members, as the
case may be, who hold shares in street name for customers who are the beneficial
owners of such shares are prohibited from giving a proxy to vote such customers'
shares with respect to the approval of the Merger Agreement, in the absence of
specific instructions from such customers ("broker non-votes"). Broker non-votes
will not be counted as votes cast at the Elverson Meeting.
ABSTENTIONS BY ELVERSON'S SHAREHOLDERS AND BROKER NON-VOTES (RESULTING
FROM FAILURE TO GIVE VOTING INSTRUCTIONS) WILL HAVE THE EFFECT OF VOTES AGAINST
THE MERGER AGREEMENT.
NPB. Abstention from voting on the Merger Agreement may be specified on
an executed proxy. Such abstentions will be considered shares present and
entitled to vote at the NPB Meeting, but will not be counted as votes cast at
the NPB Meeting.
Broker non-votes with respect to the Merger Agreement also will not be
counted as votes cast at the NPB Meeting.
Because approval of the Merger Agreement requires the affirmative vote
of a majority of all votes cast at the NPB Meeting, abstentions by NPB
shareholders and broker non-votes will have no effect on approval of the Merger
Agreement by NPB shareholders.
24
<PAGE>
Revocability of Proxies
The grant of a proxy on the enclosed Elverson or NPB form does not
preclude an Elverson shareholder or an NPB shareholder from voting in person. An
Elverson shareholder or NPB shareholder may revoke a proxy at any time prior to
its exercise by (i) filing with the Secretary of Elverson, in the case of an
Elverson shareholder, or the Secretary of NPB, in the case of NPB shareholder, a
duly executed revocation of proxy, (ii) submitting a duly executed proxy bearing
a later date; or (iii) appearing at the applicable Meeting and voting in person
at such Meeting. Attendance at the applicable Meeting will not, in and of
itself, constitute revocation of a proxy.
Solicitation of Proxies
Elverson and NPB will each bear the cost of the solicitation of proxies
from its own shareholders, except that Elverson and NPB will share equally the
cost of printing and mailing this Proxy Statement/Prospectus. In addition to
solicitation by mail, the directors, officers, and employees of Elverson and NPB
and their subsidiaries may solicit proxies from their respective shareholders by
telephone or telegram or in person without compensation other than
reimbursements for their actual expenses. Arrangements will also be made with
brokerage houses and other custodians, nominees, and fiduciaries for the
forwarding of proxy solicitation material to beneficial owners of stock held of
record by such persons, and Elverson and NPB will reimburse such custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith.
ELVERSON SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. AS DESCRIBED BELOW UNDER THE CAPTION "THE MERGER--EXCHANGE OF
ELVERSON STOCK CERTIFICATES." EACH ELVERSON SHAREHOLDER WILL BE PROVIDED WITH
MATERIALS FOR EXCHANGING SHARES OF ELVERSON COMMON STOCK AS PROMPTLY AS
PRACTICABLE AFTER THE EFFECTIVE DATE.
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THE MERGER
The following is a description of the Merger. Such description is not
intended to be a complete description of all facts regarding the Merger and is
qualified in all respects by reference to the Merger Agreement incorporated
herein by reference and attached hereto as Annex A. Shareholders of Elverson and
NPB are urged to read carefully the Merger Agreement. For a summary of the
Merger, see "Summary--The Merger."
All ratios and share data relating to NPB and all share price
information relating to the Merger Agreement have been adjusted to reflect NPB's
5-for-4 stock split effected on July 31, 1998 (the "NPB Stock Split").
Background of the Merger
While in recent years Elverson has competed successfully in its markets
as an independent community bank, meeting the increased efforts by both local
and regional competitors to provide new services and attract customers in its
markets has become more and more difficult. Given this heightened level of
competition, the Elverson Board has considered from time to time various forms
of association with other banking organizations which would allow Elverson (i)
to capitalize on economies of scale and obtain alternative forms of funding, and
(ii) to provide more innovative services to its customers, thus competing more
effectively with larger local and regional banking institutions, consistent with
the Elverson Board's strategic objectives of remaining a dynamic community bank
serving local markets.
In May 1997, Lawrence T. Jilk, Jr., Chairman of NPB, contacted Glenn E.
Moyer, President of Elverson and an Elverson Board member, about the feasibility
of pursuing a strategic combination between the two institutions. However, no
specific price was discussed and the parties did not pursue the matter any
further. In March and April of 1998, Wayne R. Weidner, President of NPB,
contacted Boyd C. Davis, Jr., a director of Elverson, indicating that NPB would
be interested in pursuing a merger with Elverson and indicating informally that
NPB would consider a price based on current market prices of approximately 3.75
times Elverson's book value. In mid-April 1998, Mr. Davis conveyed this interest
to the other members of the Elverson Board. The Elverson Board retained Dechert
Price & Rhoads as special counsel in April and Berwind Financial, L.P.
("Berwind") as its financial advisor in May to assist it in evaluating the NPB
proposal.
On May 8, 1998, Joseph A. Rigg, Chairman of the Elverson Board, Mr.
Davis, Mr. Moyer, and John A. Koury, Jr., an Elverson Board member, met with Mr.
Jilk and Mr. Weidner, who gave Elverson certain public information concerning
NPB and confirmed NPB's previous proposal. Thereafter, from time to time the
Elverson Board continued to meet to review the proposal and the possibility of
merging with NPB. On May 29, Berwind delivered a preliminary evaluation of the
NPB proposal to the Board and on June 11, the Elverson Board as a whole met with
Mr. Jilk and Mr. Weidner to discuss strategic issues.
After further Board meetings, the Elverson Board decided that the
proposal merited continued discussion and as of June 15, the parties signed
mutual confidentiality letters and began a series of meetings concerning due
diligence and the terms of the offer.
On June 24, at the Elverson Board's request, NPB sent a letter to
Elverson setting forth a non-binding indication of interest in acquiring
Elverson. The proposal provided that NPB would issue 1.46875 shares of NPB
Common Stock in exchange for each share of Elverson Common Stock, and give
Elverson the right to terminate the acquisition if (i) the market price of NPB
Common Stock were to decline to less than $23 per share as of a to be specified
date shortly before the Closing and (ii) that decline were also five percent
more than the decline in an index (the "Bank Index") of stock prices of a group
of comparable Pennsylvania bank holding companies over the same time period. NPB
could, however, override such termination by increasing the proposed exchange
ratio by multiplying that ratio by a fraction, the numerator of which would be
$23 and the denominator of which would be the price per share of the NPB Common
Stock as of the specified date. NPB also offered (i) to issue stock options
exercisable for shares of NPB Common Stock in exchange for the Elverson stock
options outstanding for shares of NPB Common Stock in exchange for the Elverson
stock options outstanding on the date of the Closing, (ii) to incorporate
Elverson into NP Bank by forming a new banking division, Elverson National Bank
(the "Elverson Division"), and (iii) to offer employment to each current
Elverson employee. In addition, NPB offered to add two current Elverson
Directors to the
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NPB Board and to the NP Bank Board and create the Elverson Division Board of
Directors, which would include the current members of the Elverson Board and
which would focus on the division's sales, marketing and expansion.
The Elverson Board thereafter considered this proposal and continued
discussions with NPB's management. On June 30, NPB delivered a revised letter of
interest proposing to adjust the exchange ratio to 1.5 shares of NPB Common
Stock if the market price of NPB Common Stock declined more than 10% and to give
Elverson the right to terminate the merger agreement if such price declined more
than 20% and that decline were also 5% more than the decline in the Bank Index.
NPB could, however, override that termination by increasing the exchange ratio
to 1.5625. Elverson also was provided a right to terminate the merger agreement
if the market price of NPB Common Stock declined more than 25%. Over the next
few days the Elverson Board continued to consider the offer and on July 2
decided, without taking formal action, to begin in depth negotiations with NPB.
Negotiations continued over the next several weeks, concerning, among
other items, integration and employment issues, pricing structure, closing
conditions and termination provisions. During this period of time the Elverson
Board met from time to time to review the status of discussions. At a meeting on
July 21, the Elverson Board reviewed with its outside legal, accounting and
financial advisors the results of such advisors' due diligence, the financial
terms of the proposed transaction and the terms of the proposed merger
agreement, and Berwind gave its opinion as to the fairness of the exchange ratio
to the Elverson shareholders. Mr. Moyer presented the results of Elverson
management's due diligence and discussed Elverson's strategic objectives,
comparing Elverson's potential as an independent entity and as a division of
NPB. Mr. Moyer noted the opportunity which the Merger presents for Elverson to
pursue its goals with a partner which both shares Elverson's corporate culture
and philosophy and has the resources and products which Elverson needs to
achieve its goals After additional discussion of the Merger, the Elverson Board
unanimously approved the proposed merger agreement. After that meeting, NPB and
Elverson executed the proposed merger agreement and the directors of NPB and
Elverson executed agreements providing that they would vote the shares of NPB or
Elverson common stock for which they have sole voting power, as the case may be,
in favor of the Merger. The transaction was publicly announced early the next
morning. In September 1998, Elverson, NPB and NP Bank amended the agreement and
plan of merger to make certain technical changes involving employee benefits.
Reasons for the Merger; Recommendations of the Boards of Directors
Elverson's Reasons for the Merger
In deciding to approve the Merger Agreement and the related transactions,
the Elverson Board consulted with its legal, accounting and financial advisors,
and considered various factors, including the following:
(i) The Elverson Board's review of Elverson's business, operations,
financial condition and earnings, on both a historical and
prospective basis;
(ii) the Elverson Board's assessment of the current and prospective
economic and competitive environment facing the financial industry
generally and Elverson in particular, including the industry's
continuing rapid consolidation, the increasingly important benefits
of operational scale, and the benefits of product diversification and
the strategic alternatives currently available to Elverson for
increasing shareholder value and the timing and likelihood of
actually achieving such increases;
(iii) the increased opportunities for growth and operating efficiencies
(especially the integration of operations and support functions)
which could result from the Merger;
(iv) the Elverson Board's knowledge and review, based in part on
presentations by its financial and accounting advisors and
management, of the business, operations, financial condition and
earnings of NPB and its long term strategies and direction, including
its strategic compatibility with Elverson and the commitment to
community banking which the two banks share;
(v) the role that the Elverson Division would play within NPB and the
general impact which the Merger is expected to have on Elverson's
various constituencies, including its customers, employees and
communities, including NPB's commitment to offer employment to each
of Elverson's employees,
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provide employee benefits to Elverson employees, and NPB's plan to
expand services in the areas currently served by Elverson (see "The
Merger--Employee Benefits and Severance");
(vi) the expectation that the Merger will be tax free for federal income
tax purposes to Elverson and its shareholders and will qualify as a
pooling of interests for accounting and financial reporting purposes
(see "The Merger--Certain Federal Income Tax Consequences" and "The
Merger--Accounting Treatment");
(vii) the opinion of Berwind (including the assumptions and financial
information and projections relied upon by Berwind in arriving at its
opinion) that, as of July 21, 1998, the financial terms of the Merger
were fair to the Elverson shareholders from a financial point of view
(see "The Merger--Opinions of Financial Advisors--Opinion of
Elverson's Financial Advisor");
(viii)the terms of the Exchange Ratio, which may result in a fluctuating
value per share of Elverson Common Stock based on the market
performance of NPB Common Stock prior to the consummation of the
Merger, counterbalanced to a limited extent by the upward adjustment
of the Exchange Ratio and Elverson's ability to terminate the Merger
Agreement in certain circumstances based on the market performance of
NPB Common Stock (see "The Merger--Terms of the Merger" and "The
Merger--Termination; Possible Exchange Ratio Increase"); and
(ix) certain other nonfinancial terms of the Merger Agreement, including
NPB's commitment to add two members of the Elverson Board to the NPB
and NP Bank Boards and to create the Elverson Division Board.
There can be no assurance that any of the potential savings, synergies
or opportunities considered by the Elverson Board will be achieved through the
Merger. See "Cautionary Statement Concerning Forward-Looking Statements." In
view of the wide variety of material factors which the Elverson Board considered
in its evaluation of the Merger, the Elverson Board did not find it practicable
to, and did not, quantify or otherwise attempt to assign any relative weight to
the various factors it considered. In addition, different directors may have
given varying weight to certain factors.
THE BOARD OF DIRECTORS OF ELVERSON HAS UNANIMOUSLY APPROVED THE MERGER AND
THE MERGER AGREEMENT AND BELIEVES THAT THE PROPOSED MERGER IS IN THE BEST
INTEREST OF ELVERSON AND ITS SHAREHOLDERS AND RECOMMENDS THAT ELVERSON'S
SHAREHOLDERS VOTE TO APPROVE THE MERGER AND THE MERGER AGREEMENT.
NPB's Reasons for the Merger
NPB's acquisition strategy consists of identifying financial
institutions with business philosophies that are similar to those of NPB, which
operate in strong markets that are geographically compatible with NPB, are
financially sound and can be acquired at an acceptable cost. Acquisitions are
also evaluated in terms of asset quality, interest rate risk, potential
operating efficiencies and management capabilities.
In determining the terms of its offer for Elverson and whether to enter
into the Merger Agreement, NPB's Board of Directors considered a number of
factors, including the following: (i) the financial condition, operating results
and future prospects of NPB and Elverson, (ii) historical pro forma financial
information on the Merger, including, among other things, pro forma book value
and earnings per share information, dilution analysis and capital ratio impact
information, (iii) a comparison of the price being paid in the Merger to other
comparable financial institution mergers, based on, among other things,
multiples of book value and earnings, (iv) the historical trading prices for the
Elverson Common Stock and the NPB Common Stock, (v) a review of comparable
transactions and management's view, based on such comparable transactions, that
NPB would be able to obtain an opinion from a reputable investment banking firm
as to the fairness of the Exchange Ratio to NPB from a financial point of view
(which opinion was subsequently delivered to the NPB Board by LSC Financial
Services, Inc., as described under "The Merger--Opinions of Financial Advisors"
below), and (vi) the geographic location of Elverson's franchise, which is
complementary to NPB's existing franchise in Chester County, southern Berks
County and eastern Lancaster County, Pennsylvania.
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In approving the transaction, the NPB Board did not specifically
identify any one factor or group of factors as being more significant than any
other factor in the decision making process, although individual directors may
have given one or more factors more weight than other factors. The emphasis of
the NPB Board's discussion in considering the transaction, however, was on the
financial aspects of the transaction, particularly (i) the strategic fit and
enhanced franchise value discussed above, including pro forma market share
information relating to deposits in Chester County, Pennsylvania, (ii) perceived
opportunities to increase the combined company's commercial lending, and to
reduce the combined company's operating expenses, following the Merger, (iii)
the ability to increase NPB's capital base, thereby increasing operating
flexibility, (iv) Elverson's asset quality, (v) the absence of any significant
earnings per share dilution and significant potential for accretion in light of
potential revenue enhancements and cost savings resulting from the Merger, (vi)
the significant increase in capital resulting from the Merger, and (vii) the
pricing provisions of the Merger Agreement, which provide for certain
adjustments and termination rights under certain circumstances. See "The
Merger--Terms of the Merger."
Recommendation of the Elverson Board of Directors
The Board of Directors of Elverson believes that the terms of the
Merger are fair to, and in the best interests of, Elverson and its shareholders
and has unanimously approved the Merger Agreement. The Board of Directors of
Elverson unanimously recommends that the shareholders of Elverson approve the
Merger Agreement.
Recommendation of the NPB Board of Directors
The Board of Directors of NPB believes that the terms of the Merger are
fair to, and in the best interests of, NPB and its shareholders and has
unanimously approved the Merger Agreement. The Board of Directors of NPB
unanimously recommends that the shareholders of NPB approve the Merger
Agreement.
Terms of the Merger
Upon completion of the Merger, the separate legal existence of Elverson
will cease. All property, rights, powers, duties, obligations, debts and
liabilities of Elverson will automatically be taken and deemed to be transferred
to and vested in NP Bank, as the surviving bank (sometimes referred to as the
"Surviving Bank"). The Surviving Bank will be governed by the articles of
association and bylaws of NP Bank in effect immediately prior to completion of
the Merger.
On the Effective Date of the Merger, each outstanding share of Elverson
Common Stock (other than any dissenting shares) will be automatically converted
into, and become a right to receive, 1.46875 shares of NPB Common Stock (the
"Exchange Ratio"), provided that the NPB Market Value (as defined below) is
greater than or equal to $24.30. If the NPB Market Value is less than $24.30,
the Exchange Ratio will be adjusted in certain circumstances and the Exchange
Ratio may be adjusted at NPB's discretion in other circumstances, as described
in the following paragraphs:
If the NPB Market Value is less than $24.30 but either (i) the NPB
Market Value is greater than or equal to $21.60 or (ii) the NPB Market Value
Quotient (as hereinafter defined) is not less than the Index Group Standard (as
hereinafter defined) by 5% or more, each outstanding share of Elverson Common
Stock (other than any dissenting shares) will be converted into, and become a
right to receive, 1.5 shares of NPB Common Stock.
If (i) the NPB Market Value is less than $21.60, (ii) the NPB Market
Value Quotient is less than the Index Group Standard by 5% or more, and (iii)
Elverson has properly elected to terminate the Merger Agreement (see "The
Merger--Termination; Possible Exchange Ratio Increase"), NPB will have the
option to increase the Exchange Ratio and thereby nullify Elverson's election.
In that event, each outstanding share of Elverson Common Stock will be converted
into, and become a right to receive, 1.5625 shares of NPB Common Stock.
The number of shares of NPB Common Stock issuable in exchange for
outstanding shares of Elverson Common Stock will be further adjusted to prevent
dilution in the event of additional stock splits, reclassifications or other
similar events.
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NPB will in all events pay cash to Elverson shareholders in lieu of
issuing fractional shares of NPB Common Stock. Each share of Elverson Common
Stock issued and held as treasury shares by Elverson as of the Effective Date,
if any, will be canceled, and NPB will not deliver any cash, stock or other
property in exchange for such shares.
As of the Elverson Record Date, certain employees of Elverson held
options to purchase an aggregate of 43,890 shares of Elverson Common Stock which
had been granted pursuant to Elverson's stock option plans (the "Elverson
Options"). On the Effective Date, each Elverson Option which is then outstanding
shall cease to represent a right to acquire shares of Elverson Common Stock and
shall be converted automatically into an option to purchase shares of NPB Common
Stock, and NPB shall assume each Elverson Option, in accordance with the terms
of the applicable Elverson stock option plan and stock option agreement by which
it is evidenced, except that from and after the Effective Date, (i) NPB and its
Board of Directors or a duly authorized committee thereof shall be substituted
for Elverson and Elverson's Board of Directors or duly authorized committee
thereof administering such Elverson stock option plan, (ii) each Elverson Option
assumed by NPB may be exercised solely for shares of NPB Common Stock, (iii) the
number of shares of NPB Common Stock subject to such Elverson Option shall be
equal to the number of shares of Elverson Common Stock subject to such Elverson
Option immediately prior to the Effective Date multiplied by the Exchange Ratio
(as it may be adjusted), and (iv) the per share exercise price under each such
Elverson Option shall be adjusted by dividing the per share exercise price under
each such Elverson Option by the Exchange Ratio (as it may be adjusted).
The NPB Common Stock and cash to be received by the holders of Elverson
Common Stock (including the holders of options to acquire Elverson Common Stock)
in exchange for each share (other than any dissenting shares or treasury shares)
of Elverson Common Stock (including shares subject to options) are referred to
herein as the "Merger Consideration."
Under the Merger Agreement, for purposes of the adjustments described
above and the right of Elverson to terminate the Merger Agreement (see "The
Merger--Termination; Possible Exchange Ratio Increase"),
"NPB Market Value" means the average of the closing sale price of a
share of NPB Common Stock, as reported on The Nasdaq Stock Market, National
Market tier, as published in The Wall Street Journal, for the twenty trading
days ending on the trading day that is thirty-one days prior to the Elverson
Meeting (the "Determination Date").
"NPB Market Value Quotient" means the quotient obtained by dividing the
NPB Market Value by $27.00.
"Index Group Standard" means the quotient obtained by dividing (i) the
average of the Index Prices (as defined below) for the twenty trading days
ending on the Determination Date by (ii) by the Index Price on July 20, 1998
(the "Starting Date").
"Index Price" on any date means the average of the closing sale prices
of the following bank or thrift holding companies: Wilmington Trust Company,
WSFS Financial Corporation, PNC Financial Corporation, Sovereign Bancorp, Inc.,
Commerce Bancorp, Inc., Fulton Financial Corp., Keystone Financial, Inc., and
JeffBanks, Inc. (the "Index Group").
If any company belonging to the Index Group declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the Starting Date and the Determination
Date, the prices of such other common stock shall be appropriately adjusted. In
the event the common stock of any such company ceases to be publicly traded or
there has been an announcement of a proposal for the acquisition or sale of such
company or the acquisition by such company of another company or companies in
transactions having a value in excess of 25% of the acquiror's market
capitalization, such company will be removed from the Index Group.
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Opinions Of Financial Advisors
Opinion of Elverson's Financial Advisor
Elverson retained Berwind to act as its financial advisor and to render
a fairness opinion in connection with the Merger. Berwind rendered its opinion
to the Board of Directors of Elverson that, based upon and subject to the
various considerations set forth therein, as of, July 21, 1998 (the "July
Opinion"), and as of __________, 1998 (the "Proxy Opinion"), the consideration
to be received in the Merger is fair, from a financial point of view, to the
holders of Elverson Common Stock.
The full text of Berwind's Proxy Opinion, which sets forth the
assumptions made, matters considered and limitations of the review undertaken,
is attached as Annex B to this Proxy Statement/Prospectus, is incorporated
herein by reference, and should be read in its entirety in connection with this
Proxy Statement/Prospectus. The summary of the opinion of Berwind set forth
herein is qualified in its entirety by reference to the full text of such
opinion attached as Annex B to this Proxy Statement/Prospectus.
Berwind was selected to act as Elverson's financial advisor in
connection with the Merger based upon its qualifications, expertise and
experience. Berwind has knowledge of, and experience with, Pennsylvania and
surrounding banking markets, as well as banking organizations operating in those
markets, and was selected by Elverson because of its knowledge of, experience
with, and reputation in the financial services industry. In addition, Berwind
was engaged by Elverson in 1994 in connection with providing general financial
advisory services. Berwind, as part of its investment banking business, is
engaged regularly in the valuation of assets, securities and companies in
connection with various types of asset and securities transactions, including
mergers, acquisitions, private placements, and valuations for various other
purposes and in the determination of adequate consideration in such
transactions.
On July 21, 1998, Elverson's Board of Directors approved and executed
the proposed merger agreement. Prior to such approval, Berwind delivered its
July Opinion to Elverson's Board stating that, as of such date, the
consideration to be received in the Merger was fair to the shareholders of
Elverson from a financial point of view. Berwind reached the same opinion as of
the date of its Proxy Opinion. The full text of the Proxy Opinion which sets
forth assumptions made, matters considered and limits on the review undertaken
is attached as Annex B to this Proxy Statement/Prospectus. No limitations were
imposed by Elverson's Board of Directors upon Berwind with respect to the
investigations made or procedures followed by Berwind in rendering the July
Opinion or the Proxy Opinion.
In rendering its Proxy Opinion, Berwind (i) reviewed the historical
financial performances, current financial positions and general prospects of
Elverson and NPB; (ii) reviewed the Agreement; (iii) reviewed and analyzed the
stock market performance of Elverson and NPB; (iv) studied and analyzed the
consolidated financial and operating data of Elverson and NPB; (v) considered
the terms and conditions of the proposed Merger as compared with the terms and
conditions of comparable bank and bank holding company mergers and acquisitions;
(vi) met and/or communicated with certain members of Elverson's and NPB's senior
management to discuss their respective operations, historical financial
statements, and future prospects; (vii) reviewed this joint Proxy
Statement/Prospectus, and (viii) conducted such other financial analyses,
studies and investigations as Berwind deemed appropriate.
In delivering its July Opinion and Proxy Opinion, Berwind assumed that
in the course of obtaining the necessary regulatory and governmental approvals
for the Merger, no restriction will be imposed on NPB or Elverson that would
have a material adverse effect on the contemplated benefits of the Merger.
Berwind also assumed that there will not occur any change in applicable law or
regulation that would cause a material adverse change in the prospects or
operations of NPB after the Merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinions. With respect to Elverson's
financial forecasts reviewed by Berwind in rendering its opinions, Berwind
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Elverson as to the future financial performance of Elverson.
Berwind did not make an independent evaluation or appraisal of the assets
(including loans) or liabilities of Elverson or NPB nor was it furnished with
any such appraisal. Berwind also did not independently verify and has relied on
and assumed that all allowances for loan and lease losses
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set forth in the balance sheets of Elverson and NPB were adequate and complied
fully with applicable law, regulatory policy and sound banking practice as of
the date of such financial statements.
The following is a summary of selected analyses prepared by Berwind and
presented to Elverson's Board in connection with the July Opinion and analyzed
by Berwind in connection with the July and Proxy Opinions. In connection with
delivering its Proxy Opinion, Berwind updated certain analyses described above
to reflect current market conditions and events occurring since the date of the
July Opinion. Such reviews and updates led Berwind to conclude that it was not
necessary to change the conclusions it had reached in connection with rendering
the July Opinion.
Comparable Companies and Comparable Acquisition Transaction Analyses.
Berwind compared selected financial, operating, and stock market data for
Elverson with those of a peer group of selected banks and bank holding companies
with assets between $200 million and $600 million, as of the most recent
financial period publicly available, headquartered in Berks, Chester, Delaware,
Lancaster, and Montgomery counties in Pennsylvania. Financial, operating and
stock market data, ratios and multiples compared in the analysis of the Elverson
peer group included but were not limited to: return on average assets, return on
average shareholders' equity, shareholders' equity to assets ratio, certain
asset quality ratios, price to book value, price to tangible book value, price
to earnings (latest twelve months) and dividend yield. The analysis showed
Elverson's return on average assets was 1.08% compared to the peer group median
of 1.62%, its return on average shareholders' equity was 11.56% compared to the
peer group median of 13.16%, its shareholders' equity as a percentage of assets
was 9.3% versus the peer group median of 11.1%, its non-performing assets and
loans past due 90 days or more as a percentage of total assets was 0.89%
compared to the peer group median of 0.83%, and its loan loss reserve as a
percentage of non-performing assets and loans past due 90 days or more was
166.75% versus the median of 165.73% for the peer group.
In addition, the analysis showed that Elverson's common stock price per
share ($25.75 on the date of the July Opinion) as a percentage of book value and
tangible book value per share was 251.0% and 251.0%, respectively, compared to
the peer group medians of 266.9% and 266.9%, respectively, and its common stock
price per share as a multiple of latest twelve months' earnings per share of
22.2 times compared to the peer group median of 20.3 times.
Berwind also compared selected financial, operating and stock market
data for NPB with those of a peer group of selected banks and bank holding
companies with assets between $1.0 billion and $3.0 billion, as of the most
recent period publicly available, headquartered in New Jersey, Pennsylvania and
Maryland. Financial, operating and stock market data, ratios and multiples
compared in the analysis of the NPB peer group included but were not limited to:
return on average assets, return on average shareholders' equity, shareholders'
equity to asset ratios, certain asset quality ratios, price to book value, price
to tangible book value, price to earnings (latest twelve months and estimated
1998) and dividend yield. The analysis showed NPB's return on average assets was
1.29% compared to the peer group median of 1.10%, its return on average
shareholders' equity was 16.26% compared to the peer group median of 13.29%, its
shareholders' equity as a percentage of assets was 8.03% versus the peer group
median of 8.47%, its non-performing assets and loans past due 90 days or more as
a percentage of total assets was 0.71% compared to the peer group median of
0.63%, and its loan loss reserve as a percentage of non-performing assets and
loans past due 90 days or more was 231.79% versus the median of 164.27% for the
peer group.
In addition, the analysis showed that NPB's common stock price per
share ($26.70 on the date of the July Opinion) as a percentage of book value and
tangible book value per share was 291.0% and 308.2%, respectively, compared to
the peer group medians of 252.9% and 278.3%, respectively, and its common stock
price per share as a multiple of latest twelve months' earnings per share of
17.8 times compared to the peer group median of 19.4 times.
Berwind also compared the multiples of book value, tangible book value
and latest twelve months' earnings inherent to the Merger with the multiples
paid in recent acquisitions of banks and bank holding companies that Berwind
deemed comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced during the twelve months
preceding the date of the proxy opinion, in which the selling institution's
assets were between $200 million and $600 million as of the most recent period
publicly available prior to announcement. Berwind compared transactions located
throughout the country and analyzed those transactions in three groups: a
national group (62 banks), a regional group (6 banks), and a performance group
(30 banks). The national group included commercial banking institution
transactions throughout the United States; the regional group included
transactions involving commercial banking institutions located in New Jersey and
Pennsylvania; and the performance
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group included transactions involving commercial banking institutions with
return on average shareholders' equity less than or equal to 14.0% and
shareholders' equity as a percentage of total assets greater than or equal to
6.5%. The median values calculated for price as a percentage of book value were
263.7%, 281.1%, and 247.6% for the national, regional, and performance group,
respectively; the median of price as a percentage of tangible book value was
275.3%, 281.1% and 260.7% for the national, regional, and performance group,
respectively; and the median of price as a multiple of latest twelve months'
earnings per share was 21.3, 31.0, and 21.8 times for the national, regional,
and performance group, respectively. These medians compare to the Merger price
per share as a percentage of book value, price per share as a percentage of
tangible book value and price per share as a multiple of the latest twelve
months' earnings of 371.7%, 371.7% and 31.6 times, respectively.
No company or transaction, however, used in this analysis is identical
to Elverson, NPB or the Merger. Accordingly, an analysis of the result of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that would affect the public trading values of
the companies or company to which they are being compared.
Discounted Dividend Analyses. Using discounted dividend analyses,
Berwind estimated the present value of Elverson's Common Stock after a five year
period by applying a range of earnings multiples to Elverson's terminal year
earnings under various growth assumptions. The range of multiples used reflected
a variety of scenarios regarding the growth and profitability prospects of
Elverson. The terminal values were then discounted to present value using
discount rates, reflecting different assumptions regarding the rates of return
required by holders or prospective buyers of Elverson's Common Stock. The
discounted dividend analysis indicated a range of values of $16.19 to $24.72 per
share.
Pro Forma Contribution Analysis. Berwind analyzed the changes in the
amount of earnings, book value and dividends represented by one share of
Elverson stock prior to the Merger and the number of shares of NPB stock after
the Merger resulting from the Exchange Ratio. The analysis considered, among
other things, the changes that the Merger would cause to Elverson's earnings per
share, book value per share and indicated dividends. On a per share equivalent
basis, Elverson's earnings per share would be $2.08, its book value per share
would be $13.04 and its indicated dividend per share would be $1.12 compared to
an actual earnings per share of $1.34, book value per share of $10.55 and
indicated dividend per share of $0.24. In reviewing the pro forma combined
earnings, equity and assets of NPB based on the Merger with Elverson, Berwind
analyzed the contribution that Elverson would have made to the combined
company's earnings, equity and assets as of and for the most recent quarterly
period ended as of the date of the Proxy Opinion. Berwind also reviewed the
percentage ownership that Elverson shareholders would hold in the combined
company.
In connection with rendering its July Opinion and Proxy Opinion,
Berwind performed a variety of financial analyses. Although the evaluation of
the fairness, from a financial point of view, of the consideration to be paid in
the Merger was to some extent a subjective one based on the experience and
judgment of Berwind and not merely the result of mathematical analysis of
financial data, Berwind principally relied on the previously discussed financial
valuation methodologies in its determinations. Berwind believes its analyses
must be considered as a whole and that selecting portions of such analyses and
factors considered by Berwind without considering all such analyses and factors
could create an incomplete view of the process underlying Berwind's opinions. In
its analysis, Berwind made numerous assumptions with respect to business,
market, monetary and economic conditions, industry performance and other
matters, many of which are beyond Elverson's and National Penn's control. Any
estimates contained in Berwind's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable than
such estimates.
In reaching its opinion as to fairness, none of the analyses performed
by Berwind was assigned a greater or lesser weighting by Berwind than any other
analysis. As a result of its consideration of the aggregate of all factors
present and analyses performed, Berwind reached the conclusion, and opined, that
the consideration to be received in the Merger as set forth in the Agreement, is
fair from a financial point of view to Elverson and its shareholders.
Berwind's Proxy Opinion was based solely upon the information available
to it and the economic, market and other circumstances as they existed as of the
date its Proxy Opinion was delivered; events occurring after the date of its
Proxy Opinion could materially affect the assumptions used in preparing its
Proxy Opinion. Berwind has not
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undertaken to reaffirm and revise its Proxy Opinion or otherwise comment upon
any events occurring after the date thereof.
Pursuant to the terms of the engagement letter dated May 14, 1998,
Elverson has paid Berwind $35,000 for serving as financial advisor. Elverson has
also agreed to pay Berwind $175,000, plus three percent of the aggregate
positive difference, if any, between the final transaction value of the Merger
to the ENB shareholders and $103,557,491, upon the consummation of the Merger
for acting as financial advisor in connection with the Merger including
delivering its July and Proxy Opinions. Whether or not the Merger is
consummated, Elverson has also agreed to indemnify Berwind and certain related
persons against certain liabilities relating to or arising out of its
engagement and to reimburse Berwind for certain out of pocket expenses.
The full text of the Proxy Opinion of Berwind dated as of the date of
this Proxy Statement/Prospectus, which sets forth assumptions made and matters
considered, is attached hereto as Annex B. Elverson's shareholders are urged to
read the Proxy Opinion in its entirety. Berwind's Proxy Opinion is directed only
to the financial consideration to be received by Elverson's shareholders in the
Merger and does not constitute a recommendation to any holder of Elverson Common
Stock as to how such holder should vote at the Elverson Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF BERWIND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION,
WHICH IS SET FORTH IN ANNEX B TO THIS PROXY STATEMENT/PROSPECTUS.
Opinion of NPB's Financial Advisor
As described in more detail under "Reasons for the Merger;
Recommendations of the Boards of Directors", the Board of Directors of NPB
approved the Merger Agreement subject to receipt of a written opinion that the
terms of the Merger were fair, from a financial point of view, to NPB and its
shareholders. On July 21, 1998, LSC Financial Services, Inc. ("LSC") delivered
to NPB its definitive written opinion to that effect, which opinion LSC has
updated to the date hereof. The full text of LSC's opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken in
connection with such opinion, is set forth in Annex C hereto and should be read
in its entirety.
LSC is a nationally recognized, regional investment banking firm,
regularly engaged in the valuation of banks and other financial institutions and
their securities.
LSC was retained by NPB on June, 16, 1998, to render an opinion, from a
financial point of view, as to the fairness of the terms of the proposed merger
with Elverson National Bank to NPB and its shareholders. See "Reasons for the
Merger; Recommendations of the Boards of Directors." NPB's Board of Directors
selected LSC on the basis of its experience in valuation of financial
institutions and their securities, its representation of NPB in previous merger
transactions, its familiarity with the commercial banking industry and merger
and acquisition transactions in the region, and on the basis of cost. No
limitations were imposed by NPB or Elverson with respect to the opinion rendered
by LSC or the scope of its investigation.
The terms of the Merger were not determined by LSC, but instead were
established by the Boards of Directors of NPB and Elverson.
LSC arrived at its opinion after discussions with senior officers of
NPB and Elverson, a review of pertinent financial information concerning NPB and
Elverson, a review of the trading history of NPB and Elverson common stock, a
review of the dividend record of NPB and Elverson, a comparison of the financial
terms of the Merger with the terms of other recent business combinations
involving banks and bank holding companies, review of the Merger Agreement and
the Proxy Statement/Prospectus, and such other analyses, studies and
investigations as LSC deemed relevant. LSC also reviewed with NPB's management,
the results of NPB's due diligence examination of Elverson, the expected revenue
enhancements and cost savings related to the Merger, and the strategic benefits
expected to be derived from the Merger.
In accordance with customary investment banking practice, LSC employed
generally accepted valuation methods in reaching its opinion. The following is a
summary of the material financial analyses utilized by LSC in connection with
providing its opinion.
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Pro Forma Merger Analysis. LSC analyzed certain pro forma effects
resulting from the Merger based on (i) projected earnings of NPB and Elverson
for 1998 prepared by the respective managements of NPB and Elverson and (ii)
expense savings of 40% of Elverson's non-interest expenses estimated by
management of NPB to be attainable in the merger. This analysis indicated that
the transaction would be accretive to the shareholders of NPB from an earnings
per share perspective, during the second year after consummation of the merger.
Contribution Analysis. LSC compared the relative contribution to the
continuing NPB attributable to each of NPB and Elverson as of June 30, 1998.
This analyses showed that NPB and Elverson would contribute to the continuing
NPB approximately 85% and 15%, respectively, of total assets, 86% and 14%
respectively, of total loans, 81% and 19% of total deposits, and 81% and 19% of
tangible book value.
In addition, LSC computed the relative contribution of each of NPB and
Elverson in terms of income statement items, including net interest income,
non-interest income, non-interest expense and net income based on annualized
June 30, 1998 results. This analysis showed that NPB and Elverson would
contribute 86% and 14%, respectively, of net income for 1998. LSC also noted
that on a pro forma basis the current shareholders of NPB and the former
shareholders of Elverson would own 77% and 23%, respectively, of the continuing
NPB.
Discounted Dividend Stream Analysis. Using a discounted dividend stream
analysis, LSC estimated the present value of the future streams of after tax
cash flows that Elverson could produce through earnings and distribute to
shareholders after consummation of the Merger. In this analysis, LSC assumed
that NPB could pay out up to 100% of its adjusted net income subject to the
assumed constraint that Elverson's common equity to asset ratio be maintained at
a level of not less than 7%. LSC added to this stream of after-tax cash flows
assumed expense savings equal to 40% of Elverson's non-interest expenses, which
were projected to be achieved by NPB's management in connection with the Merger.
The projected dividend streams and terminal values were discounted to present
values using discount rates of 10%, 11% and 12%. This discounted dividend stream
analysis implied a reference range of values for Elverson common stock of $38.61
to $46.19 per share.
Selected Transaction Analysis. LSC analyzed certain information
compiled by SNL Securities L.P. (a data firm that monitors and publishes
transaction summaries and descriptions of mergers and acquisitions in the
financial services industry) relating to Pennsylvania bank acquisitions
(excluding mergers of equals) announced since October 1997. For such
transactions LSC considered a range of multiples for price as a percentage of
book value from 269.5% to 364.5% with an average of 322%. LSC also considered a
range of multiples of earnings per share from 20.8 to 32.8 with an average of
27.2 and a median of 27.0. This selected transaction analysis implied a value
range for Elverson Common Stock of $25.79 to $40.67 per share based on selected
Pennsylvania transactions under $275 million in aggregate value.
The description of LSC's analyses set forth above summarizes the
material aspects of the analyses performed but does not purport to be a complete
description of the analyses performed by LSC. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. LSC believes that the summary set forth above
and its analyses must be considered as a whole and that selecting portions
thereof, without considering all of the analyses, could create an incomplete
view of the processes underlying its analyses and opinion. LSC based its opinion
on assumptions that it deemed reasonable, including assumptions concerning
general business and economic conditions and industry-specific factors. LSC's
analyses are not necessarily indicative of actual values or actual future
results that might be achieved, which values may be higher or lower than those
indicated. Moreover, LSC's analyses are not and do not purport to be appraisals
or otherwise reflective of the prices at which businesses actually could be
bought or sold.
In rendering its opinion, LSC assumed that in the course of obtaining
the necessary regulatory approvals for the Merger, no restrictions will be
imposed on NPB that would have a material adverse effect on the contemplated
benefits of the Merger to NPB. LSC also assumed that there would not occur any
change in applicable law or regulation that would cause a material adverse
change in the prospects or operations of NPB after the Merger. LSC also assumed,
with NPB's consent, that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles.
LSC did not independently verify the information used in arriving at
its opinion, but assumed the accuracy and completeness of all such information.
In that regard, LSC assumed with NPB's consent that the financial
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forecasts, including, without limitation, projected cost savings, have been
reasonably prepared on a basis reflecting the best currently available judgments
and estimates of the managements of NPB and Elverson and that such forecasts
will be realized in the amounts and at the times contemplated thereby. Also, LSC
did not make or obtain any independent appraisal of the assets or liabilities of
NPB or Elverson.
For its services, including rendering the opinion included herein, LSC
will receive a fee of $30,000. NPB has also agreed to reimburse LSC for
out-of-pocket expenses and to indemnify LSC against certain liabilities,
including liabilities arising under federal securities laws, which may arise in
connection with the performance of its services for NPB. The amount of the
consideration was determined as a result of negotiations between NPB and LSC.
LSC has had no other material relationship with NPB and Elverson, or
any of their respective affiliates in the past two years, but from time to time
has provided merger and acquisition consulting services to NPB and may be
expected to do so in the future.
LSC'S OPINION IS DIRECTED ONLY TO THE EXCHANGE RATIO IN THE MERGER AS
OF THE DATE OF ITS OPINION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY NPB
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE NPB MEETING. THE
SUMMARY OF THE OPINION OF LSC SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
LSC has filed a written consent relating to the inclusion of its
fairness opinion and the references to such opinion and to LSC in NPB's
Registration Statement under the Securities Act of 1933 in which this Proxy
Statement/Prospectus is included. In giving such consent, LSC did not admit that
it comes within the category of persons whose consent is required under Section
7 of the Securities Act or the rules and regulations thereunder nor did LSC
admit that it is an expert with respect to any part of such Registration
Statement within the meaning of the term "expert" as used in the Securities Act
or the rules and regulations thereunder.
LSC's opinion was based solely upon information available to it and
provided by NPB and Elverson, the economic market and other conditions as they
existed as of the date its opinion was rendered.
Effective Date
Under the Merger Agreement, the Effective Date will be the date on
which all conditions to the Merger have been fulfilled or waived or as soon as
practicable thereafter as NPB and Elverson may mutually agree. The parties
presently expect that the Effective Date will occur in early 1999. See "The
Merger--Conditions to the Merger."
Representations and Warranties
The Merger Agreement contains customary representations and warranties
relating to, among other things, (a) the organization of NPB, NP Bank and
Elverson; (b) the capital structures of NPB , NP Bank and Elverson; (c) the due
authorization, execution, delivery, performance and enforceability of the Merger
Agreement; (d) consents or approvals of regulatory authorities or third parties
necessary to complete the Merger; (e) the consistency of financial statements
with generally accepted accounting principles; (f) the absence of material
adverse changes, since June 30, 1998, in the consolidated assets, business,
financial condition or results of operations of NPB or Elverson; (g) the filing
of tax returns and payment of taxes; (h) the absence of undisclosed material
pending or threatened litigation; (i) compliance with applicable laws and
regulations; (j) retirement and other employee plans and matters relating to the
Employee Retirement Income Security Act of 1974; (k) the quality of title to
assets and properties; (l) the maintenance of adequate insurance; (m) the
absence of undisclosed brokers' or finders' fees; (n) the absence of material
environmental violations, actions or liabilities; (o) the consistency of the
allowance for loan losses with generally accepted accounting principles and all
applicable regulatory criteria; (p) the accuracy of information supplied by NPB
and Elverson in connection with the Registration Statement on Form S-4 filed
with the Commission in connection with the issuance of NPB Common Stock in the
Merger, this Proxy Statement/Prospectus and all applications filed with
regulatory authorities for approval of the Merger; (q) documents filed with the
Commission and the accuracy of information contained therein; (r) the validity
and
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binding nature of loans reflected as assets in the financial statements of
Elverson and NPB; and (s) the tax and accounting treatment of the Merger.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, NPB and Elverson each agreed to use
their reasonable good faith efforts to preserve their business organizations
intact, to maintain good relationships with employees and to preserve the
goodwill of customers and others with whom business relationships exist. In
addition, Elverson agreed to conduct its business and to engage in transactions
only in the ordinary course of business, consistent with past practice, except
as otherwise required by the Merger Agreement or with the written consent of
NPB, and NPB agreed to conduct its business and to engage in transactions in the
ordinary course without radical change.
In addition, Elverson agreed in the Merger Agreement that it will not,
without the written consent of NPB, among other things, (i) change its articles
of association or bylaws; (ii) change the number of authorized or issued shares
of its capital stock, repurchase any shares of its capital stock, redeem or
otherwise acquire any shares of its capital stock, or issue or grant options or
similar rights with respect to its capital stock or any securities convertible
into its capital stock, except for the issuance of up to 43,890 shares of
Elverson Common Stock upon the exercise of Elverson Options outstanding on July
21, 1998; (iii) declare, set aside or pay any dividend or other distribution in
respect of its capital stock, except as otherwise specifically set forth in the
Merger Agreement (see "The Merger--Dividends"); (iv) grant any severance or
termination pay, except in accordance with policies or agreements in effect on
July 21, 1998, or enter into or amend any employment, consulting, severance,
"change-in-control" or termination contract or arrangement; (v) grant any pay
increase, pay any bonus or grant job promotions, except for routine periodic
increases, merit pay increases and pay raises in connection with promotions, all
in accordance with past practice, retention bonuses on account of the Merger
granted in good faith reasonable amounts, and pay increases and bonuses for
extraordinary efforts in management and product development (if such costs are
fully accrued on the Closing Date); (vi) engage in any merger, acquisition or
similar transaction; (vii) dispose of or encumber any assets or incur any debt
other than in the ordinary course of business except for the sale of the excess
property located at the Blue Rock Center in the Borough of Elverson, Chester
County, Pennsylvania; (viii) change any accounting practices, except as may be
required by generally accepted accounting principles (without regard to any
optional early adoption date); (ix) implement any new employee benefit or
welfare plan, or amend any such plan, unless such amendment does not result in
an increase in cost, except as expressly permitted by the Merger Agreement; (x)
purchase any security for its investment portfolio not rated "AAA" or higher by
either Standard & Poor's or Moody's Investor Services, Inc.; (xi) make, enter
into, renew, extend, modify or compromise any transaction with any affiliate of
Elverson other than deposit and loan transactions in the ordinary course of
business and which are in compliance with the requirements of applicable laws
and regulations; (xii) enter into any interest rate swap floor or cap or similar
arrangement; (xiii) take any action that would preclude the treatment of the
Merger as a pooling of interests for financial accounting purposes or as a
tax-free reorganization under the Code; (xiv) waive, release, grant or transfer
any rights of value, or modify or change in any material respect any existing
agreement to which Elverson is a party, other than in the ordinary course of
business, consistent with past practice; (xv) take any action which would cause
any of the representations and warranties of Elverson set forth in the Merger
Agreement to be untrue or the conditions set forth in the Merger Agreement to be
unsatisfied; (xvi) fill job vacancies that occur prior to the Effective Date
through attrition, unless the integration team described below deems it
essential; or (xvii) agree to do any of the foregoing.
Elverson also agreed in the Merger Agreement, among other things, (i)
to permit NPB, if NPB elects to do so at its own expense, to cause a "phase I
environmental audit" to be performed at any physical site owned or occupied by
Elverson; (ii) if NPB acknowledges that all conditions to the parties'
respective obligations under the Merger Agreement have been waived or satisfied
and that their respective rights to terminate the Merger Agreement have lapsed,
to establish additional accruals and reserves to conform Elverson's accounting
reserve practices and methods to those of NPB and otherwise reflect Merger
expenses of Elverson on a mutually satisfactory basis and in accordance with
generally accepted accounting principles and applicable regulatory requirements;
and (iii) to suspend the operation of its Dividend Reinvestment and Stock
Purchase Plan, which was suspended on July 21, 1998.
NPB and Elverson jointly agreed, among other things, (i) to submit the
Merger Agreement to their respective shareholders for approval at meetings to be
held as soon as practicable; (ii) to prepare all applications for,
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and use their reasonable best efforts to obtain, all required regulatory
approvals; (iii), subject to the terms of the Merger Agreement, to take all
actions necessary to complete the transactions contemplated by the Merger
Agreement; (iv) to maintain adequate insurance; (v) to maintain accurate books
and records; (vi) to file all tax returns and pay all taxes when due; and (vii)
to agree upon the form and substance of any press release or public disclosure
related to the Merger Agreement and the Merger.
NPB and Elverson also agreed in the Merger Agreement to select an
integration team, comprising an equal number of senior staff employees of each
of NPB and Elverson, to plan and implement an orderly, cost-effective
consolidation of Elverson's operations into NP Bank's operations in Boyertown,
Pennsylvania. Prior to the Effective Date, consolidation efforts may include, if
mutually agreed, (i) the termination of any contract or arrangement that
Elverson may have with an outside service bureau or other vendor of services,
(ii) the termination of any of Elverson's in-house back office, support,
processing or other operational activities, and (iii) subject to applicable
legal requirements, the substitution of a contract between NPB or NP Bank and
Elverson for the provision of similar services.
NPB agreed in the Merger Agreement that, prior to the Closing Date, it
will not, without the written consent of Elverson, (i) enter into any agreement
with any company (other than Elverson) concerning any acquisition of such
company by NPB or a merger or consolidation of such company with NPB if either
(A) NPB would be required to present pro forma financial information regarding
that transaction in the joint proxy statement/prospectus for the Merger or (B)
NPB would propose to issue in that transaction shares of NPB Common Stock in an
amount greater than 20% of the number of shares of NPB Common Stock outstanding
on July 21, 1998, or (ii) repurchase, redeem or otherwise acquire any shares of
NPB Common Stock.
Dividends
The Merger Agreement permits Elverson to pay its regular quarterly cash
dividend of $.06 per share of Elverson Common Stock outstanding. Elverson and
NPB agreed in the Merger Agreement to coordinate dividend record dates and
payment dates with respect to Elverson Common Stock and NPB Common Stock, it
being their intention that the holders of NPB Common Stock and Elverson Common
Stock shall not receive two dividends, or fail to receive one dividend, for any
single calendar quarter. In coordinating their respective dividends, ENB and NPB
have agreed that the ENB dividend which would normally be payable on January 1,
1999 to shareholders of record on December 15, 1998 will be payable December 31,
1998, and the former ENB shareholders who are NPB shareholders on the record
date for the NPB dividend payable in the first quarter of 1999 will receive that
dividend in full.
Conditions to the Merger
The obligations of NPB and Elverson to effect the Merger are subject to
various conditions, which include the following:
(a) the Merger Agreement shall have been duly approved by the holders
of NPB Common Stock and Elverson Common Stock;
(b) all necessary governmental approvals for the Merger shall have been
obtained, and all waiting periods required by law or imposed by any governmental
authority with respect to the Merger shall have expired (see "The
Merger--Regulatory Approvals");
(c) there shall not be any order, decree, or injunction in effect
preventing the completion of the transactions contemplated by the Merger
Agreement;
(d) there shall have been delivered to each of NPB and Elverson an
opinion of its counsel or a letter from its independent certified public
accountants that, among other things, the Merger will be treated for federal
income tax purposes as a "reorganization" within the meaning of Section 368(a)
of the Code (see "The Merger--Certain Federal Income Tax Consequences"); and
(e) NPB and Elverson shall each have received an opinion from its
respective independent certified public accountants that the Merger will be
treated as a pooling of interests for financial accounting purposes (see "The
Merger--Accounting Treatment").
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In addition to the foregoing, the obligations of each party to the
Merger Agreement are conditioned on (i) the accuracy in all material respects as
of July 21, 1998 and as of the Effective Date of the representations and
warranties of the other party, except as to any representation or warranty which
specially relates to an earlier date and except as otherwise contemplated by the
Merger Agreement, (ii) the other party's performance in all material respects of
all covenants and obligations required to be performed by it at or prior to the
Effective Date and (iii) other conditions which are customary for transactions
of the type contemplated by the Merger Agreement. See "The
Merger--Representations and Warranties" and "The Merger--Conduct of Business
Pending the Merger."
Except for the requirements of shareholder approval, regulatory
approvals and the absence of any order, decree, or injunction preventing the
transactions contemplated by the Merger Agreement, each of the conditions
described above may be waived in the manner and to the extent described in "The
Merger--Amendment; Waivers". Neither NPB nor Elverson, however, anticipates
waiving the conditions that it receive an opinion from its independent
accountants that the Merger will be treated as a pooling of interests for
financial accounting purposes and an opinion of its counsel or of its
independent accountants that, in the case of NPB, provides among other things,
that the Merger will be treated as a "reorganization" within the meaning of
Section 368(a) of the Code, and in the case of Elverson, addresses, among other
things, the tax consequences of the Merger to Elverson shareholders.
Amendment; Waiver
Subject to applicable law, at any time prior to consummation of the
Merger, NPB and Elverson may (a) amend the Merger Agreement, (b) extend the time
for the performance of any of the obligations or other acts of NPB and Elverson
required in the Merger Agreement, (c) waive any inaccuracies in the
representations and warranties contained in the Merger Agreement, or (d) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement, except for the requirements of shareholder approval, regulatory
approvals and the absence of any order, decree, or injunction preventing the
transactions contemplated by the Merger Agreement.
Termination; Possible Exchange Ratio Increase
The Merger Agreement may be terminated at any time prior to the
Effective Date by mutual consent of NPB and Elverson or by either party if (i)
the other party, in any material respect, breaches any representation, warranty,
covenant or other obligation contained in the Merger Agreement and such breach
has not been cured within thirty days from the date written notice of such
breach was given to such party committing the breach, (ii) the closing of the
Merger shall not have occurred on or before February 28, 1999, unless the
failure of such occurrence shall be due to the failure of the party seeking to
terminate the Merger Agreement to perform or observe any agreements required to
be performed by such party on or before the Closing Date, (iii) any regulatory
authority whose approval or consent is required for the consummation of the
Merger issues a definitive written denial of such approval or consent and the
time periods for appeals or requests for reconsideration have expired, or (iv)
shareholders of Elverson or NPB do not approve the Merger Agreement at their
respective Meetings.
In addition, Elverson may terminate the Merger Agreement at any time
during the ten-day period following the Determination Date, if both (a) the NPB
Market Value is less than $21.60 and (b) the NPB Market Value Quotient is less
than the Index Group Standard by 5% or more (an "Index Termination Event") (see
"The Merger--Terms of the Merger"), provided, however, that the Merger Agreement
would not be so terminated if NPB elects, at its sole option, to increase the
Exchange Ratio to 1.5625. Elverson may also terminate the Merger Agreement at
any time during the ten-day period following the Determination Date, if the NPB
Market Value is less than $20.25 ( a "Price Termination Event," an Index
Termination Event and a Price Termination Event together, a "Financial
Termination Event"). Thus, the time period for a Financial Termination Event
will have ended prior to the NPB and ENB shareholder meetings.
Elverson may also terminate the Merger Agreement if NPB or any of its
subsidiaries enters into an agreement with a third party concerning any merger
of NPB with or into such third party or the acquisition of all of NPB's assets,
or if any person or entity acquires 19.9% or more of the outstanding shares of
NPB Common Stock. Finally, Elverson may terminate the Merger Agreement following
receipt of an Acquisition Proposal (see "The Merger--No Solicitation of Other
Transactions"), but only if the Elverson Board of Directors has concluded in
good faith after consultation with its legal and financial advisors that such
Acquisition Proposal, if consummated pursuant to its terms, would result in an
alternative transaction more favorable to Elverson's shareholders than the
Merger. There can be no assurance that the Elverson Board of Directors would
exercise its right to terminate the Merger Agreement if a Termination Event
(i.e., any of the four conditions described in this paragraph and in the
previous paragraph) exists, and if the Elverson Board of Directors does elect
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to so terminate the Merger Agreement on account of an Index Termination Event,
there can be no assurance that NPB will elect to increase the Exchange Ratio as
provided in the Merger Agreement.
Elverson shareholders should be aware that the NPB Market Value as of
the Determination Date, on which the occurrence of a Financial Termination Event
and the subsequent increase, if any, in the Exchange Ratio may be determined,
will be based on the average of the closing sale prices of NPB Common Stock
during a 20-day trading period ending on the Determination Date. Accordingly,
because the market price of NPB Common Stock between the Determination Date and
the Effective Date, as well as between the Determination Date and the date
certificates representing shares of NPB Common Stock are delivered in exchange
for shares of Elverson Common Stock following consummation of the Merger, will
fluctuate and possibly decline, the value of the NPB Common Stock actually
received by holders of Elverson Common Stock may be more or less than (i) the
NPB Market Value or (ii) the value of the NPB Common Stock on the Closing Date.
The Index Group consists of eight bank or thrift holding companies
selected by NPB and Elverson as being directly relevant for purposes of
distinguishing changes in NPB's stock prices that are unique from those
reflective of general changes in comparable companies. The eight bank or thrift
holding companies are Wilmington Trust Company, WSFS Financial Corporation, PNC
Financial Corporation, Sovereign Bancorp, Inc., Commerce Bancorp, Inc., Fulton
Financial Corp., Keystone Financial, Inc., and JeffBanks, Inc. If any company
belonging to the Index Group declares or effects a stock dividend, a
reclassification, recapitalization, split-up, combination, exchange of shares or
similar transaction between the Starting Date and the Determination Date, the
prices for the common stock of such company shall be appropriately adjusted. In
the event the common stock of any such company ceases to be publicly traded or
there has been an announcement of a proposal for the acquisition or sale of such
company or the acquisition by such company of another company or companies in
transactions having a value in excess of 25% of the acquiror's market
capitalization, such company will be removed from the Index Group.
It is not possible to know whether a Financial Termination Event will
occur until after the Determination Date. The Elverson Board of Directors has
made no decision as to whether it would exercise its right to terminate the
Merger Agreement if there is a Financial or other Termination Event. In
considering whether to exercise its termination right in such situation, the
Elverson Board of Directors would, consistent with its fiduciary duties, take
into account all relevant facts and circumstances that exist at such time and
would consult with its financial advisors and legal counsel. The fairness
opinion received by ENB is dated as of this Proxy Statement/Prospectus and is
based on conditions in effect on such date. Accordingly, such opinion does not
address NPB's possible increase in the Exchange Ratio if an Index Termination
Event occurs. Approval of the Merger Agreement by the shareholders of Elverson
at the Elverson Meeting will confer on the Elverson Board of Directors the
power, consistent with its fiduciary duties, to elect to consummate the Merger
in the event of a Termination Event without any further action by, or
resolicitation of the votes of, the shareholders of Elverson.
The NPB Board of Directors has made no decision as to whether it would
exercise its right to increase the Exchange Ratio to 1.5625 if the Elverson
Board of Directors elected to terminate the Merger Agreement upon the occurrence
of an Index Termination Event. In considering whether to exercise its right to
increase the Exchange Ratio, the NPB Board of Directors would, consistent with
its fiduciary duties, take into account all relevant facts and circumstances
that exist at such time and would consult with its financial advisors and legal
counsel. The fairness opinion received by ENB is dated as of the date of this
Proxy Statement/Prospectus and is based on conditions in effect on such date.
Accordingly, such opinion does not address NPB's possible increase in the
Exchange Ratio if an Index Termination Event occurs. See "The Merger--Opinions
of Financial Advisors--Opinion of NPB's Financial Advisor."
Termination Fees
Elverson has agreed to pay a fee of $5,000,000 to NPB if NPB is not in
material breach of the Merger Agreement and Elverson fails to consummate the
Merger after either (i) Elverson has terminated the Merger Agreement after
receiving an Acquisition Proposal (see "The Merger--Termination; Possible
Exchange Ratio Increase" and "The Merger--No Solicitation of Other
Transactions") or (ii) the Merger has not been approved by Elverson's
shareholders at the Elverson Meeting and, at the time of such Meeting, there has
been an announcement by a person or group of persons (other than NPB) of an
offer or proposal to acquire 19.9% or more of the shares of
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Elverson Common Stock then outstanding, to acquire, or merge or consolidate
with, Elverson, or to purchase all or substantially all of Elverson's assets.
NPB has agreed to pay a fee of $1,000,000 to Elverson if Elverson is
not in material breach of the Merger Agreement and NPB fails to consummate the
Merger after the Merger has not been approved by NPB's shareholders at the NPB
Meeting.
Expenses
Elverson and NPB will each pay all costs and expenses incurred by it in
connection with the transactions contemplated by the Merger Agreement, including
fees and expenses of financial consultants, accountants and legal counsel,
except that the cost of printing and mailing this Proxy Statement/ Prospectus
will be shared equally by Elverson and NPB.
No Solicitation of Other Transactions
The Merger Agreement provides that Elverson shall not, and Elverson
shall not authorize or permit any of its directors, officers, employees or
agents to, directly or indirectly, (i) respond to, solicit, initiate or
encourage any inquiries relating to, or the making of any proposal which relates
to, an Acquisition Proposal (as defined below), (ii) recommend or endorse an
Acquisition Proposal, or (iii) participate in any discussions or negotiations
regarding an Acquisition Proposal. Elverson has agreed to notify NPB as promptly
as practicable and in reasonable detail if any inquiries or proposals relating
to an Acquisition Proposal are received by Elverson, unless it believes that
such notification could violate the Elverson Board of Directors' fiduciary
duties.
Notwithstanding the foregoing, (i) Elverson may furnish or cause to be
furnished confidential and non-public information concerning Elverson and its
businesses, properties or assets to a third party, (ii) Elverson may engage in
discussions or negotiations with a third party, (iii) following receipt of an
Acquisition Proposal, Elverson may take and disclose to its shareholders a
position with respect to such Acquisition Proposal, and/or (iv) following
receipt of an Acquisition Proposal, the Elverson Board of Directors may withdraw
or modify its recommendation of the Merger or terminate the Merger Agreement,
but in respect of the foregoing clause (iv) only to the extent that the Elverson
Board of Directors has concluded in good faith after consultation with its legal
and financial advisors that such Acquisition Proposal, if consummated pursuant
to its terms, would result in an alternative transaction that is more favorable
to Elverson's shareholders than the Merger.
"Acquisition Proposal" means: (i) any acquisition or purchase of a
significant amount of the assets of Elverson, or any equity interest in Elverson
or any take-over bid or tender offer (including an issuer bid or self-tender
offer) or exchange offer, consolidation, plan or arrangement, reorganization,
consolidation, business combination, sale of substantially all of the assets,
sale of securities, recapitalization, liquidation, dissolution or similar
transaction involving Elverson (other than the transactions contemplated by the
Merger Agreement), or (ii) any proposal, plan or intention to do any of the
foregoing either publicly announced or communicated to Elverson or any agreement
to engage in any of the foregoing.
Nasdaq Listing
The obligation of Elverson to effect the Merger is subject to the
condition that the NPB Common Stock continue to be authorized for quotation on
the National Market tier of the Nasdaq Stock Market.
Exchange of Elverson Stock Certificates
The conversion of Elverson Common Stock into NPB Common Stock will
occur automatically on the Effective Date. As soon as practicable after the
Effective Date, NP Bank, or a bank or trust company designated by NPB, in the
capacity of exchange agent (the "Exchange Agent"), will send a transmittal form
to each Elverson shareholder of record. The transmittal form will contain
instructions with respect to the surrender of certificates representing Elverson
Common Stock to be exchanged for certificates representing NPB Common Stock.
Certificates representing shares of NPB Common Stock and checks for cash in lieu
of fractional interests in shares of NPB Common Stock will be mailed to former
shareholders of Elverson as soon as reasonably possible following
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the receipt of certificates representing former shares of Elverson Common Stock
and other related documentation required by the Exchange Agent.
ELVERSON SHAREHOLDERS SHOULD NOT FORWARD ELVERSON STOCK CERTIFICATES TO
THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS. ELVERSON
SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing Elverson Common Stock are
surrendered for exchange after completion of the Merger, holders of such
certificates will not receive, and will not be paid dividends or distributions
on, the NPB Common Stock into which such shares have been converted. When such
certificates are surrendered, any unpaid dividends or other distributions will
be paid without interest. For all other purposes, however, each certificate
which represents shares of Elverson Common Stock outstanding at the Effective
Date (other than any dissenting shares) will be deemed to evidence ownership of
and the right to receive the shares of NPB Common Stock (and cash in lieu of
fractional shares) into which those shares have been converted by virtue of the
Merger. Neither NPB nor Elverson will be liable to any holder of shares of
Elverson Common Stock for any amount paid in good faith to a public official
pursuant to any applicable abandoned property, escheat or similar law.
All shares of NPB Common Stock issued upon conversion of shares of
Elverson Common Stock shall be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of Elverson Common Stock, subject,
however, to NPB's obligation to pay any dividends or make any other
distributions with a record date on or prior to the Effective Date, which may
have been declared or made by Elverson on such shares of Elverson Common Stock
in accordance with the Merger Agreement and which remain unpaid at the Effective
Date.
No fractional shares of NPB Common Stock will be issued to any
shareholder of Elverson upon completion of the Merger. For each fractional share
that would otherwise be issued, NPB will pay by check an amount equal to the
product obtained by multiplying the fractional share interest to which such
holder would otherwise be entitled by the NPB Market Value.
Regulatory Approvals
The Merger is subject to approval by the OCC under the federal Bank
Merger Act ("BMA"), which requires that the OCC take into consideration, among
other factors, the financial and managerial resources and future prospects of
the institutions and the convenience and needs of the communities to be served.
The BMA prohibits the OCC from approving the Merger: (a) if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States; or (b) if its effect in any section of the country may be substantially
to lessen competition or to tend to create a monopoly, or if it would in any
other manner be a restraint of trade, unless the OCC finds that the
anti-competitive effects of the Merger are clearly outweighed by the public
interest and the probable effect of the transaction in meeting the convenience
and needs of the communities to be served. The OCC has the authority to deny an
application if it concludes that the combined organization would have an
inadequate capital position or if the acquiring organization does not meet the
requirements of the Community Reinvestment Act of 1977. Under the BMA, the
Merger may not be consummated until the fifteenth day following the date of the
OCC approval, during which time the United States Department of Justice may
challenge the Merger on antitrust grounds. The commencement of an antitrust
action would stay the effectiveness of the OCC's approval unless a court
specifically orders otherwise. NP Bank and Elverson filed an application
pursuant to the BMA with the OCC on August 19, 1998. The OCC approved the Merger
on October 2, 1998. WHEN THE OCC GRANTED ITS APPROVAL: (i) IT ONLY REFLECTED THE
OCC'S VIEW THAT THE TRANSACTION DOES NOT CONTRAVENE APPLICABLE COMPETITIVE
STANDARDS IMPOSED BY LAW, SAFETY AND SOUNDNESS; (ii) IT IS NOT AN OPINION BY THE
OCC THAT THE PROPOSED TRANSACTION IS FAVORABLE TO THE SHAREHOLDERS FROM A
FINANCIAL POINT OF VIEW OR THAT THE OCC HAS CONSIDERED THE ADEQUACY OF THE TERMS
OF THE TRANSACTION; AND (iii) IT IS NOT AN ENDORSEMENT OR RECOMMENDATION BY THE
OCC OF THE MERGER.
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Elverson, NP Bank and NPB are not aware of any other governmental
approvals or actions that are required for consummation of the Merger, except as
described above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought. There would, however,
be no assurance that all such regulatory approvals would be obtained, and, if
the Merger were approved, there can be no assurance as to the date of any such
approval. There can also be no assurance that any such approvals would not
contain a condition or requirement which causes such approvals to fail to
satisfy the conditions set forth in the Merger Agreement. There can likewise be
no assurance that the U.S. Department of Justice or the Pennsylvania Attorney
General will not challenge the Merger, or if such a challenge is made, as to the
result thereof.
Management and Operations after the Merger
The Surviving Bank will establish a separate banking division called
"Elverson National Bank, A Division of National Penn Bank" (the "Elverson
Division"), which will consist of certain of Elverson's present branch offices
and certain of NP Bank's present branch offices. The Surviving Bank will also
establish the "Elverson Division Board of Directors" (the "Elverson Board") to
advise the Surviving Bank from time to time regarding sales, marketing and
expansion of the Elverson Division. The Elverson Board will consist of the
members of Elverson's Board of Directors at the Effective Date (the "Elverson
Continuing Directors"), one executive officer of NPB who will be selected by
NPB, and such other persons as the Elverson Board may select from time to time.
NPB has agreed to operate the Elverson Division and maintain the Elverson Board
in existence for at least five years after the Effective Date, except in certain
circumstances set forth in the Merger Agreement.
The directors and executive officers of NP Bank prior to the Merger
will continue, in their respective capacities, as directors and executive
officers of the Surviving Bank. In addition, two persons (each an "Elverson
Nominee") proposed by Elverson's Board of Directors and approved by NPB will
become directors of the Surviving Bank as of the Effective Date. NPB and the
Bank have agreed to take all steps necessary to ensure that each Elverson
Nominee (or any successor selected as described below) is re-elected to the
Surviving Bank's Board of Directors for each of the five years following the
Effective Date, if he is in office as a director of the Surviving Bank on the
annual election dates. If an Elverson Nominee (or any successor selected as
described in this sentence) resigns, dies or is otherwise removed from the
Surviving Bank's Board of Directors prior to the end of such five-year period,
the Elverson Continuing Directors will have the right to select a successor to
such Elverson Nominee, subject to the approval of NPB. The selection of the
Elverson Nominees has not been finalized pursuant to the Merger Agreement.
Upon completion of the Merger and subject to all applicable legal
requirements, NPB has agreed that its Board of Directors will appoint two
persons (each an "Elverson NPB Nominee") proposed by Elverson's Board of
Directors and approved by NPB to serve as directors of NPB effective as of the
Effective Date. One Elverson NPB Nominee will serve as a Class I Director with a
term expiring in April 2000, and the other Elverson NPB Nominee will serve as a
Class II Director with a term expiring in April 2001. NPB has also agreed to
cause each Elverson NPB Nominee (or any successor selected as described below)
to be re-nominated for at least one additional three-year term thereafter. If an
Elverson NPB Nominee (or any successor selected as described in this sentence)
resigns, dies or is otherwise removed from NPB's Board of Directors during his
term as a director, the Elverson Continuing Directors will have the right to
select a successor to such Elverson NPB Nominee, subject to the approval of NPB.
The selection of the Elverson NPB Nominees has not been finalized pursuant to
the Merger Agreement.
Employee Benefits and Severance
Upon completion of the Merger, NPB, NP Bank or another NPB subsidiary
will offer employment to each person who is then an employee of Elverson (an
"Elverson Employee") in accordance with the employment and severance policies
agreed to by NPB and Elverson in the Merger Agreement (the "Merger Employment
Policies").
Under the Merger Employment Policies, NPB is obligated to provide severance
benefits to each Elverson Employee (other than an Elverson Employee who is a
party to an employment, "change-in-control" or similar agreement) (i) who does
not accept employment with NPB (unless such Elverson Employee has rejected
offers of employment as described below) or (ii) whose employment with NPB is
terminated without "cause" (as described
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below) within one year after the Effective Date. Severance benefits will consist
of (i) one week's pay (at then current levels) for each year and each partial
year of service (but in no event less than eight week's pay), which will be paid
as salary continuation, (ii) a lump sum payment in respect of all unused
vacation time, which will be paid as soon as practicable after termination of
employment, and (iii) the continuation of all applicable welfare plan benefits
until the last day of the month in which the last week's salary continuation
payment is made. Notwithstanding the foregoing, unless previously terminated
without cause, no Elverson Employee shall be entitled to severance benefits
unless such employee continues in employment for 30 days following the actual
consolidation and conversion of the ENB operating system with and into NP Bank's
operating system.
NPB will not be obligated to pay severance benefits to (i) any Elverson
Employee whose pre-Merger employment position is maintained as it was
immediately prior to the Merger; (ii) any non-exempt Elverson Employee who
receives and rejects any two job offers of equal or higher salary grade at a
location within a 15-mile radius of such employee's home, or (iii) any exempt
Elverson Employee who receives and rejects a job offer of equal or higher salary
grade at a location within a 25-mile radius of such employee's home. However,
each full-time Elverson Employee who is employed in a non-community office or
non-lending staff position and who rejects a job offer described in this
paragraph or who elects to terminate employment with NPB within 365 days after
the Effective Date will be entitled to four weeks of severance benefits.
Any Elverson Employee whose employment with NPB is terminated by NPB
without cause (as described below) after one year after the Effective Date will
receive such severance benefits from NPB as are provided under NPB's general
severance policy for such terminations. Each such employee will be given full
credit for each year of service as an Elverson Employee.
For the purposes of NPB's severance obligations, "cause" will mean the
employer's good faith reasonable belief that the employee committed fraud, theft
or embezzlement, falsified corporate records, disseminated confidential
information concerning customers or NPB, NP Bank or any of their employees, had
documented unsatisfactory job performance under NPB's or NP Bank's dismissal
policy, or violated NPB's or NP Bank's code of conduct.
The Merger Agreement also obligated NPB to provide employee benefits to
each Elverson Employee who becomes an employee of NPB or any of NPB's
subsidiaries. As of the Effective Date, each Elverson Employee who becomes an
employee of NPB or of any of NPB's subsidiaries will be entitled to full credit
for each year of service with Elverson for purposes of determining eligibility
for participation and vesting, but not benefit accrual, in NPB's employee
benefit plans, programs and policies. The employee benefits provided to former
Elverson Employees after the Effective Date will be substantially similar to the
employee benefits, in the aggregate, provided by NPB or its subsidiary to its
similarly situated employees. The NPB medical, dental and life insurance plans,
programs or policies, if any, that become applicable to former Elverson
Employees will not contain any exclusion or limitation with respect to any
pre-existing condition of any such employees or their dependents. Subject to the
foregoing, after the Effective Date, NPB may discontinue, amend or convert to an
NPB plan any particular benefit or welfare plan of Elverson, subject to such
plan's provisions and applicable law.
The Merger Agreement also makes provision for the Elverson 401(k)
Profit Sharing Plan (the "401(k) Plan"), the Elverson Management Incentive Plan
(the "MIP"), the Elverson Employee Stock Ownership Plan (the "ESOP"), and
Elverson's deferred compensation arrangements. As of the Effective Date, the
account balances of employees under the 401(k) Plan will become 100 percent
vested and will be merged with and into NPB's Capital Accumulation Plan. The
ESOP will be terminated and, pursuant to applicable law, all accounts will
become 100 percent vested and will be merged with and into NPB's Capital
Accumulation Plan. If the Merger occurs prior to December 31, 1998, the annual
portion of the MIP will be continued through December 31, 1998. If the Merger
occurs after December 31, 1998, the MIP may be continued or discontinued as
determined by the NPB Board of Directors. In any event, the Elverson Board of
Directors will determine in good faith, with the consent of NPB, the appropriate
level of payouts to be made under the MIP for 1998. In making its determination,
the Elverson Board of Directors will disregard any extraordinary expenses or
charges related to the Merger that would otherwise cause a reduction in payouts
under the MIP. The calculations determining the amounts to be included in the
ESOP, MIP and profit sharing plans for 1998 will be done prior to making any
deductions for reserves to be created or expenses incurred in connection with
the Merger.
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On the Effective Date or on January 1, 1999 if the Effective Date is
prior to January 1, 1999, deferred compensation arrangements will be terminated,
and subject to any applicable income tax withholding requirements, all deferred
compensation account balances shall be paid out in cash to plan participants.
Interests of Certain Persons in the Merger
Share Ownership
As of the Record Date, the directors and executive officers of Elverson
may be deemed to be the beneficial owners of 612,705 shares of Elverson Common
Stock, or 23.58% of the then outstanding shares of Elverson Common Stock.
As of the Record Date, the directors and executive officers of Elverson
may be deemed to be beneficial owners of ____ shares of NPB Common Stock, or
_____% of the then outstanding shares of NPB Common Stock.
As of the Record Date, the directors and executive officers of NPB are
not the beneficial owners of any shares of Elverson Common Stock.
As of the Record Date, the directors and executive officers of NPB may
be deemed to be beneficial owners of 441,937 shares of NPB Common Stock, or
3.35% of the then outstanding shares of NPB Common Stock.
Indemnification and Insurance
The Merger Agreement provides that NPB shall indemnify, defend, and
hold harmless the directors, officers, employees and agents of Elverson (each,
an "Indemnified Party") against all losses, expenses (including reasonable
attorneys' fees), claims, damages or liabilities and amounts paid in settlement
arising out of actions or omissions or alleged acts or omissions ("Prior Acts")
occurring at or prior to the Effective Date (including the transactions
contemplated by the Merger Agreement) to the fullest extent permitted under the
Pennsylvania Business Corporation Law ("PBCL"), including provisions relating to
advances of expenses incurred in the defense of any proceeding, provided however
that the person to whom the expenses are advanced provides any undertaking
required by the PBCL.
The Merger Agreement further provides that for a period of at least six
years from the Effective Date, NPB shall use its reasonable best efforts, at no
expense to the beneficiaries, to maintain directors' and officers' liability
insurance for the Indemnified Parties with respect to matters occurring at or
prior to the Effective Date, or to obtain coverage for Prior Acts for the
Indemnified Parties under the directors' and officers' liability insurance
policies currently maintained by NPB, in either case, providing at least the
same coverage as currently maintained by Elverson and containing terms and
conditions which are no less favorable to the beneficiaries; provided, however,
that in no event shall NPB be obligated to make premium payments which exceed
(for the portion related to Elverson's directors and officers) 150% of the
annual premium payments of Elverson's policy in effect as of July 21, 1998.
Board Representation
The Merger Agreement provides that upon consummation of the Merger and
subject to compliance with all applicable legal requirements, NPB has agreed
that its Board of Directors will appoint two persons proposed by Elverson's
Board of Directors and approved by NPB effective the Effective Date. One will
serve as a Class I director with a term through April 2000 and the other will
serve as a Class II director with a term through April 2001 and each will be
re-nominated for at least one full three-year term thereafter (each, an
"Elverson NPB Nominee"). In the event that any Elverson NPB Nominee, or any
successor, resigns, dies or is otherwise removed from NPB's Board of Directors
prior to the end of such person's full three-year term, the Elverson Continuing
Directors, by a plurality vote, shall have the right to select such person's
successor, subject to NPB's approval and NPB shall take all reasonable steps
necessary to elect such successor to the NPB Board of Directors. The selection
of the Elverson NPB Nominees has not been finalized pursuant to the Merger
Agreement.
In addition to the foregoing, as of the Effective Date, two persons
(each an "Elverson Nominee") proposed by Elverson's Board of Directors and
approved by NPB will become directors of the Surviving Bank. NPB and NP Bank
have agreed to take all steps necessary to ensure that the Elverson Nominees, or
their successors, are reelected to the
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Surviving Bank's Board of Directors for each of the five years following the
Effective Date if such persons are in office as directors of NPB on the annual
election dates. If an Elverson Nominee or any successor resigns, dies or is
otherwise removed from the Surviving Bank's Board of Directors prior to the end
of such five year period, the Elverson Continuing Directors, by a plurality
vote, will have the right to select a successor, subject to approval of NPB. The
selection of the Elverson Nominees has not been finalized pursuant to the Merger
Agreement.
Upon consummation of the Merger and subject to compliance with all
applicable legal requirements, the Surviving Bank will establish and operate the
Elverson Division. The Elverson Division will consist of certain Elverson branch
offices and certain of NP Bank's present branch offices. The Surviving Bank will
also establish the Elverson Board to advise the Surviving Bank's Board of
Directors from time to time regarding sales, marketing and expansion of the
Elverson Division. The Elverson Board will consist of the members of Elverson's
Board of Directors at the Effective Date, an NPB executive officer selected by
NPB and such other persons as the Elverson Board may select from time to time.
Elverson's non-employee directors as of July 21, 1998 who become members of the
Elverson Board will receive annual director compensation equal to the annual
director compensation received by them as of July 21, 1998. NPB has agreed to
operate the Elverson Division and maintain the Elverson Board in existence for
at least five years after the Effective Date, except as otherwise provided in
the Merger Agreement.
Management Incentive Plan
If the Merger occurs prior to December 31, 1998, the annual portion of
the MIP shall be continued through December 31, 1998. If the Merger occurs after
December 31, 1998, the MIP may be continued or discontinued as determined by the
NPB Board of Directors. In any event, the Elverson Board of Directors shall
determine in good faith, with the consent of NPB, the appropriate level of
payouts to be made under the MIP for 1998. In making its determination, the
Elverson Board of Directors will disregard any extraordinary expenses or charges
related to the Merger that would otherwise cause a reduction in payouts under
the MIP.
Stock Options
As a result of the Merger Agreement and as provided in the ENB 1996
Stock Incentive Plan, all options issued and outstanding have become 100 percent
vested and immediately exercisable. See "The Merger--Interests of Certain
Persons in the Merger--Employee Benefits."
The number of options held by the executive officers of Elverson that
became 100 percent vested and exercisable as a result of the Merger Agreement
are set forth below.
Name Title Vested
Glenn E. Moyer President and Chief 11,760
Executive Officer
Sandra L. Hoffman Senior Vice President and 4,935
Chief Operating Officer
Charles A. Bender Senior Vice President and 1,260
Commercial Loan Officer
Paul W. McEwen Senior Vice President, Loan 2,625
Officer and Cashier
Glenn B. Marshall Senior Vice President and 2,485
Commercial Loan Officer
Hugh L. Marshall, III Chief Credit Policy Officer 1,960
Julie A. Kissinger Bank Controller 525
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All options to purchase Elverson Common Stock issued by Elverson and
outstanding on the Effective Date will be converted into an option to purchase
NPB Common Stock. The conversion will be based upon the number of shares of NPB
Common Stock which the optionholder would have been entitled to receive in the
Merger if such option was exercised immediately prior to the Effective Date at
an exercise price per share of NPB Common Stock equal to the per share exercise
price of the option to purchase Elverson Common Stock divided by the Exchange
Ratio.
Continued Employment
Upon consummation of the Merger, NPB shall offer employment to each
person who is then an Elverson Employee in accordance with the Merger Employment
Policies generally described below. See "The Merger--Employee Benefits and
Severance."
Under the Merger Employment Policies, NPB is obligated to provide
severance benefits to each Elverson Employee (other than an Elverson Employee
who is a party to an employment, "change-in-control" or similar agreement) (i)
who does not accept employment with NPB (unless such Elverson Employee has
rejected certain offers of employment) or (ii) whose employment with NPB is
terminated without cause within one year after the Effective Date. Severance
benefits will consist of (i) one week's pay (at then current levels) for each
year and each partial year of service (but in no event less than eight week's
pay), which will be paid as salary continuation, (ii) a lump sum payment in
respect of all unused vacation time, which will be paid as soon as practicable
after termination of employment, and (iii) the continuation of all applicable
welfare plan benefits until the last day of the month in which the last week's
salary continuation payment is made.
Glenn E. Moyer, President and CEO of Elverson, will become President of
the Elverson Division and President of the Berks County and Montgomery County
regions of NP Bank. Mr. Moyer will also become an Executive Vice President of NP
Bank, with additional corporate responsibilities. See "Information With Respect
to NPB and NP Bank."
Employee Benefits
As of the Effective Date, the account balances of employees under the
401(k) Plan will become 100 percent vested and will be merged with and into
NPB's Capital Accumulation Plan. The ESOP will be terminated and, pursuant to
applicable law, all accounts will become 100 percent vested and will be merged
with and into NPB's Capital Accumulation Plan. In addition, consummation of the
Merger will cause the termination of Elverson's deferred compensation
arrangement and the distribution of all compensation previously deferred under
such arrangement. See "The Merger--Employee Benefits and Severance."
The Elverson Employees who become employees of NPB shall be entitled to
full credit for each year of service with ENB for purposes of determining
eligibility and vesting in NPB's employee benefit plans. See "The
Merger--Interest of Certain Persons in The Merger--Continued Employment."
Certain Relationships with NPB and NP Bank
John A. Koury, Jr., a member of the Elverson Board of Directors,
presently owns a fifty percent interest in OK Ventures III, a partnership doing
business as Sunset Drive Office Plaza. On December 4, 1997, Sunset Drive Office
Plaza leased certain office space located at 1503 Sunset Drive, Pottstown,
Pennsylvania, to NP Bank. The lease provides for an initial term of five years
and rental payments in the amount of $69,700 annually. The lease includes one
(1) five (5) year renewal option with rental adjustments based upon changes in
the consumer price index and a right of first refusal. Effective October 1,
1998, NP Bank exercised its right of first refusal for additional space at
Sunset Drive Office Plaza for the same rented rate as the original lease for an
initial term of five years (the "Additional Lease"). The Additional Lease
includes rental payments in the amount of $26,112 annually and includes one (1)
five (5) year renewal option with rental adjustments based upon changes in the
consumer price index.
NP Bank presently has private banking relationships with certain
Elverson directors and officers. NP Bank has extended a home equity line of
credit ("Line of Credit") in the amount of $75,000 to Glenn E. Moyer, President
and Chief Executive Officer of Elverson, and E. Jane Moyer, Mr. Moyer's wife.
The Line of Credit is secured by a second lien on the Moyers' personal
residence. NP Bank has extended a loan of $811,000 to Boyd C. Davis, Jr., a
director of Elverson, which loan is secured by a pledge of 69,056 shares of
Elverson Common Stock.
Accounting Treatment
The Merger is intended to qualify as a pooling of interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of NP Bank and Elverson will be carried
forward to the Surviving Bank at their recorded amounts; income of the Surviving
Bank will include income of both NP Bank and Elverson for the entire fiscal year
of NPB in which the Merger occurs; and the reported income of NP Bank and
Elverson for prior periods will be combined and restated as income of the
Surviving Bank. Expenses
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incurred in connection with the Merger will be expensed in the period that
shareholder and regulatory approval related to the Merger are received.
It is a condition to completion of the Merger that NPB and Elverson
each receive an opinion from its respective independent certified public
accountants confirming that the Merger will qualify as a pooling of interests
for financial accounting purposes. As of the date of this Proxy
Statement/Prospectus, neither NPB nor Elverson has any reason to believe that
their respective independent certified public accountants will be unable to
deliver an opinion that the Merger will qualify as a pooling of interests for
financial accounting purposes.
Certain Federal Income Tax Consequences
The following is a description of the principal anticipated material
federal income tax consequences of the Merger to NP Bank, Elverson, NPB and the
holders of Elverson Common Stock. The description is based on the Internal
Revenue Code of 1986, as amended (the "Code"), its legislative history, existing
and proposed regulations thereunder, judicial decisions and published rulings
and other administrative interpretations issued by the Internal Revenue Service
("IRS"), as currently in effect, all of which are subject to change, possibly
with retroactive effect. The discussion does not address all aspects of federal
income tax that may be relevant to particular holders of Elverson Common Stock.
Thus, for example, the discussion may not apply to individuals who are not
citizens or residents of the United States for federal income tax purposes or to
corporations not organized under the laws of the United States or its political
subdivisions. The discussion does not address any federal estate tax or state,
local or foreign tax considerations arising in connection with the Merger. EACH
HOLDER OF ELVERSON COMMON STOCK IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO ANY PARTICULAR FACTS AND CIRCUMSTANCES THAT MAY BE UNIQUE TO HIM
OR HER, AS WELL AS TO ANY ESTATE, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES
ARISING OUT OF THE MERGER AND/OR ANY SALE THEREAFTER OF SHARES OF NPB COMMON
STOCK RECEIVED IN THE MERGER.
The obligation of each of Elverson and NPB to consummate the Merger is
conditioned upon the receipt of an opinion from its special counsel (Dechert
Price & Rhoads and Ellsworth, Wiles, Carlton & Waldman, P.C., respectively) or
from its independent certified public accountants (Beard & Company, Inc. and
Grant Thornton LLP, respectively) to the effect that the Merger constitutes a
reorganization under Section 368(a) of the Code for federal income tax purposes
and that the holders of Elverson Common Stock will recognize no gain or loss in
connection with the Merger, except to the extent that cash is received in lieu
of a fractional share of NPB Common Stock. No ruling will be obtained from the
IRS with respect to the federal income tax consequences of the Merger, and the
opinions described above are not binding on the IRS or any court.
Assuming the Merger constitutes a tax-free reorganization under Section
368(a) for federal income tax purposes:
1. Neither NP Bank, NPB nor Elverson will recognize gain or loss in
connection with the Merger;
2. Holders of Elverson Common Stock will recognize no gain or loss in
connection with the Merger, except to the extent that cash is received in lieu
of a fractional share of NPB Common Stock;
3. A person's holding period for shares of NPB Common Stock received in the
Merger will include that person's holding period for shares of Elverson Common
Stock surrendered in the Merger, provided the shares of Elverson Common Stock
are held as capital assets;
4. The tax basis of shares of NPB Common Stock received in the Merger will
be equal to the tax basis of shares of Elverson Common Stock surrendered, less
any basis that would be allocable to a fractional share of NPB Common Stock for
which cash is received;
5. Cash received in lieu of a fractional share of NPB Common Stock will be
treated as received in redemption of a fractional share of NPB Common Stock, and
gain or loss will be recognized in connection with that deemed redemption
subject to the provisions of Section 302 of the Code; and
6. Cash received by a holder of Elverson Common Stock who has perfected
dissenters' rights as to his or her shares of Elverson Common Stock will be
treated as a distribution in redemption of such shares, subject to the
provisions and limitations of Section 302 of the Code.
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Resale of NPB Common Stock
The shares of NPB Common Stock issued pursuant to the Merger will be
freely transferable under the Securities Act except for shares issued to any
Elverson shareholder who may be deemed to be an "affiliate" of Elverson for
purposes of Rule 145 under the Securities Act or an "affiliate" of NPB for
purposes of Rule 144 under the Securities Act (each an "Affiliate"). Affiliates
will include persons (generally executive officers, directors and 10% or more
shareholders) who control, are controlled by, or are under common control with,
(i) NPB or Elverson at the time of the Elverson Meeting or the NPB Meeting, or
(ii) NPB at or after the Effective Date.
Rules 144 and 145 will restrict the sale of shares of NPB Common Stock
received in the Merger by Affiliates and certain of their family members and
related interests. Generally, during the year following the Effective Date,
those persons who are Affiliates of Elverson at the time of the Elverson
Meeting, provided they are not Affiliates of NPB at or following the Effective
Date, may publicly resell any shares of NPB Common Stock received by them in the
Merger, subject to certain limitations as to, among other things, the amount of
NPB Common Stock sold by them in any three-month period and as to the manner of
sale. After the one-year period, such Affiliates may resell their shares without
such restrictions so long as there is adequate current public information with
respect to NPB as required by Rule 144. Persons who are Affiliates of NPB after
the Effective Date may publicly resell the shares of NPB Common Stock received
by them in the Merger subject to similar limitations and subject to certain
filing requirements specified in Rule 144.
The ability of Affiliates to resell shares of NPB Common Stock received
in the Merger under Rule 144 or Rule 145 as summarized herein generally will be
subject to NPB's having satisfied its public reporting requirements under the
Securities Exchange Act of 1934 for specified periods prior to the time of sale.
Affiliates also would be permitted to resell shares of NPB Common Stock received
in the Merger pursuant to an effective registration statement under the
Securities Act or another available exemption from the Securities Act
regulations requirements. This Proxy Statement/Prospectus does not cover any
resales of shares of NPB Common Stock received by persons who may be deemed to
be Affiliates of NPB or Elverson.
Each director of Elverson and NPB has entered into an agreement with
NPB and Elverson, respectively, providing that, as an Affiliate, he or she will
not transfer any shares of NPB Common Stock received in the Merger except in
compliance with the Securities Act and will make no dispositions of any shares
of NPB Common Stock or shares of Elverson Common Stock (or any interest therein)
during the period commencing 30 days prior to the Effective Date through the
date on which financial results covering at least 30 days of combined operations
of NPB and Elverson after the Merger have been made public. NPB has agreed to
use its reasonable best efforts to publish such combined financial results no
more than 20 days after the end of the first month after the Effective Date in
which there are at least 30 days of post-Merger combined operations.
Appraisal Rights of Dissenting Shareholders
Under Section 215a(b) of Title 12 of the United States Code ("Section
215a(b)"), any holder of shares of Elverson Common Stock who does not wish to
accept the consideration pursuant to the Merger has the right to seek an
appraisal and be paid the "value" in cash of such holder's Elverson Common Stock
on the Effective Date, provided that such holder complies with the provisions of
Section 215a(b).
The following is a summary of the material statutory procedures to be
followed by a holder of Elverson Common Stock in order to dissent from the
Merger and perfect appraisal rights under Section 215a(b). This summary
discusses all material provisions of Section 215a(b) but is not intended to be
complete and is qualified in its entirety by reference to Section 215a(b), the
text of which is set forth in Annex D hereto. Any shareholder considering
demanding appraisal is advised to consult legal counsel because the failure to
precisely follow all the necessary legal requirements may result in the loss of
such appraisal rights.
Holders of record of Elverson Common Stock who desire to exercise their
appraisal rights must fully satisfy all of the following conditions. Each holder
must either: (a) vote against the Merger Agreement at the Elverson Meeting; or
(b) give notice in writing at, or prior to, the Elverson Meeting that such
holder dissents from the Merger, to Elverson National Bank, 83 West Main Street,
Elverson, Pennsylvania 19520-9403, Attention: John A. Koury, Jr., Secretary.
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Voting in favor of the ratification, confirmation and approval of the
Merger Agreement, or abstaining from the vote on the ratification, confirmation
and approval of the Merger Agreement without providing the written notice
referred to above, will constitute a waiver of the shareholder's right of
appraisal and will nullify any written demand for appraisal submitted by the
shareholder.
This right is further conditioned upon written request of appraisal
being made to NPB, addressed to National Penn Bancshares, Inc., Reading and
Philadelphia Avenues, Boyertown, Pennsylvania 19512, Attention: Sandra L. Spayd,
Secretary, at any time within 30 days after the date of consummation of the
Merger. Such written request must be accompanied by the surrender of the
dissenting shareholder's Elverson stock certificates.
Under Section 215a(b), the value of the shares of dissenting
shareholders who give the required notice is intended to be ascertained as of
the Effective Date by an appraisal made by a committee of three persons,
composed of: (i) one person selected by the vote of the holders of the majority
of the shares of Elverson Common Stock, the owners of which are entitled to
payment in cash; (ii) one person selected by the Board of Directors of NPB; and
(iii) one person selected by the two so selected. The valuation agreed upon by
any two of the three appraisers will govern. If the value so fixed is not
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
such holder's shares, appeal to the OCC, which will cause a reappraisal to be
made, and such reappraisal will be final and binding as to the value of such
shares.
If, within 90 days from the date of consummation of the Merger, one or
more of the appraisers is for any reason not selected as provided above, or the
appraisers fail to determine the value of such shares, the OCC is obligated,
upon written request of any interested party, to cause an appraisal to be made,
and such appraisal will be final and binding on all parties. The costs and
expenses of any such appraisal are required to be determined by the committee
and shall be assessed against NPB. Unless NPB or the dissenting shareholders
seek judicial review of the appraisal, the appraised value of the shares must be
promptly paid to the dissenting shareholders by NPB out of the funds deposited
in an escrow account established therefor.
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS ANNEX E IS A BULLETIN
ISSUED BY THE OCC WITH RESPECT TO THE METHODS AND RESULTS OF OCC APPRAISALS.
HOLDERS OF ELVERSON COMMON STOCK SHOULD CAREFULLY CONSIDER ANNEX E AND SHOULD
CONSULT WITH THEIR LEGAL COUNSEL REGARDING THEIR RIGHT TO DISSENT FROM THE
MERGER AND TO RECEIVE THE APPRAISED VALUE OF THEIR SHARES OF ELVERSON COMMON
STOCK. FAILURE TO FOLLOW PRECISELY ANY STEP REQUIRED BY SECTION 215A(B) IN
CONNECTION WITH THE EXERCISE OF APPRAISAL RIGHTS MAY RESULT IN TERMINATION OF
SUCH RIGHTS.
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CERTAIN REGULATORY CONSIDERATIONS
AS A BANK HOLDING COMPANY, NPB IS SUBJECT TO REGULATION UNDER THE BANK
HOLDING COMPANY ACT OF 1956, AS AMENDED ("BHCA"), AND TO ITS EXAMINATION AND
REPORTING REQUIREMENTS. THE FOLLOWING DISCUSSION SETS FORTH CERTAIN OF THE
MATERIAL ELEMENTS OF THE REGULATORY FRAMEWORK APPLICABLE TO BANK HOLDING
COMPANIES AND THEIR SUBSIDIARIES AND PROVIDES CERTAIN SPECIFIC INFORMATION
RELEVANT TO NPB. TO THE EXTENT THAT THE FOLLOWING INFORMATION DESCRIBES
STATUTORY AND REGULATORY PROVISIONS, IT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE APPLICABLE STATUTORY AND REGULATORY PROVISIONS. A CHANGE IN
APPLICABLE STATUTES, REGULATIONS OR REGULATORY POLICY MAY HAVE A MATERIAL EFFECT
ON THE BUSINESS OF NPB.
General
As a bank holding company, NPB is subject to regulation under the BHCA
and to its examination and reporting requirements. Under the BHCA, bank holding
companies may not directly or indirectly acquire the ownership or control of
more than five percent of the voting shares or substantially all of the assets
of any company, including a bank, without the prior approval of, or a waiver of
the requirement for such approval by, the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). In addition, bank holding
companies are generally prohibited under the BHCA from engaging in nonbanking
activities, subject to certain exceptions.
The earnings of NPB are affected by the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve Board,
the OCC and the FDIC. In addition, there are numerous governmental requirements
and regulations which affect the activities of NPB.
Payment of Dividends
NPB is a legal entity separate and distinct from its banking and other
subsidiaries. A major portion of NPB's revenues result from amounts paid as
dividends to NPB by its subsidiary, NP Bank. The prior approval of the OCC is
required for the payment of any dividend by a national bank if the total of all
dividends declared by the board of directors of such bank in any calendar year
will exceed the sum of such bank's net profits for that year and its retained
net profits for the preceding two calendar years, less any required transfers to
surplus. Federal law also prohibits any national bank from paying dividends
which would be greater than such bank's undivided profits after deducting
statutory bad debt in excess of such bank's allowance for loan losses.
Under the foregoing dividend restrictions, as of June 30, 1998, NPB's
subsidiaries, without obtaining affirmative governmental approvals, could pay
aggregate dividends of $45,868,000 to NPB. In the first six months of 1998,
NPB's subsidiaries paid $12,816,000 in cash dividends to NPB.
In addition, NPB and NP Bank are subject to various general regulatory
policies and requirements relating to the payment of dividends, including
requirements to maintain adequate capital above regulatory minimums. The
appropriate federal regulatory authority is authorized to determine, under
certain circumstances relating to the financial condition of a national bank or
bank holding company, that the payment of dividends would be an unsafe or
unsound practice and to prohibit payment thereof. The OCC (the appropriate
agency with respect to NP Bank) has indicated that paying dividends that deplete
a bank's capital base to an inadequate level would be an unsound and unsafe
banking practice. The OCC and the Federal Reserve Board have each indicated that
banking organizations should generally pay dividends only out of current
operating earnings.
Borrowings; Etc.
There are also various legal restrictions on the extent to which each
of NPB and its nonbank subsidiaries can borrow or otherwise obtain credit from
NP Bank. In general, these restrictions require that any such extensions of
credit must be secured by designated amounts of specified collateral and are
limited, as to any one of NPB or such
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nonbank subsidiaries, to ten percent of NP Bank's capital stock and surplus, and
as to NPB and all such nonbank subsidiaries in the aggregate, to 20 percent of
NP Bank's capital stock and surplus.
Under the NBA, if the capital stock of a national bank is impaired by
losses or otherwise, the OCC is authorized to require payment of the deficiency
by assessment upon the bank's stockholders, pro rata and, to the extent
necessary, if any such assessment is not paid by any stockholder after three
months notice, to sell the stock of such stockholder to make good the
deficiency.
Under Federal Reserve Board policy, NPB is expected to act as a source
of financial strength to NP Bank and to commit resources to support NP Bank.
This support may be required at times when, absent such Federal Reserve Board
policy, NPB may not find itself willing or able to provide it.
Any capital loans by a bank holding company to a subsidiary bank are
subordinate in right of payment to deposits and to certain other indebtedness of
such subsidiary bank. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
Capital Adequacy
The Federal Reserve Board and the OCC have adopted substantially
similar risk-based and leverage capital guidelines for United States banking
organizations. Under these risked-based capital standards, the minimum
consolidated ratio of total capital to risk-weighted assets (including certain
off-balance sheet activities, such as standby letters of credit) is eight
percent. At least half of the total capital is to be composed of common
stockholder's equity, retained earnings, a limited amount of qualifying
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill and certain intangibles ("tier 1
capital" and, together with tier 2 capital, "total capital"). The remainder of
total capital may consist of mandatory convertible debt securities and a limited
amount of subordinated debt, qualifying preferred stock and loan loss allowance
("tier 2 capital"). At June 30, 1998, NPB's tier 1 and total capital ratios were
12.43 percent and 13.83 percent, respectively. On an NPB and Elverson combined
basis, such ratios at June 30, 1998, would have been 12.90 percent and 14.18
percent, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum leverage ratio of tier 1 capital to adjusted average quarterly assets
less certain amounts ("leverage ratio") equal to three percent for bank holding
companies that meet certain specified criteria, including having the highest
regulatory rating. All other bank holding companies will generally be required
to maintain a leverage ratio of from at least four to five percent. NPB's
leverage ratio at June 30, 1998, was 9.56 percent. On an NPB and Elverson
combined basis, such ratio at June 30, 1998, would have been 9.49 percent. The
guidelines also provide that bank holding companies experiencing internal growth
or making acquisitions will be expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the guidelines indicate that the Federal
Reserve Board will continue to consider a "tangible tier 1 leverage ratio"
(deducting all intangibles) in evaluating proposals for expansion or new
activity. The Federal Reserve Board has not advised NPB of any specific minimum
leverage ratio or tangible tier 1 leverage ratio applicable to it.
NP Bank is subject to similar capital requirements adopted by the OCC.
NP Bank had tier 1 and total capital ratios of 8.84 percent and 10.11 percent,
respectively, and a leverage ratio of 6.47 percent, as of June 30, 1998. The OCC
has not advised NP Bank of any specific minimum leverage ratio applicable to it.
Prompt Corrective Action
The Federal Deposit Insurance Act ("FDIA"), among other things,
requires the federal banking agencies to take "prompt corrective action" in
respect of depository institutions that do not meet minimum capital
requirements. The FDIA establishes five capital tiers: "well capitalized";
"adequately capitalized"; "undercapitalized"; "significantly undercapitalized";
and "critically undercapitalized". A depository institution's capital tier will
depend upon how its capital levels compare to various relevant capital measures
and certain other factors, as established by regulation.
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The federal bank regulatory agencies have adopted regulations
establishing relevant capital measures and relevant capital levels applicable to
FDIC-insured banks. The relevant capital measures are the total capital ratio,
tier 1 capital ratio and the leverage ratio. Under the regulations, a
FDIC-insured bank will be (i) "well capitalized" if it has a total capital ratio
of ten percent or greater, a tier 1 capital ratio of six percent or greater and
a leverage ratio of five percent or greater and is not subject to any order or
written directive by the OCC to meet and maintain a specific capital level for
any capital measure; (ii) "adequately capitalized" if it has a total capital
ratio of eight percent or greater, a tier 1 capital ratio of four percent or
greater and a leverage ratio of four percent or greater (three percent in
certain circumstances) and is not "well capitalized"; (iii) "undercapitalized"
if it has a total capital ratio of less than eight percent, a tier 1 capital
ratio of less than four percent or a leverage ratio of less than four percent
(three percent in certain circumstances); (iv) "significantly undercapitalized"
if it has a total capital ratio of less than six percent, a tier 1 capital ratio
of less than three percent or a leverage ratio of less than three percent; and
(v) "critically undercapitalized" if its tangible equity is equal to or less
than two percent of average quarterly tangible assets. An institution may be
downgraded to, or deemed to be in, a capital category that is lower than is
indicated by its capital ratios if it is determined to be in an unsafe or
unsound condition or if it receives an unsatisfactory examination rating with
respect to certain matters. As of June 30, 1998, Elverson, NPB and NP Bank each
had capital levels that qualify it as being "well capitalized" under such
regulations.
The FDIA generally prohibits a FDIC-insured depository institution from
making any capital distribution (including payment of a dividend) or paying any
management fee to its holding company if the depository institution would
thereafter be "undercapitalized". "Undercapitalized" depository institutions are
subject to growth limitations and are required to submit a capital restoration
plan. The federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of: (i) an amount equal to five percent
of the depository institution's total assets at the time it became
"undercapitalized"; and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized".
"Significantly undercapitalized" insured depository institutions may be
subject to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become "adequately capitalized", requirements to
reduce total assets, and cessation of receipt of deposits from correspondent
banks. "Critically undercapitalized" institutions are subject to the appointment
of a receiver or conservator. A bank that is not "well capitalized" is subject
to certain limitations relating to so-called "brokered" deposits.
Depositor Preference Statute
Under federal law, deposits and certain claims for administrative
expenses and employee compensation against an insured depository institution
would be afforded a priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, in the "liquidation
or other resolution" of such an institution by any receiver.
FDIC Insurance Assessments; DIFA
Effective January 1, 1996, the FDIC reduced the insurance premiums it
currently charges on bank deposits insured by the Bank Insurance Fund ("BIF") to
the statutory minimum of $2,000 for "well capitalized" banks. The Deposit
Insurance Funds Act of 1996, which was enacted on September 30, 1996 ("DIFA"),
reduced the amount of semi-annual FDIC insurance premiums for savings
association deposits acquired by banks and insured by SAIF to the same levels
assessed for deposits insured by BIF. DIFA further provides for assessments to
be imposed on insured depository institutions with respect to deposits insured
by the BIF, and continues the assessments currently imposed on depository
institutions with respect to SAIF-insured deposits, to pay for the cost of
Financing Corporation funding.
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INFORMATION WITH RESPECT TO NPB AND NP BANK
Financial and other information relating to NPB, including information
relating to NPB's directors and executive officers, is set forth in NPB's 1997
Annual Report on Form 10-K (which incorporated certain portions of NPB's proxy
statement for its 1998 annual meeting of shareholders), NPB's 1998 Quarterly
Reports on Form 10-Q and NPB's 1998 Current Reports on Form 8-K, which are
incorporated by reference herein, copies of which may be obtained from NPB as
indicated under "Available Information". See "Incorporation of Documents by
Reference".
It is expected that, at the Effective Date, Glenn E. Moyer, President
and Chief Executive Officer and a director of Elverson, will become President of
the Elverson National Bank Division, President of the Berks County and
Montgomery County regions and an Executive Vice President of NP Bank. As such,
Mr. Moyer may be deemed to be an executive officer of NPB. Mr. Moyer has served
as President, Chief Executive Officer and a director of Elverson since March 1,
1995; prior thereto, he served as President, Berks/Schuylkill Division of
Meridian Bank from 1988 to March 1, 1995. During 1997, Elverson paid Mr. Moyer a
salary of $182,600. Mr. Moyer is 47 years old.
NPB and Mr. Moyer have not finalized certain details of Mr. Moyer's
employment but anticipate that his total compensation, including salary, bonus,
benefits and stock options, will be at a level commensurate with that afforded
other executives at NPB and NP Bank in similar executive positions. In addition,
NPB and Mr. Moyer anticipate entering into a change of control agreement
containing provisions similar to those currently in force between NPB and other
executive officers.
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DESCRIPTION OF NPB CAPITAL SECURITIES
The authorized capital stock of NPB consists of 62,500,000 shares of
common stock, no par value ("NPB Common Stock"), and 1,000,000 shares of
authorized preferred stock ("NPB Preferred Stock"). As of _______________, 1998,
there were __________ shares of NPB Common Stock issued and outstanding, no
shares held by NPB as treasury stock, and no shares of NPB Preferred Stock
issued or outstanding. There are no other shares of capital stock of NPB
authorized, issued or outstanding. NPB has no options, warrants or other rights
authorized, issued or outstanding other than as described herein under
"Shareholder Rights Plan" and options and rights granted under NPB's stock
compensation and dividend reinvestment plans.
Common Stock
The holders of NPB Common Stock are entitled to share ratably in
dividends when and if declared by NPB's Board of Directors from funds legally
available therefor. Declaration and payment of cash dividends by NPB depends
upon dividend payments by NP Bank, which are NPB's primary source of revenue and
cash flow. NPB is a legal entity separate and distinct from its subsidiaries.
Accordingly, the right of NPB, and consequently the right of creditors and
shareholders of NPB, to participate in any distribution of the assets or
earnings of any subsidiary is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of NPB in its
capacity as a creditor may be recognized.
For legal limitations on the ability of NP Bank to pay dividends to
NPB, see "Certain Regulatory Considerations--Payment of Dividends" and see NPB's
Annual Report on Form 10-K for the year ended December 31, 1997, which is
incorporated herein by reference. See "Incorporation of Documents by Reference"
and "Available Information."
Prior to the issuance of any NPB Preferred Stock which possesses voting
rights (see "Preferred Stock" below), the holders of shares of NPB Common Stock
possess exclusive voting rights. Each holder of shares of NPB Common Stock is
entitled to one vote for each share held on matters upon which shareholders have
the right to vote. NPB shareholders are not entitled to cumulate votes in the
election of directors.
The holders of NPB Common Stock have no pre-emptive rights to acquire
any additional shares of NPB Common Stock. In addition, the NPB Common Stock is
not subject to redemption.
NPB's articles of incorporation authorize NPB's Board of Directors to
issue authorized shares of NPB Common Stock without shareholder approval. NPB
Common Stock is included for quotation on the National Market tier of The Nasdaq
Stock Market. Under Nasdaq National Market rules, approval of NPB's shareholders
is required for the issuance of additional shares of NPB Common Stock or
securities convertible into NPB Common Stock if the issuance of such securities
(i) is in connection with the acquisition of a company, is not in connection
with a public offering for cash, and the securities issued have or will have
voting power equal to or exceeding 20% of the voting power outstanding before
such issuance; (ii) is in connection with the acquisition of a company in which
a director, officer of substantial shareholder of NPB has a 5% or greater
interest and the issuance of the securities could result in an increase in
outstanding NPB Common Stock or voting power of 5% or more; (iii) is in
connection with a transaction, other than a public offering, at a price less
than the greater of book or market value in which the shares issued will equal
20% or more of the shares of NPB Common Stock, or have 20% or more of the voting
power, outstanding before issuance; or (iv) would result in a change in control
of NPB. Under Nasdaq National Market rules, shareholder approval is also
required for the establishment of a stock option or purchase plan in which stock
may be acquired by officers and directors other than pursuant to a broadly-based
plan in which other security holders of NPB or employees of NPB participate. For
a discussion of the approval of NPB shareholders required for the issuance of
the shares of NPB Common Stock issuable to Elverson shareholders in the Merger,
see "The Meeting-- Votes Required."
In the event of NPB's liquidation, dissolution or winding-up, whether
voluntary of involuntary, holders of NPB Common Stock will be entitled to share
ratably in any of its assets or funds that are available for distribution to its
shareholders after the satisfaction of its liabilities (or after adequate
provision is made therefor) and after payment of any liquidation preferences of
any outstanding shares of NPB Preferred Stock.
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Preferred Stock
NPB's Board of Directors is authorized to approve the issuance of NPB
Preferred Stock, without any required approval of shareholders. The rights,
qualifications, limitations and restrictions on each series of NPB Preferred
Stock issued will be determined by NPB's Board of Directors at the time of
issuance and may include, among other things, rights to participating dividends,
voting and convertibility into shares of NPB Common Stock. Shares of NPB
Preferred Stock may be issued with dividend, redemption, voting, and liquidation
rights taking priority over the NPB Common Stock, and may be convertible into
NPB Common Stock, as determined by NPB's Board of Directors at the time of
issuance.
Shareholder Rights Plan
NPB maintains a Shareholder Rights Plan (the "Rights Plan") designed to
protect shareholders from attempts to acquire control of NPB at an inadequate
price. Under the Rights Plan, each outstanding share of NPB Common Stock has
attached to it one right to purchase one one-hundredth of a share of a series of
junior participating preferred stock (the "Series A Junior Participating
Preferred Stock") at an exercise price of $28.89, as adjusted to reflect all
stock dividends and splits since adoption of the Rights Plan (the "NPB Rights").
The NPB Rights are not currently exercisable or transferable, and no separate
certificates evidencing the NPB Rights will be distributed, unless certain
events occur.
The NPB Rights become exercisable to purchase shares of the Series A
Junior Participating Preferred Stock if a person, group or other entity acquires
or commences a tender offer or an exchange offer for shares of NPB stock with
19.9% or more of total voting power. The NPB Rights also can be exercised if a
person or group who has become a beneficial owner of shares of NPB Common Stock
equal to 15% of the total shares outstanding or with 15% of total voting power
is declared by NPB's Board of Directors to be an "adverse person," as defined in
the Rights Plan.
After the NPB Rights become exercisable, under certain circumstances,
the NPB Rights (other than the NPB Rights held by a 19.9% beneficial owner or an
"adverse person") will entitle the holders to purchase either shares of NPB
Common Stock or of the common stock of the potential acquirer, in lieu of the
Series A Junior Participating Preferred Stock, at a substantially reduced price.
NPB is generally entitled to redeem the NPB Rights at $.001 per right
at any time until the tenth business day following public announcement that a
19.9% position has been acquired. At any time prior to the date the NPB Rights
have become non-redeemable, NPB's Board of Directors can extend the redemption
period. The NPB Rights are not redeemable following an "adverse person"
determination.
Anti-Takeover Charter and Law Provisions
NPB's articles of incorporation and bylaws contain certain provisions
which may have the effect of deterring or discouraging, among other things, a
non-negotiated tender or exchange offer for NPB stock, a proxy contest for
control of NPB, the assumption of control of NPB by a holder of a large block of
NPB stock and the removal of NPB's management. These provisions: (i) empower
NPB's Board of Directors, without shareholder approval, to issue shares of NPB
Preferred Stock the terms of which, including voting power, are set by NPB's
Board of Directors; (ii) divide NPB's Board of Directors into three classes
serving staggered three-year terms; (iii) restrict the ability of shareholders
to remove directors; (iv) require that shares with at least 80% of total voting
power approve mergers and other similar transactions with a person or entity
holding stock with more than 5% of NPB's total voting power, if the transaction
is not approved, in advance, by NPB's Board of Directors; (v) prohibit
shareholders' actions without a meeting; (vi) require that shares with at least
80%, 67%, or a majority, of total voting power approve the repeal or amendment
of certain provisions of NPB's articles of incorporation; (vii) eliminate
cumulative voting in elections of directors; and (viii) require advance notice
of nominations for the election of directors and the presentation of shareholder
proposals at meetings of shareholders.
The Pennsylvania Business Corporation Law of 1988, as amended (the
"BCL"), also contains certain provisions applicable to NPB which may have the
effect of impeding a change in control of NPB. These provisions, among other
things: (i) require that, following any acquisition by any person or group of
20% of a public corporation's voting power, the remaining shareholders have the
right to receive payment for their shares, in cash, from such person
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or group in an amount equal to the "fair value" of the shares, including an
increment representing a proportion of any value payable for control of the
corporation, and (ii) prohibit for five years, subject to certain exceptions, a
"business combination" (which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets) with a shareholder or group
of shareholders beneficially owning 20% or more of a public corporation's voting
power.
In 1990, Pennsylvania adopted certain amendments to the BCL. This
legislation generally: (i) expands the factors and groups (including
shareholders) which NPB's Board of Directors can consider in determining whether
an action is in the best interests of the corporation; (ii) provides that NPB's
Board of Directors need not consider the interests of any particular group as
dominant or controlling; (iii) provides that NPB's directors, in order to
satisfy the presumption that they have acted in the best interests of the
corporation, need not satisfy any greater obligation or higher burden of proof
with respect to actions relating to an acquisition or potential acquisition of
control; (iv) provides that actions relating to acquisitions of control that are
approved by a majority of "disinterested directors" are presumed to satisfy the
directors' standard, unless it is proven by clear and convincing evidence that
the directors did not assent to such action in good faith after reasonable
investigation; and (v) provides that the fiduciary duty of NPB's directors is
solely to the corporation and may be enforced by the corporation or by a
shareholder in a derivative action, but not by a shareholder directly.
The 1990 amendments to the BCL explicitly provide that the fiduciary
duty of directors shall not be deemed to require directors (i) to redeem any
rights under, or to modify or render inapplicable, any shareholder rights plan;
(ii) to render inapplicable, or make determinations under, provisions of the BCL
relating to control transactions, business combinations, control-share
acquisitions or disgorgement by certain controlling shareholders following
attempts to acquire control; or (iii) to act as the board of directors, a
committee of the board or an individual director solely because of the effect
such action might have on an acquisition or potential or proposed acquisition of
control of the corporation or the consideration that might be offered or paid to
shareholders in such an acquisition. One of the effects of the 1990 fiduciary
duty statutory provisions may be to make it more difficult for a shareholder to
successfully challenge the actions of NPB's Board of Directors in a potential
change in control context. Pennsylvania case law appears to provide that the
fiduciary duty standard under the 1990 amendments to the BCL grants directors
the statutory authority to reject or refuse to consider any potential or
proposed acquisition of the corporation.
The 1990 amendments to the BCL also included "disgorgement" and
"control-share acquisition" statutes. The "disgorgement" statute generally
requires disgorgement by any person or group who or which has acquired or
publicly disclosed an intent to acquire 20% or more of a corporation's voting
power of any profit realized from the sale of any shares acquired within
specified time periods of such acquisition or disclosure if the shares are sold
within eighteen months thereafter. The "control-share acquisition" statute
generally prohibits a person or group who or which exceeds certain stock
ownership thresholds (20%, 33-1/3% and 50%) for the first time from voting the
"control shares" (i.e., the shares owned in excess of the applicable threshold)
unless voting rights are restored by a vote of disinterested shareholders.
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COMPARISON OF SHAREHOLDERS' RIGHTS
Upon consummation of the Merger, holders of Elverson Common Stock,
whose rights presently are governed by Elverson's articles of association and
bylaws and the National Bank Act (the "NBA"), will become holders of NPB Common
Stock. Accordingly, their rights will be governed by NPB's articles of
incorporation and bylaws and the Pennsylvania Business Corporation Law of 1988,
as amended (the "BCL"). Certain differences arise from differences between
Elverson's and NPB's articles and bylaws, as well as from differences in
treatment under applicable laws.
The following discussion is not intended to be a complete statement of
all differences affecting the rights of shareholders, but summarizes material
differences and is qualified in its entirety by reference to applicable laws and
the respective articles and bylaws of Elverson and NPB.
Directors
Nomination
Elverson's bylaws permit nominations for election to Elverson's Board
of Directors to be made by the Board of Directors or by any shareholder entitled
to vote for the election of directors. Nominations, other than those made by or
on behalf of the existing management of Elverson, must be made in writing and be
delivered or mailed to the President of Elverson and the Comptroller of the
Currency, Washington, D.C., not less than 14 days nor more than 50 days prior to
any meeting of the shareholders called for the election of directors. However,
if less than 21 days' notice of the meeting is given to shareholders, the
nomination shall be mailed or delivered to the President of Elverson and the
Comptroller of the Currency not later than the close of business on the seventh
day following the day on which the notice of the meeting was mailed. To the
extent known to the shareholder, the notification must include the name and
address of each proposed nominee, the principal occupation of each proposed
nominee, the total number of shares of Elverson Common Stock that will be voted
for each proposed nominee, the name and residence address of the notifying
shareholder, and the number of shares of Elverson Common Stock owned by the
notifying shareholder. The chairperson of the meeting, in his discretion, may
disregard any nomination not made in accordance with the requirements set forth
above and upon the chairperson's instructions, the vote tellers may disregard
all votes cast for such nominee.
NPB's bylaws permit nominations for election to NPB's Board of
Directors to be made by the Board of Directors or by any shareholder entitled to
vote for the election of directors. Nominations for director made by
shareholders (other than by the Board of Directors) must be made, in writing,
delivered or mailed to NPB not less than 14 days prior to the date of a
shareholders' meeting, unless less than 21 days notice of the meeting is given
to shareholders, in which case such nominations must be submitted within seven
days following the mailing of the notice of the meeting to shareholders. Any
such notice of nomination must contain the same information, to the extent known
to the notifying shareholder, as that required to be stated by NPB in its proxy
statement with respect to nominees of the Board of Directors. Any nominations
that are not made in this manner or any votes cast at a meeting of NPB
shareholders for any candidate not duly nominated may be disregarded by the
chairman of the meeting.
Election
Pursuant to the NBA, Elverson's articles of association establish the
number of directors to be no less than five and no more than fifteen. The exact
number of members of the Board of Directors of Elverson is determined by
resolution of a majority of the full Board of Directors or the affirmative vote
of a majority of the shareholders entitled to vote; however, a majority of the
full Board of Directors may not increase the number of directors to a number
which exceeds fifteen or to a number which increases the number of directors
last elected by the shareholders by more than two per year. Currently, there are
seven persons serving on Elverson's Board of Directors. The term of office for
each director is one year. Elverson's Board of Directors is not classified. Any
shareholder seeking to elect its designees to a majority of the seats on
Elverson's Board of Directors, therefore, could do so at any annual meeting or
at a special meeting called for such purposes.
NPB's articles of incorporation provide that its Board of Directors
shall be comprised of not less than eight nor more than 15 directors, the number
of which may be determined from time to time by the Board of Directors.
Presently, the Board of Directors is comprised of nine members. NPB's Board of
Directors is divided into three
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classes, each serving three-year terms, so that approximately one-third of the
directors are elected at each annual meeting of shareholders. Classification of
the Board of Directors has the effect of decreasing the number of directors that
could be elected in a single year by any person who seeks to elect its designees
to a majority of the seats on NPB's Board of Directors and thereby could impede
a change in control of NPB.
Cumulative Voting
With respect to all matters on which shareholders are entitled to vote,
shareholders of Elverson Common Stock are entitled to one vote per share.
Pursuant to the NBA, shareholders of national banks, such as Elverson, have
cumulative voting rights in the election of directors. Accordingly, in such
elections, each shareholder of Elverson is entitled to as many votes as shall
equal the number of shares owned, multiplied by the number of directors to be
elected, and may cast all such votes for a single nominee or may distribute them
among two or more nominees.
NPB's shareholders do not have cumulative voting rights.
Qualification
Section 72 of the NBA requires that every director of a national bank
be a citizen of the United States. It also requires that at least a majority of
the directors must have resided in the state, territory or district in which the
national bank is located, or at least within 100 miles of the location the
bank's office, for at least one year immediately preceding their election, and
must be residents of such state or within a 100 mile territory of the location
of the bank during their continuance in office (with certain exceptions for
subsidiaries or affiliates of foreign banks). Additionally, the NBA also
requires that every director must own in his or her own right either shares of
the capital stock of the bank which he or she is a director in an aggregate par
value not less than $1,000 (or an equivalent interest, as determined by the OCC,
in any company which has control over such bank). A smaller aggregated par value
(i.e., $500) is required for banks with capital that does not exceed $25,000. In
addition, Elverson's bylaws provide that all eligible nominees for director must
reside within 35 miles of the main office. Further, Elverson's articles of
association provide that members of Elverson's Board of Directors must consist
of Elverson shareholders.
NPB's bylaws provide that no person who has attained the age of 60 and
is not then a director of NPB shall be qualified for nomination or election to
NPB's Board of Directors. NPB's bylaws also provide that no person who has
attained the age of 72 shall be qualified for nomination or election to NPB's
Board of Directors.
Removal
Neither the NBA nor the regulations promulgated by the OCC thereunder
provide for the removal of a director from a national bank's board of directors
by the bank's shareholders. Elverson's articles of association and bylaws are
also silent on the issue.
NPB's articles of incorporation provide that any director or the entire
Board of Directors may be removed from office at any time, with or without
cause, but only by the affirmative vote of the holders of two-thirds of the
outstanding shares of NPB Common Stock at a meeting of shareholders called for
that purpose.
Vacancies
Elverson's bylaws provide that vacancies occurring on the board of
directors, including vacancies resulting from an increase in the number of
directors, may be filled by the affirmative vote of a majority of the remaining
directors even if the number of remaining directors constitutes less than a
quorum. Any director so chosen shall have a term of office continuing only until
the next election of directors.
NPB's bylaws provide that vacancies on NPB's Board of Directors, for
whatever reason, including vacancies resulting from death, resignation,
retirement, disqualification, or an increase in the number of directors, may be
filled by a majority vote of the remaining directors, even if less than a
quorum. Any director elected by NPB's Board of Directors to fill a vacancy will
have a term of office ending at the annual meeting of shareholders at which the
term of the class to which he has been elected ends.
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Limited Liability
Elverson's bylaws are silent on the specific issue of personal
liability of a director of Elverson to Elverson's shareholders or others. See
"Comparison of Shareholders' Rights--Directors--Indemnification."
As permitted by the BCL, NPB's bylaws provide that a director of NPB
shall not be personally liable to NPB, its shareholders or others, for any
action taken or any failure to take any action unless the director breached or
failed to perform the duties of his or her office as set forth under
Pennsylvania law and such breach or failure constitutes self-dealing, willful
misconduct or recklessness; provided, however, that there is no such elimination
of liability arising under any criminal statute or with respect to the payment
of taxes pursuant to local, state or federal law.
Indemnification
Elverson's bylaws provide that directors, officers and employees, may
be indemnified or reimbursed by Elverson for reasonable expense actually
incurred in actions to which the directors, officers and employees are parties
by reason of the performance of their official duties, provided, however, that
no person shall be so indemnified or reimbursed in relation to any matter in
such action as to which he shall finally be adjudged to have been guilty of or
liable for gross negligence, willful misconduct, or criminal act in the
performance of his duties to Elverson.
The bylaws of NPB provide for indemnification of current and former
directors, officers, employees and agents of NPB for certain litigation-related
liabilities and expenses to the maximum extent provided by Pennsylvania law. As
provided in the BCL, current and former directors, officers, employees and
agents of NPB are entitled to indemnification in both third party actions and
derivative actions unless there is a court finding that the act or failure to
act giving rise to the claim for indemnification constitutes willful misconduct
or recklessness.
Shareholder Meetings
Call
Elverson's articles of association provide that special meetings of the
shareholders may be called by the Board of Directors or any three shareholders.
A notice of the meeting must be published for thirty days in a newspaper in the
town, city, or county where Elverson is located or mailed to the shareholders
thirty days in advance of the scheduled meeting. In addition, Elverson's bylaws
provide that a special meeting of the shareholders may be called by the Board of
Directors or by any ten or more shareholders owning, in the aggregate, not less
than thirty-five percent of Elverson Common Stock. Such special meeting shall be
called by mailing, postage prepaid, not less than ten days nor more than sixty
days prior to the date fixed for such meeting to each shareholder, at his
address appearing on Elverson's books, a notice stating the purpose of the
meeting.
Special meetings of NPB shareholders may be called at any time by NPB's
Board of Directors or Chief Executive Officer or by any other person authorized
by statute. Under the BCL, NPB shareholders are not entitled to call a special
meeting of shareholders.
Notice
Notice of an annual Elverson shareholders' meeting must be mailed,
postage prepaid, at least ten days in advance of the scheduled meeting and
addressed to each shareholder at his address appearing on Elverson's books. OCC
regulations further require that in certain instances, such notice must also be
given by certified or registered mail, by publication, or both. Pursuant to
Elverson's bylaws, unless otherwise provided by law, a special meeting shall be
called by mailing, postage prepaid, not less than ten days nor more than sixty
days prior to the date fixed for such meeting to each shareholder, at his
address appearing on Elverson's books, a notice stating the purpose of the
meeting.
NPB's bylaws provide that written notice of the date, place and time of
all meetings of shareholders, and of the general nature of the business to be
transacted at special meetings, shall be mailed by first-class mail to each
shareholder of record entitled to vote at the meeting at least 10 days in
advance of the meeting date, unless a greater period of notice is required by
law in a particular case.
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Quorum
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares entitled to vote at a meeting constitutes a quorum for an
Elverson shareholders' meeting. An Elverson meeting called for the election of
directors may be adjourned for any period up to 60 days. If a quorum is not
present at an Elverson shareholders meeting, no business may be transacted
except to adjourn to a future time.
NPB's bylaws provide that the presence, in person or by proxy, of NPB
shareholders entitled to cast a majority of the votes which all shareholders are
entitled to cast on a particular matter constitutes a quorum for purposes of
considering such matter.
Required Shareholder Vote
General
With respect to all matters on which shareholders are entitled to vote,
shareholders of Elverson Common Stock are entitled to one vote per share.
Subject to the voting rights of any series of NPB Preferred Stock then
outstanding, if any (see "Description of NPB Capital Securities--Preferred
Stock"), the holders of NPB Common Stock possess exclusive voting rights of NPB.
Each holder of NPB Common Stock is entitled to one vote for each share held of
record. For general corporate action of the shareholders of NPB, the affirmative
vote of a majority of the votes cast at a meeting of shareholders is required
for approval. Abstentions with respect to any matter are not considered votes
"cast" under Pennsylvania law.
Fundamental Changes
Elverson's articles of association are silent regarding a fundamental
change. Pursuant to the NBA, Elverson may merge or consolidate with another
national bank by an affirmative vote of Elverson's shareholders owning at least
two-thirds of the shares of capital stock outstanding.
NPB's articles of incorporation require that a plan of merger,
consolidation, share exchange, or asset transfer (in respect of a sale, lease,
exchange or other disposition of all, or substantially all, the assets of NPB
other than in the usual and regular course of business) or similar transaction
must be approved by the affirmative vote of shareholders entitled to cast at
least a majority of the votes which all shareholders are entitled to cast,
except as follows. NPB's articles of incorporation require the affirmative vote
of shareholders with at least 80% of NPB's total voting power to approve any
merger, consolidation, share exchange, asset transfer (in respect of a sale,
lease, exchange or other disposition of all, or substantially all, the assets of
NPB) or similar transaction involving a shareholder holding 5% or more of NPB's
voting power, unless the transaction has been approved in advance by a majority
of NPB's directors who are not affiliated with the 5% or more shareholder. The
Merger has been unanimously approved by NPB's Board of Directors.
Amendment of Articles of Incorporation
As provided by Section 21a of the NBA, amendment of Elverson's articles
of association requires the approval of shareholders of a majority of the voting
shares of stock obtained at a meeting of the shareholders called and held
pursuant to notice given at least thirty days prior to the meeting.
NPB's articles of incorporation contain two provisions that require a
supermajority vote of shareholders to amend, repeal or adopt any provision
inconsistent with, particular sections of such articles. Amendment or repeal of,
or adoption of any provision inconsistent with, the provisions of NPB's articles
of incorporation relating to the classification of directors, the filling of
Board vacancies, or the removal of directors, requires the affirmative vote of
the holders of two-thirds of the shares then entitled to vote in an election of
directors. Amendment or repeal of, or adoption of any provision inconsistent
with, the provisions of NPB's articles of incorporation relating to a merger,
consolidation or similar transaction with a 5% or more shareholder of NPB
requires the affirmative vote of shareholders entitled to cast at least 80% of
the votes which all shareholders of NPB are entitled to cast thereon.
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Amendment of Bylaws
Amendments to Elverson's bylaws may be made at any regular meeting of
the Board of Directors by an affirmative vote of the majority of the members of
Board of Directors of Elverson.
The authority to amend or repeal NPB's bylaws is vested in NPB's Board
of Directors, subject always to the power of the shareholders of NPB to change
such action by the affirmative vote of a majority of the votes cast by all
shareholders entitled to vote thereon, except that any amendment to the
limitation of directors' liability and indemnification provisions of the bylaws
requires the affirmative vote of 80% of the members of NPB's entire Board of
Directors or of shareholders entitled to cast at least 80% of the votes that all
shareholders are then entitled to cast.
Inspection Rights
Elverson's articles of association and bylaws are silent with regard to
any rights of Elverson's shareholders to examine the share register, books or
records of account and records of the proceedings of Elverson's shareholders and
directors, and to make copies or extracts therefrom.
As provided in the BCL, shareholders of NPB, upon written demand under
oath stating the purpose thereof, have the right, for any proper purpose, to
examine during usual business hours the share register, books or records of
account and records of the proceedings of NPB's shareholders and directors, and
to make copies or extracts therefrom.
Shareholder Rights Plan
Elverson does not have a shareholder rights plan.
NPB has adopted a shareholder rights plan pursuant to which holders of
NPB Common Stock are entitled, under certain circumstances generally involving
an accumulation of shares of NPB Common Stock, to purchase shares of NPB Common
Stocks or common stock of the potential acquiror at a substantially reduced
price. See "Description of NPB Capital Securities--Shareholder Rights Plan."
Anti-Takeover Provisions
The NBA provides that a merger or sale of assets by a national bank,
such as Elverson, must be approved by the Board of Directors of Elverson and by
the vote of the holders of at least two-thirds of each class of its capital
stock.
The Change in Bank Control Act prohibits a person or group from
acquiring "control" of a national bank unless the OCC has been given sixty days
prior written notice of the proposed acquisition and within that time period the
OCC has not issued a disapproval or extended for up to another thirty days the
period during which such a disapproval may be issued.
NPB is subject to various provisions of the BCL which are triggered, in
general, if any person or group acquires, or discloses an intent to acquire, 20%
or more of the voting power of a covered corporation, other than pursuant to a
registered firm commitment underwriting or, in certain cases, pursuant to an
approving vote of NPB's is Board of Directors. The relevant provisions are
contained in Subchapters 25E through 25H of the BCL.
Subchapter 25E of the BCL (relating to control transactions) provides
that if any person or group acquires 20% or more of the voting power of a
covered corporation, the remaining shareholders may demand from such person or
group the fair value of their shares, including a proportionate amount of any
control premium.
Subchapter 25F of the BCL (relating to business combinations) delays
for five years and imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business combination" is
defined broadly to include various transactions utilizing a corporation's assets
for purchase price amortization or refinancing purposes. For this purpose, an
"interested shareholder" is defined generally as the beneficial owner of at
least 20% of a corporation's voting shares.
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Subchapter 25G of the BCL (relating to control share acquisitions)
prevents a person who has acquired 20% or more of the voting power of a covered
corporation from voting such shares unless the "disinterested" shareholders
approve such voting rights. Failure to obtain such approval exposes the owner to
the risk of a forced sale of the shares to the issuer. Even if shareholder
approval is obtained, the corporation is also subject to Subchapters 25I and 25J
of the BCL. Subchapter 25I provides for a minimum severance payment to certain
employees terminated within two years of the approval. Subchapter 25J prohibits
the abrogation of certain labor contracts prior to their stated date of
expiration.
Subchapter 25H of the BCL (relating to disgorgement) applies in the
event that (i) any person or group publicly discloses that the person or group
may acquire control of the corporation or (ii) a person or group acquires (or
publicly discloses an offer or intent to acquire) 20% or more of the voting
power of the corporation and, in either case, sells shares within 18 months
thereafter. Any profits from sale of equity securities of the corporation by the
person or group during the 18-month period belong to the corporation if the
securities that were sold were acquired during the 18-month period or within 24
months prior thereto.
Subchapters 25E through 25H of the BCL contain a wide variety of
transactional and status exemptions, exclusions and safe harbors, including
certain "opt-out" opportunities. NPB has not opted out of any of the provisions
of Subchapters 25E through 25H of the BCL.
In addition, the fiduciary duty standards applicable to NPB's Board of
Directors, under the BCL and certain provisions of NPB's articles of
incorporation and bylaws, may have the effect of deterring or discouraging,
among other things, a non-negotiated tender or exchange offer for NPB stock, a
proxy contest for control of NPB by a holder of a large block of NPB's stock,
and the removal of NPB's management. See "Description of NPB Capital
Securities--Anti-Takeover Charter and Law Provisions."
Dissenters Rights
As required by the NBA, any shareholder of a national banking
association, who has voted against a merger agreement at its shareholder meeting
or has given notice to such national banking association in writing at or prior
to the shareholders meeting that such shareholder dissents from the merger,
shall be entitled to receive the "value" of the shares held by that shareholder
at the time the merger agreement is approved by the OCC, upon written request
made to the entity into which the national banking association is being merged
at any time within 30 days following the effective date of the merger,
accompanied by the surrender of such shareholder's stock certificates. The
relevant portions of the statutory dissenters procedures are attached to this
Proxy Statement/Prospectus as Annex D. Shareholders electing to exercise their
dissenters rights under the NBA may not vote for the merger agreement. If a
shareholder returns a signed proxy but does not specify a vote against the
merger agreement or does not give a direction to abstain, the proxy will be
voted for the merger agreement, which will have the effect of waiving that
shareholder's dissenters rights. Elverson's shareholders have the right to
dissent to the Merger Agreement. See "The Merger--Appraisal Rights of Dissenting
Shareholders."
Under the BCL, a shareholder of a Pennsylvania corporation is generally
entitled to receive payment of the fair value of such shareholder's shares if
such shareholder duly exercises its dissenters' rights with respect to a plan of
merger or consolidation, share exchange, asset transfer, division or conversion
to which such corporation is a party, unless the shares are (i) listed on a
national securities exchange or (ii) held of record by more than 2,000
shareholders. The foregoing market exceptions do not apply, and dissenters'
rights generally are available in respect of (i) shares that are not converted
solely into shares of the acquiring, surviving, new or other corporation or
solely into such shares and money in lieu of fractional shares, (ii) shares of
any preferred or special class unless the shareholders of the class are entitled
to vote on the plan and such class vote is required for the adoption of the plan
or to effectuate the transaction, and (iii) shares which under the plan are
treated differently from shares of the same class or series and which are not
entitled to vote as a special class. The BCL allows a corporation to provide
dissenters' rights notwithstanding the statutory exceptions, but NPB's articles
of incorporation and bylaws do not require such optional dissenters' rights.
Under the BCL, if a plan of merger or consolidation, share exchange, asset
transfer, division or conversion is adopted by the directors only, without any
shareholder approvals required, the shareholders have no statutory dissenters'
rights in respect of the plan other than optional dissenters' rights, if any,
granted by the corporation.
NPB's shareholders do not have dissenters' rights with respect to the
Merger.
63
<PAGE>
Pre-Emptive Rights
Pursuant to Elverson's articles of association, in the event of any
increase of the capital of Elverson by the sale of additional Elverson Common
Stock, each stockholder shall be entitled to subscribe to such additional
Elverson Common Stock in proportion to the number of shares of Elverson Common
Stock owned by him before the stock increased, except that such holders of
Elverson Common Stock shall not have any such pre-emptive rights to purchase or
subscribe for any shares of Elverson Common Stock (i) for all or any part of
100,000 shares of authorized but unissued Elverson Common Stock which may be
issued from time to time by Elverson pursuant to any employee stock option,
employee stock purchase or similar employee benefit plan adopted by Elverson's
Board of Directors or (ii) for all or any part of any shares of authorized but
unissued Elverson Common Stock which may be issued from time to time by Elverson
pursuant to a dividend reinvestment plan adopted by Elverson's Board of
Directors which may provide for the purchase of shares with voluntary cash
contributions from participants in amounts not to exceed $2,000 per quarter and
$8,000 annually in which participation is offered to all stockholders of record
of Elverson on an equal basis. Elverson's Board of Directors shall have the
power to prescribe a reasonable period of time within which the pre-emptive
rights to subscribe to the new shares of Elverson Common Stock must be
exercised.
Holders of NPB Common Stock do not have pre-emptive rights to acquire
NPB Common Stock or any other securities of NPB.
Dividends
Generally, federal law prohibits national banks from withdrawing, or
permitting to be withdrawn, either in the form of dividends or otherwise, any
portion of its capital. Federal law also provides that if losses are sustained
at any time by a national bank equal to or exceeding its undivided profits then
on hand (as defined and interpreted by regulation), no dividend may be made.
Additionally, no dividend may be made by a national bank while it continues its
banking operations, in an amount greater than its net profits then on hand (as
defined and interpreted by regulation), less its losses and bad debts (as
defined and interpreted by regulation). These capital limitations do not apply
to a national bank's preferred stock dividends (if any); however, if the
undivided profits of a national bank are not sufficient to cover a proposed
dividend on its preferred stock, the proposed dividend will constitute a
reduction in capital under federal regulations.
Federal law also provides that a national bank may declare a dividend
equal to a certain amount of its net profits (as defined and interpreted by
regulation) as it judges expedient, except that until its respective surplus
fund equals its common capital, no dividends may be declared unless not less
than one-tenth part of its net profits of the preceding half year (in the case
of quarterly or semiannual dividends) or not less than one-tenth part of its net
profits of the preceding two consecutive half years (in the case of annual
dividends) has been carried to the surplus fund.
Under federal laws, national banks are also required to receive the
approval of the OCC before declaring a dividend if the amount of all dividends
(common and preferred), including the proposed dividend, declared by it in any
calendar year exceeds the total of its net profits of that year to date,
combined with its retained net profits of the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. National banks are also required to receive the prior approval of the OCC
for the payment of dividends if the total of all dividends declared by its board
of directors in any year will exceed the total of its net profits (as defined
and interpreted by regulation) of that year, combined with its retained net
profits (as defined and interpreted by regulation) of the preceding two years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock. These earning limitations also apply to dividends on national
bank preferred stock (if any).
Federal law also provides that if a national bank has preferred stock,
no dividends may be declared or paid on its common stock until all cumulative
dividends on its preferred stock have been paid in full.
Additionally, the OCC has indicated that paying dividends that deplete
a bank's capital base to an inadequate level would be an unsafe and unsound
banking practice. Under the Federal Deposit Insurance Corporation Improvements
Act of 1991 ("FDICIA"), an insured bank may not pay any dividend if payment
would cause it to become undercapitalized. In addition, no dividend payments are
permitted once an insured bank is undercapitalized. Moreover, the Federal
Reserve Board, the OCC and the FDIC have issued policy statements which provided
that bank holding companies and FDIC insured banks should generally only pay
dividends out of current operating earnings.
64
<PAGE>
Under the BCL, a corporation may pay cash dividends unless, after
giving effect thereto (i) the corporation would be unable to pay its debts as
they become due in the usual course of its business, or (ii) the total assets of
the corporation would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at the time
as of which the distribution is measured, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. For additional information regarding NPB's ability
to pay cash dividends, including regulatory restrictions, see "Description of
NPB Capital Securities--Common Stock," "Incorporation of Documents by
Reference," and "Available Information."
Voluntary Dissolution
Pursuant to the NBA, upon the affirmative vote of stockholders owning
two-thirds of the shares of a national banking association, the national banking
association may go into liquidation and be closed.
Under the BCL, if the board of directors of a Pennsylvania corporation,
such as NPB, recommends that the corporation be dissolved and directs that the
question be submitted to a vote at a meeting of the corporation's shareholders,
the corporation may be dissolved upon the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote thereon and, if any class of
shares is entitled to vote thereon as a class, the affirmative vote of a
majority of the votes cast in each class vote.
65
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial
statements assume a business combination between NPB and Elverson that qualifies
as a pooling of interests for financial reporting purposes. Under this method of
accounting, the recorded assets and liabilities of NPB and Elverson will be
carried forward to NPB at their recorded amounts, income of NPB will include
income of NPB and Elverson for the entire fiscal year in which the Merger
occurs, and the reported income of NPB and Elverson for prior periods will be
combined and restated as income of NPB. The pro forma combined condensed
financial statements are based upon the respective historical consolidated
financial statements of NPB and Elverson and should be read in conjunction with
such historical financial statements and the notes thereto, which are
incorporated by reference or set forth in this Proxy Statement/Prospectus. The
unaudited pro forma combined condensed balance sheet is presented as if the
Merger occurred on the date thereof. The unaudited pro forma combined condensed
income statements are presented as if the Merger occurred at the beginning of
the earliest period presented in respective income statement.
The following unaudited pro forma combined financial information
assumes that the Exchange Ratio is 1.46875 shares of NPB Common Stock for each
share of Elverson Common Stock. The Exchange Ratio is subject to possible
adjustment. See "The Merger--Terms of the Merger."
The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated at the beginning of the earliest period presented with respect to
the unaudited pro forma combined condensed income statements or with respect to
the pro forma combined condensed balance sheet, nor is it necessarily indicative
of the future operating results or financial position of NPB. The unaudited pro
forma information does not give effect to any synergies that may occur due to
the integration of NPB's and Elverson's operations. Additionally, the unaudited
pro forma combined financial information excludes the transaction costs of the
Merger which are immaterial.
Certain nonrecurring adjustments will be recorded in conjunction with
the Merger, but the amounts of these adjustments cannot be determined until NPB
reviews all facilities, operations and systems of Elverson and finalizes its
plans with respect to integrating the businesses. The aggregate amount of these
adjustments will include costs associated with consolidating operations and
systems, severance pay for employee terminations, early retirement and related
employee benefits and charges to conform accounting practices. NPB has not yet
quantified any of these adjustments, and none are reflected in the unaudited pro
forma combined financial information.
66
<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet as of June 30,1998
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
NPB Elverson Pro Forma Combined
(Historical) (Historical) Adjustments Pro-Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 43,218 $ 12,827 $ 0 $ 56,045
Interest bearing deposits in banks 1,567 18,549 0 20,116
Bankers acceptance notes 0 1,516 0 1,516
----------- ----------- ----------- -----------
Total cash and cash equivalents 44,785 32,892 0 77,677
Trading account securities 20,388 0 0 20,388
Investment securities available for sale at market value 406,222 57,943 0 464,165
Investment securities held to maturity 0 12,272 0 12,272
Loans, less allowance for loan losses of $27,142
and $3,568, respectively 1,141,132 190,081 0 1,331,213
Premises and equipment, net 20,175 4,612 0 24,787
Accrued interest receivable 11,222 1,895 0 13,117
Investments, at equity 4,273 0 0 4,273
Other assets 51,508 2,119 0 53,627
----------- ----------- ----------- -----------
Total assets $ 1,699,705 $ 301,814 $ 0 $ 2,001,519
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Non-interest bearing deposits $ 158,692 $ 49,413 0 $ 208,105
Interest bearing deposits 970,919 214,236 0 1,185,155
----------- ----------- ----------- -----------
Total deposits 1,129,611 263,649 0 1,393,260
Securities sold under repurchase agreements
and federal funds purchased 130,857 8,605 0 139,462
Short-term borrowings 9,930 79 0 10,009
Long-term borrowings 250,460 150 0 250,610
Guaranteed preferred beneficial interests in
Company's subordinated debentures 40,250 0 0 40,250
Accrued interest payable and other liabilities 15,084 1,930 0 17,014
----------- ----------- ----------- -----------
Total liabilities 1,576,192 274,413 0 1,850,605
Shareholders' equity
Preferred stock 0 0 0 0
Common stock, no stated par value 100,198 3,248 17,600 (1) 121,046
Additional paid-in capital 0 17,600 (17,600)(1) 0
Retained earnings 22,349 6,396 0 28,745
Net unrealized gains on securities available for sale 7,928 157 0 8,085
Treasury stock at cost (6,962) 0 0 (6,962)
----------- ----------- ----------- -----------
Total shareholders' equity 123,513 27,401 0 150,914
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,699,705 $ 301,814 $ 0 $ 2,001,519
=========== =========== =========== ===========
<FN>
- ---------------------------
(1) Pro forma adjustment to reflect no par value common stock.
(2) Historical and pro-forma common stock outstanding as of June 30, 1998 were
as follows:
NPB Elverson Adjustments Pro-Forma
----------- ----------- ----------- -----------
NPB common stock (historical) 13,183,970 --- --- 13,183,970
Elverson common stock (historical) --- 2,597,995 (2,597,995) ---
Elverson common stock outstanding times
Exchange Ratio 1.46875 --- --- 3,815,805 3,815,805
------- ----------- ----------- ----------- -----------
Total common stock outstanding 16,999,775
-----------
</FN>
</TABLE>
67
<PAGE>
Unaudited Pro Forma Combined Condensed Income Statement for the Six-Months Ended
June 30, 1998 and 1997, and the Years Ended December 31, 1997, 1996 and 1995
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NPB Elverson Pro Forma Combined
(Historical) (Historical) Adjustments(1) Pro-Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 63,889 $ 10,943 $ 0 $ 74,832
Interest expense 31,910 4,696 0 36,606
----------- ----------- ----------- -----------
Net interest income 31,979 6,247 0 38,226
Provision for loan and lease losses 2,400 330 0 2,730
----------- ----------- ----------- -----------
Net interest income after
provision for loan and lease losses 29,579 5,917 0 35,496
Other income 7,702 760 0 8,462
Other expense 24,409 4,525 0 28,934
----------- ----------- ----------- -----------
Income before income taxes 12,872 2,152 0 15,024
Income taxes 3,044 547 0 3,591
----------- ----------- ----------- -----------
Net income $ 9,828 $ 1,605 $ 0 $ 11,433
=========== =========== =========== ===========
Per share data:
Net Income per share of common stock - basic $ 0.74 $ 0.62 $ 0.67
Net Income per share of common stock - diluted $ 0.73 $ 0.62 $ 0.66
Average shares outstanding - basic 13,199,215 2,591,956 1,214,979(2) 17,006,150
Average shares outstanding - diluted 13,530,707 2,596,714 1,217,210(2) 17,344,631
<FN>
- ---------------------------
(1) No pro forma adjustments were made for estimated Merger expenses.
(2) Additional NPB shares issued using exchange ratio of 1.46875
</FN>
</TABLE>
68
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NPB Elverson Pro Forma Combined
(Historical) (Historical) Adjustments (1) Pro-Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 57,031 $ 9,908 $ 0 $ 66,939
Interest expense 25,320 4,170 0 29,490
----------- ----------- ----------- -----------
Net interest income 31,711 5,738 0 37,449
Provision for loan and lease losses 2,400 518 0 2,918
----------- ----------- ----------- -----------
Net interest income after
provision for loan and lease losses 29,311 5,220 0 34,531
Other income 5,929 681 0 6,610
Other expense 22,292 4,096 0 26,388
----------- ----------- ----------- -----------
Income before income taxes 12,948 1,805 0 14,753
Income taxes 4,029 516 0 4,545
----------- ----------- ----------- -----------
Net income $ 8,919 $ 1,289 $ 0 $ 10,208
=========== =========== =========== ===========
Per share data:
Net Income per share of common stock - basic $ 0.67 $ 0.50 $ 0.60
Net Income per share of common stock - diluted $ 0.66 $ 0.50 $ 0.59
Average shares outstanding - basic 13,358,435 2,563,920 1,201,838(2) 17,124,193
Average shares outstanding - diluted 13,569,804 2,565,745 1,202,693(2) 17,338,242
<FN>
- ---------------------------
(1) No pro forma adjustments were made for estimated Merger expenses.
(2) Additional NPB shares issued using exchange ratio of 1.46875
</FN>
</TABLE>
69
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NPB Elverson Pro Forma Combined
(Historical) (Historical) Adjustments (1) Pro-Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 119,027 $ 20,477 $ 0 $ 139,504
Interest expense 54,620 8,627 0 63,247
----------- ----------- ----------- -----------
Net interest income 64,407 11,850 0 76,257
Provision for loan and lease losses 4,575 988 0 5,563
----------- ----------- ----------- -----------
Net interest income after
provision for loan and lease losses 59,832 10,862 0 70,694
Other income 12,082 1,532 0 13,614
Other expense 46,147 8,270 0 54,417
----------- ----------- ----------- -----------
Income before income taxes 25,767 4,124 0 29,891
Income taxes 7,151 1,193 0 8,344
----------- ----------- ----------- -----------
Net income $ 18,616 $ 2,931 $ 0 $ 21,547
=========== =========== =========== ===========
Per share data:
Net Income per share of common stock - basic $ 1.40 $ 1.14 $ 1.26
Net Income per share of common stock - diluted $ 1.37 $ 1.14 $ 1.24
Average shares outstanding - basic 13,339,318 2,570,642 1,204,988(2) 17,114,948
Average shares outstanding - diluted 13,628,447 2,572,672 1,205,940(2) 17,407,059
<FN>
- ---------------------------
(1) No pro forma adjustments were made for estimated Merger expenses.
(2) Additional NPB shares issued using exchange ratio of 1.46875
</FN>
</TABLE>
70
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1996
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NPB Elverson Pro Forma Combined
(Historical) (Historical) Adjustments (1) Pro-Forma
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 106,558 $ 18,113 $ 0 $ 124,671
Interest expense 46,018 7,896 0 53,914
----------- ----------- ----------- -----------
Net interest income 60,540 10,217 0 70,757
Provision for loan and lease losses 3,900 600 0 4,500
----------- ----------- ----------- -----------
Net interest income after
provision for loan and lease losses 56,640 9,617 0 66,257
Other income 9,088 1,065 0 10,153
Other expense 41,258 7,332 0 48,590
----------- ----------- ----------- -----------
Income before income taxes 24,470 3,350 0 27,820
Income taxes 7,548 983 0 8,531
----------- ----------- ----------- -----------
Net income $ 16,922 $ 2,367 $ 0 $ 19,289
=========== =========== =========== ===========
Per share data:
Net Income per share of common stock - basic $ 1.27 $ 0.93 $ 1.13
Net Income per share of common stock - diluted $ 1.25 $ 0.93 $ 1.12
Average shares outstanding - basic 13,349,418 2,543,915 1,192,460(2) 17,085,793
Average shares outstanding - diluted 13,486,766 2,544,048 1,192,523(2) 17,223,337
<FN>
- ---------------------------
(1) No pro forma adjustments were made for estimated Merger expenses.
(2) Additional NPB shares issued using exchange ratio of 1.46875
</FN>
</TABLE>
71
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1995
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
NPB Elverson Pro Forma Combined
(Historical) (Historical) Adjustments (1) Pro-Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 99,020 $ 16,426 $ 0 $ 115,446
Interest expense 43,836 7,574 0 51,410
----------- ----------- ----------- -----------
Net interest income 55,184 8,852 0 64,036
Provision for loan and lease losses 3,200 700 0 3,900
----------- ----------- ----------- -----------
Net interest income after
provision for loan and lease losses 51,984 8,152 0 60,136
Other income 7,608 870 0 8,478
Other expense 37,542 6,789 0 44,331
----------- ----------- ----------- -----------
Income before income taxes 22,050 2,233 0 24,283
Income taxes 6,668 611 0 7,279
----------- ----------- ----------- -----------
Net income $ 15,382 $ 1,622 $ 0 $ 17,004
=========== =========== =========== ===========
Per share data:
Net Income per share of common stock - basic $ 1.16 $ 0.65 $ 1.00
Net Income per share of common stock - diluted $ 1.14 $ 0.65 $ 0.99
Average shares outstanding - basic 13,282,685 2,510,907 1,176,988(2) 16,970,580
Average shares outstanding - diluted 13,520,458 2,510,907 1,176,988(2) 17,208,353
<FN>
- ---------------------------
(1) No pro forma adjustments were made for estimated Merger expenses.
(2) Additional NPB shares issued using exchange ratio of 1.46875
</FN>
</TABLE>
72
<PAGE>
ELVERSON: SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Selected historical financial data for Elverson is set forth in this
Proxy Statement/Prospectus at "Summary--Selected Historical Financial Data."
ELVERSON: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section presents management's discussion and analysis of
the financial condition and results of operations of Elverson and its
wholly-owned subsidiaries for 1995, 1996 and 1997, as well as the six month
periods ended June 30, 1997 and 1998.
Results of Operations
Elverson achieved record net income of $ 2,931,000 or $ 1.14 per share
for the year ended 1997. This represents an increase of $ 564,000 or 23.8% over
1996's net income of $ 2,367,000 or $ .93 per share. This increase in earnings
was driven by growth in both net interest income and other income, offset
somewhat by related increases in other expenses and the provision for loan
losses.
Elverson continued to improve its performance relative to two widely
used performance measurements: return on average assets (ROA) and return on
average shareholders' equity (ROE). For 1997, the ROA was 1.14% and the ROE was
12.07%. In 1996, these performance ratios were 1.02% and 11.02%, respectively.
Elverson recorded net income in 1996 of $ 2,367,000 or $ .93 per share,
compared with net income in 1995 of $ 1,622,000 or $ .65 per share. Returns on
average assets and equity were 1.02% and 11.02%, respectively in 1996, compared
to .75% and 8.41%, respectively in 1995.
Net Interest Income
The primary component of Elverson's net income is net interest income,
which represents the difference between the interest and fee income earned on
earning assets and the interest paid on deposits and other borrowed funds. The
level of net interest income results from the interaction among the volume and
mix of earning assets, the funding sources supporting those assets and the
interest rates earned on assets relative to those paid on the funding sources.
For analytical purposes, net interest income is adjusted to a taxable equivalent
basis to recognize the income tax savings on tax-exempt assets such as municipal
securities and tax-free loans.
During 1997, taxable equivalent net interest income increased $
1,728,000 or 16.4% compared to 1996, and $ 1,391,000 or 15.3% in 1996 compared
to 1995. The components of these increases are summarized in Table 1.
The interest rate spread represents the difference between the yield on
interest earnings assets and the rate paid on interest bearing liabilities on a
taxable equivalent basis. The net interest margin represents net interest income
on a taxable equivalent basis as a percentage of average earning assets. This
ratio is a measurement of how effectively Elverson utilizes its earning assets
in relation to the interest paid to fund them, and is affected by both the net
interest spread and the level of non-interest bearing sources of funds. The
average balances, interest income and expense and the average rates earned and
paid for assets and liabilities are found in Table 2.
Taxable equivalent interest income increased 13.4% from $ 18,404,000 in
1996 to $ 20,863,000 in 1997. This increase reflects both a $ 22,400,000 or
10.1% growth in average interest earning assets and a 25 basis point increase in
the yield on interest earning assets. The growth in average interest earning
assets was the result of strong commercial loan demand in Elverson's markets.
Average total loans increased 14.3% or $ 24,540,000 to $ 196,480,000 including a
32.5% or $ 25,821,000 increase in commercial loans. Average tax-free loans
increased $ 2,775,000 during 1997. Average residential mortgage loans declined
7.9% or $ 4,823,000 during 1997 as a result of normal prepayments and the
origination of more fixed rate loans, which Elverson sells, then adjustable rate
loans,
73
<PAGE>
which Elverson generally retains. Also, in November 1997, Elverson sold
approximately $4,300,000 of adjustable rate residential mortgage loans.
The yield on interest earning assets increased from 8.29% in 1996 to
8.54% in 1997 primarily the result of a 22 basis point increase in the yield on
total loans. This increase, from 8.85% to 9.07%, resulted generally from a 25
basis point increase in Elverson's prime rate in March 1997, higher repricing on
Elverson's other adjustable rate loans and increased loan fee income.
Interest expense increased $ 731,000 to $ 8,627,000 which resulted
generally from the growth in average interest bearing liabilities during 1997.
Average interest bearing liabilities were $ 195,525,000 in 1997, $ 15,359,000 or
8.5% higher than 1996. This increase primarily occurred in the money market
savings and certificates of deposit categories, which increased $ 8,211,000 and
$ 7,335,000 respectively. Partially offsetting the net interest income effect of
the liabilities growth was a 15.0% growth in the portion of non-interest bearing
liabilities funding interest earning assets.
When 1996 is compared to 1995, Elverson's tax equivalent net interest
income increased $ 1,391,000 or 15.3% to $ 10,508,000 and the net interest
margin increased 28 basis points to 4.73%. The increased tax equivalent net
interest income from 1995 to 1996 was due to an 8.4% increase in average earning
assets and an improved net interest margin. Average earning assets increased to
$ 222,028,000 in 1996 from $ 204,867,000 in 1995. The mix of earning assets
remains relatively unchanged from year to year, with loans accounting for 77.4%
of total earning assets in 1996 and 76.6% in 1995. Average loans for 1996
increased 9.6% to $ 171,940,000 primarily in the commercial loan, commercial
mortgage and consumer installment loan categories.
Average deposits for 1996 were $ 199,362,000 which represented an 8.8%
increase from 1995's $ 183,249,000. Average non-interest bearing demand balances
were $ 30,067,000 in 1996 versus $ 25,654,000 in 1995 which reflects an increase
of 17.2%. The average balance on NOW increased to $ 19,906,000 in 1996 from $
19,806,000 in 1995. This .5% increase in NOW balances is, in part, due to
customers' decisions to place funds in the money market account as well as
certificates of deposit. Elverson's average money market account balances
increased $ 9,712,000 or 24.3% from 1995. Average savings balances also
reflected growth of $ 306,000 or 3.2% in 1995. Average certificates of deposit
grew by $ 1,573,000 or 1.8% from the previous year.
Other funding sources include securities sold under agreement to
repurchase ("repo") and long-term debt. Repo, which is offered mainly in
conjunction with cash management services, reflected an average increase of $
3,759,000 or 58.6% from the previous year. The increase was primarily due to
business checking customers using Elverson's cash management services. Long-term
debt, representing borrowings from the Federal Home Loan Bank, declined by $
4,387,000 from the previous year's average. These two categories offer Elverson
alternative funding sources for both its short and long-term requirements.
The increased net interest margin from 1995 to 1996, 4.45% to 4.73%,
and 1996 to 1997, 4.73% to 5.01%, reflects management's efforts to refine the
loan and deposit pricing process. The growth in the commercial loan and
commercial mortgage areas, coupled with relatively stable interest rates, helped
achieve the higher margins.
Provision for Loan Losses
The provision for loan losses for 1997 totaled $ 988,000 compared to $
600,000 for 1996 and $ 700,000 for 1995. The amount of the provision is based,
among other factors, on the amount of net loan charge-offs, which totaled $
635,000 in 1997, $ 280,000 in 1996 and $ 237,000 in 1995. Stated as a percentage
of average loans, net charge-offs were .32% for 1997, .16% for 1996 and .15% for
1995. The increased charge-offs in 1997 were the result of a $ 355,000
charge-off on one large account. Elverson settled this workout in full during
1997.
74
<PAGE>
Other Income
Total other income grew $ 467,000 or 43.8% to $ 1,532,000. This
increase occurred in all categories. Customer service fees increased 30.1%
during 1997 due to Elverson's increased deposit and customer base. Mortgage
banking activities increased 71.8% to $ 421,000. In November 1997, Elverson sold
a portion of its one-year indexed, adjustable rate residential mortgage loans.
This transaction, which occurred in order to manage Elverson's future interest
rate risk, resulted in a $ 161,000 gain. The other category increased $ 67,000
during 1997 as a result of a $ 79,000 gain from the sale of a portion of
Elverson's student loan portfolio.
Other income for 1996 totaled $ 1,065,000 which represented a $ 195,000
or 22.4% increase form 1995. The areas showing significant increases were:
mortgage banking activities, an increase of $ 134,000; and customer service
fees, an increase of $ 58,000. A major portion of the mortgage banking
activities involved the recognition of mortgage servicing rights, in accordance
with FASB 122, from mortgages originated and sold to the secondary market during
1996.
Other Expenses
Other expenses for 1997 were $ 8,270,000, $ 938,000 or 12.8% higher
than 1996's expenses. However, Elverson's efficiency ratio (a measurement of
other expenses relative to taxable equivalent net interest income and other
income) declined to 60.18% for 1997 from 63.36% for 1996.
Salaries and employee benefits, which account for the largest portion
of other expenses, increased $ 679,000 to $ 4,336,000. Elverson's average number
of full-time equivalent employees increased from 103 at year-end 1996 to 123 at
year-end 1997. This increased employee base occurred as a result of the new West
Chester branch and enhancements to the credit administration and Tele-banking
areas. A second factor contributing to the increase in salaries and employee
benefits was a reduction in the amount of contra loan origination costs
recognized in 1997 due to fewer residential mortgage originations.
Expenses related to occupancy and equipment increased $ 98,000 in 1997
reflecting Elverson's investment in an additional branch, renovations to the
existing branch network and technology enhancements. Other expenses increased $
161,000 to $ 2,450,000 for 1997. This increase can be attributed to Elverson's
overall growth, normal inflationary increases and Elverson's focus on the
disposition of foreclosed real estate.
Other expenses for 1996 totaled $ 7,332,000 which represented a $
543,000 or 8.0% increase from 1995. Salaries and employee benefits increased by
$ 427,000 from 1995 or 13.2%. Substantially all of this increase is attributable
to the annual salary adjustment, positions vacant for a portion of 1995 being
filled for the entire year, and additions to staff as a result of the new
Sinking Spring branch and added Bank services. In addition, the cost of employee
benefits increased. In aggregate, the increase was tempered by an increase in
the contra charge to salaries and benefits as a result of mortgage origination
and prepayment activity in 1996.
75
<PAGE>
Table 1 - Rate/Volume Analysis of Net Interest Income
Net interest income may be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table sets
forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
interest expense are allocated to volume and rate categories based upon the
respective percentage changes in average balances and average rates.
<TABLE>
<CAPTION>
June 30, 1998/1997 December 31, 1997/1996 December 31, 1996/1995
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due To Change In Due To Change In Due To Change In
----------------------------- ----------------------------- -----------------------------
Volume Rate Net Volume Rate Net Volume Rate Net
----------------------------- ----------------------------- -----------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest bearing deposit
with banks $ 134 $ -- $ 134 $ (60) $ 13 $ (47) $ (214) $ (54) $ (268)
Securities (1) 581 11 592 (131) (20) (151) 563 20 583
Other short-term investments 122 (1) 121 97 -- 97 -- -- --
Federal funds sold (54) (2) (56) (42) 6 (36) (127) (31) (158)
Loans (1) 239 163 402 2,226 370 2,596 1,332 224 1,556
----------------------------- ----------------------------- -----------------------------
Total interest income 1,022 171 1,193 2,090 369 2,459 1,554 159 1,713
----------------------------- ----------------------------- -----------------------------
Borrowed funds (111) 12 (99) (9) (5) (14) (32) (40) (72)
Interest bearing demand deposits 11 1 12 5 (21) (16) 2 (41) (39)
Savings deposits 271 45 316 283 19 302 355 28 383
Time deposits 255 42 297 400 59 459 85 (35) 50
----------------------------- ----------------------------- -----------------------------
Total interest expense 426 100 526 679 52 731 410 (88) 322
----------------------------- ----------------------------- -----------------------------
Increase in net interest income $ 596 $ 71 $ 667 $ 1,411 $ 317 $ 1,728 $ 1,144 $ 247 $ 1,391
============================= ============================= =============================
</TABLE>
(1) Interest income is reported on a tax-equivalent basis, using a 34%
statutory tax rate.
76
<PAGE>
Table 2 - Average Balances and Interest Rates
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 Six Months Ended June 30, 1997
------------------------------------------------------------------------------
Interest Interest
Average Income Percentage Average Income Percentage
Balance (Expense) Rate Balances (Expense) Rate
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing
deposits with banks ... $ 6,866 $ 186 5.46% $ 1,905 $ 52 5.50%
Securities (1) ......... 58,270 1,906 6.60 40,514 1,314 6.54
Other short-term
investments ........... 4,744 131 5.57 332 10 6.07
Federal funds sold ..... 343 9 5.29 2,394 65 5.48
Loans (1)(3) ........... 197,843 9,051 9.23 192,621 8,649 9.05
--------- --------- ---- --------- --------- ----
Total interest
earning assets ........ 268,066 11,283 8.49 237,766 10,090 8.56
Non-interest earning assets:
Cash and due from banks 7,753 6,414
Other assets ........... 8,260 7,672
Less allowance for
loan losses ........... (3,531) (3,194)
--------- ---------
Total assets ........... $ 280,548 $ 248,658
========= =========
Interest bearing
liabilities:
Borrowed funds ......... $ 7,740 202 5.26% $ 11,996 301 5.06%
Interest bearing
demand deposits ....... 21,145 199 1.90 19,972 187 1.89
Savings deposits ....... 78,531 1,418 3.64 63,503 1,102 3.50
Other time deposits .... 105,020 2,877 5.52 95,722 2,580 5.44
----------------------- -----------------------
Total interest
bearing liabilities ... 212,436 4,696 4.46 191,193 4,170 4.40
Non-interest bearing
liabilities:
Demand deposits ........ 39,910 32,423
Other liabilities ...... 1,745 1,535
Stockholders' equity ... 26,457 23,507
--------- ---------
Total liabilities
and stockholders'
equity ................ $ 280,548 $ 248,658
========= =========
Net interest income/
spread (2) ................ $ 6,587 4.03% $ 5,920 4.16%
========= =========
Margin analysis:
Interest income/earning 8.49% 8.56%
assets
Interest expense/earning
assets 3.53 3.54
---- ----
Net interest margin ........ 4.96% 5.02%
==== ====
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Year Ended December 31, 1996 Year Ended December 31, 1995
------------------------------------------------------------------------------------------------------
Interest Interest Interest
Average Income Percentage Average Income Percentage Average Income Percentage
Balances (Expense) Rate Balances (Expense) Rate Balances (Expense) Rate
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing
deposits with banks ... $ 2,818 $ 155 5.50% $ 3,903 $ 202 5.18% $ 8,033 $ 470 5.85%
Securities (1) ......... 40,487 2,631 6.50 42,496 2,782 6.55 33,893 2,199 6.49
Other short-term
investments ........... 1,716 97 5.65 -- -- -- -- -- --
Federal funds sold ..... 2,927 162 5.53 3,689 198 5.37 6,053 356 5.88
Loans (1)(3) ........... 196,480 17,818 9.07 171,940 15,222 8.85 156,888 13,666 8.71
-------------------- ------------------- ------------------
Total interest
earning assets ........ 244,428 20,863 8.54 222,028 18,404 8.29 204,867 16,691 8.15
Non-interest earning assets:
Cash and due from banks 7,130 6,189 5,776
Other assets ........... 7,798 7,633 7,022
Less allowance for
loan losses ........... (3,400) (2,777) (2,402)
--------- --------- --------
Total assets ........... $ 255,956 $ 233,073 $215,263
========= ========= ========
Interest bearing
liabilities:
Borrowed funds ......... $ 10,684 538 5.04% $ 10,871 552 5.08% $ 11,497 624 5.43%
Interest bearing
demand deposits ....... 20,183 379 1.88 19,906 395 1.98 19,806 434 2.19
Savings deposits ....... 67,860 2,426 3.57 59,926 2,124 3.54 49,899 1,741 3.49
Other time deposits .... 96,798 5,284 5.46 89,463 4,825 5.39 87,890 4,775 5.43
-------------------- ------------------- ------------------
Total interest
bearing liabilities ... 195,525 8,627 4.41 180,166 7,896 4.38 169,092 7,574 4.48
Non-interest bearing
liabilities:
Demand deposits ........ 34,550 30,067 25,654
Other liabilities ...... 1,608 1,365 1,219
Stockholders' equity ... 24,273 21,475 19,298
--------- --------- --------
Total liabilities
and stockholders'
equity ................ $ 255,956 $ 233,073 $ 215,263
========= ========= =========
Net interest income/
spread (2) ................ $ 12,236 4.13% $ 10,508 3.91% $ 9,117 3.67%
========= ========= ========
Margin analysis:
Interest income/earning 8.54% 8.29% 8.15%
assets
Interest expense/earning
assets 3.53 3.56 3.70
---- ---- ----
Net interest margin ........ 5.01% 4.73% 4.45%
==== ==== ====
<FN>
(1) Tax-equivalent basis, using a 34% effective tax rate.
(2) Represents the difference between interest earned and interest paid,
divided by average total interest earning assets. (3) Loan outstandings,
net of unearned income, include non-accruing loans.
</FN>
</TABLE>
77
<PAGE>
Federal Income Taxes
The provision for income taxes for 1997 was $ 1,193,000 compared to $
983,000 in 1996 and $ 611,000 in 1995. The effective tax rate, which is the
ratio of income tax expense to income before income taxes was 28.9% in 1997, a
slight decrease from 29.3% in 1996 and an increase from 27.4% in 1995. The tax
rate for all periods was less than the statutory rate of 34% due primarily to
tax exempt securities and loan income. Refer to Note 10 to the December 31, 1997
financial statements for further analysis of federal income tax expense.
Financial Condition
Total assets at December 31, 1997 were $ 274,838,000 which is $
28,285,000 or 11.5% higher than total assets at December 31, 1996.
Loans Receivable
Total loans were $ 198,284,000 at year-end 1997, a $ 11,522,000 or 6.2%
increase from year-end 1996. Commercial and tax-free loans increased $
21,753,000 and $ 3,471,000 respectively, during 1997. Residential mortgages
declined $ 11,977,000 during 1997 as a result of mortgage sales to the Federal
National Mortgage Association and other institutions. Additionally, Elverson
sold a portion of its student loan portfolio in 1997. The proceeds from all
these sales were used to fund higher-yielding investment and lending
initiatives. Table 3 provides an analysis of Elverson's loan distribution at the
end of each period indicated.
Table 3 - Loan Portfolio
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Consumer ......... $ 28,430 $ 30,042 $ 31,963 $ 26,986 $ 20,794 $ 17,224
Mortgage ......... 42,624 48,650 60,627 64,176 64,968 55,520
Commercial ....... 117,173 113,806 92,053 71,333 63,262 55,621
Tax-free ......... 6,084 6,518 3,047 1,744 2,037 2,070
Unearned loan fees (662) (732) (928) (1,031) (1,110) (1,029)
------------------------------------------------------------------------------------
$ 193,649 $ 198,284 $ 186,762 $ 163,208 $ 149,951 $ 129,406
====================================================================================
</TABLE>
78
<PAGE>
Table 4 - Loan Maturities
The following table shows the maturity of loans (excluding residential
mortgages on 1-4 family residences and consumer loans) outstanding at December
31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------
More Than
One Year
One Year Through Over Five Total
or Less Five Years Years Loans
-----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial .............................. $ 14,679 $ 29,506 $ 69,621 $113,806
Tax-free ................................ 539 1,877 4,102 6,518
-------- -------- -------- --------
Total .............................. $ 15,218 $ 31,383 $ 73,723 $120,324
======== ======== ======== ========
Loans with fixed rate ................... $ 2,464 $ 7,020 $ 2,199 $ 11,683
Loans with floating rate ................ 12,754 24,363 71,524 108,641
-------- -------- -------- --------
Total .............................. $ 15,218 $ 31,383 $ 73,723 $120,324
======== ======== ======== ========
Percent composition by maturity ......... 12.65% 26.08% 61.27% 100.00%
======== ======== ======== ========
Fixed rate loans as a percentage of total
loans maturing ....................... 2.05% 5.83% 1.83% 9.71%
======== ======== ======== ========
Floating rate loans as a percentage of
total loans maturing ................... 10.60% 20.25% 59.44% 90.29%
======== ======== ======== ========
</TABLE>
79
<PAGE>
Nonperforming Loans
A loan is generally placed on nonaccrual when the contractual payment
of principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan is currently performing. Table 5 reflects Elverson's nonaccrual, past due
and restructured loans as of the dates indicated.
Table 5 - Nonperforming Loans
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Average loans outstanding . $197,843 $196,480 $171,940 $156,888 $136,865 $120,213
==============================================================================
Nonaccrual loans .......... $ 825 $ 1,709 $ 770 $ 1,038 $ 1,202 $ 1,516
Accruing loans past due 90
days or more ......... 91 448 562 78 189 510
Restructured loans ........ -- -- -- -- -- --
------------------------------------------------------------------------------
Total ................ $ 916 $ 2,157 $ 1,332 $ 1,116 $ 1,391 $ 2,026
==============================================================================
Ratio of non-performing
loans to average loans 0.46% 1.10% 0.77% 0.71% 1.02% 1.69%
outstanding
==============================================================================
</TABLE>
Of the non-performing loans at year-end 1997, $ 914,000 or 42%
represent first lien, 1-to-4 family residential mortgages which, in the opinion
of management, are adequately secured. Non-performing loans are defined as all
loans 90 days or more past due and non-accruing loans.
Table 6 - Nonaccrual and Restructured Loans - Related Information
<TABLE>
<CAPTION>
June 30, December 31,
----------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------------- ----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccrual loans ......... $ 825 $1,189 $1,709 $ 770 $1,038 $1,202 $1,516
Restructured loans ....... -- -- -- -- -- -- --
Interest income that would
have been recorded
under original terms ..... 55 73 106 64 56 111 105
Interest income recorded
during the period ........ -- -- -- -- -- -- --
Commitments to lend
additional funds ......... -- -- -- -- -- -- --
</TABLE>
All of the nonaccrual loans at December 31, 1997 are secured by real
estate or otherwise guaranteed as to repayment. Management has not identified
any other material potential problem loans that are not included in the above
table.
Allowance For Loan Losses
The amount charged to operations and the related balance in the
allowance for loan losses is based upon periodic evaluations of the loan
portfolio by management. These evaluations consider several factors including,
but not limited to, current economic conditions, loan portfolio composition,
prior loan loss experience, trends in portfolio volume, and management's
estimation of future potential losses. Management believes that the allowance
for loan losses is adequate. Table 7 is an analysis of the allowance for loan
losses for the periods indicated.
80
<PAGE>
Table 7 - Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------------------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Average loans outstanding ... $197,843 $192,621 $196,480 $171,940 $156,888 $136,865 $120,213
============================================================================================
Allowance for loan losses at
January 1 ................... $ 3,345 $ 2,992 $ 2,992 $ 2,672 $ 2,209 $ 2,111 $ 1,521
Losses charged to allowance:
Commercial .................. 86 76 646 192 132 290 64
Real estate ................. 48 -- 1 97 87 1 14
Consumer .................... 34 55 98 30 87 20 56
--------------------------------------------------------------------------------------------
168 131 745 319 306 311 134
--------------------------------------------------------------------------------------------
Recoveries credited to
allowance:
Commercial .................... 26 1 66 1 26 40 83
Real estate ................... 21 1 3 4 22 12 10
Consumer ...................... 14 8 41 34 21 27 15
--------------------------------------------------------------------------------------------
61 10 110 39 69 79 108
--------------------------------------------------------------------------------------------
Net charge-offs ........... 107 121 635 280 237 232 26
Provision for loan losses . 330 518 988 600 700 330 616
--------------------------------------------------------------------------------------------
Allowance for loan losses at
period end .................. $ 3,568 $ 3,389 $ 3,345 $ 2,992 $ 2,672 $ 2,209 $ 2,111
============================================================================================
Ratio of net charge-offs to
average loans outstanding ... 0.05% 0.06% 0.32% 0.16% 0.15% 0.17% 0.02%
============================================================================================
</TABLE>
The increase in net charge-offs in 1997 was primarily due to the
charging off of one large commercial loan in the amount of $ 355,000.
The specific allocations of the allowance for loan losses are based on
management's evaluation of the risks inherent in the specific portfolios for the
dates indicated. Amounts in a particular category may be used to absorb losses
if another category allocation proves to be inadequate. Table 8 reflects the
allocation of the allowance for loan losses as of the dates indicated.
Table 8 - Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
December 31
June 30, ----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent Percent
Of Total Of Total Of Total Of Total Of Total Of Total
Loans Loans Loans Loans Loans Loans
Amount Amount Amount Amount Amount Amount
---------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.........$ 943 63.6% $ 1,279 60.6% $ 1,083 50.9% $ 881 44.7% $ 711 43.4% $ 723 44.4%
Real estate........ 883 21.7 750 24.2 943 32.0 810 38.8 803 42.7 829 42.3
Consumer........... 795 14.7 476 15.2 825 17.1 744 16.5 616 13.9 538 13.3
Unallocated........ 947 - 840 - 141 - 237 - 79 - 21 -
-----------------------------------------------------------------------------------------------------------
$3,568 100.0% $ 3,345 100.0% $ 2,992 100.0% $2,672 100.0% $ 2,209 100.0% $2,111 100.0%
===========================================================================================================
</TABLE>
81
<PAGE>
Securities
Elverson's securities' portfolio is intended to provide liquidity,
reduce interest rate risk and contribute to earnings while exposing Elverson to
reduced credit risk.
Total investment securities increased $ 7,953,000 during 1997 to $
49,704,000. Two factors contributed to this increase. First, the net proceeds
from the sale of the one-year indexed residential mortgage loans, which was
approximately $ 4,500,000, were reinvested into tax-free municipal securities.
Secondly, a portion of the funds received from the Bank's certificate of deposit
growth were invested into securities.
Table 9 sets forth the carrying amount of securities at the dates
indicated.
Table 9 - Securities Portfolio
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------------
1998 1997 1996 1995
-------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Available for sale securities (at fair value):
U.S. Treasury securities $ 501 $ 3,994 $ 6,475 $ 9,011
U.S. Government agencies 26,207 14,288 999 1,506
State and political subdivisions 21,332 10,011 2,995 3,560
Mortgage-backed securities 2,866 2,964 6,581 7,152
Other securities 5,297 564 196 515
Equity securities 1,740 1,644 1,585 1,316
-------------------------------------------
$57,943 $33,465 $18,831 $23,060
===========================================
</TABLE>
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------------------
1998 1997 1996 1995
-------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Held to maturity securities (at amortized cost):
U.S. Treasury securities $ -- $ -- $ -- $ 496
U.S. Government agencies 2,396 4,637 9,584 7,854
State and political subdivisions 6,996 7,589 8,679 5,194
Mortgage-backed securities 2,382 2,931 3,577 2,233
Other securities 498 1,082 1,080 1,078
-------------------------------------------
$12,272 $16,239 $22,920 $16,855
===========================================
</TABLE>
Elverson maintains a securities' portfolio for the secondary
application of funds as well as a secondary source of liquidity. At December 31,
1997, securities having an amortized cost of $ 18,696,000 were pledged as
collateral for public funds and other purposes as required or permitted by law.
Elverson does not hold any securities of any one issuer that exceeded
10% of stockholders' equity at June 30, 1998, December 31, 1997 or any prior
period end.
Table 10 sets forth the maturities and the weighted average yields of
securities by contractual maturities at December 31, 1997. Yields on obligations
of states and political subdivisions are not presented on a tax-equivalent
basis. Mortgage-backed securities with contractual maturities after ten years
from December 31, 1997 feature regular repayments of principal and average lives
of three to seven years.
82
<PAGE>
Table 10 - Analysis of Securities
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------------------------------------------------
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years
-------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 3,994 5.99% $ - -% $ - -% $ - -%
U.S. Government agencies 500 5.01 13,529 6.31 4,896 6.76 - -
State and political
subdivisions 1,776 4.67 7,019 4.50 3,267 5.18 5,538 5.14
Other securities 584 6.27 1,062 6.41 - - - -
Mortgage-backed securities 740 5.83 2,886 6.29 326 9.01 1,943 7.12
---------- ---------- ---------- -----------
$ 7,594 $ 24,496 $ 8,489 $ 7,481
========== ========== ========== ===========
</TABLE>
Deposits
Total deposits at year-end 1997 were $ 237,923,000 which reflects a $
27,755,000 increase from year-end 1996. This growth resulted generally from the
opening of the West Chester branch in March 1997, the introduction of a new
relationship money market savings product, and a successful year-end certificate
of deposit campaign. Elverson experienced a strong $ 7,534,000 or 22.5% increase
in demand deposits. Money market savings increased $ 10,288,000 and certificates
of deposit increased $ 9,592,000 from year-end 1996. A portion of the money
market savings increase was the result of existing corporate deposit customers
choosing the new relationship money market product rather than holding their
deposits under repurchase agreements.
The average daily amount of deposits and rates paid on such deposits is
summarized in the following Table:
Table 11 - Average Deposits and Average Rates by Major Classification
<TABLE>
<CAPTION>
Six Months Ended June 30 Year Ended December 31,
---------------------------------------------------------------------------------------------------
1998 1997 1997 1996 1995
---------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
---------------------------------------------------------------------------------------------------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Non-interest bearing $ 39,910 $ 32,423 $ 34,550 $ 30,067 $ 25,654
demand
Interest-bearing demand 21,145 1.90% 19,972 1.89% 20,183 1.88% 19,906 1.98% 19,806 2.19%
Savings deposits 78,531 3.64% 63,503 3.50% 67,860 3.57% 59,926 3.54% 49,899 3.49%
Time deposits 105,020 5.52% 95,722 5.43% 96,798 5.46% 89,463 5.39% 87,890 5.43%
--------- --------- --------- --------- ---------
Total $ 244,606 $ 211,620 $ 219,391 $ 199,362 $ 183,249
========= ========= ========= ========= =========
</TABLE>
At December 31, 1997, time deposits outstanding in an individual amount
of $ 100,000 or more totaled $ 17,376,000. The maturity of these deposits is
reflected in Table 12.
Table 12 - Maturities of Time Deposits of $ 100,000 or More
Over 3 Over 6
3 Months Through 6 Through 12 Over 12
Or Less Months Months Months
--------------------------------------------------------------
(In Thousands)
$ 4,400 $ 1,276 $ 3,721 $ 7,979
==============================================================
83
<PAGE>
Securities Sold under Agreements to Repurchase
Securities sold under agreements to repurchase generally mature within
one to four days from the transaction date. Securities sold under these
agreements are retained under the Bank's control at its safekeeping agent.
Information concerning securities sold under agreements to repurchase
is summarized as follows:
<TABLE>
<CAPTION>
Six Months Ended, June 30 Year Ended December 31
--------------------------------- -----------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Average balance during the period $7,423 $11,884 $10,564 $10,168 $6,410
Average interest rate during the period 5.09% 5.03% 5.00% 5.05% 5.52%
Maximum month-end balance during the $10,298 $14,281 $14,281 $11,990 $7,755
period
</TABLE>
Borrowed Funds
Elverson maintains a U.S. Treasury tax and loan note option account for
the deposit of withholding taxes, corporate income taxes and certain other
payments to the federal government. Borrowings under the note option account
which were used as source of funds were consistent during 1997 and 1996. These
borrowings do not represent a significant source of funds for Elverson.
Capital Requirements/Ratios
The current economic and regulatory environment has placed an increased
emphasis on capital strength. Capital must be evaluated in the context of
business risk exposures, including asset quality, interest rate sensitivity,
liquidity and earnings diversification. At December 31, 1997, stockholders'
equity totaled $ 25,740,000 or 9.37% of total assets, compared to $ 22,798,000
or 9.25% at year-end 1996.
Elverson is subject to minimum risk-based and leverage capital
guidelines issued by the Office of the Comptroller of the Currency. The
measurement of risk-based capital takes into account the credit risk of both
balance sheet assets and off-balance sheet exposures. These guidelines state
that for adequacy purposes, the minimum ratios of 4% for Tier I risk-based
capital, 8% for total risk-based capital and 4% for Tier I capital to total
average assets (leverage ratio) be maintained. The Office of the Comptroller of
the Currency regulations define a "well capitalized" bank as having minimum Tier
I and total risk-based capital ratios of 6% and 10% respectively, and a minimum
Tier I leverage ratio of 5%. As of December 31, 1997, the Bank qualified as
"well capitalized" with Tier I, total risk-based capital, and Tier I leverage
ratios of 13.09%, 14.34%, and 10.01%, respectively.
The following table sets forth the computation of Elverson's regulatory
capital ratios for the dates indicated. Elverson exceeded the minimum capital
levels of the well capitalized category.
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<PAGE>
Table 13 - Capital Ratios
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------------------------
1998 1997 1996 1995
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Tier I, common stockholders' equity (excluding
appreciation on securities) $ 27,244 $ 25,623 $ 22,731 $ 20,209
Tier II, allowable portion of allowance for loan losses 2,552 2,446 2,371 1,985
----------------------------------------------------------
Risk-based capital $ 29,796 $ 28,069 $ 25,102 $ 22,194
==========================================================
Risk-adjusted assets (including off-balance-sheet
exposures) $ 203,143 $ 194,818 $ 189,039 $ 158,810
==========================================================
Tier I risk-based capital ratio 13.34% 13.09% 11.99% 12.73%
Total risk-based capital ratio 14.59% 14.34% 13.24% 13.78%
Leverage ratio 9.71% 10.01% 9.75% 9.39%
</TABLE>
Note: Any unrealized appreciation and depreciation on securities available for
sale was excluded from regulatory capital components of risk-based and
leverage ratios.
Capital Analysis
In April 1997, Elverson changed its capital structure to 4,000,000
authorized shares of common stock, with a par value of $ 1.25 per share. Also,
Elverson issued a 2-for-1 stock split in the form of a 100% stock dividend in
1997. In 1998, Elverson issued a 5% stock dividend. The number of common shares
issued were adjusted accordingly.
Elverson's cash dividend payout ratio for the years ended December 31,
1997, 1996 and 1995 was 19.30%, 16.13% and 21.54%, respectively.
Stockholders' equity is adjusted for the effect of unrealized
appreciation or depreciation, net of tax, on securities classified as available
for sale. At June 30, 1998, December 31, 1997 and 1996, stockholders' equity
included $ 157,000, $ 117,000 and $ 67,000, respectively in unrealized
appreciation.
The return on average equity for the years ended December 31, 1997,
1996 and 1995 was 12.07%, 11.02%, and 8.41%, respectively.
Interest Rate Sensitivity and Market Risk
The operations of Elverson are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the amount of
Elverson's interest earning assets and the amount of interest bearing
liabilities that are prepaid/withdrawn, mature or reprice in specified periods.
The principal objective of Elverson's asset/liability management
activities is to provide consistently higher levels of net interest income while
maintaining acceptable levels of interest rate and liquidity risk and
facilitating the funding needs of Elverson. Elverson utilizes an interest rate
sensitivity model as the primary quantitative tool in measuring the amount of
interest rate risk that is present. The traditional maturity "gap" analysis,
which reflects the volume difference between interest rate sensitive assets and
liabilities during a given time period, is reviewed regularly by management. A
positive gap occurs when the amount of interest sensitive assets exceeds
interest sensitive liabilities. This position would contribute positively to net
income in a rising interest rate environment. Conversely, if the balance sheet
has more liabilities repricing than assets, the balance sheet is liability
sensitive or negatively gapped. Management continues to monitor sensitivity in
order to avoid overexposure to changing interest rates.
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<PAGE>
The operations of Elverson do not subject it to foreign currency
exchange or commodity price risk. Also, Elverson does not utilize interest rate
swaps, caps or other hedging transactions.
The following table provides information about Elverson's financial
instruments that are sensitive to changes in interest rates. For securities,
loans and deposits, the table presents principal cash flows and related weighted
average interest rates by maturity dates or repricing frequency. Elverson has no
market risk sensitive instruments entered into for trading purposes.
Table 14 - Interest Rate Sensitivity
REMAINING MATURITY/EARLIEST POSSIBLE REPRICING
<TABLE>
<CAPTION>
Fair Value
At
December 31,
1998 1999 2000 2001 2002 Thereafter Total 1997
---------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits $ 6,033 $ -- $ -- $ -- $ -- $ -- $ 6,033 $ 6,033
Average interest rate 5.78%
Federal funds sold 3,600 -- -- -- -- -- 3,600 3,600
Average interest rate 5.00%
Other short-term investments 1,899 -- -- -- -- -- 1,899 1,899
Average interest rate 5.59%
Securities, amortized cost 19,680 7,090 8,416 5,162 3,891 5,286 49,525 49,826
Average interest rate 6.06% 6.10% 6.03% 5.35% 4.91% 5.53%
Loans, excluding nonaccrual
loans 101,453 40,753 37,089 10,149 3,020 4,111 196,575 197,988
Average interest rate 9.02% 8.70% 9.00% 7.60% 8.50% 6.80%
---------------------------------------------------------------------------------------------------
Total interest earning
assets 132,665 47,843 45,505 15,311 6,911 9,397 257,632 259,346
---------------------------------------------------------------------------------------------------
Interest bearing liabilities:
Interest bearing demand
deposits 21,332 -- -- -- -- -- 21,332 21,332
Average interest rate 1.91%
Savings deposits 72,164 -- -- -- -- -- 72,164 72,164
Average interest rate 3.66%
Certificates of deposit 60,024 13,871 16,709 4,503 5,488 2,766 103,361 103,810
Average interest rate 5.35% 5.50% 6.20% 5.90% 6.00% 5.97%
Borrowed funds 9,338 -- -- -- -- 150 9,488 9,575
Average interest rate 4.79% -- -- -- -- 6.20%
---------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 162,858 13,871 16,709 4,503 5,488 2,916 206,345 $ 206,881
------------------------------------------------------------------------------------------=========
Interest sensitivity gap $ (30,193) $ 33,972 $ 28,796 $ 10,808 $ 1,423 $ 6,481 $ 51,287
=======================================================================================
Cumulative gap $ (30,193) $ 3,779 $ 32,575 $ 43,383 $ 44,806 $ 51,287
=========================================================================
</TABLE>
Liquidity
Liquidity management ensures that sufficient funding is available, at a
reasonable cost, to meet the potential cash needs of Elverson and to satisfy
customer deposit withdrawals and credit needs. Liquidity comes from a variety of
sources: the maturing of short-term assets, available for sale securities, the
stability of existing core deposits, the ability to attract new funds and
external borrowing capabilities. Elverson believes it maintains sufficient
liquidity to meet its obligations in a timely and cost-effective manner.
Year 2000 Compliance
During 1997, a committee was formed with the goal of ensuring that
Elverson's operational and financial systems would not be adversely affected by
year 2000 issues. The committee is comprised of members from all areas of the
Company - loan operations, deposit operations, branch administration, finance,
security and audit - and is providing the Board of Directors and senior
management with updates on a regular basis. Elverson's Board of Directors and
senior management are supporting all compliance efforts and believe they are
allocating the necessary resources to complete the project within the timeframes
established by the Board of Directors and bank regulators.
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<PAGE>
The committee has developed an inventory of hardware, software and
outside service providers that could be affected by year 2000 issues, has
identified what it believes are the critical areas which require immediate
evaluation and testing, and has begun to develop contingency plans for all core
business processes. Elverson's main operational and financial system -- Jack
Henry CIF 20/20 -- was year 2000 certified by the OCC and FFIEC in April 1998.
Additional third party vendor testing is being scheduled for the later part of
1998. Elverson is also contacting its large credit and deposit customers to
determine if they are aware of the year 2000 issue and/or their level of
compliance.
Elverson's Board of Directors and management do not expect the costs of
evaluating and testing Elverson's year 2000 compliance will materially impact
Elverson's future financial condition or results of operations, although
Elverson's Board of Directors and management recognize that this is an ongoing
process and there can be no assurance that additional costs may not be
necessary.
87
<PAGE>
ELVERSON: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF OR FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Results of Operations
Elverson recorded net income of $ 1,605,000 or $ .62 per share for the
six months ended June 30, 1998 compared to $ 1,289,000 or $ .50 per share for
the same period in 1997. This represents an increase of $ 316,000 or 24.5%. This
increase in earnings was principally driven by growth in interest earning
assets.
Elverson continued to improve its performance relative to two widely
used performance measurements: return on average assets (ROA) and return on
average shareholders' equity (ROE). For the six months ended June 30, 1998, the
ROA was 1.15% and the ROE was 12.23%. For the same period in 1997, these
performance ratios were 1.05% and 11.05% respectively.
Net Interest Income
The primary component of Elverson's net income is net interest income,
which represents the difference between the interest and fee income earned on
earning assets and the interest paid on deposits and other borrowed funds. The
level of net interest income results from the interaction among the volume and
mix of earning assets, the funding sources supporting those assets and the
interest rates earned on assets relative to those paid on the funding sources.
For analytical purposes, net interest income is adjusted to a taxable equivalent
basis to recognize the income tax savings on tax-exempt assets such as municipal
securities and tax-free loans.
For the six months ended June 30, 1998, taxable equivalent net interest
income was $ 6,587,000, $ 667,000 or 11.3% higher than for the same period in
1997. The components of this increase are summarized in Table 1.
Taxable equivalent interest income increased 11.8% from $ 10,090,000
for the six months ended June 30, 1997 to $ 11,283,000 for the same period in
1998. This increase reflects a $ 30,300,000 or 12.7% growth in average interest
earning assets from June 30, 1997 to June 30, 1998.
The growth in average interest earning assets was primarily the result
of a 43.8% or $ 17,756,000 increase in securities. This increase reflects
several factors: the reinvestment of proceeds received from the sale of
residential mortgages, low commercial and consumer loan demand in 1998, and
deposit growth. Total average loans increased 2.7%. Average commercial loans
increased 18.5% or $ 18,308,000 due to the strong commercial loan demand in
Elverson's markets during late 1997. Average residential mortgage loans declined
23.9% or $ 14,027,000 as a result of normal prepayments, the origination of more
fixed rate loans, which Elverson sells, than adjustable rate loans, which
Elverson retains, and the November 1997 sale of approximately $ 4,500,000 in
one-year indexed mortgages for interest rate risk management considerations.
The yield on interest earning assets declined from 8.56% for the six
months ended June 30, 1997 to 8.49% for the same period in 1998, primarily the
result of a change in the mix of Elverson's earning assets. During this period,
the percentage of lower-yielding, short-term and long-term investments to total
earning assets increased from 19.0% to 26.2% while the percentage of loans
declined from 81.0% to 73.8%. However, the yield on total loans did increase
from 9.05% for the six months ended June 30, 1997 to 9.23% for the same period
in 1998 due to increased loan fee income generated by prepayment of mortgage
loans in 1998.
Interest expense increased $ 526,000 to $ 4,696,000 which resulted from
an 11.1% growth in average interest bearing liabilities from June 30, 1997 to
June 30, 1998. This increase primarily occurred in the money market savings and
certificates of deposit categories which increased $ 15,279,000 and $ 9,298,000
respectively. Partially offsetting the net interest income effect of the
liabilities growth was a 23.1% or $ 7,487,000 growth in average non-interest
bearing demand deposits.
Provision for Loan Losses
The provision for loan losses for the six months ended June 30, 1998
totaled $ 330,000 compared to $ 518,000 for the same period in 1997. The amount
of the provision is based, among other factors, on the amount of net loan
88
<PAGE>
charge-offs which totaled $ 107,000 for the six months of 1998 and $ 121,000 for
the same period in 1997. Stated as a percentage of average loans, net
charge-offs were .05% and .06% for the six months ended June 30, 1998 and 1997,
respectively.
Other Income
Total other income was $ 760,000 for the six months ended June 30,
1998, an 11.6% or $ 79,000 increase from the same period in 1997. This increase
was primarily the result of increased mortgage banking activities during the
first six months of 1998 as a result of residential mortgage refinances. Income
from these activities totaled $ 212,000 for the six months ended June 30, 1998,
a 66.9% or $ 85,000 increase from the same period in 1997.
Other Expenses
Other expenses for the six months ended June 30, 1998 were $ 4,525,000,
$ 429,000 or 10.5% higher than the same period in 1997. However, Elverson's
efficiency ratio (a measurement of other expenses relative to taxable equivalent
net interest income and other income) declined during the same period to 61.66%
for 1998 from 62.07% in 1997.
Salaries and employee benefits, which accounts for the largest portion
of other expenses, increased $ 366,000 to $ 2,494,000. The factors contributing
to this increase include an increased employee base as a result of enhancements
to the credit administration and Tele-banking areas, annual merit increases and
increased Elverson-funded health insurance costs.
Expenses related to equipment were $ 403,000 for the six months ended
June 30, 1998 an increase of $ 65,000 or 19.2% over the same period in 1997.
This increase reflects Elverson's investment in technology enhancements in early
1998.
Financial Condition
Total assets at June 30, 1998 were $ 301,814,000 which is $ 26,976,000
or 9.8% higher than total assets at December 31, 1997.
Total investment securities increased $ 20,511,000 during the first six
months of 1998 to $ 70,215,000. Three factors primarily contributed to this
increase: low commercial and consumer loan volumes due to tight pricing
competition, $ 13,185,000 in proceeds from the sale of fixed rate residential
mortgage loans and a $ 25,726,000 increase in deposits since December 31, 1997.
Total loans were $ 193,649,000 at June 30, 1998, a $ 4,635,000 or 2.3%
decline from year-end 1997. This decline was primarily the result of a $
6,026,000 or 12.4% decline in residential mortgages. During the first six months
of 1998, $ 13,185,000 in fixed rate residential mortgages were sold due to the
high level of mortgage refinances in the current low rate environment.
Commercial loans experienced a modest 3.0% increase to $ 117,173,000 since
December 31, 1997.
Total deposits at June 30, 1998 were $ 263,649,000 which reflects a $
25,726,000 increase from year-end 1997. This growth can be attributed to strong
growth in non-interest bearing deposits and the continued success of Elverson's
relationship money market savings product. Elverson experienced a $ 8,426,000 or
20.5% increase in demand deposits while money market savings increased $
14,048,000 or 22.5%.
Allowance for Loan Losses
The June 30, 1998 allowance for loan losses was $ 3,568,000 and
represented 1.84% of period-end loans. This compares with an allowance at
December 31, 1997 of $ 3,345,000 and 1.69% of loans. The adequacy of the
allowance will continue to be examined in light of past loan loss experience,
current economic conditions, size and characteristics of the loan portfolio,
volume of non-performing and delinquent loans and other relevant information.
Non-performing loans at June 30, 1998 were $ 916,000 compared to $
2,157,000 at year-end 1997. Stated as a percentage of period-end loans,
non-performing loans were .47% and 1.10% respectively. This improvement reflects
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<PAGE>
the successful resolution and complete pay-off of four non-accrual accounts
totaling $ 973,000. Non-performing loans are defined as all loans 90 days or
more past due and non-accruing loans.
Capital
The current economic condition and regulatory environment has placed an
increased emphasis on capital strength. Capital must be evaluated in the context
of business risk exposures, including asset quality, interest rate sensitivity,
liquidity and earnings diversification. At June 30, 1998, stockholders' equity
totaled $ 27,401,000 or 9.08% of total assets, compared to $ 25,740,000 or 9.37%
at year-end 1997.
Elverson is subject to minimum risk-based and leverage capital
guidelines issued by the Office of the Comptroller of the Currency. The
measurement of risk-based capital takes into account the credit risk of both
balance sheet assets and off-balance sheet exposures. These guidelines state
that, for adequacy purposes, the minimum ratios of 4% for Tier 1 risk-based
capital, 8% for total risk-based capital and 4% for Tier 1 capital to total
average assets (leverage ratio) be maintained. The Office of the Comptroller of
the Currency regulations define a "well capitalized" bank as having minimum Tier
1 and total risk-based capital ratios of 6% and 10% respectively and a minimum
Tier 1 leverage ratio of 5%. As of June 30, 1998, Elverson qualified as "well
capitalized" with Tier I, total risk-based capital and Tier I leverage ratios of
13.34%, 14.59% and 9.71% respectively.
Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in Elverson's assessment of its
sensitivity to market risk since its presentation included in this Proxy
Statement/Prospectus as of December 31, 1997.
Year 2000 Compliance Update
Elverson expects to spend approximately $ 10,000 in 1998 to modify its
computer information systems enabling proper processing of transactions related
to the year 2000 and beyond. Management has evaluated the appropriate courses of
corrective action and do not expect the costs of evaluating and testing of year
2000 compliance to materially impact Elverson's future financial condition or
results of operations.
90
<PAGE>
INFORMATION WITH RESPECT TO ELVERSON
Business
Elverson is a banking corporation organized on August 16, 1915 under
the national banking laws and headquartered in the Borough of Elverson,
Pennsylvania 19520-9403. Elverson engages in commercial banking authorized by
the NBA, offering a full range of personal and corporate services, including
deposit accounts (such as checking, NOW, money market savings and certificates
of deposit) and loan accounts (such as commercial, installment and student loans
and fixed and adjustable rate residential mortgages).
As of December 31, 1997, Elverson had assets of $274,838,000. Elverson
currently operates offices in nine locations, six of which are owned in fee by
Elverson or its subsidiaries, and has a separate leased operations building.
Elverson has seven subsidiaries which primarily hold real estate. Elverson's
principal executive office, which it owns, is located at 83 West Main Street,
Elverson, Pennsylvania, and the telephone number at such address is (610)
286-8200. Elverson engages in general commercial and retail banking business
through its nine banking offices in Chester, Berks and Lancaster Counties,
Pennsylvania.
Legal Proceedings
Elverson from time to time is a party (plaintiff or defendant) to
lawsuits which arise in the normal course of Elverson's business. While any
litigation involves an element of uncertainty, management believes that the
liability of Elverson, if any, resulting from such actions will not have a
material effect on the financial condition or results of operations of Elverson.
Elverson has been named a codefendant in M.H. Davis Oil Co., Inc. v. Elverson
National Bank and the Pennsylvania Department of Revenue, No. 98-05986 in the
Court of Common Pleas, Chester County, Pennsylvania as a result of its issuance
of a fully collateralized standby irrevocable letter of credit in the amount of
$625,000 to the Department of Revenue of the Commonwealth of Pennsylvania to
secure the collection of various motor fuel taxes. M. H. Davis Oil Co., Inc., is
an affiliate of Boyd C. Davis, Jr., a director of Elverson.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 2, 1998, certain
information regarding the beneficial ownership of Elverson Common Stock by (i)
each director and executive officer of Elverson; (ii) all directors and
executive officers of Elverson as a group; and (iii) each other person known by
Elverson to own beneficially more than 5% of the outstanding Elverson Common
Stock.
<TABLE>
<CAPTION>
Beneficial Ownership of
Elverson Common Stock (1)
------------------------------
Number of Percent of
Shares (2) Total
------------ ----------
<S> <C> <C>
Directors and Executive Officers: (3)
Joseph A. Rigg (4) 8,210 0.32%
George R. James, Sr 5,212 0.20%
Robert E. Rigg 179,097 6.89%
John A. Koury, Jr. (5) 29,417 1.13%
John W. Jacobs (6) 72,901 2.81%
Boyd C. Davis, Jr. (7) 247,906 9.54%
Glenn E. Moyer (8) 17,868 0.69%
Sandra L. Hoffman (9) 14,178 0.54%
Paul W. McEwen (10) 27,870 1.07%
Charles A. Bender (11) 3,891 0.15%
Glenn B. Marshall (12) 3,845 0.15%
Hugh L. Marshall III (13) 2,310 0.09%
Julie A. Kissinger (14) 525 0.02%
All Directors And Executive Officers As A Group (13 Persons) 613,230 23.60%
Other 5% Shareholders:
The Jacobs Family Limited Partnership (15) 176,527 6.79%
<FN>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in
this table have sole voting and investment power with respect to all
Elverson Common Stock indicated above.
(2) Fractions in share ownership are rounded up to the next whole number.
(3) The address of each officer and director is Elverson National Bank, 83 West
Main Street, Elverson, Pennsylvania 19520.
(4) Includes 1,087 shares owned by Mr. Rigg in escrow with Paine Webber.
(5) Includes 679 shares owned by Mr. Koury and his wife as trustees for the
benefit of James E. Koury and 5,766 shares owned jointly with Mr. Koury's
wife.
(6) Does not include the 176,527 shares owned by The Jacobs Family Limited
Partnership in which Mr. Jacobs has a 25.95% limited partnership interest.
(7) Includes 69,056 shares pledged to NP Bank as security for a loan by NP Bank
to Mr. Davis.
(8) Includes 17,010 subject to stock options granted to Mr. Moyer, which are
currently exercisable.
(9) Includes 7,245 shares subject to stock options granted to Ms. Hoffman,
which are currently exercisable.
(10) Includes 118 shares owned by Mr. McEwen in trust for Mr. McEwen's
granddaughter, 118 shares owned by Mr. McEwen in trust for Mr. McEwen's
grandson; and 3,675 shares subject to stock options granted to Mr. McEwen,
which are currently exercisable.
(11) Includes 2,001 shares owned jointly with Mr. Bender's wife; and 1,890
shares subject to stock options granted to Mr. Bender, which are currently
exercisable.
(12) Includes 586 shares owned jointly with Mr. Marshall's wife; and 3,255
shares subject to stock options granted to Mr. Marshall, which are
currently exercisable.
(13) Includes 2,310 shares subject to stock options granted to Mr. Marshall,
which are currently exercisable.
(14) Includes 525 shares subject to stock options granted to Ms. Kissinger,
which are currently exercisable.
(15) The Jacobs Family Limited Partnership's address is Tel Hai Hillcrest, Apt.
516, P.O. Box 190, Honeybrook, Pennsylvania 19344-0190.
</FN>
</TABLE>
92
<PAGE>
EXPERTS
The consolidated financial statements of NPB as of December 31, 1997,
and 1996, and for each of the three years in the period ended December 31, 1997,
included in NPB's 1997 Annual Report on Form 10-K and incorporated by reference
in this Proxy Statement/Prospectus, have been incorporated herein in reliance on
the report of Grant Thornton LLP, independent certified public accountants,
incorporated by reference herein, given upon the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of Elverson as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, included in this Proxy Statement/Prospectus, have been included herein in
reliance on the report of Beard & Company, Inc., independent certified public
accountants, included herein, given upon the authority of said firm as experts
in auditing and accounting.
Representatives of Grant Thornton, LLP are expected to be present at
the NPB Meeting, and representatives of Beard & Company, Inc., are expected to
be present at the Elverson Meeting. In each case, such representatives will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the NPB Common Stock to be issued in the Merger and
certain other legal matters relating to the Merger are being passed upon for NPB
by the law firm of Ellsworth, Wiles, Carlton & Waldman, P.C., Wyomissing,
Pennsylvania. H. Anderson Ellsworth, a principal in Ellsworth, Wiles, Carlton, &
Waldman, P.C., owns directly or indirectly 10,747 shares of NPB Common Stock.
Certain legal matters relating to the Merger are being passed upon for
Elverson by the law firm of Dechert Price & Rhoads, Philadelphia, Pennsylvania.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the Boards of
Directors of NPB and Elverson each know of no matters which will be presented
for consideration at the Meetings other than as set forth in this Proxy
Statement/Prospectus. However, if any other matters shall properly come before
either of the Meetings or any adjournments thereof and be voted upon, the forms
of proxy shall be deemed to confer discretionary authority to the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters according to their best judgment.
SHAREHOLDER PROPOSALS
NPB's 1999 Annual Meeting of Shareholders will be held on or about
April 27, 1999. Any NPB shareholder who desires to submit a proposal to be
considered for inclusion in NPB's proxy materials relating to the 1999 Annual
Meeting of Shareholders must have submitted such proposal to NPB, in writing,
addressed to National Penn Bancshares, Inc., Reading and Philadelphia Avenues,
Boyertown, PA 19512, Attention: Sandra L. Spayd, Secretary, on or before
November 25, 1998.
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<PAGE>
Index to Elverson's Financial Statements
ELVERSON NATIONAL BANK AND SUBSIDIARIES
Page
INDEPENDENT AUDITOR'S REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets - as of December 31, 1997 and 1996 F-2
Consolidated statements of income - for the years ended
December 31, 1997, 1996 and 1995 F-3
Consolidated statements of stockholders' equity - for the years
ended December 31, 1997, 1996 and 1995 F-4
Consolidated statements of cash flows - for the years ended
December 31, 1997, 1996 and 1995 F-5
Notes to consolidated financial statements F-6 to F-22
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets - as of June 30, 1998 and
December 31, 1997 F-23
Consolidated statements of income - for the six months ended
June 30, 1998 and 1997 F-24
Consolidated statements of stockholders' equity - for the six months
ended June 30, 1998 and 1997 F-25
Consolidated statements of cash flows - for the six months ended
June 30, 1998 and 1997 F-26
Notes to consolidated financial statements F-27 to F-29
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Elverson National Bank
Elverson, Pennsylvania
We have audited the accompanying consolidated balance sheets of Elverson
National Bank and its subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Elverson
National Bank and its subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 16, 1998, except for Note 17 as to which the date is
April 10, 1998
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(Dollars In Thousands, Except Per Share Data) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,778 $ 7,668
Interest-bearing deposits with banks 6,033 1,798
Federal funds sold 3,600 4,300
Bankers acceptance notes 1,899 --
-------- --------
Total cash and cash equivalents 22,310 13,766
Securities available for sale 33,465 18,831
Securities held to maturity, fair value 1997 $16,361; 1996 $22,945 16,239 22,920
Loans receivable, net of allowance for loan losses 1997 $3,345;
1996 $2,992 194,939 183,770
Premises and equipment, net 4,504 3,866
Accrued interest receivable 1,554 1,424
Other assets 1,827 1,976
-------- --------
Total Assets $274,838 $246,553
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 41,066 $ 33,532
Interest bearing 196,857 176,636
-------- --------
Total deposits 237,923 210,168
Securities sold under agreements to repurchase 8,963 11,851
Borrowed funds 525 131
Accrued interest payable 1,019 879
Other liabilities 668 726
-------- --------
Total Liabilities 249,098 223,755
-------- --------
Stockholders' Equity
Common stock, par value $1.25 per share; 4,000,000 shares
authorized; issued and outstanding shares:
1997 2,584,615; 1996 2,438,310 3,231 3,048
Surplus 17,298 14,055
Retained earnings 5,094 5,628
Net unrealized appreciation on securities available for sale, net of
taxes 117 67
-------- --------
Total Stockholders' Equity 25,740 22,798
-------- --------
Total Liabilities and Stockholders' Equity $274,838 $246,553
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars In Thousands, Except Per Share Data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Loans receivable, including fees $17,681 $15,161 $13,609
Securities:
Taxable 1,900 2,106 1,588
Tax-exempt 483 446 403
Deposits with banks 164 202 470
Federal funds sold and bankers acceptance notes 249 198 356
------- ------- -------
Total interest income 20,477 18,113 16,426
------- ------- -------
Interest Expense:
Deposits 8,089 7,344 6,950
Securities sold under agreements to repurchase 528 514 354
Borrowed funds 10 38 270
------- ------- -------
Total interest expense 8,627 7,896 7,574
------- ------- -------
Net Interest Income 11,850 10,217 8,852
Provision for loan losses 988 600 700
------- ------- -------
Net Interest Income After Provision for Loan Losses 10,862 9,617 8,152
------- ------- -------
Other Income:
Customer service fees 967 743 685
Mortgage banking activities 421 245 111
Net realized gains on sales of securities 19 -- 10
Other 125 77 64
------- ------- -------
Total other income 1,532 1,065 870
------- ------- -------
Other Expenses:
Salaries and employee benefits 4,336 3,657 3,230
Occupancy 780 715 684
Equipment 704 671 602
Other 2,450 2,289 2,273
------- ------- -------
Total other expenses 8,270 7,332 6,789
------- ------- -------
Income Before Income Taxes 4,124 3,350 2,233
Federal income taxes 1,193 983 611
------- ------- -------
Net Income $ 2,931 $ 2,367 $ 1,622
======= ======= =======
Basic and Diluted Earnings Per Share $ 1.14 $ 0.93 $ 0.65
======= ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1997, 1996 and 1995
(Dollars In Thousands, Except Per Share Data)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation
(Depreciation) Total
On Securities Stock-
Common Retained Available holders'
Shares Stock Surplus Earnings For Sale Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,160,210 $ 2,700 $ 8,686 $ 6,952 $ (212) $ 18,126
Net income -- -- -- 1,622 -- 1,622
Cash dividends, $ 0.14 per share -- -- -- (348) -- (348)
Issuance of common stock in connection with
dividend reinvestment and voluntary cash
purchase plan 32,702 41 561 -- -- 602
Issuance of common stock in connection with a
10% stock dividend 219,040 274 4,299 (4,578) -- (5)
Net change in unrealized appreciation
(depreciation) on securities available
for sale, net of taxes -- -- -- -- 285 285
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 2,411,952 3,015 13,546 3,648 73 20,282
Net income -- -- -- 2,367 -- 2,367
Cash dividends, $ 0.15 per share -- -- -- (387) -- (387)
Issuance of common stock in connection with
dividend reinvestment and voluntary cash
purchase plan
26,358 33 509 -- -- 542
Net change in unrealized appreciation
(depreciation) on securities available for
sale, net of taxes -- -- -- -- (6) (6)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 2,438,310 3,048 14,055 5,628 67 22,798
Net income -- -- -- 2,931 -- 2,931
Cash dividends, $ 0.22 per share -- -- -- (564) -- (564)
Issuance of common stock upon exercise of
stock options 534 1 10 -- -- 11
Issuance of common stock in connection with
dividend reinvestment and voluntary cash
purchase plan 22,491 28 486 -- -- 514
Issuance of common stock in connection with a
5% stock dividend 123,280 154 2,747 (2,901) -- --
Net change in unrealized appreciation
(depreciation) on securities available for
sale, net of taxes -- -- -- -- 50 50
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,584,615 $ 3,231 $ 17,298 $ 5,094 $ 117 $ 25,740
====================================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
(Dollars In Thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 2,931 $ 2,367 $ 1,622
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan and foreclosed real estate losses 988 650 845
Provision for depreciation 402 414 357
Net amortization (accretion) of securities premiums and discounts (34) (19) 9
Net (gains) on the sales of securities (19) -- (10)
Proceeds from sale of loans 16,542 11,619 5,355
Net (gains) losses on sale of loans (294) (120) 7
Loans originated for sale (16,248) (11,499) (5,362)
Net (gains) losses on sale or disposal of premises and equipment 39 (42) 14
Net losses on sale of foreclosed real estate 12 7 --
(Increase) in accrued interest receivable and other assets (164) (101) (288)
Increase in accrued interest payable and other liabilities 82 89 399
(Increase) in deferred income taxes (69) (28) (161)
-------------------------------------
Net cash provided by operating activities 4,168 3,337 2,787
-------------------------------------
Cash Flows from Investing Activities
Proceeds from sales of securities available for sale 3,655 -- 510
Proceeds from principal payments and maturities of securities:
Held to maturity 6,712 4,831 10,940
Available for sale 5,460 14,208 6,759
Purchases of securities:
Held to maturity -- (10,868) (16,216)
Available for sale (23,651) (9,997) (10,741)
Loans made to customers, net of principal collected (12,157) (24,260) (13,494)
Proceeds from sales of foreclosed real estate 214 664 --
Purchases of premises and equipment (1,079) (749) (295)
-------------------------------------
Net cash used in investing activities (20,846) (26,171) (22,537)
-------------------------------------
Cash Flows from Financing Activities
Net increase in interest and non-interest bearing demand deposits
and savings accounts 18,164 15,586 8,395
Net increase in certificates of deposit 9,591 2,588 15,286
Net increase (decrease) in securities sold under agreements to repurchase (2,888) 4,582 3,416
Net proceeds (repayments) from borrowed funds 394 (98) --
Principal payments on long-term borrowings -- (1,220) (4,400)
Proceeds from exercise of stock options 11 -- --
Proceeds from dividend reinvestment and stock purchase plan 514 542 602
Dividends paid (564) (387) (342)
-------------------------------------
Net cash provided by financing activities 25,222 21,593 22,957
-------------------------------------
Increase (decrease) in cash and cash equivalents 8,544 (1,241) 3,207
Cash and cash equivalents:
January 1 13,766 15,007 11,800
-------------------------------------
December 31 $ 22,310 $ 13,766 $ 15,007
=====================================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 8,487 $ 7,911 $ 7,239
=====================================
Income taxes $ 1,422 $ 1,039 $ 723
=====================================
Supplemental Disclosure of Noncash Investing and Financing Activities
Foreclosed real estate acquired in settlement of loans $ -- $ 426 $ --
=====================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include the
accounts of Elverson National Bank (the Bank) and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Nature of operations: The Bank operates under a national bank charter and
provides full banking services. As a national bank, the Bank is subject to
regulation of the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation. The area served by the Bank is principally Berks,
Chester and Lancaster Counties in Pennsylvania. The Bank's subsidiaries
primarily hold certain real estate.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation of cash flows: For the purposes of reporting cash flows, cash and
cash equivalents include cash on hand, cash and due from banks, interest bearing
deposits with banks, federal funds sold and bankers acceptance notes. Generally,
federal funds are purchased and sold for one day periods. Also, bankers
acceptance notes generally have a maturity within 90 days of purchase date.
Securities: Securities that management has both the positive intent and ability
to hold to maturity are classified as securities held to maturity and are
carried at cost, adjusted for amortization of premium or accretion of discount
using the interest method. Securities that may be sold prior to maturity for
asset/liability management purposes, or that may be sold in response to changes
in interest rates, changes in prepayment risk, to increase regulatory capital or
other similar factors, are classified as securities available for sale and
carried at fair value with adjustments to fair value, after tax, reported as a
separate component of stockholders' equity. Management determines the
appropriate classification of debt securities at the time of purchase and
re-evaluates such designation at each balance sheet date.
Interest and dividends on securities, including the amortization of premiums and
the accretion of discounts, are reported in interest income on securities using
the interest method. Gains and losses on the sale of securities are recorded on
the trade date and are calculated using the specific identification method.
Loans receivable: Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or payoff are stated at their
outstanding unpaid principal balances, net of an allowance for loan losses and
any deferred fees or costs. Interest income is accrued on the unpaid principal
balance. Loan origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the yield (interest income) of the
related loans. The Bank is generally amortizing these amounts over the
contractual life of the loan.
F-6
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Loans receivable (continued): A loan is generally considered impaired when it is
probable the Bank will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement. The
accrual of interest is generally discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan is currently performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well secured. When a loan
is placed on nonaccrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Interest received on nonaccrual loans
generally is either applied against principal or reported as interest income,
according to management's judgment as to the collectibility of principal.
Generally, loans are restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period of time and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Allowance for loan losses: The allowance for loan losses is established through
provisions for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses, and subsequent
recoveries, if any, are credited to the allowance.
The allowance for loan losses related to impaired loans that are identified for
evaluation is based on discounted cash flows using the loan's initial effective
interest rate or the fair value, less selling costs, of the collateral for
collateral dependent loans. By the time a loan becomes probable of foreclosure,
it has been charged down to fair value, less estimated cost to sell.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions, and other relevant factors. This evaluation is inherently subjective
as it requires material estimates that may be susceptible to significant change,
including the amounts and timing of future cash flows expected to be received on
impaired loans.
Loan servicing: The cost of mortgage servicing rights is amortized in proportion
to, and over the period of, estimated net servicing revenues. Impairment of
mortgage servicing rights is assessed based on the fair value of those rights.
Fair values are estimated using discounted cash flows based on a current market
interest rate.
Foreclosed real estate: Foreclosed real estate, which is recorded in other
assets, is comprised of property acquired through a foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure and loans classified as in-substance
foreclosure. A loan is classified as in-substance foreclosure when the Bank has
taken possession of the collateral regardless of whether formal foreclosure
proceedings take place.
Foreclosed real estate initially is recorded at fair value, net of estimated
selling costs at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and the assets
are carried at the lower of cost or fair value, less estimated costs to sell.
Revenues and expenses from operations and changes in the valuation allowance are
included in other expenses.
F-7
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies (Continued)
Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on the straight-line and
accelerated depreciation methods over the estimated useful lives of the assets.
Advertising costs: The Bank follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense for the years ended
December 31, 1997, 1996 and 1995 was $316,000, $313,000 and $231,000,
respectively.
Income taxes: Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment. The Bank and its subsidiaries file a
consolidated federal income tax return.
Earnings per share: The Bank adopted FASB Statement No. 128, "Earnings Per
Share", in 1997. Statement No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effect of stock options. Diluted earnings per share includes the dilutive effect
of stock options. The effect of stock options on diluted earnings per share for
the Bank is immaterial and results in the same amount reported as basic earnings
per share for 1997, 1996 and 1995. Accordingly, basic and diluted earnings per
share are the same amounts for all periods presented and are the same amount as
previously reported for 1996 and 1995.
Off-balance sheet financial instruments: In the ordinary course of business, the
Bank has entered into off-balance sheet financial instruments consisting of
commitments to extend credit, letters of credit and commitments to sell loans.
Such financial instruments are recorded in the consolidated balance sheets when
they are funded.
Reclassifications: Certain items in the 1996 and 1995 consolidated financial
statements have been reclassified to conform to the 1997 consolidated financial
statement presentation format. These reclassifications had no effect on net
income.
Note 2. Restrictions On Cash And Due From Bank Balances
The Bank is required to maintain average reserve balances in vault cash or with
the Federal Reserve Bank. The total of those reserve balances at December 31,
1997 and 1996 were approximately $1,799,000 and $1,407,000, respectively.
F-8
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities
The amortized cost and approximate fair value of securities at December 31 were
as follows:
<TABLE>
<CAPTION>
Gross Gross
Securities Available for Sale Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities $ 3,990 $ 4 $ -- $ 3,994
U.S. Government and agency obligations 14,244 48 (4) 14,288
State and political subdivisions 9,928 117 (34) 10,011
Mortgage-backed securities 2,917 53 (6) 2,964
Other securities 566 -- (2) 564
Equity securities 1,642 2 -- 1,644
-------------------------------------------------
$ 33,287 $ 224 $ (46) $ 33,465
=================================================
December 31, 1996
U.S. Treasury securities $ 6,459 $ 18 $ (2) $ 6,475
U.S. Government and agency obligations 1,000 -- (1) 999
State and political subdivisions 2,917 80 (2) 2,995
Mortgage-backed securities 6,572 39 (30) 6,581
Other securities 196 -- -- 196
Equity securities 1,585 -- -- 1,585
-------------------------------------------------
$ 18,729 $ 137 $ (35) $ 18,831
=================================================
</TABLE>
Equity securities are principally comprised of Federal Home Loan Bank and
Federal Reserve Bank stock.
<TABLE>
<CAPTION>
Gross Gross
Securities Held to Maturity Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Government and agency obligations $ 4,637 $ 24 $ (5) $ 4,656
State and political subdivisions 7,589 98 (1) 7,686
Mortgage-backed securities 2,931 -- (3) 2,928
Other securities 1,082 9 -- 1,091
-------------------------------------------------
$ 16,239 $ 131 $ (9) $ 16,361
=================================================
December 31, 1996
U.S. Government and agency obligations $ 9,584 $ 19 $ (22) $ 9,581
State and political subdivisions 8,679 80 (25) 8,734
Mortgage-backed securities 3,577 -- (35) 3,542
Other securities 1,080 8 -- 1,088
-------------------------------------------------
$ 22,920 $ 107 $ (82) $ 22,945
=================================================
</TABLE>
F-9
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities (Continued)
The amortized cost and fair value of securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because the securities may be called or prepaid with or
without penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
Amortized Fair Amortized Fair
(In Thousands) Cost Value Cost Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 3,990 $ 3,994 $ 2,862 $ 2,868
Due after one year through five years 13,645 13,677 8,316 8,377
Due after five years through ten years 6,098 6,157 1,982 2,039
Due after ten years 4,995 5,029 148 149
Mortgage-backed securities 2,917 2,964 2,931 2,928
Equity securities 1,642 1,644 -- --
-------------------------------------------
$33,287 $33,465 $16,239 $16,361
===========================================
</TABLE>
Securities with an amortized cost of $18,696,000 and $22,331,000 at December 31,
1997 and 1996, respectively, were pledged as collateral on public deposits,
securities sold under agreements to repurchase and for other purposes as
required or permitted by law.
Gross gains of $48,000 and gross losses of $29,000 were realized on sales of
available for sale securities in 1997. There were no sales of securities
available for sale in 1996. Gross gains of $10,000 were realized on sales of
available for sale securities in 1995.
Note 4. Loans Receivable and Allowance for Loan Losses The composition of loans
receivable were as follows:
At December 31
(In Thousands) 1997 1996
--------------------------------------------------------
Consumer $ 30,042 $ 31,963
Mortgage 48,650 60,627
Commercial 113,806 92,053
Tax-free 6,518 3,047
---------------------
199,016 187,690
Less:
Allowance for loan losses 3,345 2,992
Unearned loan fees 732 928
---------------------
$194,939 $183,770
=====================
F-10
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans Receivable and Allowance for Loan Losses (Continued) Changes in
the allowance for loan losses were as follows:
Years Ended December 31
(In Thousands) 1997 1996 1995
---------------------------------------------------------------
Balance, January 1 $ 2,992 $ 2,672 $ 2,209
Provision for loan losses 988 600 700
Loans charged off (745) (319) (306)
Recoveries 110 39 69
---------------------------------
Balance, December 31 $ 3,345 $ 2,992 $ 2,672
=================================
The recorded investment in impaired loans, not requiring an allowance for loan
losses, was $431,000 and $108,000 at December 31, 1997 and 1996, respectively.
The recorded investment in impaired loans requiring an allowance for loan losses
was $355,000 and $545,000 at December 31, 1997 and 1996, respectively. At
December 31, 1997 and 1996, the related allowance for loan losses associated
with those loans was $40,000 and $188,000, respectively. For the years ended
December 31, 1997 and 1996, the average recorded investment in these impaired
loans was $818,000 and $310,000, respectively. There was no interest income
recognized on impaired loans in 1997, 1996 and 1995.
Note 5. Loan Servicing
Effective January 1, 1996, the Bank adopted Financial Accounting Standards Board
Statement No. 122, "Accounting for Mortgage Servicing Rights", which was
superceded by Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," effective January 1, 1997.
These Statements apply to all mortgage banking activities in which a mortgage
loan is originated or purchased and then sold or securitized with the right to
service the loan retained by the seller. The total cost of the mortgage loans is
allocated between the mortgage servicing rights and the mortgage loans based on
their relative fair values. The mortgage servicing rights are capitalized as
assets and amortized over the period of estimated net servicing income.
Additionally, they are subject to an impairment analysis based on their fair
value in future periods. Fair values are estimated using discounted cash flows
based on a current market interest rate.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $64,092,000 and $53,236,000 at December 31, 1997 and
1996, respectively. In connection with loans serviced for others, the Bank held
borrower's escrow balances of $176,000 and $148,000 at December 31, 1997 and
1996, respectively. Servicing income, net of mortgage servicing rights
amortization, for the years ended December 31, 1997, 1996 and 1995, was
$117,000, $116,000 and $113,000, respectively.
The Bank capitalized $153,000 and $111,000 of mortgage servicing rights for
loans originated and sold in 1997 and 1996, respectively and amortized $29,000
and $9,000 of those rights for the years ended December 31, 1997 and 1996,
respectively.
The amortization of purchased and originated mortgage servicing rights is
recorded as a reduction of servicing revenue. Mortgage servicing rights are
included in other assets.
F-11
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Premises and Equipment
Components of premises and equipment were as follows:
<TABLE>
<CAPTION>
At December 31
(In Thousands) Estimated Useful Lives 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 840 $ 674
Land improvements 5 to 40 Years 117 89
Buildings and improvements 15 to 40 Years 3,105 2,826
Furniture and equipment 3 to 20 Years 2,750 2,269
----------------------------
6,812 5,858
Less accumulated depreciation 2,308 1,992
----------------------------
$ 4,504 $ 3,866
============================
</TABLE>
Note 7. Deposits
Total deposits are summarized as follows:
At December 31
(In Thousands) 1997 1996
------------------------------------------------------------
Demand $ 41,066 $ 33,532
NOW and Super NOW 21,332 20,665
Money market savings 62,542 52,254
Regular savings and club accounts 9,622 9,948
Time, $100,000 and over 17,376 16,828
Time, other 85,985 76,941
---------------------
Total $237,923 $210,168
=====================
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows (in thousands):
1998 $ 59,257
1999 14,638
2000 16,710
2001 4,503
2002 and thereafter 8,253
---------
$ 103,361
=========
F-12
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Borrowed Funds
The Bank maintains a U.S. Treasury tax and loan note option account for the
deposit of withholding taxes, corporate income taxes and certain other payments
to the federal government. Deposits are subject to withdrawal and are evidenced
by an open-ended interest-bearing note. Borrowings under this note option
account were $375,000 and $131,000 at December 31, 1997 and 1996, respectively.
The Bank has a flexible line of credit commitment available from the Federal
Home Loan Bank for borrowings of up to approximately $6,995,000, expiring March
25, 1998. There were no borrowings under this line of credit at December 31,
1997 and 1996. The line of credit interest rate at December 31, 1997 was 6.86%.
Included in borrowed funds are long-term debt advances from the Federal Home
Loan Bank of $150,000 and $-0- at December 31, 1997 and 1996, respectively. The
advance is to be repaid over a ten-year period with monthly installments of
approximately $1,000, including interest at 6.20%.
The Bank has a maximum borrowing capacity with the Federal Home Loan Bank of
approximately $72,091,000. Advances from the Federal Home Loan Bank are secured
by qualifying assets of the Bank.
Note 9. Securities Sold under Agreements to Repurchase
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Securities sold under these agreements are
retained under the Bank's control at its safekeeping agent.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
At December 31
(In Thousands) 1997 1996
-------------------------------------------------------------------
Average balance during the year $ 10,564 $ 10,168
Average interest rate during the year 5.00% 5.05%
Maximum month-end balance during the year 14,281 11,990
Note 10. Income Taxes
The provision for federal income taxes consisted of the following:
Years Ended December 31
(In Thousands) 1997 1996 1995
--------------------------------------------------------------
Current $ 1,262 $ 1,011 $ 772
Deferred (69) (28) (161)
-------------------------------------------
$ 1,193 $ 983 $ 611
===========================================
F-13
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Income Taxes (Continued)
A reconciliation of the statutory income tax at a rate of 34% to the income tax
expense included in the consolidated statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31
(In Thousands) 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate $ 1,402 $ 1,139 $ 759
Tax-exempt interest (221) (167) (153)
Other 12 11 5
---------------------------------
$ 1,193 $ 983 $ 611
=================================
</TABLE>
The income tax provision includes $ 6,000 in 1997, $ -0- in 1996 and $ 3,000 in
1995 of income tax expense related to net realized securities gains.
Net deferred tax assets consisted of the following components:
<TABLE>
<CAPTION>
At December 31
(In Thousands) 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,055 $ 935
Loan origination fees and costs 37 84
Other 28 33
-----------------
1,120 1,052
-----------------
Deferred tax liabilities:
Premises and equipment 170 171
Unrealized appreciation on securities available for sale 61 35
-----------------
231 206
-----------------
Net deferred tax assets $ 889 $ 846
=================
</TABLE>
Note 11. Dividend Reinvestment and Stock Purchase Plan
The Bank has a dividend reinvestment and stock purchase plan available to
stockholders who elect to reinvest their dividends or to make voluntary cash
payments for the purchase of additional shares of the Bank's common stock.
Distributions under the plan are made exclusively from the Bank's authorized but
unissued shares of common stock with the purchase price based on the fair market
value of such shares at the time of issuance. Stockholders purchased 22,491
shares in 1997, 26,358 shares in 1996 and 32,702 shares in 1995 through the
plan.
F-14
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Employee Benefits
The Bank has a profit-sharing plan which, during 1996, was amended to include
401(k) provisions. The Plan is for the benefit of all employees who meet the
eligibility requirements set forth in the Plan. The amount of contributions to
the Plan, including 401(k) matching contributions, is at the discretion of the
Bank's Board of Directors. The contributions charged to expense for the years
ended December 31, 1997, 1996 and 1995 were $232,000, $248,000 and $218,000,
respectively.
Effective July 1, 1997, the Bank established a non-contributory Employee Stock
Ownership Plan (ESOP) to acquire shares of the Bank's common stock for the
benefit of all eligible employees of the Bank. Subsequent to the establishment
of the Plan, 34,445 shares of the Bank's common stock were transferred to the
ESOP from the Bank's profit-sharing plan. Contributions to the Plan are
determined by the Bank's Board of Directors. There were no contributions made to
the Plan nor compensation expense recorded by the Bank for the year ended
December 31, 1997. In the event a terminated Plan participant desires to sell
their shares of the Bank's stock, or for certain employees who elect to
diversify their account balances, the Bank may be required to purchase the
shares from the participant at their fair market value.
During 1996, the Bank adopted a Stock Incentive Plan for certain officers and
key employees of the Bank. The Plan is administered by the Board of Directors.
Under the Bank's Articles of Association, an aggregate of 210,000 shares of
authorized but unissued common stock of the Bank were reserved for future
issuance under employee stock option provisions of the Plan, employee stock
purchases or similar employee benefit plans. To date, stock options granted
under the Plan are non-qualified and are exercisable over a three-year period,
commencing one year after the date of grant, on a cumulative basis. Stock
options generally expire ten years after the date of grant. The purchase price
for stock options issued under the Plan must be at least equal to 100% of the
fair market value of the common stock on the date of the grant.
The following summarizes the Bank's stock option activity and related
information for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
----------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 12,285 $ 19.05 -- $ --
Granted 14,490 20.27 12,285 19.05
Exercised (561) 19.05 -- --
Forfeited (4,689) 19.63 -- --
---------------------------------------------
Outstanding, end of year 21,525 $ 19.74 12,285 $ 19.05
=============================================
Exercisable at end of year 3,185 $ 19.05 -- $ --
=============================================
</TABLE>
Stock options outstanding at December 31, 1997 are exercisable at prices ranging
from $19.05 to $22.14 a share. The weighted average remaining contractual life
of those options is 8.75 years.
F-15
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Employee Benefits (Continued)
The Bank has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for options granted in
1997 and 1996. Had compensation cost for stock options granted in 1997 and 1996
been determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Bank's net income and earnings per share for the
years ended December 31, 1997 and 1996 would have been reduced to the pro forma
amounts indicated below (in thousands, except per share amounts):
At December 31 1997 1996
--------------------------------------------------------
Net income:
As reported $ 2,931 $ 2,367
==========================
Pro forma $ 2,898 $ 2,332
==========================
Basic earnings per share:
As reported $ 1.14 $ 0.93
==========================
Pro forma $ 1.13 $ 0.92
==========================
Diluted earnings per share:
As reported $ 1.14 $ 0.93
==========================
Pro forma $ 1.13 $ 0.92
==========================
The fair value of each option grant is estimated using the Black-Scholes
option-pricing model with the following weighted-average assumptions: risk-free
interest rate of 5.7% for 1997 and 6.2% for 1996; no volatility, dividend yield
of 0.8%, and an expected life of 5 years for 1997 and 1996. The weighted-average
fair value of options granted was $ 4.39 per share in 1997 and $ 4.48 per share
in 1996.
Note 13. Transactions with Executive Officers and Directors
The Bank has had banking transactions in the ordinary course of business with
its executive officers and directors and their related interests on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. At December 31, 1997 and 1996, these
persons were indebted to the Bank for loans totaling $1,249,000 and $1,322,000,
respectively. During 1997, $292,000 of new loans were made; repayments totaled
$365,000.
F-16
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14. Financial Instruments With Off-Balance Sheet Risk
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, letters of credit
and commitments to sell loans. Those instruments involve, to varying degrees,
elements of credit risk and interest rate risk in excess of the amount
recognized in the balance sheets.
The Bank's exposure to credit loss in the event of non-performance by the other
party to the financial instrument for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the contractual amount of the Bank's financial instrument
commitments are as follows:
At December 31
(In Thousands) 1997 1996
------------------------------------------------------
Commitments to extend credit $36,172 $34,377
Outstanding letters of credit 3,424 2,700
Commitments to sell loans -- --
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or commercial real
estate, accounts receivable, inventory, and equipment.
Outstanding letters of credit written are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
Commitments to sell loans are to the Federal National Mortgage Association.
These commitments are generally met through mortgage originations in the normal
course of business.
Note 15. Concentration of Credit Risk
The Bank grants commercial, residential, and consumer loans to customers
primarily located in Berks, Chester, and Lancaster Counties in Pennsylvania. The
concentrations of credit by type of loan are set forth in Note 4. Although the
Bank has a diversified loan portfolio, its debtors' ability to honor their
contracts is influenced by the region's economy.
F-17
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16. Lease Commitments
The Bank rents facilities and equipment under operating lease agreements which
expire between 1998 and 2014, and require various minimum annual rentals. The
total minimum rental commitment at December 31, 1997 was approximately
$1,665,000, and is due as follows:
Year
(In Thousands) Future Minimum Lease Payments
--------------------------------------------------
1998 $ 242
1999 175
2000 175
2001 175
2002 106
Later years 792
------
Total $1,665
======
The total rental expense included in the consolidated statements of income for
the years ended December 31, 1997, 1996 and 1995 was $365,000, $379,000 and
$362,000, respectively.
Note 17. Regulatory Matters and Stockholders' Equity
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier I capital to average assets. Management believes, as of
December 31, 1997, that the Bank meets all capital adequacy requirements to
which it is subject.
F-18
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17. Regulatory Matters and Stockholders' Equity (Continued)
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category. The Bank's actual capital amounts and ratios are also presented below.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-----------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-----------------------------------------------------------------------
(Dollar Amounts In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital (to risk weighted assets) $ 28,069 14.34 % $ 15,657 8.00 % $19,572 10.00 %
Tier I capital (to risk weighted assets) 25,623 13.09 7,829 4.00 11,743 6.00
Tier I capital (to average assets) 25,623 10.01 10,239 4.00 12,799 5.00
As of December 31, 1996:
Total capital (to risk weighted assets) $ 25,102 13.24 % $ 15,173 8.00 % $18,966 10.00 %
Tier I capital (to risk weighted assets) 22,731 11.99 7,586 4.00 11,380 6.00
Tier I capital (to average assets) 22,731 9.75 9,325 4.00 11,656 5.00
</TABLE>
Banking laws and regulations limit the amount of dividends that may be paid.
Under current banking laws, the Bank would be limited to approximately
$4,347,000 of dividends in 1998 plus an additional amount equal to the Bank's
net profit for 1998, up to the date of any such dividend declaration. In
November 1997, the Bank declared a $.043 per share regular cash dividend to
stockholders of record on December 15, 1997, payable January 1, 1998, and a
$.048 per share special cash dividend to stockholders of record on January 2,
1998, payable January 16, 1998.
In April 1997, the Bank changed its capital structure to 4,000,000 authorized
shares of common stock, with a par value of $1.25 per share. Also, the Bank's
Board of Directors declared a 2-for-1 stock split in the form of a stock
dividend distributed May 16, 1997 to shareholders of record on April 25, 1997.
In February 1998, the Bank declared a 5% stock dividend with a record date of
April 3, 1998, payable April 10, 1998. All per share amounts and average shares
outstanding in the accompanying statements were adjusted to give retroactive
effect to the aforementioned stock changes.
F-19
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18. Earnings Per Share
The following table sets forth the computations of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Years Ended December 31
(In Thousands, Except Per Share Data) 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator, net income $2,931 $2,367 $1,622
----------------------------
Denominator:
Denominator for basic earnings per share,
weighted average shares 2,571 2,544 2,511
Effect of dilutive securities, stock options 2 -- --
----------------------------
Denominator for diluted earnings
per share, weighted average
shares and assumed
conversions 2,573 2,544 2,511
============================
Basic earnings per common share $ 1.14 $ 0.93 $ 0.65
============================
Diluted earnings per common share $ 1.14 $ 0.93 $ 0.65
============================
</TABLE>
Note 19. Other Expenses
The following represents the most significant categories of other expenses for
the years ended December 31 (in thousands):
1997 1996 1995
------------------------------
Advertising $ 316 $ 313 $ 231
F.D.I.C. insurance premiums 26 2 193
Loan expenses 318 343 462
Office supplies and expenses 378 351 316
Professional fees 477 466 362
All other expenses 935 814 709
-----------------------------
$2,450 $2,289 $2,273
============================
F-20
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Fair Value of Financial Instruments
Management uses its best judgment in estimating the fair value of the Bank's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts the Bank
could have realized in a sales transaction on the dates indicated. The estimated
fair value amounts have been measured as of their respective year ends, and have
not been re-evaluated or updated for purposes of these consolidated financial
statements subsequent to those respective dates. As such, the estimated fair
values of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.
The following information should not be interpreted as an estimate of the fair
value of the entire Bank since a fair value calculation is only provided for a
limited portion of the Bank's assets. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between the Bank's disclosures and those of other companies may not
be meaningful. The following methods and assumptions were used to estimate the
fair values of the Bank's financial instruments at December 31, 1997 and 1996:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
Securities: Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable securities.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for fixed rate loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
Accrued interest receivable: The carrying amounts of accrued interest receivable
approximate their fair value.
Deposit liabilities: The fair value of demand deposits, savings accounts and
certain money market accounts is the amount payable on demand at the reporting
date. The carrying amounts for variable-rate fixed-term money market accounts
and certificates of deposits approximate their fair values at the reporting
date. The fair value of fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered for deposits of similar remaining maturities.
Securities sold under agreements to repurchase: The carrying amounts of
securities sold under agreements to repurchase approximate their fair value.
Borrowed funds: The fair values of the Bank's borrowed funds are estimated using
discounted cash flow analyses, based on the Bank's current incremental borrowing
rates for similar types of borrowing arrangements. The carrying amounts of the
U.S. Treasury tax and loan note approximate its fair value.
F-21
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20. Fair Value of Financial Instruments (Continued)
Accrued interest payable: The carrying amounts of accrued interest payable
approximate their fair value.
Off-balance sheet instruments: The fair values of the Bank's commitments to
extend credit and outstanding letters of credit are estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
The estimated fair value of the Bank's financial instruments were as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------
Estimated Estimated
At December 31 Carrying Fair Carrying Fair
(In Thousands) Value Value Value Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 22,310 $ 22,310 $ 13,766 $ 13,766
Securities 49,704 49,826 41,751 41,776
Loans receivable, net 194,939 199,697 183,770 187,238
Accrued interest receivable 1,554 1,554 1,424 1,424
Financial Liabilities:
Deposits 237,923 238,372 210,168 210,329
Securities sold under agreements to repurchase 8,963 8,963 11,851 11,851
Borrowed funds 525 612 -- --
Accrued interest payable 1,019 1,019 879 879
Off-Balance Sheet Financial Instruments:
Commitments to extend credit -- -- -- --
Outstanding letters of credit -- -- -- --
</TABLE>
F-22
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
June 30, 1998 and December 31, 1997 June 30, December 31,
(Dollars In Thousands, Except Per Share Data) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,827 $ 10,778
Interest-bearing deposits with banks 18,549 6,033
Federal funds sold -- 3,600
Bankers acceptance notes 1,516 1,899
-------- --------
Total cash and cash equivalents 32,892 22,310
Securities available for sale 57,943 33,465
Securities held to maturity, fair value of June 30, 1998
$ 12,389; December 31, 1997 $ 16,361 12,272 16,239
Loans receivable, net of allowance for loan losses June 30, 1998
$ 3,568; December 31, 1997 $ 3,345 190,081 194,939
Premises and equipment, net 4,612 4,504
Accrued interest receivable 1,895 1,554
Other assets 2,119 1,827
-------- --------
Total Assets $301,814 $274,838
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Non-interest bearing $ 49,413 $ 41,066
Interest bearing 214,236 196,857
-------- --------
Total deposits 263,649 237,923
Securities sold under agreements to repurchase 8,605 8,963
Borrowed funds 229 525
Accrued interest payable 897 1,019
Other liabilities 1,033 668
-------- --------
Total Liabilities 274,413 249,098
-------- --------
Stockholders' Equity
Common stock, par value $ 1.25 per share; 4,000,000 shares
authorized; 1998 2,597,995; 1997 2,584,615 issued and
outstanding shares 3,248 3,231
Surplus 17,600 17,298
Retained earnings 6,396 5,094
Net unrealized appreciation on securities available for sale, net of
taxes 157 117
-------- --------
Total Stockholders' Equity 27,401 25,740
-------- --------
Total Liabilities and Stockholders' Equity $301,814 $274,838
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-23
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Dollars In Thousands, Except Per Share Data) 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Loans receivable, including fees $ 8,963 $ 8,587
Securities:
Taxable 1,165 961
Tax-exempt 489 233
Deposits with banks 186 52
Federal funds sold and bankers acceptance notes 140 75
------- -------
Total interest income 10,943 9,908
------- -------
Interest Expense
Deposits 4,494 3,869
Securities sold under agreements to repurchase 187 297
Borrowed funds 15 4
------- -------
Total interest expense 4,696 4,170
------- -------
Net Interest Income 6,247 5,738
Provision for loan losses 330 518
------- -------
Net Interest Income After Provision for Loan Losses 5,917 5,220
------- -------
Other Income
Customer service fees 485 460
Mortgage banking activities 212 127
Net realized gains on sales of securities 8 2
Other 55 92
------- -------
Total other income 760 681
------- -------
Other Expenses
Salaries and employee benefits 2,494 2,128
Occupancy 396 392
Equipment 403 338
Advertising 139 176
Professional fees 269 274
Other 824 788
------- -------
Total other expenses 4,525 4,096
------- -------
Income Before Income Taxes 2,152 1,805
Federal income taxes 547 516
------- -------
Net Income $ 1,605 $ 1,289
======= =======
Basic and Diluted Earnings Per Share $ 0.62 $ 0.50
======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-24
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998 and 1997
(Dollars In Thousands, Except Per Share Data)
- -------------------------------------------------------------------------------------------------------------------------------
Net Unrealized
Appreciation
(Depreciation)
On Securities Total Compre-
Common Retained Available Stockholders' hensive
Shares Stock Surplus Earnings For Sale Equity Income
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 2,584,615 $ 3,231 $ 17,298 $ 5,094 $ 117 $ 25,740
Net income -- -- -- 1,605 -- 1,605 $ 1,605
Cash dividends, $0.12 per share -- -- -- (303) -- (303)
Issuance of common stock in
connection with dividend
reinvestment and voluntary
cash purchase plan 13,380 17 302 -- -- 319
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes and
reclassification adjustment -- -- -- -- 40 40 40
------------------------------------------------------------------------------------------
Comprehensive income $ 1,645
==========
Balance, June 30, 1998 2,597,995 $ 3,248 $ 17,600 $ 6,396 $ 157 $ 27,401
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)
On Securities Total Compre-
Common Retained Available Stockholders' hensive
Shares Stock Surplus Earnings For Sale Equity Income
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,1996 2,438,310 $ 3,048 $ 14,055 $ 5,628 $ 67 $ 22,798
Net income -- -- -- 1,289 -- 1,289 $ 1,289
Cash dividends, $0.09 per share -- -- -- (220) -- (220)
Issuance of common stock in
connection with dividend
reinvestment and voluntary
cash purchase plan 12,645 16 264 -- -- 280
Net change in unrealized
appreciation (depreciation)
on securities available for
sale, net of taxes and
reclassification adjustment -- -- -- -- 34 34 34
-----------------------------------------------------------------------------------------
Comprehensive income $ 1,323
==========
Balance, June 30, 1997 2,450,955 $ 3,064 $ 14,319 $ 6,697 $ 101 $ 24,181
===========================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-25
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
(Dollars In Thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 1,605 $ 1,289
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 330 518
Provision for depreciation 216 205
Net (accretion) of securities premiums and discounts (10) (15)
Net (gains) on the sales of securities (8) (2)
Proceeds from sale of loans 13,185 5,759
Net (gains) on sale of loans (162) (64)
Loans originated for sale (13,023) (5,695)
Net losses on sale or disposal of premises and equipment 1 21
(Increase) in accrued interest receivable and other assets (606) (183)
Increase in accrued interest payable and other liabilities 243 41
(Increase) decrease in deferred income taxes (48) 177
-------- --------
Net cash provided by operating activities 1,723 2,051
-------- --------
Cash Flows from Investing Activities
Proceeds from sales of securities available for sale 1,497 1,342
Proceeds from principal payments and maturities of securities:
Held to maturity 3,989 658
Available for sale 4,655 905
Purchases of securities, available for sale (30,573) (899)
Loans made to customers, net of principal collected 4,528 (9,821)
Purchases of premises and equipment (325) (827)
-------- --------
Net cash used in investing activities (16,229) (8,642)
-------- --------
Cash Flows from Financing Activities
Net increase in interest and non-interest bearing demand deposits and savings accounts 23,699 4,475
Net increase in certificates of deposit 2,027 4,457
Net increase (decrease) in securities sold under agreements to repurchase (358) 2,430
Net repayments of borrowed funds (296) (56)
Proceeds from dividend reinvestment and stock purchase plan 319 280
Dividends paid (303) (220)
-------- --------
Net cash provided by financing activities 25,088 11,366
-------- --------
Increase in cash and cash equivalents 10,582 4,775
Cash and cash equivalents:
January 1 22,310 13,766
-------- --------
June 30 $ 32,892 $ 18,541
======== ========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 4,815 $ 4,249
======== ========
Income taxes $ 455 $ 640
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
F-26
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of Presentation
The unaudited consolidated financial statements include the accounts of Elverson
National Bank and its wholly-owned subsidiaries (the Bank). All intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates. The financial statements reflect, in
the opinion of management, all normal, recurring adjustments considered
necessary to present fairly the financial position of the Bank. The operating
results for the six months ended June 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998 or any
other period.
Note 2. Earnings Per Share
During 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share". This statement replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of stock options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share.
The following table sets forth the computations of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------------------
<S> <C> <C>
Numerator, net income $1,605 $1,289
===============
Denominator:
Denominator for basic earnings per share, weighted
average shares 2,591 2,563
Effect of dilutive securities, stock options 6 2
---------------
Denominator for diluted earnings per share,
weighted average shares and assumed
conversions 2,597 2,565
===============
Basic earnings per common share $ 0.62 $ 0.50
===============
Diluted earnings per common share $ 0.62 $ 0.50
===============
</TABLE>
F-27
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 3. Comprehensive Income
The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income", in June 1997. The Bank adopted the provisions of the new
standard in the first quarter of 1998. In conformity with the statement, prior
year financial statements have been reclassified to be consistent with the
current year presentation. The only comprehensive income item that the Bank
presently has is unrealized gains (losses) on securities available for sale. The
federal income taxes allocated to the unrealized gains (losses) are as follows:
<TABLE>
<CAPTION>
For The Six Months
Ended June 30,
1998 1997
----------------
(In Thousands)
<S> <C> <C>
Unrealized holding gains (losses) arising during the period:
Before tax amount $ 68 $ 55
Tax expense (23) (19)
--------------
Net of tax amount 45 36
--------------
Less reclassification adjustment for gains (losses) included in net income:
Before tax amount 8 2
Tax expense (3) --
--------------
Net of tax amount 5 2
--------------
Net unrealized gains:
Before tax amount 60 53
Tax expense (20) (19)
--------------
Net of tax amount $ 40 $ 34
==============
</TABLE>
Note 4. Stock Dividend
In February 1998, the Bank declared a 5% stock dividend with a record date of
April 3, 1998, payable April 10, 1998. This stock dividend was given retroactive
recognition in the December 31, 1997 consolidated financial statements. All per
share amounts and average shares outstanding have been adjusted to give effect
for such dividend.
Note 5. Recently Issued Financial Standards
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activity". The new statement
requires all derivatives to be recorded on the balance sheet at fair values and
establishes "special accounts" for three different types of hedges. This new
standard will have no impact on the Bank's financial statements.
F-28
<PAGE>
ELVERSON NATIONAL BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 6. Merger
On July 21, 1998, the Bank entered into an agreement to merge with National Penn
Bancshares, Inc. (NPB), a Pennsylvania corporation, and National Penn Bank, a
national banking association, both of which are headquartered in Boyertown,
Pennsylvania. Under the terms of the agreement, each Elverson National Bank
shareholder will receive 1.46875 shares of NPB's common stock for each Elverson
National Bank share (subject to possible increase under certain circumstances)
and Elverson National Bank will operate as a division of National Penn Bank. The
transaction will be accounted for under the pooling-of-interests method of
accounting and is subject to regulatory and stockholder approvals.
The merger is expected to be consummated in the fourth quarter of 1998 or the
first quarter of 1999.
The following table provides a summary of the consolidated operating results and
financial condition on a pro forma basis as of and for the six months ended June
30, 1998:
National
Elverson Penn
National Bancshares, Consolidated
Bank Inc. Pro Forma
------------------------------------------
(In Thousands)
Net interest income $ 6,247 $ 31,979 $ 38,226
Net income 1,605 9,828 11,433
Total assets 301,814 1,699,705 2,001,519
Total stockholders' equity 27,401 123,513 150,914
F-29
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
THIS AMENDED AGREEMENT AND PLAN OF MERGER, dated as of July 21, 1998
("Agreement"), is made by and among NATIONAL PENN BANCSHARES, INC., a
Pennsylvania corporation ("NPB"), NATIONAL PENN BANK, a national banking
association ("Bank"), and ELVERSON NATIONAL BANK, a national banking association
("ENB").
BACKGROUND
1. NPB owns all of the outstanding capital stock of Bank.
2. NPB and ENB desire for ENB to merge with and into Bank, with Bank
surviving such merger as a wholly-owned subsidiary of NPB, in accordance with
the applicable laws of the United States of America and this Agreement.
3. As a condition and inducement to NPB to enter into this Agreement,
the directors and certain officers of ENB are concurrently executing a Letter
Agreement in the form attached hereto as Exhibit 1-A.
4. As a condition and inducement to ENB to enter into this Agreement,
the directors and certain officers of NPB are concurrently executing a Letter
Agreement in the form attached hereto as Exhibit 1-B.
5. NPB and ENB desire to provide the terms and conditions governing the
transactions contemplated herein.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual
covenants, agreements, representations and warranties herein contained, the
parties, intending to be legally bound hereby, agree as follows:
ARTICLE I
GENERAL
1.01 Definitions. As used in this Agreement, the following terms shall
have the indicated meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
Affiliate means, with respect to any corporation, any person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such corporation and, without
limiting the generality of the foregoing, includes any executive officer,
director or 10% equity owner of such corporation.
Agreement means this Amended Agreement and Plan of Merger.
Applications means the applications for regulatory approval which are
required by the transactions contemplated hereby.
Bank means National Penn Bank, a national banking association, all the
outstanding capital stock of which is owned by NPB.
Closing Date means the date on which the last condition precedent
provided in this Agreement (other than those conditions which are to be
fulfilled at the Closing) has been fulfilled or waived, or as soon as
practicable thereafter.
II-1
<PAGE>
CRA means the Community Reinvestment Act of 1977, as amended, and the
rules and regulations promulgated from time to time thereunder.
Determination Date means the trading day thirty-one days prior to the
ENB Shareholders Meeting.
Determination Period has the meaning given to such term in Section
1.02(f)(ii)(D) of this Agreement.
Dissenting ENB Shares has the meaning given to that term in Section
1.02(f)(ii)(F) of this Agreement.
Effective Date means the date upon which all filings with governmental
agencies, as may be required under applicable laws and regulations for the
Merger to be effective, are made and accepted by such agencies, and shall be the
same as the Closing Date or as soon thereafter as is practicable.
Elverson Continuing Director means a director of ENB immediately prior
to the Closing Date who becomes a member of the Elverson Board immediately after
the Closing Date.
ENB Benefit Plan has the meaning given to that term in Section 2.12 of
this Agreement.
Elverson Board has the meaning given to that term in Section
4.07(c)(x)(B) of this Agreement.
ENB means Elverson National Bank, a national banking association.
ENB Common Stock has the meaning given to that term in Section 2.02(a)
of this Agreement.
ENB Disclosure Schedule means, collectively, the disclosure schedules
delivered by ENB to NPB at or prior to the execution and delivery of this
Agreement.
ENB Financials means (i) the audited consolidated financial statements
of ENB as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997, and (ii) the unaudited interim consolidated
financial statements of ENB for each calendar quarter after December 31, 1997,
including the quarter ending June 30, 1998.
ENB Shareholders Meeting means the meeting of the holders of ENB Common
Stock concerning the Merger pursuant to the Prospectus/Proxy Statement.
ENB Stock Option Plans means each stock option plan maintained by ENB
immediately prior to the Effective Date.
Environmental Law means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any Regulatory
Authority relating to (i) the protection, preservation or restoration of the
environment, including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource, and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
Exchange Act means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated from time to time thereunder.
Exchange Agent has the meaning given to such term in Section 1.02(h) of
this Agreement.
II-2
<PAGE>
Exchange Ratio means the exchange ratio set forth in Section
1.02(f)(ii)(A) or (E) or Section 6.01(c), whichever is in effect, in each case
as may be adjusted pursuant to Section 1.02(i).
IRC means the Internal Revenue Code of 1986, as amended.
Knowledge of ENB means the knowledge of ENB's officers and directors.
Knowledge of NPB means the knowledge of NPB's officers and directors.
Material Adverse Effect means a material adverse effect on (a) the
business, financial condition or results of operations of ENB on a consolidated
basis (when such term is used in Article 2 hereof) or NPB on a consolidated
basis (when such term is used in Article 3 hereof) other than, in each case, any
change, circumstance or effect relating to (i) the economy or financial markets
in general or (ii) the banking industry and not specifically related to ENB or
NPB or (b) the ability of such party to consummate the transactions contemplated
by this Agreement.
Merger means the merger of ENB with and into Bank, with Bank surviving
such merger as a wholly-owned subsidiary of NPB, contemplated by this Agreement.
Merger Application has the meaning given to such term in Section 3.25
of this Agreement.
Merger Employment Policies has the meaning given to such term in
Section 4.07(c)(iv) of this Agreement.
MIP has the meaning given to such term in Section 4.07(c)(vii) of this
Agreement.
NASD means the National Association of Securities Dealers, Inc.
Nasdaq means the National Market tier of The Nasdaq Stock Market
operated by the NASD.
NPB means National Penn Bancshares, Inc., a Pennsylvania corporation.
NPB Common Stock means the shares of common stock, without par value,
of NPB.
NPB Disclosure Schedule means, collectively, the disclosure schedules
delivered by NPB to ENB at or prior to the execution and delivery of this
Agreement.
NPB Financials means (i) the audited consolidated financial statements
of NPB as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997, and (ii) the unaudited interim consolidated
financial statements of NPB for each calendar quarter after December 31, 1997,
including the quarter ending June 30, 1998.
NPB Market Value has the meaning given to such term in Section
1.02(f)(ii)(D) of this Agreement.
NPB Shareholders Meeting means the meeting of the holders of the NPB
Common Stock concerning the Merger pursuant to the Prospectus/Proxy Statement.
NPB Stock Split means the 5-for-4 stock split of NPB Common Stock
declared by NPB on June 24, 1998, effective July 15, 1998 and payable July 31,
1998.
OCC means the Office of the Comptroller of the Currency.
Prospectus/Proxy Statement means the prospectus/proxy statement,
together with any supplements thereto, to be sent to holders of ENB Common Stock
and NPB Common Stock in connection with the transactions contemplated by this
Agreement.
II-3
<PAGE>
Registration Statement means the registration statement on Form S-4,
including any pre-effective or post-effective amendments or supplements thereto,
as filed with the SEC under the Securities Act with respect to the NPB Common
Stock to be issued in connection with the transactions contemplated by this
Agreement.
Regulatory Agreement has the meaning given to that term in Sections
2.11 and 3.10 of this Agreement.
Regulatory Authority means any agency or department of any federal,
state or local government or of any self-regulatory organization, including
without limitation the SEC, the OCC, the NASD, and the respective staff thereof.
Rights means warrants, options, rights, convertible securities and
other capital stock equivalents which obligate an entity to issue its
securities.
Rights Agreement means the rights agreement dated August 23, 1989
between NPB and National Penn Bank, as Rights Agent.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, and the
rules and regulations promulgated from time to time thereunder.
Subsidiary means any corporation, 50% or more of the capital stock of
which is owned, either directly or indirectly, by another entity, except any
corporation the stock of which is held in the ordinary course of the lending
activities of a bank.
Surviving Bank has the meaning given to that term in Section 1.02(b) of
this Agreement.
II-4
<PAGE>
1.02 The Merger.
(a) Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place on the Closing Date at a time and
place to be agreed upon by the parties hereto; provided, in any case, that all
conditions to closing set forth in Article V of this Agreement (other than the
delivery of certificates, opinions, and other instruments and documents to be
delivered at the Closing) have been satisfied or waived at or prior to the
Closing Date.
(b) The Merger. Subject to the terms and conditions of this Agreement
and in accordance with the applicable laws and regulations of the United States
of America, on the Effective Date: ENB shall merge with and into Bank, under the
charter of Bank; the separate existence of ENB shall cease; Bank shall be the
surviving bank in the Merger (the "Surviving Bank") and a wholly-owned
subsidiary of NPB; and all of the property (real, personal and mixed), rights,
powers, duties, obligations and liabilities of ENB shall be taken and deemed to
be transferred to and vested in Bank, as the surviving bank in the Merger,
without further act or deed.
(c) Bank's Name and Business. The name of the Surviving Bank shall be
"National Penn Bank". The business of the Surviving Bank shall be that of a
national banking association, and it shall be conducted by the Surviving Bank at
its main office which shall be located at Philadelphia and Reading Avenues,
Boyertown, Pennsylvania 19512, and its legally established branches.
(d) Bank's Articles of Association and Bylaws. On and after the
Effective Date, the articles of association of the Surviving Bank shall read in
their entirety as set forth on NPB Disclosure Schedule 1.02(d) attached hereto
and made a part hereof, until changed in accordance with applicable law, such
articles of association, and the Surviving Bank's bylaws. On and after the
Effective Date, the bylaws of Bank, as set forth on NPB Disclosure Schedule
1.02(d), shall automatically be and remain the bylaws of the Surviving Bank,
until changed in accordance with applicable law, the Surviving Bank's articles
of association, and such bylaws.
(e) Bank's Board of Directors and Officers. On and after the Effective
Date, (i) the directors of Bank duly elected and holding office immediately
prior to the Effective Date and (ii) two persons (each an "ENB Nominee")
selected by ENB's Board of Directors and approved by NPB (which approval will
not be unreasonably withheld) shall be the directors of the Surviving Bank, each
to hold office until his or her successor is elected and qualified or otherwise
in accordance with applicable law, the articles of association and bylaws of the
Surviving Bank, provided, however, that with respect to the ENB Nominees, NPB
and the Bank shall take all steps necessary to insure that such persons, or
their successors, are re-elected to the Bank's Board of Directors for each of
the five years following the Effective Date if such persons are in office as
directors of NPB on the annual election dates. In the event that either ENB
Nominee, or any successor, resigns, dies or is otherwise removed from the Bank's
Board of Directors prior to the end of such five year period, the Elverson
Continuing Directors, by a plurality vote, shall have the right to select the
successor to such ENB Nominee, subject to approval of such person by NPB (which
approval will not be unreasonably withheld). On and after the Effective Date,
the officers of Bank duly elected and holding office immediately prior to the
Effective Date shall be the officers of the Surviving Bank, each to hold office
until his or her successor is elected and qualified or otherwise in accordance
with applicable law, the articles of association and bylaws of the Surviving
Bank.
(f) Conversion of Shares.
(i) Bank Capital Stock. Each share of the capital stock of
Bank issued and outstanding immediately prior to the Effective Date shall, on
the Effective Date, continue to be issued and outstanding as a share of capital
stock of the Surviving Bank.
(ii) ENB Common Stock.
(A) Conversion. Subject to subsections (f)(ii)(B) and
(f)(ii)(C) below with respect to treasury stock and fractional shares, and to
subsection (f)(ii)(F) below with respect to dissenting shares of ENB Common
Stock, each share of ENB Common Stock issued and outstanding immediately prior
to the Effective Date, shall, on the Effective Date, by reason of the Merger and
without any action on the part of the holder thereof, cease to be outstanding
and be converted into the right to receive, subject to adjustment as provided in
subsection
II-5
<PAGE>
(f)(ii)(E) and subsection (i) below, 1.175 shares of NPB Common Stock including
the associated rights to purchase securities pursuant to the Rights Agreement
[the number 1.175 shall be adjusted to 1.46875 upon completion of the NPB Stock
Split].
(B) Treasury Stock. Each share of ENB Common Stock
issued and held in the treasury of ENB as of the Effective Date, if any, shall
be cancelled, and no cash, stock or other property shall be delivered in
exchange therefor.
(C) Fractional Shares. No fractional shares of NPB
Common Stock and no scrip or certificates therefor shall be issued in connection
with the Merger. Any former holder of ENB Common Stock who would otherwise be
entitled to receive a fraction of a share of NPB Common Stock shall receive, in
lieu thereof, cash in an amount equal to such fraction of a share multiplied by
NPB Market Value (as defined in subsection (f)(ii)(D) below).
(D) Market Value of NPB Common Stock. For purposes of
this Agreement, the market value of a share of NPB Common Stock ("NPB Market
Value") shall be deemed to be the average of the closing sale price of a share
of NPB Common Stock, as reported on The Nasdaq Stock Market, National Market
tier, as published in the Wall Street Journal, for the twenty trading days (the
"Determination Period") ending on the Determination Date. Notwithstanding any
other provision of this Agreement, however, the Determination Period shall not
begin prior to the ten days after the date of this Agreement.
(E) Exchange Ratio Adjustment. If NPB Market Value is
less than $30.38 per share, then the exchange ratio set forth in subsection
(f)(ii)(A) above shall be adjusted to 1.2 shares of NPB Common Stock in exchange
for each share of ENB Common Stock [the dollar amount $30.38 and the number 1.2
shall be adjusted to $24.30 and 1.5, respectively, upon completion of the NPB
Stock Split], subject to the provisions of Section 6.01(c) below.
(F) Dissenting ENB Shareholders. If there are holders
of ENB Common Stock who dissent from the Merger and exercise and perfect the
right to obtain valuation of and payment for their shares ("Dissenting ENB
Shares") pursuant to Section 215a(b) of the National Bank Act (12 U.S.C.
ss.215a(b)), the following provisions will govern payments to be made in respect
of Dissenting ENB Shares:
(1) All payments in respect of Dissenting ENB
Shares, if any, will be made by NPB or the Surviving Bank, as they shall agree.
(2) Dissenting ENB Shares, if any, will be
deemed to have been retired and cancelled immediately prior to the Merger, with
the effect that no conversion thereof will occur pursuant to subsection
(f)(ii)(A) above unless and until such holder shall have failed to perfect or
effectively shall have withdrawn or lost his right to appraisal and payment
under such section. If any such holder of ENB Common Stock shall have so failed
to perfect or effectively shall have withdrawn or lost such right, each of his
shares of ENB Common Stock shall thereupon be deemed to have been converted
into, on the Effective Date, the right to receive shares of NPB Common Stock and
cash in lieu of fractional shares as set forth in Section 1.02(f)(ii)(A) and (C)
above.
(g) Stock Options.
(i) On the Effective Date, each option (an "ENB Option") to
purchase one or more shares of ENB Common Stock issued by ENB and outstanding on
the Effective Date, whether or not such option is exercisable on the Effective
Date, shall, by virtue of the Merger, cease to be outstanding and be converted
into an option to purchase the number of shares of NPB Common Stock which the
optionholder would have been entitled to receive in the Merger had such option
been exercised in full immediately prior to the Effective Date, at an exercise
price per share of NPB Common Stock equal to the per share exercise price of the
option to purchase ENB Common stock divided by the Exchange Ratio, and having
other terms and conditions identical to those of the option exchanged (including
forfeiture, acceleration and expiration date provisions). The adjustment
provided herein with respect to any options which are "incentive stock options",
as defined in Section 422 of the IRC, shall be and is intended to be effected in
a manner which is consistent with Section 424(a) of the IRC. As a result of this
Agreement and as
II-6
<PAGE>
provided in the ENB 1996 Stock Incentive Plan, all options issued and
outstanding under the ENB 1996 Stock Incentive Plan shall become 100 percent
vested and immediately exercisable.
(ii) As soon as practicable after the Effective Date, NPB
shall deliver to the holders of ENB Options appropriate notices setting forth
such holders' rights pursuant to the ENB Stock Option Plans (including that, by
virtue of the Merger and pursuant to the terms of the ENB Stock Option Plans,
the ENB Stock Options have become fully vested and exercisable) and the
agreements evidencing the grants of such ENB Stock Options shall continue in
effect on the same terms and conditions (subject to the adjustments required by
this Section 1.02(g) after giving effect to the Merger and the terms of the ENB
Stock Option Plans). NPB shall comply with the terms of the ENB Stock Option
Plans and shall take such reasonable steps as are necessary or required by, and
subject to the provisions of, such ENB Stock Option Plans, to have the ENB Stock
Options, if any, which qualified as "incentive stock options" prior to the
Effective Date, continue to qualify as "incentive stock options" after the
Effective Date.
(iii) NPB shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of NPB Common Stock for delivery upon
exercise of ENB Stock Options in accordance with this Agreement. Promptly after
the Effective Date, NPB shall file a registration statement on Form S-3 or Form
S-8, as the case may be (or any successor other appropriate forms), with respect
to the shares of NPB Common Stock subject to such options and shall use
commercially reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained thereon) for so long as such
options remain outstanding. With respect to those individuals who, subsequent to
the Merger, will be subject to the reporting requirements under Section 16(a) of
the Exchange Act, where applicable, NPB shall administer the ENB Stock Option
Plans in a manner consistent with the exemptions provided by Rule 16b-3
promulgated under the Exchange Act.
(h) Surrender and Exchange of ENB Stock Certificates.
(i) Each holder of shares of ENB Common Stock who surrenders
to NPB the certificate or certificates representing such shares (each, an "ENB
Certificate") shall be entitled to receive in exchange therefor, as soon as
practicable after the Effective Date, a certificate for the number of whole
shares of NPB Common Stock into which such holder's shares of ENB Common Stock
have been converted by the Merger, together with a check for cash in lieu of any
fractional share in accordance with subsection (f)(ii)(C) above (the "Merger
Consideration").
(ii) Each certificate for shares of NPB Common Stock (each, a
"NPB Certificate") issued in exchange for ENB Certificates pursuant to
subsection (h)(i) above shall be dated the Effective Date and be entitled to
dividends and all other rights and privileges pertaining to such shares of stock
from the Effective Date. Until surrendered, each ENB Certificate shall, from and
after the Effective Date, evidence solely the right to receive NPB Certificates
pursuant to subsection (h)(i) above and a check for cash in lieu of any
fractional share in accordance with subsection (f)(ii)(C) above. If an ENB
Certificate is exchanged on a date following one or more record dates for the
payment of dividends or any other distribution on shares of NPB Common Stock,
NPB shall pay to such shareholder cash in an amount equal to dividends payable
on such shares of NPB Common Stock and pay or deliver any other distribution to
which such shareholder is entitled. No interest shall accrue or be payable in
respect of dividends or any other distribution otherwise payable under this
subsection (h)(ii) upon surrender of ENB Certificates. Notwithstanding the
foregoing, no party hereto shall be liable to any holder of ENB Common Stock for
any amount paid in good faith to a public official or agency pursuant to any
applicable abandoned property, escheat or similar law. Until such time as ENB
Certificates are surrendered to NPB for exchange, NPB shall have the right to
withhold dividends or any other distributions on the shares of NPB Common Stock
issuable to such shareholder.
(iii) Each ENB Certificate delivered for exchange under this
subsection (h) must be endorsed in blank by the registered holder thereof or
accompanied by a power of attorney to transfer such shares endorsed in blank by
such holder.
(iv) Upon the Effective Date, the stock transfer books for ENB
Common Stock will be closed and no further transfers of ENB Common Stock will
thereafter be made or recognized. All ENB Certificates surrendered pursuant to
this subsection (h) will be cancelled.
II-7
<PAGE>
(v) As soon as reasonably practicable after the Effective
Date, NPB shall cause Bank or another institutional entity selected by NPB, as
the exchange agent (the "Exchange Agent") to mail to each holder of an ENB
Certificate (i) a letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to the ENB Certificates shall pass, only
upon delivery of the ENB Certificates to the Exchange Agent, and which letter
shall be in customary form and have such other provisions as NPB reasonably may
specify and (ii) instructions for effecting the surrender of such ENB
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of an ENB Certificate to the Exchange Agent together with such letter of
transmittal, duly executed and completed in accordance with the instructions
thereto, and such other documents as reasonably may be required by the Exchange
Agent, the holder of such ENB Certificate shall be entitled to receive in
exchange therefor (A) one or more shares of NPB Common Stock representing, in
the aggregate, the whole number of shares that such holder has the right to
receive pursuant to Section 1.02(f) (after taking into account all shares of ENB
Common Stock then held by such holder) and (B) a check in the amount equal to
the cash that such holder has the right to receive pursuant to the provisions of
this Section 1.02, including cash in lieu of any fractional shares and dividends
and other distributions pursuant to Section 1.02(h)(ii). In the event of a
transfer of ownership of ENB Common Stock which is not registered in the
transfer records of ENB, one or more NPB Certificates evidencing, in the
aggregate, the proper number of shares of NPB Common Stock, a check in the
proper amount of cash in lieu of any fractional shares and any dividends or
other distributions to which such holder is entitled pursuant to Section
1.02(h)(ii), may be issued with respect to such ENB Common Stock to such a
transferee if the ENB Certificate representing such shares of ENB Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(i) Anti-Dilution Provisions. If, in addition to the NPB Stock Split,
NPB shall, at any time before the Effective Date, (A) issue a dividend in shares
of NPB Common Stock, (B) combine the outstanding shares of NPB Common Stock into
a smaller number of shares, (C) split or subdivide the outstanding shares of NPB
Common Stock, or (D) reclassify the shares of NPB Common Stock, then, in any
such event, the number of shares of NPB Common Stock to be delivered to ENB
shareholders who are entitled to receive shares of NPB Common Stock in exchange
for shares of ENB Common Stock shall be adjusted so that each ENB shareholder
shall be entitled to receive such number of shares of NPB Common Stock as such
shareholder would have been entitled to receive if the Effective Date had
occurred prior to the happening of such event. (By way of illustration, if NPB
shall declare a stock dividend of 7% payable with respect to a record date on or
prior to the Effective Date, the exchange ratio set forth in subsection
(f)(ii)(A) hereof shall be adjusted upward by 7%.)
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ENB
ENB hereby represents and warrants to NPB as follows:
2.01 Organization.
(a) ENB is a national banking association duly organized and validly
existing under the laws of the United States of America. ENB has the corporate
power to carry on its business and operations as now being conducted and to own
and operate the properties and assets now owned and being operated by it. ENB is
duly licensed, registered or qualified to do business in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing,
registration or qualification necessary, except where the failure to be so
licensed, registered or qualified will not have a Material Adverse Effect, and
all such licenses, registrations and qualifications are in full force and effect
in all material respects.
(b) ENB has no Subsidiaries other than those identified in ENB
Disclosure Schedule 2.01(b). Except as set forth on ENB Disclosure Schedule
2.01(b), ENB's Subsidiaries primarily hold real estate.
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(c) The minute book of ENB accurately records, in all material
respects, all material corporate actions of its shareholders and board of
directors, including committees, in each case in accordance with normal business
practice of ENB.
(d) ENB has delivered to NPB true and correct copies of the articles of
association and bylaws of ENB, each as in effect on the date hereof.
2.02 Capitalization.
(a) The authorized capital stock of ENB consists of 4,000,000 shares of
common stock, par value $1.25 per share ("ENB Common Stock"), of which at the
date hereof 2,597,995 shares are validly issued and outstanding, fully paid and
nonassessable. ENB has not issued nor is ENB bound by any subscription, option,
warrant, call, commitment, agreement or other Right of any character relating to
the purchase, sale, or issuance of, or right to receive dividends or other
distributions on, any shares of ENB Common Stock or any other security of ENB or
any securities representing the right to vote, purchase or otherwise receive any
shares of ENB Common Stock or any other security of ENB, except for (i) options
to acquire 44,424 shares of ENB Common Stock issued and outstanding under the
ENB 1996 Stock Incentive Plan, (ii) the terms of ENB's Dividend Reinvestment and
Stock Purchase Plan, (iii) the terms of the ENB Employee Stock Ownership Plan,
and (iv) the terms of the ENB 401(k) Profit Sharing Plan.
(b) ENB owns all of the capital stock of the ENB Subsidiaries, free and
clear of any lien or encumbrance. Except for ENB's Subsidiaries, ENB does not
possess, directly or indirectly, any material equity interest in any
corporation, except for equity interests in ENB's investment portfolio, equity
interests held by ENB in a fiduciary capacity, and equity interests held in
connection with ENB's commercial loan activities.
2.03 Authority; No Violation.
(a) ENB has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by ENB and the consummation by ENB of
the Merger have been duly and validly approved by the Board of Directors of ENB
by unanimous vote and, except for approval by the shareholders of ENB as
required by the National Bank Act, no other corporate proceedings on the part of
ENB are necessary to consummate the Merger. This Agreement has been duly and
validly executed and delivered by ENB and, subject to approval by the
shareholders of ENB and subject to the required approvals of Regulatory
Authorities described in Section 3.04 hereof, constitutes the valid and binding
obligation of ENB, enforceable against ENB in accordance with its terms, subject
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles of
equity.
(b) (i) The execution and delivery of this Agreement by ENB, (ii)
subject to receipt of approvals from the ENB shareholders and the Regulatory
Authorities referred to in Section 3.04 hereof and ENB's, Bank's and NPB's
compliance with any conditions contained therein, the consummation of the
Merger, and (iii) compliance by ENB with any of the terms or provisions hereof,
do not and will not: (A) conflict with or result in a breach of any provision of
the articles of association or bylaws of ENB; (B) violate any statute, rule,
regulation, judgment, order, writ, decree or injunction applicable to ENB or any
of its properties or assets; or (C) violate, conflict with, result in a breach
of any provisions of, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of, or acceleration of, the performance required by, or result in a
right of termination or acceleration or the creation of any lien, security
interest, charge or other encumbrance upon any of the properties or assets of
ENB under, any of the terms or conditions of any note, bond, mortgage,
indenture, license, lease, agreement, commitment or other instrument or
obligation to which ENB is a party, or by which it or any of its properties or
assets may be bound or affected, excluding from clauses (B) and (C) hereof, any
items which, in the aggregate, would not have a Material Adverse Effect.
2.04 Consents. No consents or approvals of, or filings or registrations
with, any public body or authority are necessary, and no consents or approvals
of any third parties are necessary, in connection with the execution and
delivery of this Agreement by ENB or, subject to the consents, approvals,
filings and registrations from or with the
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Regulatory Authorities referred to in Section 3.04 hereof and compliance with
any conditions contained therein and subject to the approval of this Agreement
by the shareholders of ENB, the consummation by ENB of the Merger.
2.05 Financial Statements.
(a) ENB has delivered to NPB the ENB Financials, except those
pertaining to quarterly periods commencing after June 30, 1998, which it will
deliver to NPB within 45 days after the end of the respective quarter. The
delivered ENB Financials fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of ENB as
of and for the periods ended on the dates thereof, in accordance with generally
accepted accounting principles consistently applied, except in each case as
noted therein and, in the case of interim period financial statements, subject
to normal year-end adjustments and footnotes thereto.
(b) To the knowledge of ENB, ENB did not have any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not fully reflected or reserved against in the balance sheets included
in the ENB Financials at the date of such balance sheets which would have been
required to be reflected therein in accordance with generally accepted
accounting principles consistently applied or disclosed in a footnote thereto,
except for liabilities and obligations which were incurred in the ordinary
course of business consistent with past practice, and except for liabilities and
obligations which are within the subject matter of a specific representation and
warranty herein or which otherwise have not had a Material Adverse Effect.
2.06 No Material Adverse Change. ENB has not suffered any adverse
change in its assets, business, financial condition or results of operations
since June 30, 1998 which change has had a Material Adverse Effect, it being
understood that the expenses incurred by ENB in connection with this Agreement
and the Merger, including, without limitation, the engagement of legal and
financial advisors, shall not constitute a Material Adverse Effect.
2.07 Taxes.
(a) ENB has filed, and will file, in correct form all federal, state
and local tax returns required to be filed by or with respect to ENB on or prior
to the Closing Date except to the extent that any failure to file or any
inaccuracies would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid or will pay, or made or will make, provisions for
the payment of all federal, state and local taxes which are shown on such
returns to be due for the periods covered thereby from ENB to any applicable
taxing authority, on or prior to the Closing Date other than taxes which (i) are
not delinquent or are being contested in good faith, (ii) have not been finally
determined, or (iii) the failure to pay would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) To the knowledge of ENB, there are no material disputes pending, or
claims asserted in writing, for taxes or assessments upon ENB, nor has ENB been
requested in writing to give any currently effective waivers extending the
statutory period of limitation applicable to any federal, state, county or local
income tax return for any period.
(c) Proper and accurate amounts have been withheld by ENB from its
employees for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws, except
where failure to do so is not reasonably likely to have a Material Adverse
Effect.
2.08 Contracts.
(a) Except as described in ENB Disclosure Schedule 2.08(a) or 2.12, ENB
is not a party to or subject to: (i) any employment, consulting, severance,
"change-in-control" or termination contract or arrangement with any officer,
director, employee, independent contractor, agent or other person, except for
"at will" arrangements; (ii) any plan, arrangement or contract providing for
bonuses, pensions, options, deferred compensation, retirement payments, profit
sharing or similar arrangements for or with any officer, director, employee,
independent contractor, agent or other person; (iii) any collective bargaining
agreement with any labor union relating to employees of ENB; (iv) except in the
ordinary course of business, any material instrument evidencing or related to
indebtedness for borrowed money, whether directly or indirectly, by way of
purchase money obligation, conditional sale, lease purchase, guaranty or
otherwise, in respect of which ENB is an obligor to any person, or which
contains financial
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covenants or other restrictions, other than those relating to the payment of
principal and interest when due, which would be applicable on or after the
Closing Date; (v) any contract, other than this Agreement, which restricts or
prohibits ENB from engaging in any type of business permissible under applicable
law; or (vi) except in the ordinary course of business, any lease for real
property.
(b) All the contracts, plans, arrangements and instruments listed in
ENB Disclosure Schedule 2.08(a) are in full force and effect on the date hereof,
and neither ENB nor, to the knowledge of ENB, any other party to any such
contract, plan, arrangement or instrument, has breached any provision of, or is
in default under any term of, any such contract, plan, arrangement or instrument
the breach of which or default under which will have a Material Adverse Effect,
and no party to any such contract, plan, arrangement or instrument will have the
right to terminate any or all of the provisions thereof as a result of the
transactions contemplated by this Agreement, the termination of which will have
a Material Adverse Effect. Except as otherwise described in ENB Disclosure
Schedule 2.08(a) or 2.12, no plan, employment agreement, termination agreement
or similar agreement or arrangement to which ENB is a party or under which ENB
may be bound (i) contains provisions which permit an employee or an independent
contractor to terminate it without cause and continue to accrue future benefits
thereunder; (ii) provides for acceleration in the vesting of benefits thereunder
upon the occurrence of a change in ownership or control or merger or other
acquisition of ENB; or (iii) requires ENB to provide a benefit in the form of
ENB Common Stock or determined by reference to the value of ENB Common Stock.
2.09 Ownership of Property; Insurance Coverage.
(a) ENB has, and will have as to property acquired after the date
hereof, good, and as to real property, marketable, title to all material assets
and properties owned by ENB, whether real or personal, tangible or intangible,
including securities, assets and properties reflected in the balance sheets
contained in the ENB Financials or acquired subsequent thereto (except to the
extent that such securities are held in any fiduciary or agency capacity and
except to the extent that such assets and properties have been disposed of for
fair value, in the ordinary course of business, or have been disposed of as
obsolete since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except (i) statutory liens for
amounts not yet delinquent or which are being contested in good faith, (ii)
liens for current taxes not yet due and payable, (iii) such imperfections of
title, easements and encumbrances, if any, as are not material in character,
amount or extent, and (iv) dispositions and encumbrances for adequate
consideration in the ordinary course of business. ENB has the right under leases
of material properties used by ENB in the conduct of its business to occupy and
use all such properties in all material respects as presently occupied and used
by it.
(b) With respect to all agreements pursuant to which ENB has purchased
securities subject to an agreement to resell, if any, ENB has a valid, perfected
first lien or security interest in the securities or other collateral securing
the repurchase agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby, except to the extent that any failure to
obtain such a lien or maintain such collateral would not, individually or in the
aggregate, have a Material Adverse Effect.
(c) ENB currently maintains insurance in amounts considered by ENB to
be reasonable for its operations, and such insurance is similar in scope and
coverage in all material respects to that maintained by other businesses
similarly situated. ENB has not received notice from any insurance carrier that
(i) such insurance will be cancelled or that coverage thereunder will be reduced
or eliminated, or (ii) premium costs with respect to such insurance will be
substantially increased except to the extent such cancellation, reduction,
elimination or increase would not have a Material Adverse Effect.
(d) ENB currently maintains such fidelity bonds and errors and
omissions insurance as may be customary or required under applicable laws or
regulations.
2.10 Legal Proceedings. ENB is not a party to any, and there are no
pending or, to ENB's knowledge, threatened, legal, administrative, arbitration
or other proceedings, claims, actions, customer complaints, or governmental
investigations or inquiries of any nature (i) against ENB, (ii) to which the
assets of ENB are subject, (iii) challenging the validity or propriety of any of
the transactions contemplated by this Agreement, or (iv) which could materially
adversely affect the ability of ENB to perform its obligations under this
Agreement, except for any
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proceedings, claims, actions, investigations, or inquiries referred to in
clauses (i) or (ii) which, individually or in the aggregate, will not have a
Material Adverse Effect.
2.11 Compliance with Applicable Law.
(a) ENB holds all licenses, franchises, permits and authorizations
necessary for the lawful conduct of its businesses under, and has complied in
all material respects with, applicable laws, statutes, orders, rules or
regulations of any Regulatory Authority relating to it, other than where such
failure to hold or such noncompliance will neither result in a limitation in any
material respect on the conduct of its businesses nor otherwise have a Material
Adverse Effect.
(b) ENB has filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that it was
required to file with any Regulatory Authority, and has filed all other reports
and statements required to be filed by it, including without limitation any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, any state or any Regulatory Authority, and has
paid all fees and assessments due and payable in connection therewith, except
where the failure to file such report, registration or statement or to pay such
fees and assessments, either individually or in the aggregate, will not have a
Material Adverse Effect.
(c) No Regulatory Authority has initiated any proceeding or, to the
knowledge of ENB, investigation into the business or operations of ENB, except
where any such proceedings or investigations will not, individually or in the
aggregate, have a Material Adverse Effect, or such proceedings or investigations
have been terminated or otherwise resolved.
(d) ENB has not received any notification or communication from any
Regulatory Authority (i) asserting that ENB has not complied with any of the
statutes, regulations or ordinances which such Regulatory Authority enforces,
unless such assertion has been waived, withdrawn or otherwise resolved; (ii)
threatening to revoke any license, franchise, permit or governmental
authorization which is material to ENB; (iii) requiring or threatening to
require ENB, or indicating that ENB may be required, to enter into a cease and
desist order, agreement or memorandum of understanding or any other agreement
restricting or limiting, or purporting to restrict or limit, in any manner the
operations of ENB; or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of ENB (any such notice,
communication, memorandum, agreement or order described in this sentence herein
referred to as a "Regulatory Agreement"), in each case except as would not have
a Material Adverse Effect. ENB has not received, consented to, or entered into
any Regulatory Agreement which would have, individually or in the aggregate, a
Material Adverse Effect.
(e) To the knowledge of ENB, there is no unresolved violation,
criticism, or exception by any Regulatory Authority with respect to any
Regulatory Agreement which if resolved in a manner adverse to ENB would have a
Material Adverse Effect.
(f) There is no injunction, order, judgment or decree imposed upon ENB
or the assets of ENB which has had, or, to the knowledge of ENB, will have, a
Material Adverse Effect.
2.12 ERISA.
(a) ENB has delivered to NPB true and complete copies of any employee
pension benefit plans within the meaning of ERISA Section 3(2), profit sharing
plans, stock purchase plans, deferred compensation and supplemental income
plans, supplemental executive retirement plans, annual incentive plans, group
insurance plans, and all other employee welfare benefit plans within the meaning
of ERISA Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans) and all other material
employee benefit plans, policies, agreements and arrangements, all of which are
set forth in ENB Disclosure Schedule 2.12, currently maintained or contributed
to for the benefit of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former directors of ENB
(the "ENB Benefit Plans"), together with (i) the most recent actuarial (if any)
and financial reports relating to those ENB Benefit Plans which constitute
"qualified plans" under IRC Section 401(a), (ii) the most recent Form 5500 (if
any) relating to such ENB Benefit Plans filed by them, respectively, with the
Internal Revenue Service, and (iii) the most recent Internal Revenue
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Service determination letter which pertain to any such ENB Benefit Plans.
Neither ENB nor any pension plan (within the meaning of ERISA Section 3(2))
maintained by ENB has incurred any liability to the Pension Benefit Guaranty
Corporation or to the Internal Revenue Service with respect to any pension plan
qualified under IRC Section 401(a), except liabilities to the Pension Benefit
Guaranty Corporation pursuant to ERISA Section 4007, all of which have been
fully paid, nor has any reportable event under ERISA Section 4043(b) (with
respect to which the 30 day notice requirement has not been waived) occurred
with respect to any such pension plan. ENB has not incurred any liability under
ERISA Section 4201 for a complete or partial withdrawal from a multi-employer
plan. Each ENB Benefit Plan has been maintained, operated and administered in
compliance in all respects with its terms and related documents or agreements
and the applicable provisions of all laws, including ERISA and the IRC, except
where any such non-compliance would not have a Material Adverse Effect. As of
the date hereof, ENB is not aware of any existing or contemplated audit of its
employee benefit plans by the Internal Revenue Service or the U.S. Department of
Labor.
(b) With respect to any services which ENB may provide as a sponsor,
fiduciary, trustee or otherwise for any plan, program, or assignment subject to
ERISA (other than any ENB Benefit Plan), ENB (i) has correctly computed all
contributions, payments or other amounts for which it is responsible, (ii) has
not engaged in any prohibited transactions (as defined in ERISA Section 406 for
which an exemption does not exist), and (iii) has not incurred any liability to
any beneficiary or sponsor of any ERISA plan as a result of any negligence in
the performance of its duties except where any such action or inaction would not
have a Material Adverse Effect.
2.13 Brokers and Finders. Neither ENB nor any of its officers,
directors, employees, independent contractors or agents, has employed any
broker, finder, investment banker or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with the
transactions contemplated by this Agreement, except for Berwind Financial, L.P.
("Berwind") whose engagement letter with ENB is included in ENB Disclosure
Schedule 2.13.
2.14 Environmental Matters.
(a) Except as set forth on ENB Disclosure Schedule 2.14, to the
knowledge of ENB, neither ENB, any ENB Subsidiary, nor any property owned or
operated by ENB or any ENB Subsidiary has been or is in violation of or liable
under any Environmental Law, except for such violations or liabilities that,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as disclosed in ENB Disclosure Schedule 2.14, there are no actions, suits
or proceedings, or demands, claims or notices, including without limitation
notices, demand letters or requests for information from any Regulatory
Authority, instituted or pending, or to the knowledge of ENB, threatened, or any
investigation pending, relating to the liability of ENB or any ENB Subsidiary
with respect to any property owned or operated by ENB or any ENB Subsidiary
under any Environmental Law, except as to any such actions or other matters
which will not result in a Material Adverse Effect.
(b) Except as set forth on ENB Disclosure Schedule 2.14, no property,
now or formerly owned or operated by ENB or any ENB Subsidiary or on which ENB
or any ENB Subsidiary holds or held a mortgage or other security interest or has
foreclosed or taken a deed in lieu, has been listed or proposed for listing on
the National Priority List under the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, on the Comprehensive
Environmental Response Compensation and Liabilities Information System, or any
similar state list, or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to claims against ENB
or any ENB Subsidiary for response costs, remedial work, investigation, damage
to natural resources or for personal injury or property damage claim, including,
but not limited to, claims under CERCLA, which would have a Material Adverse
Effect.
2.15 Business of ENB. Since June 30, 1998, ENB has not, in any material
respect, (i) increased the wages, salaries, compensation, pension or other
employee benefits payable to any executive officer, employee or director except
as is permitted in Section 4.01(d), (ii) eliminated employee benefits, (iii)
deferred routine maintenance of real property or leased premises, (iv)
eliminated a reserve where the liability related to such reserve has remained,
(v) failed to depreciate capital assets in accordance with past practice or to
eliminate capital assets which are no longer used in the businesses of ENB, or
(vi) had extraordinary reduction or deferral of ordinary or necessary expenses.
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2.16 CRA Compliance. ENB is in material compliance with the applicable
provisions of the CRA, and, as of the date hereof, ENB has received a CRA rating
of "satisfactory" or better from the OCC. ENB knows of no fact or circumstance
or set of facts or circumstances which would cause ENB to fail to comply with
such provisions in a manner which would have a Material Adverse Effect.
2.17 Allowance for Loan Losses. The allowance for loan losses shown,
and to be shown, on the balance sheets contained in the ENB Financials have
been, and will be, established in accordance with generally accepted accounting
principles and all applicable regulatory criteria.
2.18 Information to be Supplied. The information supplied by ENB for
inclusion in the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act, and as of the date the
Prospectus/Proxy Statement is mailed to shareholders of ENB and NPB and up to
and including the dates of the meetings of shareholders of ENB and NPB to which
such Prospectus/Proxy Statement relates, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances in which they were
made, not misleading. The information supplied by ENB for inclusion in the
Applications will, at the time such documents are filed with any Regulatory
Authority and up to and including the dates of any required regulatory approvals
or consents, as it may be amended by subsequent filings, be accurate in all
material respects.
2.19 Related Party Transactions. Except as previously disclosed to NPB,
disclosed on ENB Disclosure Schedule 2.19, or as is disclosed in the footnotes
to the ENB Financials, as of the date hereof, ENB is not a party to any
transaction (including any loan or other credit accommodation but excluding
deposits in the ordinary course of business) with any Affiliate of ENB; and all
such transactions were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons (as defined in Section 13(d) of the Exchange
Act, and the rules and regulations thereunder), except with respect to
variations in such terms as would not, individually or in the aggregate, have a
Material Adverse Effect. Except as set forth in ENB Disclosure Schedule 2.19, as
of the date hereof, no loan or credit accommodation to any Affiliate of ENB is
presently in default or, during the three-year period prior to the date of this
Agreement, has been in material default or has been restructured, modified or
extended in any manner which would have a Material Adverse Effect. To ENB's
knowledge, as of the date hereof, principal and interest with respect to any
such loan or other credit accommodation will be paid when due and the loan grade
classification accorded such loan or credit accommodation is appropriate.
2.20 Loans. Each loan reflected as an asset in the ENB Financials (a)
is evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and correct and (b) to the extent secured, has been secured by
valid liens and security interests which have been perfected, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on ENB.
2.21 Accounting for the Merger; Reorganization. As of the date hereof,
ENB does not have any reason to believe that the Merger will fail to qualify (i)
for "pooling of interests" accounting treatment under generally accepted
accounting principles, or (ii) as a reorganization under Section 368(a) of the
IRC.
2.22 Fairness Opinion. ENB has received a written opinion from Berwind
to the effect that, as of the date hereof, the consideration to be received by
shareholders of ENB pursuant to this Agreement is fair, from a financial point
of view, to such shareholders.
2.23 Year 2000 Compliance. ENB is in compliance in all material
respects with the Year 2000 compliance time-frames established in OCC Advisory
Letter 97-6, the safety and soundness and other guidelines for Year 2000
business risk issued from time to time by the Federal Financial Institutions
Examination Council, and the guidance contained in OCC Advisory Letters 97-10
(December 17, 1997) and 98-1 (January 20, 1998), except to the extent that the
failure so to comply would not have a Material Adverse Effect.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NPB
NPB hereby represents and warrants to ENB as follows:
3.01 Organization.
(a) NPB is a corporation duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. NPB is a bank
holding company duly registered under the Bank Holding Company Act of 1956, as
amended. NPB has the corporate power to carry on its businesses and operations
as now being conducted and to own and operate the properties and assets now
owned and being operated by it. NPB is duly licensed, registered or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing, registration or qualification necessary, except
where the failure to be so licensed, registered or qualified will not have a
Material Adverse Effect, and all such licenses, registrations and qualifications
are in full force and effect in all material respects.
(b) Bank is a national banking association duly organized and validly
existing under the laws of the United States of America. Bank has the corporate
power to carry on its business and operations as now being conducted and to own
and operate the properties and assets now owned and being operated by it. Bank
is duly licensed, registered or qualified to do business in each jurisdiction in
which the nature of the business conducted by it or the character or location of
the properties and assets owned or leased by it makes such licensing,
registration or qualification necessary, except where the failure to be so
licensed, registered or qualified will not have a Material Adverse Effect, and
all such licenses, registrations and qualifications are in full force and effect
in all material respects.
(c) The respective minute books of NPB and Bank accurately record, in
all material respects, all material corporate actions of their respective
shareholders and board of directors, including committees, in each case in
accordance with their normal business practices.
(d) NPB has delivered to ENB true and correct copies of the respective
articles of incorporation, articles of association and bylaws of NPB and Bank,
as in effect on the date hereof.
3.02 Capitalization.
(a) The authorized capital stock of NPB consists of (a) 62,500,000
shares of common stock, without par value ("NPB Common Stock"), of which at the
date hereof 240,692 shares are validly issued and held by NPB as treasury stock
and 10,488,135 shares are validly issued and outstanding, fully paid and
nonassessable, and (b) 1,000,000 shares of preferred stock, without par value,
of which none are issued. NPB has not issued nor is NPB bound by any
subscription, option, warrant, call, commitment, agreement or other Right of any
character relating to the purchase, sale, or issuance of, or right to receive
dividends or other distributions on, any shares of NPB Common Stock or any other
security of NPB or any securities representing the right to vote, purchase or
otherwise receive any shares of NPB Common Stock or any other security of NPB,
except (i) for options to acquire shares of NPB Common Stock issued under NPB's
various stock option plans, (ii) pursuant to NPB's employee stock purchase plan,
dividend reinvestment plan and directors' fee plan, and (iii) pursuant to the
Rights Agreement. On June 24, 1998, NPB declared the NPB Stock Split.
(b) NPB owns all of the capital stock of Bank and the other NPB
Subsidiaries, free and clear of any lien or encumbrance. Except for NPB's
Subsidiaries, NPB does not possess, directly or indirectly, any material equity
interest in any corporation, except for equity interests in the investment
portfolio of NPB's Subsidiaries, equity interests held by NPB's Subsidiaries in
a fiduciary capacity, and equity interests held in connection with the
commercial loan activities of NPB's Subsidiaries.
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3.03 Authority; No Violation.
(a) NPB has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. Bank has
full corporate power and authority to execute and deliver this Agreement and to
consummate the Merger. The execution and delivery of this Agreement by NPB and
the consummation by NPB of the transactions contemplated hereby have been duly
and validly approved by the Board of Directors of NPB by unanimous vote and,
except for approval by the shareholders of NPB as required by Nasdaq
requirements applicable to it (consisting of the affirmative vote of a majority
of the shares of NPB Common Stock voting at the NPB Shareholders Meeting), no
other corporate proceedings on the part of NPB are necessary to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Bank and the consummation by Bank of the Merger have been duly and validly
approved by the Board of Directors of Bank by unanimous vote and by NPB as sole
shareholder of Bank, and no other corporate proceedings on the part of Bank are
necessary to consummate the transactions contemplated by this Agreement. This
Agreement has been duly and validly executed and delivered by NPB and, subject
to approval by the shareholders of NPB under Nasdaq requirements applicable to
it and receipt of the required approvals of Regulatory Authorities described in
Section 3.04 hereof, constitutes the valid and binding obligation of NPB,
enforceable against NPB in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity. This
Agreement has been duly and validly executed and delivered by Bank and, subject
to receipt of the required approvals of Regulatory Authorities described in
Section 3.04 hereof, constitutes the valid and binding obligation of Bank,
enforceable against Bank in accordance with its terms, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity.
(b) (i) The execution and delivery of this Agreement by NPB, (ii) the
execution and delivery of this Agreement by Bank, (iii) subject to receipt of
approvals from the Regulatory Authorities referred to in Section 3.04 hereof and
NPB's, Bank's and ENB's compliance with any conditions contained therein, the
consummation of the Merger, and (iv) compliance by NPB or Bank with any of the
terms or provisions hereof, does not and will not: (A) conflict with or result
in a breach of any provision of the respective articles of incorporation,
articles of association or bylaws of NPB or Bank; (B) violate any statute, rule,
regulation, judgment, order, writ, decree or injunction applicable to NPB or
Bank or any of their respective properties or assets; or (C) violate, conflict
with, result in a breach of any provisions of, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of, or acceleration of the performance required by, or
result in a right of termination or acceleration or the creation of any lien,
security interest, charge or other encumbrance upon any of the properties or
assets of NPB or Bank under, any of the terms or conditions of any note, bond,
mortgage, indenture, license, lease, agreement, commitment or other instrument
or obligation to which NPB or Bank is a party, or by which they or any of their
respective properties or assets may be bound or affected, excluding from clauses
(B) and (C) any such items which, in the aggregate, would not have a Material
Adverse Effect.
3.04 Consents. Except for consents and approvals of, or filings with,
the SEC, the OCC, the NASD and state securities or "blue sky" authorities, no
consents or approvals of, or filings or registrations with, any public body or
authority are necessary in connection with the execution and delivery of this
Agreement by NPB or Bank or, except for the approval of this Agreement by the
shareholders of NPB, the consummation of the Merger.
3.05 Financial Statements.
(a) NPB has delivered to ENB the NPB Financials, except those
pertaining to quarterly periods commencing after June 30, 1998, which it will
deliver to ENB within 45 days after the end of the respective quarter. The
delivered NPB Financials fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of NPB as
of and for the periods ended on the dates thereof, in accordance with generally
accepted accounting principles consistently applied, except in each case as
noted therein and, in the case of interim period financial statements, subject
to normal year-end adjustments and footnotes thereto.
(b) To the knowledge of NPB, NPB did not have any liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise,
which are not fully reflected or reserved against in the balance sheets included
in the NPB Financials at the date of such balance sheets which would have been
required to be reflected therein in accordance with generally accepted
accounting principles consistently applied or disclosed in a footnote
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thereto, except for liabilities and obligations which were incurred in the
ordinary course of business consistent with past practice, and except for
liabilities and obligations which are within the subject matter of a specific
representation and warranty herein or which otherwise have not had a Material
Adverse Effect.
3.06 No Material Adverse Change. NPB has not suffered any adverse
change in its assets, business, financial condition or results of operations
since June 30, 1998 which change has had a Material Adverse Effect.
3.07 Taxes.
(a) NPB has filed, and will file, in correct form all federal, state
and local tax returns required to be filed by or with respect to NPB on or prior
to the Closing Date except to the extent that any failure to file or any
inaccuracies would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid or will pay, or made or will make, provisions for
the payment of all federal, state and local taxes which are shown on such
returns to be due for the periods covered thereby from NPB to any applicable
taxing authority, on or prior to the Closing Date other than taxes which (i) are
not delinquent or are being contested in good faith, (ii) have not been finally
determined, or (iii) the failure to pay would not, individually or in the
aggregate, have a Material Adverse Effect.
(b) To the knowledge of NPB, there are no material disputes pending, or
claims asserted in writing, for taxes or assessments upon NPB, nor has NPB been
requested in writing to give any currently effective waivers extending the
statutory period of limitation applicable to any federal, state, county or local
income tax return for any period.
(c) Proper and accurate amounts have been withheld by NPB from its
employees for all prior periods in compliance in all material respects with the
tax withholding provisions of applicable federal, state and local laws, except
where failure to do so is not reasonably likely to have a Material Adverse
Effect.
3.08 Ownership of Property; Insurance Coverage.
(a) NPB has, and will have as to property acquired after the date
hereof, good, and as to real property, marketable, title to all material assets
and properties owned by NPB, whether real or personal, tangible or intangible,
including securities, assets and properties reflected in the balance sheets
contained in the NPB Financials or acquired subsequent thereto (except to the
extent that such securities are held in any fiduciary or agency capacity and
except to the extent that such assets and properties have been disposed of for
fair value, in the ordinary course of business, or have been disposed of as
obsolete since the date of such balance sheets), subject to no encumbrances,
liens, mortgages, security interests or pledges, except (i) those items that
secure liabilities for borrowed money and that are described in NPB Disclosure
Schedule 3.08(a) or permitted under Article IV hereof, (ii) statutory liens for
amounts not yet delinquent or which are being contested in good faith, (iii)
liens for current taxes not yet due and payable, (iv) such imperfections of
title, easements and encumbrances, if any, as are not material in character,
amount or extent, and (v) dispositions and encumbrances for adequate
consideration in the ordinary course of business. NPB has the right under leases
of material properties used by NPB in the conduct of its business to occupy and
use all such properties in all material respects as presently occupied and used
by it.
(b) With respect to all agreements pursuant to which NPB has purchased
securities subject to an agreement to resell, if any, NPB has a valid, perfected
first lien or security interest in the securities or other collateral securing
the repurchase agreement, and the value of such collateral equals or exceeds the
amount of the debt secured thereby, except to the extent that any failure to
obtain such a lien or maintain such collateral would not, individually or in the
aggregate, have a Material Adverse Effect.
(c) NPB currently maintains insurance in amounts considered by NPB to
be reasonable for its operations, and such insurance is similar in scope and
coverage in all material respects to that maintained by other businesses
similarly situated. NPB has not received notice from any insurance carrier that
(i) such insurance will be cancelled or that coverage thereunder will be reduced
or eliminated, or (ii) premium costs with respect to such insurance will be
substantially increased except to the extent such cancellation, reduction,
elimination or increase would not have a Material Adverse Effect.
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(d) NPB currently maintains such fidelity bonds and errors and
omissions insurance as may be customary or required under applicable laws or
regulations.
3.09 Legal Proceedings. Neither NPB nor any NPB Subsidiary is a party
to any, and there are no pending or, to NPB's knowledge, threatened, legal,
administrative, arbitration or other proceedings, claims, actions, customer
complaints, or governmental investigations or inquiries of any nature (i)
against NPB or any NPB Subsidiary, (ii) to which the assets of NPB or any NPB
Subsidiary are subject, (iii) challenging the validity or propriety of any of
the transactions contemplated by this Agreement, or (iv) which could materially
adversely affect the ability of NPB or Bank to perform its obligations under
this Agreement, except for any proceedings, claims, actions, investigations, or
inquiries referred to in clauses (i) or (ii) which, individually or in the
aggregate, will not have a Material Adverse Effect.
3.10 Compliance with Applicable Law.
(a) NPB and its Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under, and have complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any Regulatory Authority relating to
them, other than where such failure to hold or such noncompliance will neither
result in a limitation in any material respect on the conduct of their
respective businesses nor otherwise have a Material Adverse Effect.
(b) NPB and its Subsidiaries have filed all reports, registrations and
statements, together with any amendments required to be made with respect
thereto, that they were required to file with any Regulatory Authority, and have
filed all other reports and statements required to be filed by them, including
without limitation any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, any state or any Regulatory
Authority, and have paid all fees and assessments due and payable in connection
therewith, except where the failure to file such report, registration or
statement or to pay such fees and assessments, either individually or in the
aggregate, will not have a Material Adverse Effect.
(c) No Regulatory Authority has initiated any proceeding or, to the
knowledge of NPB, investigation into the businesses or operations of NPB or any
of its Subsidiaries, except where any such proceedings or investigations will
not, individually or in the aggregate, have a Material Adverse Effect, or such
proceedings or investigations have been terminated or otherwise resolved.
(d) Neither NPB nor any NPB Subsidiary has received any notification or
communication from any Regulatory Authority (i) asserting that NPB or any NPB
Subsidiary has not complied with any of the statutes, regulations or ordinances
which such Regulatory Authority enforces, unless such assertion has been waived,
withdrawn or otherwise resolved; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material to NPB or any
NPB Subsidiary; (iii) requiring or threatening to require NPB or any NPB
Subsidiary or indicating that NPB or any NPB Subsidiary may be required, to
enter into a cease and desist order, agreement or memorandum of understanding or
any other agreement restricting or limiting, or purporting to restrict or limit,
in any manner the operations of NPB or any NPB Subsidiary; or (iv) directing,
restricting or limiting, or purporting to direct, restrict or limit, in any
manner the operations of NPB or any NPB Subsidiary (any such notice,
communication, memorandum, agreement or order described in this sentence herein
referred to as a "Regulatory Agreement") in each case except as would not have a
Material Adverse Effect. Neither NPB nor any NPB Subsidiary has received,
consented to, or entered into any Regulatory Agreement which would have,
individually or in the aggregate, a Material Adverse Effect.
(e) To the knowledge of NPB, there is no unresolved violation,
criticism, or exception by any Regulatory Authority with respect to any
Regulatory Agreement which if resolved in a manner adverse to NPB would have a
Material Adverse Effect.
(f) There is no injunction, order, judgment or decree imposed upon NPB
or any NPB Subsidiary or the assets of NPB or any NPB Subsidiary which has had,
or, to the knowledge of NPB, will have, a Material Adverse Effect.
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3.11 ERISA.
(a) NPB has delivered to ENB true and complete copies of any employee
pension benefit plans within the meaning of ERISA Section 3(2), profit sharing
plans, stock purchase plans, deferred compensation and supplemental income
plans, supplemental executive retirement plans, annual incentive plans, group
insurance plans, and all other employee welfare benefit plans within the meaning
of ERISA Section 3(1) (including vacation pay, sick leave, short-term
disability, long-term disability, and medical plans) and all other material
employee benefit plans, policies, agreements and arrangements, all of which are
set forth in NPB Disclosure Schedule 3.11, currently maintained or contributed
to for the benefit of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former directors of NPB
(the "NPB Benefit Plans"), together with (i) the most recent actuarial (if any)
and financial reports relating to those NPB Benefit Plans which constitute
"qualified plans" under IRC Section 401(a), (ii) the most recent Form 5500 (if
any) relating to such NPB Benefit Plans filed by them, respectively, with the
Internal Revenue Service, and (iii) the most recent Internal Revenue Service
determination letters which pertain to any such NPB Benefit Plans. Neither NPB
nor any pension plan (within the meaning of ERISA Section 3(2)) maintained by
NPB has incurred any liability to the Pension Benefit Guaranty Corporation or to
the Internal Revenue Service with respect to any pension plan qualified under
IRC Section 401(a), except liabilities to the Pension Benefit Guaranty
Corporation pursuant to ERISA Section 4007, all of which have been fully paid,
nor has any reportable event under ERISA Section 4043(b) (with respect to which
the 30 day notice requirement has not been waived) occurred with respect to any
such pension plan. NPB has not incurred any liability under ERISA Section 4201
for a complete or partial withdrawal from a multi-employer plan. Each NPB
Benefit Plan has been maintained, operated and administered in compliance in all
respects with its terms and related documents or agreements and the applicable
provisions of all laws, including ERISA and the IRC, except where any such
non-compliance would not have a Material Adverse Effect. As of the date hereof,
NPB is not aware of any existing or contemplated audit of its employee benefit
plans by the Internal Revenue Service or the U.S. Department of Labor.
(b) With respect to any services which NPB or any NPB Subsidiary may
provide as a sponsor, fiduciary, trustee or otherwise for any plan, program, or
assignment subject to ERISA (other than any NPB Benefit Plan), NPB and each NPB
Subsidiary (i) has correctly computed all contributions, payments or other
amounts for which it is responsible, (ii) has not engaged in any prohibited
transactions (as defined in ERISA Section 406 for which an exemption does not
exist), and (iii) has not incurred any liability to any beneficiary or sponsor
of any ERISA plan as a result of any negligence in the performance of its
duties, except where any such action or inaction would not have a Material
Adverse Effect.
3.12 Brokers and Finders. Neither NPB nor any of its officers,
directors, employees, independent contractors or agents, has employed any
broker, finder, investment banker or financial advisor, or incurred any
liability for any fees or commissions to any such person, in connection with the
transactions contemplated by this Agreement, except for LSC Financial Services,
Inc. ("LSC") whose engagement letter with NPB is included in NPB Disclosure
Schedule 3.12.
3.13 Environmental Matters.
(a) Except as set forth on NPB Disclosure Schedule 3.13, to the
knowledge of NPB, neither NPB, any NPB Subsidiary, nor any property owned or
operated by NPB or any NPB Subsidiary has been or is in violation of or liable
under any Environmental Law, except for such violations or liabilities that,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as disclosed in NPB Disclosure Schedule 3.13, there are no actions, suits
or proceedings, or demands, claims or notices, including without limitation
notices, demand letters or requests for information from any Regulatory
Authority, instituted or pending, or to the knowledge of NPB, threatened, or any
investigation pending, relating to the liability of NPB or any NPB Subsidiary
with respect to any property owned or operated by NPB or any NPB Subsidiary
under any Environmental Law, except as to any such actions or other matters
which will not result in a Material Adverse Effect.
(b) Except as set forth on NPB Disclosure Schedule 3.13, no property,
now or formerly owned or operated by NPB or any NPB Subsidiary or on which NPB
or any NPB Subsidiary holds or held a mortgage or other security interest or has
foreclosed or taken a deed in lieu, has been listed or proposed for listing on
the National Priority List under the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, on the
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Comprehensive Environmental Response Compensation and Liabilities Information
System, or any similar state list, or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to claims
against NPB or any NPB Subsidiary for response costs, remedial work,
investigation, damage to natural resources or for personal injury or property
damage claim, including, but not limited to, claims under CERCLA, which would
have a Material Adverse Effect.
3.14 Business of NPB. Since June 30, 1998, NPB has not, in any material
respect, (i) increased the wages, salaries, compensation, pension or other
employee benefits payable to any executive officer, employee or director, (ii)
eliminated employee benefits, (iii) deferred routine maintenance of real
property or leased premises, (iv) eliminated a reserve where the liability
related to such reserve has remained, (v) failed to depreciate capital assets in
accordance with past practice or to eliminate capital assets which are no longer
used in the businesses of NPB, or (vi) had extraordinary reduction or deferral
of ordinary or necessary expenses.
3.15 CRA Compliance. Bank is in material compliance with the applicable
provisions of the CRA, and, as of the date hereof, Bank has received a CRA
rating of "satisfactory" or better from the OCC. Neither NPB nor Bank know of
any fact or circumstance or set of facts or circumstances which would cause Bank
to fail to comply with such provisions in a manner which would have a Material
Adverse Effect.
3.16 Allowance for Loan Losses. The allowance for loan losses shown,
and to be shown, on the balance sheets contained in the NPB Financials have
been, and will be, established in accordance with generally accepted accounting
principles and all applicable regulatory criteria.
3.17 Information to be Supplied. The information supplied by NPB for
inclusion in the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is declared
effective pursuant to the Securities Act, and as of the date the
Prospectus/Proxy Statement is mailed to shareholders of ENB and NPB and up to
and including the dates of the meetings of shareholders of ENB and NPB to which
such Prospectus/Proxy Statement relates, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances in which they were
made, not misleading. The information supplied by NPB for inclusion in the
Applications will, at the time such documents are filed with any Regulatory
Authority and up to and including the dates of any required regulatory approvals
or consents, as it may be amended by subsequent filings, be accurate in all
material respects.
3.18 Related Party Transactions. Except as disclosed in NPB Disclosure
Schedule 3.18 or in the footnotes to the NPB Financials, as of the date hereof,
NPB is not a party to any transaction (including any loan or other credit
accommodation but excluding deposits in the ordinary course of business) with
any Affiliate of NPB; and all such transactions (i) were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons (as defined in Section
13(d) of the Exchange Act, and the rules and regulations thereunder), except
with respect to variations in such terms as would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth in NPB Disclosure
Schedule 3.18, as of the date hereof, no loan or credit accommodation to any
Affiliate of NPB is presently in default or, during the three-year period prior
to the date of this Agreement, has been in material default or has been
restructured, modified or extended in any manner which would have a Material
Adverse Effect. To NPB's knowledge, as of the date hereof, principal and
interest with respect to any such loan or other credit accommodation will be
paid when due and the loan grade classification accorded such loan or credit
accommodation is appropriate.
3.19 Loans. Each loan reflected as an asset in the NPB Financials (a)
is evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and correct and (b) to the extent secured, has been secured by
valid liens and security interests which have been perfected, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on NPB.
3.20 Accounting for the Merger; Reorganization. As of the date hereof,
NPB does not have any reason to believe that the Merger will fail to qualify (i)
for "pooling of interests" accounting treatment under generally accepted
accounting principles, or (ii) as a reorganization under Section 368(a) of the
IRC. NPB shall not take any action which would preclude the Merger from
qualifying for "pooling of interests" accounting treatment under generally
accepted accounting principles or as a reorganization within the meaning of
Section 368 of the IRC.
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3.21 Fairness Opinion. NPB has received a written opinion from LSC to
the effect that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the shareholders of NPB.
3.22 Year 2000 Compliance. NPB and its Subsidiaries are in compliance
in all material respects with the Year 2000 compliance time-frames established
in OCC Advisory Letter 97-6, the safety and soundness and other guidelines for
Year 2000 business risk issued from time to time by the Federal Financial
Institutions Examination Council, and the guidance contained in OCC Advisory
Letters 97-10 (December 17, 1997) and 98-1 (January 20, 1998), except to the
extent that the failure so to comply would not have a Material Adverse Effect.
3.23 NPB Common Stock. The shares of NPB Common Stock to be issued and
delivered to ENB shareholders in accordance with this Agreement, when so issued
and delivered, will be validly authorized and issued and fully paid and
non-assessable, and no shareholder of NPB shall have any pre-emptive right with
respect thereto.
3.24 Securities Documents. NPB has delivered to ENB copies of its (i)
annual reports on SEC Form 10-K for the years ended December 31, 1997 and 1996,
(ii) quarterly report on SEC Form 10-Q for the quarter ended March 31, 1998 and
all other reports, registration statements and filings filed with the SEC since
January 1, 1998, and (iii) proxy materials used in connection with its meetings
of shareholders held in 1998 and 1997. Such reports and proxy materials
complied, in all material respects,and any future SEC reports , filings, and
proxy materials will comply, with the rules and regulations of the SEC to the
extent applicable thereto, and all such SEC reports, filings and proxy materials
did not and will not, at the time of such filing, contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading.
3.25 Eligible Bank. Bank is an eligible bank, as defined in 12 C.F.R.
Section 5.3(g), and NPB and Bank will take all reasonable steps necessary to use
a streamlined merger application (the "Merger Application") and obtain an
expedited review of the Merger from the OCC, as contemplated by 12 C.F.R.
Sections 5.33(i) and (j).
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Conduct of ENB's Business. Through the Closing Date, ENB shall in
all material respects conduct its businesses and engage in transactions only in
the ordinary course and consistent with past practice, except as otherwise
required by this Agreement or with the written consent of NPB. ENB shall use its
reasonable good faith efforts to preserve its business organization intact,
maintain good relationships with employees, and preserve the good will of
customers of ENB and others with whom business relationships exist, provided
that job vacancies that occur prior to the Effective Date through attrition
shall not be filled unless the integration team referred to in Section
4.07(b)(vi) hereof deems it essential. Through the Closing Date, except as
otherwise consented to in writing by NPB (such consent shall not be unreasonably
withheld) or as permitted by this Agreement, ENB shall not:
(a) change any provision of its articles of association or bylaws;
(b) change the number of authorized or issued shares of its capital
stock, repurchase any shares of capital stock, or issue or grant any option,
warrant, call, commitment, subscription, Right or agreement of any character
relating to its authorized or issued capital stock or any securities convertible
into shares of capital stock, or declare, set aside or pay any dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any
shares of ENB capital stock, except that (i) ENB may issue up to an aggregate of
44,424 shares of ENB Common Stock upon the valid exercise of any ENB options
issued and outstanding on the date hereof, and (ii) ENB may pay its regular
quarterly cash dividend of $.06 per share of ENB Common Stock;
(c) grant any severance or termination pay, other than pursuant to
policies or agreements of ENB in effect on the date hereof, to, or enter into or
amend any employment, consulting, severance, "change-in-control" or termination
contract or arrangement with, any officer, director, employee, independent
contractor, agent or other person associated with ENB;
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(d) except for routine periodic pay increases, merit pay increases and
pay-raises in connection with promotions, all in accordance with past practice,
and except for retention bonuses on account of the Merger granted in good faith
reasonable amounts, increase the rate of compensation of, or pay any bonus to,
any director, officer, employee, independent contractor, agent or other person
associated with ENB; or grant job promotions other than in accordance with past
practice; provided, however, that ENB may adjust pay and bonuses for
extraordinary efforts in the management of special projects, development of new
products, outstanding departmental leadership and the like, in amounts in excess
of that provided for in the salary administration program if such costs are
fully accrued on the Closing Date;
(e) merge or consolidate ENB with any other corporation; sell or lease
all or any substantial portion of the assets or businesses of ENB; make any
acquisition of all or any substantial portion of the business or assets of any
other person, firm, association, corporation or business organization; relocate
or surrender its certificate of authority to maintain, or file an application
for the relocation of, any existing branch office; or file an application for a
certificate of authority to establish a new branch office;
(f) except for the sale of the excess property located at the Blue Rock
Center in the Borough of Elverson, Chester County, sell or otherwise dispose of
any material asset of ENB, other than in the ordinary course of business,
consistent with past practice; subject any asset of ENB to a lien, pledge,
security interest or other encumbrance, other than in the ordinary course of
business consistent with past practice; modify in any material manner the manner
in which ENB has heretofore conducted its business or enter into any new line of
business; incur any indebtedness for borrowed money, except in the ordinary
course of business, consistent with past practice;
(g) take any action which would result in any of the conditions set
forth in Article V hereof not being satisfied;
(h) change any method, practice or principle of accounting, except as
required by changes in generally accepted accounting principles concurred in by
its independent certified public accountants; or change any assumption
underlying, or any method of calculation of, depreciation of any type of asset
or establishment of any reserve;
(i) waive, release, grant or transfer any rights of material value or
modify or change in any material respect any existing agreement to which ENB is
a party, other than in the ordinary course of business, consistent with past
practice;
(j) implement any pension, retirement, profit sharing, bonus, welfare
benefit or similar plan or arrangement that was not in effect on the date of
this Agreement, or amend any existing plan or arrangement except as required by
law or to the extent such amendments do not result in a material increase in
cost;
(k) amend or otherwise modify the underwriting and other lending
guidelines and policies of ENB in effect as of the date hereof or otherwise fail
to conduct its lending activities in the ordinary course of business consistent
with past practice;
(l) enter into, renew, extend or modify any other transaction with any
Affiliate, other than deposit and loan transactions in the ordinary course of
business and which are in compliance with the requirements of applicable laws
and regulations, except as to any transaction disclosed on ENB Disclosure
Schedule 2.19;
(m) enter into any interest rate swap, floor or cap or similar
commitment, agreement or arrangement;
(n) take any action that would give rise to a right of payment to any
individual under any employment agreement except in the ordinary course of
business consistent with past practice;
(o) purchase any security for its investment portfolio (i) rated less
than "AAA" by either Standard & Poor's Corporation or Moody's Investor Services,
Inc., or (ii) with a remaining maturity more than five (5) years;
(p) except for good faith reasonable renovation or repair expenses to
ENB's physical facilities, make any capital expenditure of $250,000 or more; or
undertake or enter into any lease, contract or other commitment for its
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account, other than in the ordinary course of business, involving an unbudgeted
expenditure by ENB of more than $250,000, or extending beyond twelve (12) months
from the date hereof;
(q) take any action that would preclude the Merger from qualifying (A)
for "pooling of interests" accounting treatment under generally accepted
accounting principles or (B) as a reorganization within the meaning of Section
368 of the IRC; or
(r) agree to do any of the foregoing.
4.02 Access; Confidentiality.
(a) Through the Closing Date, each party hereto shall afford to the
other, including its authorized agents and representatives, reasonable access to
its properties, assets, books and records and personnel, at reasonable hours and
after reasonable notice; and the officers of each party shall furnish the other
party making such investigation, including its authorized agents and
representatives, with such financial and operating data and other information
with respect to the businesses, properties, assets, books and records and
personnel as the party making such investigation, or its authorized agents and
representatives, shall from time to time reasonably request.
(b) Each party hereto agrees that it, and its authorized agents and
representatives, will conduct such investigation and discussions hereunder in a
confidential manner and otherwise in a manner so as not to interfere
unreasonably with the other party's normal operations and customer and employee
relationships. Neither ENB nor NPB, nor any of their respective Subsidiaries,
shall be required to provide access to or disclose information where such access
or disclosure would violate or prejudice the rights of customers, jeopardize
attorney-client privilege or similar privilege with respect to such information
or contravene any law, rule, regulation, decree, order, fiduciary duty or
agreement entered into prior to the date hereof.
(c) All information furnished to NPB or ENB by the other in connection
with the transactions contemplated by this Agreement, whether prior to the date
of this Agreement or subsequent hereto, shall be held in confidence to the
extent required by, and in accordance with, the two confidentiality agreements
dated June 15, 1998 between NPB and ENB (collectively, the "Confidentiality
Agreements").
4.03 Regulatory Matters. Through the Closing Date:
(a) NPB and ENB shall cooperate with one another in the preparation of
the Registration Statement (including the Prospectus/Proxy Statement) and all
Applications and the making of all filings for, and shall use their reasonable
best efforts to obtain, as promptly as practicable, all necessary permits,
consents, approvals, waivers and authorizations of all Regulatory Authorities
necessary or advisable to consummate the transactions contemplated by this
Agreement, and in particular, NPB shall use its reasonable efforts to file the
Merger Application within one month of the date hereof. Each of NPB and ENB
shall give the other reasonable time to review any Application to be filed by it
prior to the filing of such Application with the relevant Regulatory Authority,
and each shall consult one another with respect to the substance and status of
such filings. It is the intent of the parties hereto to cause the Registration
Statement (including the Prospectus/Proxy Statement) to be declared effective by
the SEC with financial information included therein as of June 30, 1998, subject
to the terms of this Agreement (including the right of ENB to designate the date
of the ENB Shareholders Meeting pursuant to Section 4.07(a)(i)) and provided
further NPB acknowledges that ENB is not a registrant under the Exchange Act and
accordingly preparation of additional information may be required.
(b) ENB and NPB shall each promptly furnish the other with copies of
written communications to, or received by them from, any Regulatory Authority in
respect of the transactions contemplated hereby.
(c) ENB and NPB shall cooperate with each other in the foregoing
matters and shall furnish the other with all information concerning itself as
may be necessary or advisable in connection with any Application or filing,
including the Registration Statement and any report filed with the SEC, made by
or on behalf of such party to or with any Regulatory Authority in connection
with the transactions contemplated by this Agreement, and in each such case,
such information shall be accurate and complete in all material respects. In
connection therewith, ENB
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and NPB shall use their reasonable good faith efforts to provide each other
certificates, "comfort" letters and other documents reasonably requested by the
other.
4.04 Taking of Necessary Actions. Through the Closing Date, in addition
to the specific agreements contained herein, each party hereto shall use
reasonable best efforts to take, or in the case of NPB cause to be taken by each
of its Subsidiaries, all actions, and to do, or in the case of NPB cause to be
done by each of its Subsidiaries, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement including, if necessary, appealing
any adverse ruling in respect of any Application.
4.05 No Solicitation. ENB shall not, nor shall it authorize or permit
any of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it to,
initiate, solicit, encourage (including by way of furnishing information), or
take any other action to facilitate, any inquiries or the making of any proposal
which constitutes any Acquisition Proposal (as defined below), or enter into or
maintain or continue discussions or negotiate with any person in furtherance of
an Acquisition Proposal, or agree to or endorse any Acquisition Proposal, and
ENB shall (unless it believes such notification could violate the ENB Board of
Directors' fiduciary duties) notify NPB as promptly as practicable, in
reasonable detail, as to any inquiries and proposals which it or any of its
representatives or agents may receive; provided, however, that, notwithstanding
anything to the contrary contained in this Agreement, (i) ENB may furnish or
cause to be furnished confidential and non-public information concerning ENB and
its businesses, properties or assets to a third party, (ii) ENB may engage in
discussions or negotiations with a third party, (iii) following receipt of an
Acquisition Proposal, ENB may take and disclose to its shareholders a position
with respect to such Acquisition Proposal, and/or (iv) following receipt of an
Acquisition Proposal, the ENB Board of Directors may withdraw or modify its
recommendation of the Merger or terminate this Agreement, but in respect of the
foregoing clause (iv) only to the extent that the ENB Board of Directors shall
conclude in good faith after consultation with its legal and financial advisors
that such Acquisition Proposal, if consummated pursuant to its terms, would
result in an alternative transaction that is more favorable to ENB shareholders
than the Merger. As used herein, the term "Acquisition Proposal" means: (x) any
acquisition or purchase of a significant amount of the assets of ENB, or any
equity interest in ENB or any take-over bid or tender offer (including an issuer
bid or self tender offer) or exchange offer, consolidation, plan or arrangement,
reorganization, consolidation, business combination, sale of substantially all
of the assets, sale of securities, recapitalization, liquidation, dissolution or
similar transaction involving ENB (other than the transactions contemplated by
this Agreement) or (y) any proposal, plan or intention to do any of the
foregoing either publicly announced or communicated to ENB or any agreement to
engage in any of the foregoing.
4.06 Update of Disclosure Schedules. Through the Closing Date, ENB
shall update the ENB Disclosure Schedule, and NPB shall update the NPB
Disclosure Schedule, as promptly as practicable after the occurrence of any
event which, if such event had occurred prior to the date hereof, would have
been disclosed on such schedule.
4.07 Other Undertakings by NPB and ENB.
(a) Undertakings of ENB.
(i) Shareholder Approval. ENB shall submit this Agreement to
its shareholders for approval at a meeting (the "ENB Shareholders Meeting")
which may, in ENB's sole discretion, be held after all consents of any
Regulatory Authorities have been obtained. In the event that any such consent
has not been obtained prior to the date established in the Prospectus/Proxy
Statement for such meeting, such meeting may be postponed or adjourned at the
sole discretion of ENB. The ENB Shareholders Meeting shall be held not later
than 45 days after all consents of Regulatory Authorities have been received and
all other conditions have been satisfied or waived (other than those conditions
which are to be fulfilled at the Closing).
(ii) Phase I Environmental Audit. ENB shall permit NPB, if NPB
elects to do so, at its own cost and expense, to cause a "phase I environmental
audit" to be performed at any physical location owned or occupied by ENB or any
ENB Subsidiary.
(iii) Delivery of Financial Statements. ENB shall deliver to
NPB, as soon as practicable after the end of each month and after the end of
each calendar quarter prior to the Effective Date, commencing with the
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month ended July 31, 1998, an unaudited consolidated balance sheet as of such
date and related unaudited consolidated statements of income and cash flows for
the periods then ended, which financial statements shall fairly present, in all
material respects, ENB's consolidated financial condition, results of operations
and cash flows for the periods then ended in accordance with generally accepted
accounting principles, except as noted therein and subject to year-end audit
adjustments and footnotes.
(iv) Reserves and Merger-Related Costs. On or before the
Effective Date, establish such additional accruals and reserves as may be
necessary to conform ENB's accounting reserve practices and methods (including
credit loss practices and methods) to those of NPB and otherwise to reflect
Merger-related expenses and costs incurred by ENB (including professional fees
and expenses), in each case on a mutually satisfactory basis and in accordance
with generally accepted accounting principles and any applicable regulatory
requirements, provided, however, that ENB shall not be required to take such
actions until such time as NPB shall acknowledge in writing that all conditions
to NPB's and ENB's respective obligations to consummate the Merger (and NPB's
and ENB's respective rights to terminate this Agreement for any reason) have
been waived or satisfied, and that in all circumstances ENB shall take such
actions at such time as shall be mutually agreed to by NPB and ENB but not later
than immediately prior to the time the Merger becomes effective. No action taken
by ENB in accordance with this Section 4.07(a)(iv) shall constitute or be deemed
to be a breach or violation of any representation, warranty, covenant, condition
or other provision of this Agreement, and NPB agrees to indemnify ENB's
officers, directors and agents with respect to such adjustments.
(v) Dividend Reinvestment Plan. Within ten days after the date
of this Agreement, suspend through the earlier of the termination of this
Agreement or the Closing Date the operation of the ENB Dividend Reinvestment and
Stock Purchase Plan.
(b) Understandings of NPB and ENB.
(i) Filings and Approvals. NPB and ENB shall cooperate with
each other in the preparation and filing, as soon as practicable, of (A) the
Applications, (B) the Registration Statement (including the Prospectus/Proxy
Statement) and related filings, if any, under state securities laws relating to
the Merger, (C) all other documents necessary to obtain any other approvals and
consents required to effect consummation of the transactions contemplated by
this Agreement.
(ii) Public Announcements. NPB and ENB shall agree upon the
form and substance of any press release related to this Agreement and the
transactions contemplated hereby, but nothing contained herein shall prohibit
either party, following notification to the other party, from making any
disclosure which its counsel deems necessary under applicable law.
(iii) Maintenance of Insurance. NPB and ENB shall maintain
insurance in such amounts as NPB or ENB, as the insured, believes are reasonable
to cover such risks as are customary in relation to the character and location
of their respective properties and the nature of their respective businesses.
(iv) Maintenance of Books and Records. NPB and ENB shall
maintain books of account and records on a basis consistent with past practice.
(v) Taxes. NPB and ENB shall each file all federal, state, and
local tax returns required to be filed by it on or before the date such returns
are due, including any extensions, and pay all taxes shown to be due on such
returns on or before the dates such payments are due, except those being
contested in good faith.
(vi) Integration Team. NPB and ENB shall cooperate with each
other in the selection of an integration team, made up of an equal number of
persons from NPB's senior staff and from ENB's senior staff, which team shall
plan and implement an orderly, cost-effective consolidation of ENB's operations
into Bank's operations in Boyertown, Pennsylvania.
(vii) Outside Service Bureau Contracts. NPB and ENB shall
cooperate with each other, and if mutually agreed in the interest of an orderly,
cost-effective consolidation of operations, terminate any contract or
arrangement ENB may have with an outside service bureau or other vendor of
services and substitute a contract or
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arrangement between NPB or Bank (as NPB shall elect) and ENB for the provision
of similar services to ENB on terms and conditions mutually acceptable to ENB
and NPB.
(viii) In-House Operations. NPB and ENB shall, subject to
applicable legal requirements, cooperate with each other, and if mutually agreed
in the interest of an orderly, cost-effective consolidation of operations,
terminate any in-house back office, support, processing or other operational
activities of ENB, and substitute a contract or arrangement between NPB or Bank
(as NPB shall select) and ENB for the provision of similar services to ENB on
terms and conditions mutually acceptable to ENB and NPB.
(ix) Dividends. NPB and ENB shall coordinate with each other
the payment of dividends with respect to NPB Common Stock and ENB Common Stock
and the record dates and payment dates relating thereto, it being the intention
of the parties hereto that the holders of NPB Common Stock and ENB Common Stock
shall not receive two dividends, or fail to receive one dividend, for any single
calendar quarter with respect to their shares of NPB Common Stock and ENB Common
Stock or any shares of NPB Common Stock received in exchange for such shares of
ENB Common Stock in the Merger.
(c) Undertakings of NPB.
(i) Shareholders' Meeting. NPB shall submit this Agreement to
its shareholders for approval at the NPB Shareholders Meeting to be held as soon
as practicable, or, in the discretion of NPB, at any time prior to the ENB
Shareholders Meeting, with the recommendation of its Board of Directors to such
shareholders to approve this Agreement and the issuance of the NPB Common Stock
for purposes of the Nasdaq requirements.
(ii) Delivery of SEC Documents. NPB shall deliver to ENB
copies of all reports filed with the SEC under the Exchange Act promptly upon
the filing thereof.
(iii) Delivery of Financial Statements. NPB shall deliver to
ENB, as soon as practicable after the end of each month and after the end of
each calendar quarter prior to the Effective Date, commencing with the month
ended July 31, 1998, an unaudited consolidated balance sheet as of such date and
related unaudited consolidated statements of income and cash flows for the
periods then ended, which financial statements shall fairly present, in all
material respects, NPB's consolidated financial condition, results of operations
and cash flows for the periods then ended in accordance with generally accepted
accounting principles, except as noted therein and subject to year-end audit
adjustments and footnotes.
(iv) Employees, Severance Policy. Upon consummation of the
Merger, NPB shall offer, or cause Bank or another NPB Subsidiary to offer,
employment to each person who is then an ENB employee, in accordance with the
employment and severance policies set forth herein and on NPB Disclosure
Schedule 4.07(c)(iv) (the "Merger Employment Policies"). The provisions herein
shall control any inconsistent provision of the Merger Employment Policies.
Notwithstanding any provision of this Agreement to the contrary, unless
involuntarily terminated without "cause" prior to such time, no ENB employee
shall be entitled to severance benefits unless such employee continues in
employment for 30 days following the actual consolidation and conversion of the
ENB operating system with and into the Bank's operating system (the "Conversion
Date"). As provided in the Merger Employment Policies, NPB shall provide
severance benefits to each ENB employee who is not offered employment with NPB,
who does not accept employment with NPB (except as provided in clause (A) (B) or
(C) below), or whose employment with NPB is terminated by NPB without "cause"
within one year after the Effective Date, excluding, however, any ENB employee
who is a party to an employment, "change-in-control", or similar agreement.
Severance benefits shall consist of one week's pay (at current levels) for each
year of service (to be paid as salary continuation), a lump sum payment of all
unused vacation time (to be paid as soon as practicable following termination)
and the continuation of all applicable welfare plan benefits until the last day
of the month during which the last week of severance is paid. All eligible
employees shall be entitled to a minimum of eight weeks of severance benefits
and shall be given full credit for each year of service with ENB. Any partial
year of service shall be treated as a full year for purposes of severance
benefit calculations. Except as provided below, severance benefits shall not be
payable to: (A) any ENB employee whose current employment position is maintained
as it was immediately prior to the Effective Date; (B) any non-exempt ENB
employee who receives and turns down two job offers of equal or higher salary
grade at a location within a 15 mile radius of the employee's home; and (C) any
exempt ENB employee who receives and turns down a job offer of equal or higher
salary grade at a location within
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a 25 mile radius of the employee's home. NPB shall also make severance benefits
available to ENB personnel whose employment with NPB is terminated by NPB
without "cause" within one year after the Effective Date, in accordance with the
Merger Employment Policies. Notwithstanding the foregoing, each full-time ENB
non-community office and non-lending staff employee (i.e., all employees other
than community office staff, lending staff and lending office support personnel)
whose employment position has not been maintained as it was immediately prior to
the Effective Date and who has received the offer(s) of employment specified in
clause (B) or (C) above and who elects not to accept an offer of employment with
NPB (or who elects to terminate employment with NPB within 365 days of the
Effective Date) shall be entitled to four weeks of severance benefits. Any
person whose employment with NPB is terminated by NPB without "cause" after one
year from the Effective Date shall receive such severance benefit from NPB as is
provided for in NPB's general severance policy for such terminations (with full
credit being given for each year of service with ENB). For purposes of this
Section 4.07(c)(iv), "cause" shall mean the employer's good faith reasonable
belief that the employee committed fraud, theft, embezzlement, falsified
corporate records, disseminated confidential information concerning customers,
NPB, Bank or its employees, had documented unsatisfactory job performance under
Bank's dismissal policy, or violated Bank's Code of Conduct. The foregoing
definition of "cause" is the definition of "cause" used by Bank in the ordinary
course of its business.
(v) Employee Benefits. As of the Effective Date, ENB employees
who become employees of NPB or of any NPB Subsidiary shall be entitled to full
credit for each year of service with ENB for purposes of determining eligibility
for participation and vesting, but not benefit accrual, in NPB's employee
benefit plans, programs and policies. The employee benefits provided to former
employees of ENB after the Effective Date shall be substantially similar to the
employee benefits, in the aggregate, provided by NPB or its Subsidiaries to
their similarly situated employees. The NPB medical, dental and life insurance
plans, programs or policies, if any, that become applicable to former ENB
employees shall not contain any exclusion or limitation with respect to any
pre-existing condition of any such employees or their dependents. Subject to the
foregoing, after the Effective Date, NPB may discontinue, amend or convert to an
NPB plan any particular benefit or welfare plan of ENB, subject to such plan's
provisions and applicable law.
(vi) Qualified Plans. As of the Effective Date, the account
balances of ENB employees under the ENB 401(k) Profit Sharing Plan and under the
ENB Employee Stock Ownership Plan shall become 100 percent vested, provided,
however, such vesting shall not take place if such vesting would cause the
Merger to fail to qualify for "pooling of interests" accounting treatment.
(vii) Management Incentive Plan. If the Merger occurs prior to
December 31, 1998, the annual portion of the ENB Management Incentive Plan (the
"MIP") shall be continued through December 31, 1998. If the Merger occurs after
December 31, 1998, the MIP may be continued or discontinued as determined by the
NPB Board of Directors. In any event, the ENB Board of Directors shall determine
in good faith, with the consent of NPB (which consent shall not be unreasonably
withheld), the appropriate level of payouts to be made under the MIP for 1998.
In making its determination, the ENB Board of Directors shall disregard any
extraordinary expenses or charges related to the Merger that would otherwise
cause a reduction in payouts under the MIP.
(viii) Calculations of ESOP, MIP and Profit Sharing. The
calculations determining the amounts to be included in the ESOP, MIP and profit
sharing plans for 1998 shall be done prior to making any deductions for reserves
to be created or expenses incurred in connection with the Merger.
(ix) Deferred Compensation Arrangement. On the Effective Date
or on January 1, 1999 if the Effective Date shall precede January 1, 1999, the
ENB Deferred Compensation Arrangement shall be terminated, and subject to any
applicable income tax withholding requirements, all deferred compensation
account balances shall be paid out in cash to plan participants.
(x) Election of NPB Directors. Upon consummation of the Merger
and subject to compliance with all applicable legal requirements, NPB shall
elect two persons selected by ENB's Board of Directors and approved by NPB
(which approval will not be unreasonably withheld) as directors of NPB,
effective the Effective Date, one to serve as a Class I director with a term
through April 2000 and the other to serve as a Class II director with a term
through April 2001, and each to be re-nominated for at least one full three-year
term thereafter (each, an "ENB NPB Nominee"). In the event that any ENB NPB
Nominee, or any successor, resigns, dies or is otherwise
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removed from NPB's Board of Directors prior to the end of such person's full
three-year term, the Elverson Continuing Directors, by a plurality vote, shall
have the right to select such person's successor, subject to NPB's approval
(which approval will not be unreasonably withheld), and NPB shall take all
reasonable steps necessary to elect such successor to the NPB Board of
Directors.
(xi) Elverson Division, Elverson Board.
(A) Upon consummation of the Merger and subject to
compliance with all applicable legal requirements, NPB shall cause Bank to
establish and operate a separate banking division called "Elverson National
Bank, a Division of National Penn Bank" (the "Elverson Division"). The Elverson
Division will consist of all ENB's present branch offices with the following
additions and deletion: (1) Bank's Lionville office would become an Elverson
Division office; (2) Bank's Gay Street, West Chester office would be combined
into ENB's office at High Street, West Chester; and (3) ENB's Sinking Spring
office would become a Bank office. It is NPB's intent to utilize the Elverson
Division in the expansion of NPB's branch banking system in Chester County,
Pennsylvania, either by the opening of de novo branches or by the acquisition of
deposits and assets, such branches to be operated under the "Elverson Division"
banner. Subject to NPB's approval of the planned capital expenditures and
operating budget for the proposed branches, the Elverson Division may open two
branches in Chester County in the three years following the Effective Date;
provided, however, that approval of the second branch will be subject to the
first branch having achieved $10 million in deposits. NPB anticipates that the
Elverson Division will have the same lending authority limits as ENB has at the
date hereof, in accordance with NPB's credit quality standards.
(B) Upon consummation of the Merger, NPB shall cause
Bank to establish the "Elverson Division Board of Directors" (the "Elverson
Board"). The Elverson Board shall consist of the members of ENB's Board of
Directors at the Effective Date, an NPB executive officer selected by NPB, and
such other persons as the Elverson Board shall select from time to time. NPB
anticipates that the Elverson Board will emphasize sales, marketing and
expansion. ENB's current non-employee directors who become members of the
Elverson Board shall receive annual director compensation equal to the annual
director compensation received by them at the date hereof. Other persons who may
be selected for service on the Elverson Board shall be compensated in accordance
with NPB's standard compensation arrangements for divisional board members,
which is partially fixed and partially incentive-based compensation. ENB's
current non-employee directors who become members of the Elverson Board shall
have the option of electing to receive such NPB standard compensation. The
Elverson Board shall have indemnification and insurance coverage no less
favorable than members of the Board of Directors of Bank.
(C) NPB shall operate the Elverson Division, and
maintain the Elverson Board at the foregoing compensation level, for a period of
at least five years after the Effective Date, except that this covenant shall
expire if and when NPB shall be acquired or otherwise sold and thereafter the
members of NPB's Board of Directors do not constitute at least 50% of the
members of the surviving corporation's board of directors.
(xii) Indemnification, Insurance.
(A) NPB shall indemnify, defend, and hold harmless
the directors, officers, employees and agents of ENB (each, an "Indemnified
Party") against all losses, expenses (including reasonable attorneys' fees),
claims, damages or liabilities and amounts paid in settlement arising out of
actions or omissions or alleged acts or omissions (collectively, "Prior Acts")
occurring at or prior to the Effective Date (including the transactions
contemplated by this Agreement) to the fullest extent permitted under the
Pennsylvania Business Corporation Law ("PBCL"), including provisions relating to
advances of expenses incurred in the defense of any proceeding to the full
extent permitted by the PBCL upon receipt of any undertaking required by the
PBCL. Without limiting the foregoing, in a case (if any) in which a
determination by NPB is required to effectuate any indemnification, NPB shall
direct, at the election of the Indemnified Party, that the determination shall
be made by independent counsel mutually agreed upon between NPB and the
Indemnified Party.
(B) NPB shall cause Bank to keep in effect provisions
in its Articles of Incorporation and Bylaws of Bank providing for exculpation of
director and officer liability and its indemnification of the Indemnified
Parties to the fullest extent permitted under the PBCL, which provisions shall
not be amended except as required by applicable law or except to make changes
permitted by law that would enlarge the Indemnified Parties' right to
indemnification.
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(C) NPB shall use its reasonable best efforts (and
ENB shall cooperate and assist prior to the Effective Date in these efforts), at
no expense to the beneficiaries, (i) to maintain (x) directors' and officers'
liability insurance ("D&O Insurance") for the Indemnified Parties with respect
to matters occurring at or prior to the Effective Date, and (y) fiduciary
liability insurance ("Fiduciary Insurance") for the present and former
fiduciaries of ENB's profit-sharing plan and employee stock ownership plan (the
"Fiduciary Insurance"), each issued by a carrier or carriers assigned a
claims-paying ability rating by A.M. Best & Co. of "A (Excellent)" or higher, or
(ii) to obtain coverage for Prior Acts for the Indemnified Parties under the
fiduciary and directors' and officers' liability insurance policies currently
maintained by NPB, in either case, providing at least the same coverage as the
D&O Insurance and Fiduciary Insurance, respectively, currently maintained by ENB
and containing terms and conditions which are no less favorable to the
beneficiaries, for a period of at least six (6) years from the Effective Date;
provided, that NPB shall not be obligated to make premium payments for such
six-year period in respect of the D&O Insurance and the Fiduciary Insurance
which exceed, for the portion related to ENB's directors and officers, 150
percent of the annual premium payments ($18,083.00 at the date hereof) of ENB's
current policy in effect as of the date of this Agreement (the "Maximum
Amount"). If the amount of the premiums necessary to maintain or procure such
insurance coverage exceeds the Maximum Amount, NPB shall use its reasonable best
efforts to maintain the most advantageous policies of directors' and officers'
liability insurance obtainable for a premium equal to the Maximum Amount.
(D) In the event any claim is made against present or
former directors, officers or employees of ENB or any of the Fiduciaries who is
covered or potentially covered by insurance, neither Bank nor NPB shall do
anything that would forfeit, jeopardize, restrict or limit the insurance
coverage available for that claim until the final disposition thereof.
(E) If NPB or any of its successors or assigns shall
consolidate with or merge into any other person and shall not be the continuing
or surviving person of such consolidation or merger or shall transfer all or
substantially all of its assets to any person, then and in each case, proper
provision shall be made so that the successors and assigns of NPB shall assume
the obligations set forth in this Section 4.07(c)(xi).
(F) The provisions of this Section 4.07(c)(xi) are
intended to be for the benefit of and shall be enforceable by, each Indemnified
Party, his or her heirs and representatives.
(G) NPB shall pay all expenses, including reasonable
attorneys' fees, that may be incurred by any Indemnified Party in enforcing the
indemnity and other obligations provided for in this Section 4.07(c)(xi).
(xiii) Publication of Post-Merger Results of Operations. NPB
shall use its reasonable best efforts to publish (if necessary, on Form 8-K) no
more than twenty days after the end of the first month after the Effective Date
in which there are at least thirty days of post-Merger combined operations
(which month may be the month in which the Effective Date occurs), the financial
information contemplated by and in accordance with the terms of SEC Accounting
Series Releases No. 130 and 135 and Section 201.01 of the SEC's Codification of
Financial Reporting Policies and other applicable accounting rules.
(xiv) Repurchases of NPB Common Stock. Through the Closing
Date, except as otherwise consented to in writing by ENB (which consent shall
not be unreasonably withheld), NPB shall not repurchase, redeem or otherwise
acquire any shares of NPB Common Stock.
(xv) Conduct of NPB's Business. Through the Closing Date, NPB
shall use its reasonable good faith efforts to preserve its business
organization intact, maintain good relationships with employees, and preserve
the good will of customers of NPB and others with whom business relationships
exist, and in all material respects conduct its businesses and engage in
transactions in the ordinary course without radical change.
(xvi) Other Transactions. Through the Closing Date, except as
otherwise consented to in writing by ENB (which consent shall not be
unreasonably withheld), NPB shall not enter into any agreement with a third
party concerning any acquisition of such third party by, or merger or
consolidation of such third party with, NPB if (A) under applicable regulations,
NPB would be required to present pro forma financial information reflecting that
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transaction in the Registration Statement, or (B) NPB would propose to issue
shares of NPB Common Stock in such transaction in an amount exceeding twenty
percent of the outstanding shares of NPB Common Stock on the date hereof.
ARTICLE V
CONDITIONS
5.01 Conditions to ENB's Obligations under this Agreement. The
obligations of ENB hereunder shall be subject to satisfaction at or prior to the
Closing Date of each of the following conditions, unless waived by ENB pursuant
to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, NPB and Bank to authorize the execution, delivery and performance
of this Agreement and the consummation of the Merger, shall have been duly and
validly taken by NPB and Bank; and ENB shall have received certified copies of
the resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of NPB and Bank
required by this Agreement to be performed by NPB or Bank at or prior to the
Closing Date shall have been duly performed and complied with in all material
respects; and the representations and warranties of NPB set forth in this
Agreement shall be true and correct in all material respects, as of the date of
this Agreement, and as of the Closing Date as though made on and as of the
Closing Date, except as to any representation or warranty which specifically
relates to an earlier date and except as to any representation or warranty to
the extent the breach of such representation or warranty does not have a
Material Adverse Effect.
(c) Approvals of Regulatory Authorities. Procurement by ENB and NPB of
all requisite approvals and consents of Regulatory Authorities and the
expiration of the statutory waiting period or periods relating thereto for the
Merger; provided, however, that no such approval or consent shall have imposed
any condition or requirement (other than conditions or requirements previously
disclosed) which would so materially and adversely impact the economic or
business benefits to ENB or NPB of the transactions contemplated by this
Agreement that, had such condition or requirement been known, such party would
not, in its reasonable judgment, have entered into this Agreement.
(d) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated by this Agreement.
(e) Officer's Certificate. NPB shall have delivered to ENB a
certificate, dated the Closing Date and signed, without personal liability, by
its President or a Vice President, to the effect that the conditions set forth
in subsections (a) through (d) of this Section 5.01 have been satisfied.
(f) Registration Statement. The Registration Statement shall be
effective under the Securities Act, and no proceedings shall be pending or
threatened by the SEC to suspend the effectiveness of the Registration
Statement; and all approvals deemed necessary by NPB's counsel from state
securities or "blue sky" authorities with respect to the transactions
contemplated by this Agreement shall have been obtained.
(g) Tax Opinion or Letter. ENB shall have received an opinion of
Dechert Price & Rhoads, special counsel to ENB, or a letter from Beard &
Company, Inc., ENB's independent certified public accountants, dated the Closing
Date, to the effect that (a) the Merger constitutes a reorganization under
Section 368(a) of the IRC, and (b) no gain or loss will be recognized by
shareholders of ENB who receive shares of NPB Common Stock in exchange for their
shares of ENB Common Stock, except that gain or loss may be recognized as to
cash received in lieu of fractional share interests; in rendering their opinion,
such counsel may require and rely upon representations and agreements, including
those contained in certificates of officers of ENB, NPB and others.
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(h) Approval by ENB's Shareholders. This Agreement shall have been
approved by the shareholders of ENB by such vote as is required under the
National Bank Act and by the articles of association and bylaws of ENB.
(i) Approval by NPB's Shareholders. This Agreement shall have been
approved by the shareholders of NPB by such vote as is required by the articles
of incorporation and bylaws of NPB and by Nasdaq requirements applicable to it.
(j) Nasdaq Listing. The NPB Common Stock shall continue to be
authorized for quotation on the National Market tier of The Nasdaq Stock Market.
(k) Accountants' Comfort Letters. ENB shall have received "comfort"
letters from ENB's and NPB's respective independent certified public
accountants, dated the date of mailing of the Prospectus/Proxy Statement and
dated shortly prior to the Effective Date, covering such matters as are usual
and customary for transactions of the type contemplated by this Agreement, which
letters shall be satisfactory in form and content to ENB.
(l) Pooling of Interests. ENB shall have received a letter from Beard &
Company, Inc., ENB's independent certified public accountants, and Grant
Thornton, LLP, NPB's independent certified public accountants, dated the Closing
Date, to the effect that the Merger shall be accounted for on a "pooling of
interests" basis under generally accepted accounting principles.
(m) Other Documents. ENB shall have received such other certificates,
documents or instruments from NPB or its officers or others as ENB shall have
reasonably requested in connection with accounting or income tax treatment of
the Merger, or related securities law compliance.
(n) Rights Agreement. No event shall have occurred which shall result
in the grant, issuance or triggering of any right or entitlement or the
obligation to grant or issue any interest in NPB Common Stock or enable or allow
any right or other interest associated with the Rights Agreement to be
exercised, distributed or triggered, and no other event shall have occurred
under the Rights Agreement which would materially adversely affect any current
or future right or interest of any holders of ENB Common Stock.
5.02 Conditions to NPB's Obligations under this Agreement. The
obligations of NPB hereunder shall be subject to satisfaction at or prior to the
Closing Date of each of the following conditions, unless waived by NPB pursuant
to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, ENB to authorize the execution, delivery and performance of this
Agreement and the consummation of the Merger, shall have been duly and validly
taken by ENB; and NPB shall have received certified copies of the resolutions
evidencing such authorizations.
(b) Covenants; Representations. The obligations of ENB required by this
Agreement to be performed by ENB at or prior to the Closing Date shall have been
duly performed and complied with in all material respects; and the
representations and warranties of ENB set forth in this Agreement shall be true
and correct in all material respects, as of the date of this Agreement, and as
of the Closing Date as though made on and as of the Closing Date, except as to
any representation or warranty which specifically relates to an earlier date and
except as to any representation or warranty to the extent the breach of such
representation or warranty does not have a Material Adverse Effect.
(c) Approvals of Regulatory Authorities. Procurement by NPB and ENB of
all requisite approvals and consents of Regulatory Authorities and the
expiration of the statutory waiting period or periods relating thereto for the
Merger; provided, however, that no such approval or consent shall have imposed
any condition or requirement (other than conditions or requirements previously
disclosed) which would so materially and adversely impact the economic or
business benefits to NPB or ENB of the transactions contemplated by this
Agreement that, had such condition or requirement been known, such party would
not, in its reasonable judgment, have entered into this Agreement.
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(d) No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated by this Agreement.
(e) Officer's Certificate. ENB shall have delivered to NPB a
certificate, dated the Closing Date and signed, without personal liability, by
its President or a Vice President, to the effect that the conditions set forth
in subsections (a) through (d) of this Section 5.02 have been satisfied.
(f) Registration Statement. The Registration Statement shall be
effective under the Securities Act, and no proceedings shall be pending or
threatened by the SEC to suspend the effectiveness of the Registration
Statement; and all approvals deemed necessary by NPB's counsel from state
securities or "blue sky" authorities with respect to the transactions
contemplated by this Agreement shall have been obtained.
(g) Tax Opinion or Letter. NPB shall have received an opinion of
Ellsworth, Wiles, Carlton & Waldman, P.C., special counsel to NPB, or a letter
from Grant Thornton LLP, NPB's independent certified public accountants, dated
the Closing Date, to the effect that (a) the Merger constitutes a reorganization
under Section 368(a) of the IRC, and (b) no gain or loss will be recognized by
shareholders of ENB who receive shares of NPB Common Stock in exchange for their
shares of ENB Common Stock, except that gain or loss may be recognized as to
cash received in lieu of fractional share interests; in rendering their opinion,
such counsel may require and rely upon representations and agreements, including
those contained in certificates of officers of ENB, NPB and others.
(h) Approval by NPB's Shareholders. This Agreement shall have been
approved by the shareholders of NPB by such vote as is required by the articles
of incorporation and bylaws of NPB and by Nasdaq requirements applicable to it.
(i) Approval by ENB's Shareholders. This Agreement shall have been
approved by the shareholders of ENB by such vote as is required under the
National Bank Act and by the articles of association and bylaws of ENB.
(j) Accountants' Comfort Letters. NPB shall have received "comfort"
letters from NPB's and ENB's respective independent certified public
accountants, dated the date of mailing of the Prospectus/Proxy Statement and
dated shortly prior to the Effective Date, covering such matters as are usual
and customary for transactions of the type contemplated by this Agreement, which
letters shall be satisfactory in form and content to NPB.
(k) Pooling of Interests. NPB shall have received a letter from Grant
Thornton, LLP, NPB's independent certified public accountants, and Beard &
Company, Inc., ENB's independent certified public accountants, dated the Closing
Date, to the effect that the Merger shall be accounted for on a "pooling of
interests" basis under generally accepted accounting principles.
(l) Other Documents. NPB shall have received such other certificates,
documents or instruments from ENB or its officers or others as NPB shall have
reasonably requested in connection with accounting or income tax treatment of
the Merger, or related securities law compliance.
(m) Phase I Environmental Audit Results. The results of any Phase I
environmental audit conducted pursuant to Section 4.07(a)(ii) hereof shall not
result in a Material Adverse Effect on ENB.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
6.01 Termination. This Agreement may be terminated on or at any time
prior to the Closing Date:
(a) By the mutual written consent of the parties hereto;
(b) By NPB or ENB:
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(i) If there shall have been any breach of any representation,
warranty or obligation of the other party hereto (subject to the same standards
as set forth in Sections 5.01(b) or 5.02(b), as the case may be) and such breach
can not be, or shall not have been, remedied within 30 days after receipt by
such party of written notice specifying the nature of such breach and requesting
that it be remedied;
(ii) If the Closing Date shall not have occurred prior to
February 28, 1999 (except that if the Closing Date shall not have occurred by
such date because of a breach of this Agreement by a party hereto, such
breaching party (or Bank in NPB's case) shall not be entitled to terminate this
Agreement in accordance with this provision);
(iii) If any Regulatory Authority whose approval or consent is
required for consummation of the Merger shall issue a definitive written denial
of such approval or consent and the time period for appeals and requests for
reconsideration has run; or
(iv) If any shareholder vote contemplated by this Agreement is
not obtained at the ENB Shareholders Meeting or the NPB Shareholders Meeting.
(c) By ENB, at any time during the ten-day period following the
Determination Date, if both of the following conditions occur on the
Determination Date:
(1) the NPB Market Value shall be less than $27.00 per share
[the dollar amount $27.00 shall be adjusted to $21.60 upon completion
of the NPB Stock Split]; and
(2)(i) the quotient obtained by dividing the NPB Market Value
by $33.75 per share [the dollar amount $33.75 shall be adjusted to
$27.00 upon completion of the NPB Stock Split] shall be less than (ii)
the quotient obtained by dividing the Average Index Price by the Index
Price on the Starting Date and subtracting 0.05 from the quotient in
this clause (2)(ii);
subject, however, to the following: If ENB shall elect to terminate this
Agreement pursuant to this Section 6.01(c), it shall give written notice thereof
to NPB (provided that such notice of election to terminate may be withdrawn at
any time within the aforementioned ten-day period). During the five-day period
commencing with its receipt of such notice, NPB shall have the option to elect
to increase the exchange ratio set forth in Section 1.02(f)(ii)(A), as adjusted
pursuant to Section 1.02(f)(ii)(E), to 1.25 shares of NPB Common Stock [the
number 1.25 shall be adjusted to 1.5625 upon completion of the NPB Stock Split]
in exchange for each share of ENB Common Stock and the Closing Date shall be
postponed by the minimum amount of time necessary, if any, to accommodate NPB's
election of such option (i.e., up to a five-day period). If NPB so elects within
such five-day period, it shall give prompt written notice to ENB of such
election, whereupon no termination shall have occurred pursuant to this Section
6.01(c) and this Agreement shall remain in effect in accordance with its terms
(except as the Exchange Ratio shall have been so modified).
For purposes of this Section 6.01(c), the following terms have the
meanings indicated.
"Index Group" means the bank or thrift holding companies listed below,
the common stocks of all of which shall be publicly traded and as to which there
shall not have been, since the Starting Date and before the Determination Date,
any public announcement of a proposal for such company to be acquired or for
such company to acquire another company or companies in transactions with a
value exceeding 25% of the acquiror's market capitalization. The bank or thrift
holding companies are as follows: (1) Wilmington Trust Company; (2) WSFS
Financial Corporation; (3) PNC Financial Corp.; (4) Sovereign Bancorp, Inc.; (5)
Commerce Bancorp, Inc.; (6) Fulton Financial Corp.; (7) Keystone Financial,
Inc.; and (8) JeffBanks, Inc.
"Index Price" on a given date means the average of the closing sale
prices of the companies comprising the Index Group.
"Average Index Price" means the average of the Index Prices for the
twenty trading days ending on the Determination Date.
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"Starting Date" means July 20, 1998.
If any company belonging to the Index Group declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
shares, or similar transaction between the Starting Date and the Determination
Date, the prices for the common stock of such company shall be appropriately
adjusted for the purposes of applying this Section 6.01(c).
(d) By ENB, at any time during the ten-day period following the
Determination Date, if the NPB Market Value shall be less than $25.31 per share
[the dollar amount $25.31 shall be adjusted to $20.25 upon completion of the NPB
Stock Split];
(e) By ENB pursuant to Section 4.05 hereof; or
(f) By ENB if NPB or any of its Subsidiaries shall enter into any
agreement with a third party concerning any merger or consolidation of NPB with
or into such third party or the acquisition of all or substantially all the
assets of NPB, or any person or entity shall have acquired at least 19.9% of the
outstanding shares of NPB Common Stock.
6.02 Effect of Termination. If this Agreement is terminated pursuant to
Section 6.01 hereof or otherwise, this Agreement shall forthwith become void,
other than Sections 4.02(c) and 7.01 hereof which shall remain in full force and
effect, and there shall be no further liability on the part of NPB or ENB to the
other, except for any liability of NPB or ENB under such sections of this
Agreement and except for any liability arising out of a willful breach of this
Agreement giving rise to such termination.
ARTICLE VII
MISCELLANEOUS
7.01 Expenses and Other Fees.
(a) Except for the cost of printing and mailing the Prospectus/Proxy
Statement which shall be shared equally and except as set forth in Section
7.01(b), each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated hereby, including fees and
expenses of its own financial consultants, accountants and counsel.
(b) If ENB fails to complete the transactions contemplated herein after
the occurrence of one of the following two events and NPB shall not be in
material breach of this Agreement, ENB shall immediately pay NPB a fee of five
million dollars ($5,000,000.00):
(i) ENB exercises its termination rights pursuant to Section
6.01(e) of this Agreement; or
(ii) the failure of ENB shareholders to approve the Merger at
a meeting called for such purpose if at the time of such meeting there has been
an announcement by a person or group of persons (other than NPB) of an offer or
proposal to acquire 19.9% or more of the ENB Common Stock then outstanding, or
to acquire, merge, or consolidate with ENB, or to purchase all or substantially
all of ENB's assets.
(c) If NPB fails to complete the transactions contemplated herein after
the failure of NPB shareholders to approve the Merger at a meeting called for
such purpose and ENB shall not be in material breach of this Agreement, NPB
shall immediately pay ENB a fee of one million dollars ($1,000,000.00).
7.02 Non-Survival of Representations and Warranties; Disclosure
Schedules. All representations, warranties and, except to the extent
specifically provided otherwise herein, agreements and covenants shall terminate
on the Closing Date.
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7.03 Amendment, Extension and Waiver. Subject to applicable law, at any
time prior to the Closing Date, the parties may (a) amend this Agreement, (b)
extend the time for the performance of any of the obligations or other acts of
either party hereto, (c) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, or (d)
to the extent permitted by law, waive compliance with any of the agreements or
conditions contained in Articles IV and V hereof or otherwise. This Agreement
may not be amended except by an instrument in writing signed, by authorized
officers, on behalf of the parties hereto. Any agreement on the part of a party
hereto to any extension or waiver shall be valid only if set forth in an
instrument in writing signed by a duly authorized officer on behalf of such
party, but such waiver or failure to insist on strict compliance with such
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
7.04 Entire Agreement. This Agreement, including the documents referred
to herein or delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior arrangements and understandings between the parties, both
written and oral, with respect to its subject matter other than the
Confidentiality Agreements. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and its successors; provided, however, that
nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective successors, any
rights, remedies, obligations or liabilities, and provided, further, that the
Elverson Continuing Directors may enforce the provisions of Sections 1.02(e),
4.07(c)(ix) and (x) and any Indemnified Party may enforce Section 4.07(c)(xii).
7.05 No Assignment. Neither party hereto may assign any of its rights
or obligations hereunder to any other person, without the prior written consent
of the other party hereto.
7.06 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed given upon delivery if delivered personally, two
business days after mailing if mailed by prepaid registered or certified mail,
return receipt requested, or upon confirmation of good transmission if sent by
telecopy, addressed as follows:
(a) If to NPB or Bank, to:
National Penn Bancshares, Inc.
National Penn Bank
Philadelphia and Reading Avenues
P.O. Box 547
Boyertown, Pennsylvania 19512-0547
Attention: Wayne R. Weidner, President
Telecopy No.: 610-369-6349
with a copy to:
H. Anderson Ellsworth
Jay W. Waldman
Ellsworth, Wiles, Carlton & Waldman, P.C.
1105 Berkshire Boulevard
Suite 320
Wyomissing, Pennsylvania 19610
Telecopy No.: 610-371-9510
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<PAGE>
(b) If to ENB, to:
Elverson National Bank
83 West Main Street
Elverson, Pennsylvania 19520-9403
Attention: Glenn E. Moyer
Telecopy No.: 610-286-8226
with a copy to:
William G. Lawlor
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, Pennsylvania 19103-2793
Telecopy No.: 215-994-2222
7.07 Disclosure Schedules. Information contained on either the ENB
Disclosure Schedule or the NPB Disclosure Schedule shall be deemed to cover the
express disclosure requirement contained in a representation or warranty of this
Agreement and any other representation or warranty of this Agreement of such
party where it is readily apparent it applies to such provision. The mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is or could result in a Material Adverse Effect.
7.08 Captions. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
7.09 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.
7.10 Severability. If any provision of this Agreement or the
application thereof to any person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE>
7.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic internal law of the Commonwealth of
Pennsylvania, except to the extent the National Bank Act is applicable by its
terms.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
NATIONAL PENN BANCSHARES, INC.
(Corporate Seal) By: ____________________________
Wayne R. Weidner
President
Attest: ____________________________
Sandra L. Spayd
Secretary
NATIONAL PENN BANK
(Corporate Seal) By: ____________________________
Wayne R. Weidner
President
Attest: ____________________________
Sandra L. Spayd
Secretary
ELVERSON NATIONAL BANK
(Corporate Seal) By: ____________________________
Joseph A. Rigg
Chairman
Attest: ____________________________
John A. Koury, Jr.
Secretary
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<PAGE>
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this _____ day of September, 1998, before me, a notary public for
this state and county, personally came WAYNE R. WEIDNER, as president, and
SANDRA L. SPAYD, as secretary, of NATIONAL PENN BANCSHARES, INC., and each, in
his/her capacity, acknowledged this instrument to be the act and deed of the
corporation and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
---------------------------------------
(Seal of Notary) Notary Public
My commission expires__________________
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this _____ day of September, 1998, before me, a notary public for
this state and county, personally came WAYNE R. WEIDNER, as president, and
SANDRA L. SPAYD, as secretary, of NATIONAL PENN BANK, and each, in his/her
capacity, acknowledged this instrument to be the act and deed of the corporation
and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
---------------------------------------
(Seal of Notary) Notary Public
My commission expires__________________
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF :
On this _____ day of September, 1998, before me, a notary public for
this state and county, personally came JOSEPH A. RIGG, as chairman, and JOHN A.
KOURY, JR., as secretary, of ELVERSON NATIONAL BANK, and each, in his/her
capacity, acknowledged this instrument to be the act and deed of the association
and the seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
---------------------------------------
(Seal of Notary) Notary Public
My commission expires__________________
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<PAGE>
ANNEX B
OPINION OF BERWIND FINANCIAL, L.P.
__________, 1998
Board of Directors
Elverson National Bank
83 West Main Street
Elverson, PA 19520
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Elverson National Bank ("Elverson") of the
financial terms of the proposed merger by and between Elverson and National Penn
Bancshares, Inc. ("NPBC"). The terms of the proposed merger (the "Proposed
Merger") by and between Elverson and NPBC are set forth in the Agreement and
Plan of Merger dated July 21, 1998 (the "Merger Agreement") and provide that
each outstanding share of Elverson common stock will be converted into the right
to receive 1.46875 shares of NPBC common stock subject to adjustment as defined
in the Merger Agreement.
Berwind Financial, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed
the historical financial performances, current financial positions and general
prospects of Elverson and NPBC, (ii) reviewed the Merger Agreement, (iii)
reviewed the Joint Proxy Statement/Prospectus, (iv) reviewed and analyzed the
stock market performance of Elverson and NPBC, (v) studied and analyzed the
consolidated financial and operating data of Elverson and NPBC, (vi) considered
the terms and conditions of the Proposed Merger between Elverson and NPBC as
compared with the terms and conditions of comparable bank and bank holding
company mergers and acquisitions, (vii) met and/or communicated with certain
members of Elverson's and NPBC's senior management to discuss their respective
operations, historical financial statements and future prospects, and (viii)
conducted such other financial analyses, studies and investigations as we deemed
appropriate.
Our opinion is given in reliance on information and representations
made or given by Elverson and NPBC, and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other
information issued by Elverson and NPBC including financial statements,
financial projections, and stock price data as well as certain information from
recognized independent sources. We have not independently verified the
information concerning Elverson and NPBC nor other data which we have considered
in our review and, for purposes of the opinion set forth below, we have assumed
and relied upon the accuracy and completeness of all such information and data.
Additionally, we assume that the Proposed Merger is, in all respects, lawful
under applicable law.
With regard to financial and other information relating to the general
prospects of Elverson, we have assumed that such information has been reasonably
prepared and reflects the best currently available estimates and judgment of the
management of Elverson as to its most likely future performance. For Elverson
and NPBC, we have assumed the allowance for loan losses indicated on the balance
sheets of each entity is adequate to cover such losses; we have not reviewed
credit files of either Elverson or NPBC. Also, in rendering our opinion, we have
assumed that in the course of obtaining the necessary regulatory approvals for
the Proposed Merger no conditions will be imposed that will have a material
adverse effect on the contemplated benefits of the Proposed Merger to Elverson.
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Our opinion is based upon information provided to us by the managements
of Elverson and NPBC, as well as market, economic, financial and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our opinion pertains only to the financial
consideration of the Proposed Merger and does not constitute a recommendation to
the Board of Elverson and does not constitute a recommendation to Elverson
shareholders as to how such shareholders should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date hereof,
the financial terms of the Proposed Merger by and between Elverson and NPBC are
fair, from a financial point of view, to the shareholders of Elverson.
Sincerely,
BERWIND FINANCIAL, L.P.
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<PAGE>
ANNEX C
OPINION OF LSC FINANCIAL SERVICES, INC.
__________, 1998
The Board of Directors
National Penn Bancshares, Inc.
Philadelphia & Reading Avenues/Box 547
Boyertown, PA 19512
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of National Penn Bancshares, Inc. ("NPB") of
the Amended Agreement and Plan of Merger ("Agreement") between NPB, National
Penn Bank ("Bank") and Elverson National Bank and its subsidiaries ("ENB") dated
as of July 21, 1998.
Under the terms of the Agreement, each outstanding share of ENB common
stock will be converted into the right to receive 1.46875 shares of NPB common
stock, subject to possible adjustment as set forth in the Agreement. In
addition, each of the outstanding options to purchase one or more shares of ENB
common stock shall be converted into an option to purchase the number of full
shares of NPB common stock which the optionholder would have been entitled to
receive in the merger had such option been exercised in full prior to the
effective date of the merger, at such exercise price as determined by the
Agreement.
For purposes of this opinion, we reviewed and analyzed information
pertaining to the financial and operating condition of NPB and ENB. This review
included, but was not limited to: (i) the Agreement and Plan of Merger; (ii)
financial and other information which was otherwise publicly available or
provided to us by NPB and ENB; (iii) certain financial information relating to
the banking industry in general; (iv) our evaluation of future prospects for the
merged institution; and (v) such other financial reviews, analyses, and
investigations as we deemed appropriate.
LSC also reviewed with NPB's management, the results of NPB's due
diligence examination of ENB ; the expected cost savings and revenue
enhancements related to the Merger, and the strategic benefits expected to be
derived from the Merger.
We have assumed that the allowances for loan losses indicated on the
balance sheets of NPB and ENB as of June 30, 1998 are adequate to cover such
losses. We have not reviewed the loan files of NPB or ENB.
We assumed that in the course of obtaining the necessary regulatory
approvals for the Agreement, no restrictions will be imposed on NPB that would
have a material adverse effect on the contemplated benefits of the Agreement to
NPB. We further assumed that no change would occur in applicable law or
regulation that would cause a material adverse change in the prospects or
operations of NPB after the merger. LSC also assumed, with NPB's consent, that
the Merger will be accounted for as a pooling of interests under generally
accepted accounting principles.
II-41
<PAGE>
LSC did not independently verify the information used in arriving at
its opinion, but assumed the accuracy and completeness of all such information.
In that regard, LSC assumed with NPB's consent that the financial forecasts,
including, without limitation, projected cost savings, have been reasonably
prepared on a basis reflecting the best currently available judgments and
estimates of the managements of NPB and ENB and that such forecasts will be
realized in the amounts and at the times contemplated thereby. Also, LSC did not
make or obtain any independent appraisal of the assets or liabilities of NPB or
ENB.
Based upon and subject to the foregoing, it is our opinion as of the
date hereof, that the exchange is fair, from a financial point of view, to the
shareholders of National Penn Bancshares.
Sincerely,
/s/ LSC Financial Services, Inc.
LSC FINANCIAL SERVICES, INC.
II-42
<PAGE>
ANNEX D
DISSENTING SHAREHOLDERS' RIGHTS UNDER
12 UNITED STATES CODE SECTION 215a(b)-(d)
(B) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified of the appraised value of his shares, appeal to
the Comptroller, who shall cause a reappraisal to be made which shall be final
and binding as to the value of the shares of the appellant.
(D) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS: APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES;
STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of the subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
II-43
<PAGE>
ANNEX E
OCC BANKING CIRCULAR ON STOCK APPRAISAL (BC-259)
March 5, 1992
BANKING ISSUANCE
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
Type: Banking Circular
Subject: Stock Appraisals
To: Chief Executive Officers of National Banks, Deputy Comptrollers (District),
Department and Division Heads, and Examining Personnel
PURPOSE
This Banking Circular informs all national banks of the valuation methods
used by the Office of the Comptroller of the Currency (OCC) to estimate the
value of a bank's shares when requested to do so by a shareholder dissenting to
the conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985, and September 30, 1991 are
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Section 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the OCC. 12 U.S.C.
Section 215 provides these appraisal rights to any shareholder dissenting to a
consolidation. Any dissenting shareholder of a target bank in a merger is also
entitled to these appraisal rights pursuant to 12 U.S.C. Section 215a. The above
provides only a general overview of the appraisal process. The specific
requirements of the process are set forth in the statutes themselves.
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair
estimate of the value of a bank's shares. After reviewing the particular facts
in each case and the available information on a bank's shares, the OCC selects
an appropriate valuation method, or combination of methods, to determine a
reasonable estimate of the shares' value.
MARKET VALUE
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value available is not well established,
the OCC may use other methods of estimating market value, such as the investment
value and adjusted book value methods.
II-44
<PAGE>
INVESTMENT VALUE
Investment value requires an assessment of the value to investors of a
share in the future earnings of the target bank. Investment value is estimated
by applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns.
If the state in which the subject bank is located provides a sufficient number
of comparable banks using location, size and earnings patterns as the criteria
for selection, the price/earnings ratios assigned to the banks are applied to
the earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
ADJUSTED BOOK VALUE
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since that value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the target bank's assets per share times the average market price to
book value ratio of comparable banking organizations. The average market price
to book value ratio measures the premium or discount to book value, which
investors attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving
the value of shares of stock. If more than one method is used, varying weights
may be applied in reaching an overall valuation. The weight given to the value
by a particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight to
a market value representing infrequent trading by shareholders than to the value
derived from the investment value method when the subject bank's earnings trend
is so irregular that it is considered to be a poor predictor of future earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums
do exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payments are not
regular or predictable elements of market value. Consequently, the OCC's
valuation methods do not include consideration of purchase premiums in arriving
at the value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590
(Item 2), banks may provide shareholders a copy of this Banking Circular or
disclose the information in the Banking Circular, including the past results of
OCC appraisals. If the bank discloses the past results of the OCC appraisals, it
should advise shareholders that: (1) the OCC did not rely on all the information
set forth in the chart in performing each appraisal; and (2) the OCC's past
appraisals are not necessarily determinative of its future appraisals of a
particular bank's shares.
II-45
<PAGE>
<TABLE>
<CAPTION>
APPRAISAL RESULTS
Average
OCC Price/Earning
Appraisal Appraisal Price Book Ratio of
Date* Value Offered Value Peer Group
- -------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
1/1/85 107.05 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
8/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
5/1/87 186.42 NA 360.05 5.1
6/11/87 50.46 70.00 92.35 4.5
6/11/87 38.53 55.00 77.75 4.5
7/31/87 13.10 NA 20.04 6.7
8/26/87 55.92 57.52 70.88 NC
8/31/87 19.55 23.75 30.64 5.0
8/31/87 10.98 NA 17.01 4.2
10/6/87 56.48 60.00 73.11 5.6
3/15/88 297.63 NA 414.95 6.1
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 NA 215.36 6.0
8/30/88 768.62 677.00 1,090.55 10.7
3/31/89 773.62 NA 557.30 7.9
5/26/89 136.47 180.00 250.42 4.5
5/29/90 9.87 NA 11.04 9.9
</TABLE>
* - The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
NA - Not Available NC - Not Computed
For more information regarding the OCC's stock appraisal process, contact
the Office of the Comptroller of the Currency, Bank Organization and
Structure.
/s/ Frank Maguire
Frank Maguire
Acting Senior Deputy Comptroller
Corporate Policy and Economic Analysis
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation may
indemnify directors, officers, employees and agents of the corporation against
liabilities they may incur in such capacities for any action taken or any
failure to act, whether or not the corporation would have the power to indemnify
the person under any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful misconduct.
Pennsylvania law also permits the adoption of a bylaw amendment, approved by
shareholders, providing for the elimination of a director's liability for
monetary damages for any action taken or any failure to take any action unless
(1) the director has breached or failed to perform the duties of his office and
(2) the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
The bylaws of the Registrant provide for (1) indemnification
of directors, officers, employees and agents of the Registrant and its
subsidiaries and (2) the elimination of a director's liability for monetary
damages, to the fullest extent permitted by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy obtained by the
Registrant.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Amended Agreement and Plan of Merger dated
as of July 21, 1998, among National Penn
Bancshares, Inc., National Penn Bank and
Elverson National Bank (included as Annex A
to the Joint Proxy Statement/Prospectus).
Schedules are omitted; National Penn
Bancshares, Inc. agrees to furnish copies of
such schedules to the Commission upon
request.
5.1 Opinion of Ellsworth, Wiles, Carlton &
Waldman, P.C. re: Validity of securities
being registered (including consent).
8.1 Opinion of Dechert Price & Rhoads re:
Federal income tax matters (including
consent).
23.1 Consent of Grant Thornton, LLP.
23.2 Consent of Beard & Company, Inc.
23.3 Consent of Ellsworth, Wiles, Carlton &
Waldman, P.C. (included in Exhibit 5.1).
23.4 Consent of Dechert Price & Rhoads (included
in Exhibit 8.1).
23.5 Consent of Berwind Financial, L.P.
23.6 Consent of LSC Financial Services, Inc.
24.1 Powers of Attorney.
99.1 Opinion of Berwind Financial, L.P. (included
as Annex B to the Joint Proxy
Statement/Prospectus).
<PAGE>
99.2 Opinion of LSC Financial Services, Inc.
(included as Annex C to the Joint Proxy
Statement/Prospectus).
99.3 Form of Proxy for Shareholders of National
Penn Bancshares, Inc.
99.4 Form of Voting Instruction Card for
Participants in National Penn Bancshares,
Inc. Capital Accumulation Plan.
99.5 Form of Proxy for Shareholders of Elverson
National Bank.
99.6 Form of Voting Instruction Card for
Participants in Elverson National Bank
Employee Stock Ownership Plan.
(b) Financial Statement Schedules.
Not applicable.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by
section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any 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;
(iii) To include any material information
with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom
<PAGE>
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such interim
financial information.
(d) (1) The undersigned Registrant hereby undertakes as
follows: that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(2) The Registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a) (3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, the
bylaws of the Registrant, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(f) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Borough of
Boyertown, Commonwealth of Pennsylvania, on October 16, 1998.
NATIONAL PENN BANCSHARES, INC.
(Registrant)
By: /s/ Lawrence T. Jilk, Jr.
Lawrence T. Jilk, Jr.,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title
/s/ Gary L. Rhoads Treasurer October 16, 1998
- ---------------------------- (Principal Financial and
Gary L. Rhoads Accounting Officer
/s/ John H. Body Director October 16, 1998
- ----------------------------
John H. Body
/s/ J. Ralph Borneman, Jr. Director October 16, 1998
- ----------------------------
J. Ralph Borneman, Jr.
/s/ Frederick H. Gaige Director October 16, 1998
- ----------------------------
Frederick H. Gaige
/s/ Lawrence T. Jilk, Jr. Director, Chairman October 16, 1998
- ---------------------------- and Chief Executive
Lawrence T. Jilk, Jr. Officer (Principal
Executive Officer)
/s/ Patricia L. Langiotti Director October 16, 1998
- ----------------------------
Patricia L. Langiotti
<PAGE>
/s/ Kenneth A. Longacre Director October 16, 1998
- ----------------------------
Kenneth A. Longacre
/s/ C. Robert Roth Director October 16, 1998
- ----------------------------
C. Robert Roth
/s/ Wayne R. Weidner Director October 16, 1998
- ----------------------------
Wayne R. Weidner
/s/ Harold C. Wegman, D.D.S. Director October 16, 1998
- ----------------------------
Harold C. Wegman, D.D.S.
<PAGE>
EXHIBIT INDEX
2.1 Amended Agreement and Plan of Merger dated
as of July 21, 1998, among National Penn
Bancshares, Inc., National Penn Bank and
Elverson National Bank (included as Annex A
to the Joint Proxy Statement/Prospectus).
Schedules are omitted; National Penn
Bancshares, Inc. agrees to furnish copies of
such schedules to the Commission upon
request.
5.1 Opinion of Ellsworth, Wiles, Carlton &
Waldman, P.C. re: Validity of securities
being registered (including consent).
8.1 Opinion of Dechert Price & Rhoads re:
Federal income tax matters (including
consent).
23.1 Consent of Grant Thornton, LLP.
23.2 Consent of Beard & Company, Inc.
23.3 Consent of Ellsworth, Wiles, Carlton &
Waldman, P.C. (included in Exhibit 5.1).
23.4 Consent of Dechert Price & Rhoads (included
in Exhibit 8.1).
23.5 Consent of Berwind Financial, L.P.
23.6 Consent of LSC Financial Services, Inc.
24.1 Powers of Attorney.
99.1 Opinion of Berwind Financial, L.P. (included
as Annex B to the Joint Proxy
Statement/Prospectus).
99.2 Opinion of LSC Financial Services, Inc.
(included as Annex C to the Joint Proxy
Statement/Prospectus).
99.3 Form of Proxy for Shareholders of National
Penn Bancshares, Inc.
99.4 Form of Voting Instruction Card for
Participants in National Penn Bancshares,
Inc. Capital Accumulation Plan.
99.5 Form of Proxy for Shareholders of Elverson
National Bank.
99.6 Form of Voting Instruction Card for
Participants in Elverson National Bank
Employee Stock Ownership Plan.
Ellsworth, Wiles, Carlton & Waldman, P.C.
1105 Berkshire Boulevard
Suite 320
Wyomissing, PA 19610
-----------
Telephone (610) 374-1135
Fax (610) 371-9510
October 16, 1998
Board of Directors
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
Boyertown, Pennsylvania 19512
Re: Registration Statement on Form S-4
Elverson National Bank
Ladies and Gentlemen:
In connection with the proposed offering of up to 4,200,000 shares of
common stock, without par value (the "Common Stock"), by National Penn
Bancshares, Inc. (the "Company"), covered by the Company's Registration
Statement on Form S-4 (the "Registration Statement") filed on or about this date
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, we, as special counsel to the Company, have reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) the resolutions, adopted July 16, 1998, by the Board of Directors
of the Company;
(4) the Registration Statement; and
(5) such other documents, papers and matters of law as we have deemed
necessary under the circumstances.
Based upon our review of the foregoing, it is our opinion that:
(1) The Company has been duly incorporated under the laws of the
Commonwealth of Pennsylvania and is validly existing and in good standing under
the laws of such Commonwealth.
(2) The Common Stock covered by the Registration Statement has been
duly authorized and, when issued and sold pursuant to the terms described in the
Registration Statement, will be legally issued by the Company and fully paid and
nonassessable.
<PAGE>
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the related Prospectus. In giving this consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1993, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
ELLSWORTH, WILES, CARLTON
& WALDMAN, P.C.
/s/ H. Anderson Ellsworth
H. Anderson Ellsworth
HAE:ms
[DECHERT PRICE & RHOADS Letterhead]
October 13, 1998
Elverson National Bank
83 West Main Street
Elverson, PA 19520
Re: Proposed Merger of Elverson National Bank with and
into National Penn Bank, a wholly-owned subsidiary
of National Penn Bancshares, Inc.
Ladies and Gentlemen:
We have acted as special counsel to Elverson National Bank, a
banking association organized under the national banking laws ("Elverson"), in
connection with the contemplated merger (the "Merger") of Elverson with and into
National Penn Bank, a national bank chartered under the National Banking Act
("NP Bank") and wholly-owned subsidiary of National Penn Bancshares, Inc., a
Pennsylvania corporation ("NPB"), pursuant to an Amended Agreement and Plan of
Merger dated as of July 21, 1998 (the "Merger Agreement").
All capitalized terms used herein, unless otherwise specified,
have the meanings assigned to them in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") forming a part of the Registration Statement filed on
Form S-4 by NPB with respect to the Merger (the "Registration Statement").
We have assisted in the preparation of the description of
certain federal income tax consequences of the Merger contained in the Proxy
Statement/Prospectus under the caption "THE MERGER"- - Certain Federal Income
Tax Consequences" (the "Tax Summary"). You have requested our opinion with
respect to the Tax Summary.
<PAGE>
Elverson National Bank
October 13, 1998
Page 2
We have examined the Registration Statement and the Tax
Summary. 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 Merger Agreement, the Proxy Statement/Prospectus, the
Registration Statement and such other documents as we have deemed necessary or
appropriate as a basis for the opinion set forth below. We have assumed that the
Merger will be consummated in accordance with the Merger Agreement and as
described in the Proxy Statement/Prospectus. As described in the Tax Summary,
the consummation of the Merger is conditioned upon the delivery of opinions from
Elverson's and NPB's respective special counsels or independent certified public
accountants (the "Tax Opinions"). While we are not aware of any reason why the
Tax Opinions could not be delivered, we assume, for purposes of this opinion,
that the Tax Opinions will be delivered and that such Tax Opinions will be
supported by customary representations of the parties effective as of the
Effective Date of the Merger.
In rendering our opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
Regulations promulgated thereunder, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant, in each case as in effect on the date hereof. Statutes,
regulations, judicial decisions and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change in the authorities upon which our opinion is based could affect
our conclusions.
Based solely upon the foregoing, we are of the opinion that
the Tax Summary, although general in nature, is, in all material respects, a
fair and accurate summary of the principal United States federal income tax
consequences of the Merger under present law. As noted in the introductory
paragraph of the Tax Summary, the United States federal income tax consequences
with respect to any shareholder of Elverson will depend upon that shareholder's
particular circumstances and tax situation, and we express no belief with
respect to the accuracy or completeness of the Tax Summary as applied to any
shareholder in particular.
Except as set forth above, we express no opinion as to the
federal, state, local or foreign tax consequences of the Merger or of any
transactions related thereto. This opinion is solely for your benefit and is not
to be used, quoted, circulated or otherwise referred to without our express
written permission. Notwithstanding the previous sentence, we hereby consent to
the references to us under the captions "LEGAL OPINIONS" and "THE MERGER --
Certain Federal Income Tax Consequences" in the Proxy Statement/Prospectus
forming a part of the Registration Statement filed with the Securities and
Exchange Commission in connection with this
<PAGE>
Elverson National Bank
October 13, 1998
Page 3
transaction. We also consent to the filing of a copy of this opinion as an
exhibit to the Registration Statement. In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ DECHERT PRICE & RHOADS
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 16, 1998 accompanying the
consolidated financial statements of National Penn Bancshares, Inc. and
Subsidiaries appearing in the 1997 Annual Report of the Company to its
shareholders included in the Annual Report on Form 10-K for the year ended
December 31, 1997 which is incorporated by reference in this Form S-4
Registration Statement. We consent to the incorporation by reference in the Form
S-4 Registration Statement of the aforementioned report and to the use of our
name as it appears under the caption "Experts."
/s/ Grant Thornton, LLP
Grant Thornton, LLP
Philadelphia, Pennsylvania
October 16, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement (Form S-4)
of National Penn Bancshares, Inc. and the related Joint Proxy
Statement/Prospectus of National Penn Bancshares, Inc. and Elverson National
Bank of our report, dated January 16, 1998, except for Note 17 as to which the
date is April 10, 1998, relating to the consolidated financial statements of
Elverson National Bank and its subsidiaries included therein. We also consent to
the reference to our Firm under the caption "Experts" in the Joint Proxy
Statement/Prospectus.
/s/ BEARD & COMPANY, INC.
BEARD & COMPANY, INC.
Reading, Pennsylvania
October 14, 1998
BERWIND FINANCIAL, L.P.
October 15, 1998
Consent of Berwind Financial, L.P.
We consent to the inclusion of our Fairness Opinion issued to Elverson National
Bank in this registration statement on Form S-4. We also consent to the
reference to our firm under the caption "Opinions of Financial Advisors" and
elsewhere in the prospectus and/or proxy statement.
Sincerely,
/s/ Berwind Financial, L.P.
Berwind Financial, L.P.
EXHIBIT 23.6
CONSENT
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of our opinion addressed to the Board of
Directors of National Penn Bancshares, Inc. concerning the fairness to the
shareholders of said bank holding company of the financial terms of said bank
holding company's proposed acquisition of Elverson National Bank. We also
consent to the reference to our Firm and our opinion to National Penn
Bancshares, Inc. under the heading "Opinions of Financial Advisors - NPB" in the
aforementioned Prospectus.
/s/ LSC FINANCIAL SERVICES, INC.
LSC FINANCIAL SERVICES, INC.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lawrence T. Jilk, Jr., Wayne R. Weidner
and H. Anderson Ellsworth, Esquire, and each of them, his or her true and lawful
attorney-in-fact, as agent with full power of substitution and resubstitution
for him or her in his or her name, place and stead, in any and all capacity, to
sign any or all amendments to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signatures Title
<S> <C> <C>
/s/Gary L. Rhoads Treasurer September 30, 1998
- ------------------------
Gary L. Rhoads (Principal Financial
and Accounting Officer)
/s/John H. Body Director September 21, 1998
- ------------------------
John H. Body
/s/J.Ralph Borneman, Jr. Director September 17, 1998
- ------------------------
J. Ralph Borneman, Jr.
/s/Frederick H. Gaige Director September 21, 1998
- ------------------------
Frederick H. Gaige
/s/Lawrence T. Jilk, Jr. Director, Chairman September 16, 1998
- ------------------------
Lawrence T. Jilk, Jr. and Chief Executive
Officer (Principal
Executive Officer)
/s/Patricia L. Langiotti Director September 30, 1998
- ------------------------
Patricia L. Langiotti
/s/Kenneth A. Longacre Director September 18, 1998
- ------------------------
Kenneth A. Longacre
/s/C. Robert Roth Director September 18, 1998
- ------------------------
C. Robert Roth
/s/Harold C. Wegman Director September 30, 1998
- ------------------------
Harold C. Wegman, D.D.S.
/s/Wayne R. Weidner Director September 30, 1998
- ------------------------
Wayne R. Weidner
</TABLE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NATIONAL PENN BANCSHARES, INC.
The undersigned hereby appoints _________________, ________________ and
________________ proxies, each with power to act without the others and with
power of substitution, and hereby authorizes them to represent and vote, as
designated on the other side, all the shares of stock of National Penn
Bancshares, Inc. ("NPB") standing in the name of the undersigned with all powers
which the undersigned would possess if present at the Special Meeting of
Shareholders of NPB to be held on _______________, 1998 and at any adjournments
or postponements thereof.
(Continued, and to be marked,
dated and signed, on the other side)
<PAGE>
This proxy when properly executed will be voted in the manner directed by the
undersigned shareholder. If no direction is made, this proxy will be voted FOR
proposal 1.
1. Proposal to approve the Amended Agreement and Plan of Merger
dated as of July 21, 1998 (as the same may be further amended,
the "Merger Agreement"), by and among NPB, National Penn Bank
(NPB's wholly-owned subsidiary, "NP Bank"), and Elverson
National Bank ("Elverson"), pursuant to which, among other
things, (i) Elverson will merge with and into NP Bank, and
(ii) each outstanding share of Elverson common stock will be
converted into 1.46875 shares of NPB common stock, subject to
possible increase under certain circumstances, all on and
subject to the terms and conditions contained in the Merger
Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxy holders are authorized to vote upon such
other business as may come before the Special Meeting and any
adjournments or postponements thereof.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other properly authorized officer.
If a partnership, please sign in partnership name by properly authorized person.
Dated: ______________, 1998
(Signature)
(Signature if held jointly)
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
VOTING INSTRUCTION CARD
THIS VOTING INSTRUCTION CARD IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF NATIONAL PENN
BANCSHARES, INC.
This Voting Instruction Card serves to instruct Investors Trust
Company, as trustee (the "Trustee") under the National Penn Bancshares, Inc.
Capital Accumulation Plan (the "Plan"), to vote, as designated on the other
side, all the shares of stock of National Penn Bancshares, Inc. ("NPB") entitled
to be voted by the undersigned participant under the terms of such Plan with
respect to the Special Meeting of Shareholders of NPB to be held on
_______________, 1998 and at any adjournments or postponements thereof.
The undersigned, in giving such instructions, will act as named
fiduciary for (i) such shares that have been allocated to the account of the
undersigned, (ii) a proportionate share of such shares that have been allocated
to the accounts of other participants in the Plan as to which the Trustee
receives no instructions, and (iii) a proportionate share of such shares held in
the Plan that have not been allocated to any participants in the Plan.
(Continued, and to be marked,
dated and signed, on the other side)
<PAGE>
This voting instruction card when properly executed will be voted as instructed
by the undersigned participant subject to applicable law. If no instructions are
given, the shares allocated to the undersigned participant will be voted by the
Trustee in accordance with the terms of the Plan and applicable law.
1. Proposal to approve the Amended Agreement and Plan of Merger
dated as of July 21, 1998 (as the same may be further amended,
the "Merger Agreement"), by and among NPB, National Penn Bank
(NPB's wholly-owned subsidiary, "NP Bank"), and Elverson
National Bank ("Elverson"), pursuant to which, among other
things, (i) Elverson will merge with and into NP Bank, and
(ii) each outstanding share of Elverson common stock will be
converted into 1.46875 shares of NPB common stock, subject to
possible increase under certain circumstances, all on and
subject to the terms and conditions contained in the Merger
Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In its discretion, the Trustee is authorized to vote upon such other
business as may come before the Special Meeting and any adjournments or
postponements thereof.
Please sign exactly as your name appears herein.
Dated: _________________, 1998
(Signature of Participant)
PLEASE SIGN, DATE AND RETURN THE VOTING INSTRUCTION CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
Elverson National Bank
SPECIAL MEETING OF SHAREHOLDERS - ______, 1998
The undersigned shareholder of Elverson National Bank ("Elverson") hereby
appoints _________ and __________, both with full power of substitution, to vote
all shares of Common Stock of Elverson that the undersigned is entitled to vote
if personally present at the Special Meeting of Shareholders of Elverson to be
held on _________, 1998, and at any adjournments or postponements thereof as
indicated below. The undersigned hereby revokes any previous proxies with
respect to matters covered by this Proxy.
The Board of Directors of Elverson recommends a vote FOR Proposal 1:
1. To approve, adopt, ratify and confirm the Amended Agreement and Plan
of Merger dated as of July 21, 1998 (the "Merger Agreement"), among
National Penn Bancshares, Inc., a Pennsylvania corporation ("NPB"),
National Penn Bank, a national banking association and a wholly owned
subsidiary of NPB ("NP Bank"), and Elverson. A copy of the Merger
Agreement is attached to the accompanying Proxy Statement as Annex A.
As more fully described in the Proxy Statement, the Merger Agreement
provides that: (i) Elverson will be merged with and into NP Bank (the
"Merger"), with NP Bank continuing as the surviving corporation, and
NP Bank will thereafter continue to be a wholly owned subsidiary of
NPB; and (ii) each issued and outstanding share of Common Stock, par
value $1.25 per share (collectively, the "Shares"), of Elverson, other
than Shares owned by Elverson, NPB, NP Bank, any other wholly owned
subsidiary of NPB or Shares held by shareholders of Elverson who
properly exercise their dissenters' rights under the National Bank
Act, will be converted, upon the consummation of the Merger, into the
right to receive 1.46875 shares of common stock of NPB (subject to an
exchange ratio adjustment).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of the proxies, to vote upon such other business as
may properly come before the Special Meeting, and any adjournment or
postponement thereof.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
This Proxy, when properly executed, will be voted in the manner marked
herein by the undersigned shareholder. IF NO MARKING IS MADE, THIS PROXY
WILL BE DEEMED TO BE A DIRECTION TO VOTE FOR PROPOSAL 1 and, in the
discretion of the proxies, to vote upon such other business as may properly
come before the meeting, and any adjournment or postponement thereof. THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ELVERSON.
________________________________
(Date)
________________________________
(Signature)
________________________________
(Title)
<PAGE>
(Signature, if held jointly)
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee,
guardian, corporate officer or
partner, please give full title
as such. If a corporation,
please sign in corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership name
by authorized person. This Proxy
votes all shares held in all
capacities.
Please mark, sign, date and mail promptly.
Elverson National Bank
INSTRUCTION CARD
83 West Main Street
Elverson, Pennsylvania 19520
This card serves to instruct The Bank of Lancaster County, N.A. (the
"Trustee"), as trustee under the Elverson National Bank Employee Stock Ownership
Plan (the "Plan"), to vote as designated all of the shares of preferred and
common stock of Elverson National Bank, a national bank ("Elverson"), entitled
to be voted by the undersigned participant (the "Participant") under the terms
of such Plan with respect to the special meeting (the "Special Meeting") of
shareholders of Elverson to be held at the Holiday Inn, Morgantown,
Pennsylvania, on _________, 1998 and at any adjournment or postponement thereof.
The undersigned, in giving such instructions, will act as named fiduciary for
(i) such shares that have been allocated to the account of the undersigned, (ii)
a proportionate share of such shares that have been allocated to the accounts of
other Participants in the Plan as to which the Trustee receives no instructions
and (iii) a proportionate share of such shares held in the Plan that have not
been allocated to any Participants in the Plan.
(Continued and to be marked, dated and signed on reverse side)
<PAGE>
THIS CARD WHEN PROPERLY EXECUTED WILL BE VOTED AS INSTRUCTED BY THE
UNDERSIGNED PARTICIPANT SUBJECT TO APPLICABLE LAW. IF NO INSTRUCTIONS ARE MADE,
THE SHARES ALLOCATED TO THE UNDERSIGNED PARTICIPANT WILL BE VOTED BY THE TRUSTEE
IN ACCORDANCE WITH THE TERMS OF THE PLAN AND APPLICABLE LAW.
1. Proposal to approve and adopt the Amended Agreement and Plan of
Merger, dated as of July 21, 1998, by and among National Penn
Bancshares, Inc., a Pennsylvania corporation ("NPB"), National Penn
Bank, a national banking association and a wholly owned subsidiary of
NPB ("NP Bank"), and Elverson. A copy of the Merger Agreement is
attached to the accompanying Proxy Statement as Annex A. As more fully
described in the Proxy Statement, the Merger Agreement provides that:
(i) Elverson will be merged with and into NP Bank (the "Merger"), with
NP Bank continuing as the surviving corporation, and NP Bank will
thereafter continue to be a wholly owned subsidiary of NPB; and (ii)
each issued and outstanding share of Common Stock, par value $1.25 per
share (collectively, the "Shares"), of Elverson, other than Shares
owned by Elverson, NPB, NP Bank, any other wholly owned subsidiary of
NPB or Shares held by shareholders of Elverson who properly exercise
their dissenters' rights under the National Bank Act, will be
converted, upon the consummation of the Merger, into the right to
receive 1.46875 shares of common stock of NPB (subject to an exchange
ratio adjustment).
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, to vote upon such other business as may properly
come before the meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Receipt of Notice of Special Meeting of Shareholders and the related Proxy
Statement dated ______________, 1998 is hereby acknowledged.
PLEASE SIGN, DATE AND RETURN THE INSTRUCTION CARD PROMPTLY USING THE
ENCLOSED ENVELOPE. THIS INSTRUCTION CARD IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ELVERSON.
____________________________________
Dated
____________________________________
Signature of Participant
NOTE: PLEASE SIGN AS YOUR NAME APPEARS HEREIN.
