Registration No. 333-__________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------
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
National Penn Bancshares, Inc.
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)
Copies to:
H. Anderson Ellsworth Charles J. Ferry
Jay W. Waldman Carl D. Lundblad
Ellsworth, Carlton & Waldman, P.C. Rhoads & Sinon LLP
1105 Berkshire Blvd., Suite 320 One South Market Square
Wyomissing, PA 19610 P.O. Box 1146
(610) 374-1135 Harrisburg, PA 17108-1146
(717) 233-5731
<PAGE>
Approximate Date of Commencement of Proposed Sale to the Public: As
soon as practicable after the effectiveness of this Registration Statement and
upon completion of the merger of Community Independent Bank, Inc. with and into
the Registrant.
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
-----------------------------------------------------------------
Title of
each class Proposed Proposed
of Amount maximum maximum Amount of
securities to be offering price aggregate registration
to be registered(1) per unit(2) offering fee(2)
registered price(2)
-----------------------------------------------------------------
Common stock,
without par
value (and
associated
stock purchase
rights)(3) 686,778 $17.895 $12,289,725 $3,245
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(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 Community Independent Bank, Inc. ("Community") with and
into 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
<PAGE>
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
high and low price per share of Community common stock on September 7,
2000 of $17, and based on 700,325 shares of Community common stock to
be exchanged in the Merger and unexercised options to purchase 22,600
shares of Community common stock.
(3) Prior to the occurrence of certain events, the stock purchase rights
will not be evidenced separately from the common stock.
-----------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, 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>
PROXY STATEMENT/PROSPECTUS
COMMUNITY INDEPENDENT BANK, INC.
PROXY STATEMENT
TRADING SYMBOL: INB
-----------------------------------
NATIONAL PENN BANCSHARES, INC.
PROSPECTUS
FOR 686,778 SHARES OF COMMON STOCK
TRADING SYMBOL: NPBC
-----------------------------------
This proxy statement of Community Independent Bank, Inc. relates to the
solicitation of proxies to be used at a special meeting of Community
shareholders called for __________, 2000, to consider the proposed merger of
Community into National Penn Bancshares, Inc.
The proxy statement includes the prospectus of National Penn
Bancshares, Inc. relating to shares of National Penn common stock to be issued
to Community shareholders in connection with the proposed merger. If the merger
takes place, each outstanding share of Community common stock will be converted
into nine- tenths (.9) share of National Penn common stock.
National Penn common stock is quoted on the National Market tier of the
Nasdaq Stock Market. On __________, 2000, the closing price of National Penn
common stock was $___ per share, making the value of nine-tenths (.9) share on
that date $_______.
This proxy statement/prospectus and the accompanying form of proxy are
first being mailed to shareholders on __________, 2000.
-----------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE STOCK OF NATIONAL PENN BANCSHARES,
INC. TO BE ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF NATIONAL PENN BANCSHARES, INC. 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 __________, 2000.
<PAGE>
HOW TO OBTAIN MORE INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT NATIONAL PENN BANCSHARES, INC. THAT IS NOT INCLUDED
IN OR DELIVERED WITH THIS DOCUMENT. YOU CAN OBTAIN FREE COPIES OF THIS
INFORMATION BY WRITING OR CALLING:
SANDRA L. SPAYD
SECRETARY
NATIONAL PENN BANCSHARES, INC.
PHILADELPHIA AND READING AVENUES
BOYERTOWN, PENNSYLVANIA 19512
TELEPHONE: (610) 369-6202
IN ORDER TO OBTAIN TIMELY DELIVERY OF THE DOCUMENTS, YOU SHOULD REQUEST
THE INFORMATION BY __________, 2000.
See "Where You Can Find More Information" at page 130.
PLEASE NOTE
We have not authorized anyone to provide you with any information other
than the information included in this document and the documents to which we
refer you. If someone provides you with other information, please do not rely on
it as being authorized by us.
This proxy statement/prospectus offers only the 686,778 shares of
National Penn common stock offered in the merger, and offers such shares only
where it is legal to do so.
This proxy statement/prospectus has been prepared as of __________,
2000. There may be changes in the affairs of National Penn or Community since
that date which are not reflected in this document.
2
<PAGE>
TABLE OF CONTENTS
PAGE
SUMMARY 5
A WARNING ABOUT FORWARD-LOOKING INFORMATION 23
THE MEETING 25
* Date, Place, Time 25
* Matters to be Considered 25
* Record Date, Quorum 25
* Vote Required, Voting Agreements 25
* Voting of Proxies 26
* Abstentions, Broker Non-Votes 26
* Revocability of Proxies 26
* Solicitation of Proxies 27
* Recommendation of Community's Board of Directors 27
THE MERGER 28
* Background of the Merger 28
* Community's Reasons for the Merger 31
* Recommendation of Community's Board of Directors 33
* Opinion of Community's Financial Advisor 33
* National Penn's Reasons for the Merger 38
* Terms of the Merger 40
* Effective Date 41
* Representations and Warranties 42
* Conduct of Business Pending the Merger 43
* Conditions to the Merger 46
* Amendment; Waiver 48
* Termination; Possible Exchange Ratio Increase 48
* Stock Option Agreement 51
* No Solicitation of Other Transactions 56
* Nasdaq Listing 57
* Expenses 57
* Exchange of Community Stock Certificates 57
* Regulatory Approvals 58
* Management and Operations after the Merger 59
* Employment; Severance 61
* Employee Benefits 62
* Interests of Management and Others in the Merger 62
* Accounting Treatment 65
* Certain Federal Income Tax Consequences 65
* Resale of National Penn Common Stock 67
* No Dissenters Rights 69
* Material Contracts 69
CERTAIN REGULATORY CONSIDERATIONS 70
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INFORMATION ABOUT NATIONAL PENN 77
* General 77
* Acquisitions 77
* New National Penn Directors 78
INFORMATION ABOUT COMMUNITY 80
* Business 80
* Properties 81
* Competition 81
* Employees 82
* Legal Proceedings 82
* Security Ownership of Certain Beneficial Owners
and Management 82
COMMUNITY: SELECTED HISTORICAL FINANCIAL DATA 84
COMMUNITY: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 84
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
1999 AND 1998
COMMUNITY: MANAGEMENT'S DISCUSSION AND ANALYSIS OF 101
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
2000 AND 1999
DESCRIPTION OF NATIONAL PENN CAPITAL SECURITIES 110
* Common Stock 110
* Preferred Stock 112
* Shareholder Rights Plan 112
* Anti-Takeover Charter and Law Provisions 113
COMPARISON OF SHAREHOLDERS' RIGHTS 116
EXPERTS 128
LEGAL MATTERS 128
OTHER BUSINESS 128
SHAREHOLDER PROPOSALS 129
WHERE YOU CAN FIND MORE INFORMATION 130
INDEX TO COMMUNITY'S FINANCIAL STATEMENTS F-1
ANNEXES
A. Agreement
B. Stock Option Agreement
C. Opinion of Janney Montgomery Scott
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<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. Because this is a summary, it does not contain all of the
information that may be important to you. You should carefully read this entire
document and the other documents we refer to in this document before you decide
how to vote. These will give you a more complete description of the transaction
we are proposing. We have included page references in this summary to direct you
to more complete descriptions of the topics provided elsewhere in this proxy
statement/prospectus.
THE COMPANIES (SEE PAGE 80 FOR COMMUNITY, PAGE 77 FOR NATIONAL PENN)
Community Independent Bank, Inc.
201 North Main Street
Bernville, Pennsylvania 19506
(610) 488-1200
Community Independent Bank, Inc. is a registered bank holding company
incorporated in Pennsylvania. Community conducts its business activities through
its wholly-owned subsidiary, Bernville Bank, N.A., Bernville, Pennsylvania.
Bernville Bank is a full service commercial bank offering consumer and
commercial banking services through its main office in Bernville, Pennsylvania
and three branches located elsewhere in Berks County, Pennsylvania.
As of June 30, 2000, Community had consolidated assets of approximately
$105.3 million, consolidated loans of approximately $82.8 million, consolidated
deposits of approximately $91.4 million, and consolidated shareholders' equity
of approximately $7.2 million.
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
Boyertown, Pennsylvania 19512
(610) 367-6001
National Penn Bancshares, Inc. is a registered bank holding company
incorporated in Pennsylvania. Through National Penn Bank, its principal bank
subsidiary, and various other banking and banking-related subsidiaries, National
Penn provides a diversified range of financial services in the communities in
which it operates. National Penn maintains 56 banking offices in southeastern
Pennsylvania and four banking offices in northern New Jersey.
As of June 30, 2000, National Penn had consolidated assets of
approximately $2.3 billion, consolidated loans of approximately $1.57 billion,
consolidated deposits of
5
<PAGE>
approximately $1.6 billion, and consolidated shareholders' equity of
approximately $151 million.
THE MERGER (SEE PAGE 28)
National Penn will acquire Community by merging Community with and into
National Penn. Community will cease to exist, and Community's business will be
conducted by National Penn as the surviving corporation in the merger.
A copy of the merger agreement is attached to this proxy
statement/prospectus as Annex A.
COMMUNITY SHAREHOLDERS WILL RECEIVE .9 SHARE OF NATIONAL PENN COMMON STOCK FOR
EACH SHARE OF COMMUNITY COMMON STOCK (SEE PAGES 40 AND 48)
If the merger is completed, you will receive nine-tenths (.9) share of
National Penn common stock for each share of Community common stock you own. In
certain circumstances, the exchange ratio may be adjusted to .95 to 1, as
discussed below in this Summary at "Amendment or termination of merger is
possible".
The exchange ratio will be adjusted proportionately if National Penn
makes any stock splits, stock dividends or similar distributions.
National Penn will not issue any fractions of a share of common stock.
Rather, National Penn will pay cash (without interest) for any fractional share
interest any Community shareholder would otherwise receive in the merger. The
cash payment will be in an amount equal to the fraction multiplied by the market
value of a share of National Penn common stock, determined as provided in the
merger agreement.
NO FEDERAL INCOME TAX ON SHARES RECEIVED IN THE MERGER (SEE PAGE 65)
We expect that, for federal income tax purposes, you will not recognize
any gain or loss upon the exchange of your Community shares for shares of
National Penn common stock. You may recognize taxable gain or loss related to
any cash you receive in lieu of a fractional share of National Penn common
stock. Before the merger can be completed, we expect to receive opinions of our
respective counsel or independent certified public accountants substantially to
this effect.
Tax matters are very complicated and the tax consequences of the merger
to you will depend on your own situation. You should consult your own tax
advisors to determine the effect of the merger on you under federal, state,
local, and foreign tax laws.
6
<PAGE>
OUR REASONS FOR PROPOSING THE MERGER (SEE PAGE 31 FOR COMMUNITY, PAGE 38 FOR
NATIONAL PENN)
Community's board of directors believes that the proposed merger is in
the best interest of Community, its shareholders and its other constituencies.
If the merger is consummated, you will own stock in a larger and more
diversified corporation. National Penn common stock is traded on the Nasdaq
Stock Market's National Market System and is more readily tradeable than
Community common stock.
In unanimously approving the merger agreement, your board considered,
among other things, the earnings and financial condition of Community and
National Penn, the financial terms and income tax consequences of the merger,
the historical market prices of National Penn common stock, the historical cash
dividends paid on National Penn common stock compared with those paid on
Community common stock, and the business and prospects of National Penn.
National Penn's board of directors believes that the proposed merger is
a "fill-in" strategic fit for National Penn and will enhance National Penn's
franchise value.
COMMUNITY'S BOARD UNANIMOUSLY RECOMMENDS SHAREHOLDER APPROVAL (SEE PAGE 33)
Community's board of directors unanimously approved the merger
agreement, and believes that the proposed merger is in your best interests as
shareholders. The board unanimously recommends that you vote to approve the
merger.
COMMUNITY'S FINANCIAL ADVISOR SAYS EXCHANGE RATIO IS FAIR TO COMMUNITY
SHAREHOLDERS (SEE PAGE 33)
Janney Montgomery Scott, financial advisor to Community, has provided a
written fairness opinion dated _______, 2000 to Community's board of directors
that, as of that date, the exchange ratio is fair to Community shareholders from
a financial point of view. A copy of the fairness opinion is attached to this
proxy statement/prospectus as Annex C. You should read the fairness opinion in
its entirety.
Community has agreed to pay JMS a fee equal to 1.35% of the aggregate
consideration received by Community shareholders, based on a ten-day average of
the market price of National Penn common stock prior to closing, as well as
reasonable out-of- pocket expenses.
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<PAGE>
SPECIAL MEETING OF COMMUNITY SHAREHOLDERS TO BE HELD ____________, 2000 (SEE
PAGE 25)
A special meeting of Community shareholders will be held at Haag's
Hotel, Shartlesville, Pennsylvania on ____________, _________, 2000, at 1:30
p.m., local time.
At the special meeting, Community will ask you:
* To approve the merger agreement.
* To act on any other matters that may be put to a vote at the
special meeting.
RECORD DATE SET AT _______________, 2000; ONE VOTE PER SHARE OF COMMUNITY COMMON
STOCK (SEE PAGE 25)
You are entitled to vote at the special meeting if you owned shares of
Community common stock as of the close of business on _______________, 2000, the
record date. On that date, there were _________ shares of Community common stock
outstanding.
You are entitled to one vote for each share of Community common stock
you own on the record date. You may vote either by attending the special meeting
and voting your shares, or by completing the enclosed proxy card and mailing it
to Community in the enclosed envelope.
Community is seeking your proxy to use at the special meeting. We have
prepared this proxy statement/prospectus to assist you in deciding how to vote
and whether or not to grant your proxy to Community. If you elect not to attend
the meeting, please indicate on your proxy card how you want to vote. Then sign,
date and mail it as soon as possible so that your shares will be represented at
the special meeting. If you sign, date and mail your proxy card without
indicating how you wish to vote, your proxy will be counted as a vote for
approval of the merger. If you sign a proxy, you may revoke it at any time
before it is voted at the special meeting, or by attending and voting in person
at the special meeting.
You cannot vote shares held in "street name;" only your broker can vote
them, with your instructions. If you do not provide your broker with
instructions on how to vote your shares, your broker will not be permitted to
vote them.
MAJORITY OF VOTES CAST IS REQUIRED TO APPROVE MERGER (SEE PAGE 25)
Assuming that a quorum is present at the special meeting, a majority of
the votes cast on the merger proposal will be sufficient to approve the merger.
As of the record date, Community's directors and officers, their
immediate family members and entities they control own _________
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<PAGE>
______ shares, or approximately ___% of the outstanding shares of Community
common stock. Of these shares, Community's directors own ___________ personally;
they have agreed with National Penn to vote these ________ shares for approval
of the merger. Community's directors have also stated their intention to cause
the rest of the shares controlled by them or their affiliates to be voted for
approval of the merger.
As of the record date, National Penn's directors and executive officers
own 107 shares of Community common stock, and National Penn held no shares of
Community common stock other than shares held in a fiduciary capacity for
others.
National Penn shareholders will not vote on the merger.
CERTAIN MEMBERS OF COMMUNITY'S MANAGEMENT AND DIRECTORS HAVE
INTERESTS IN MERGER (SEE PAGE 62)
Community's directors and certain officers have interests in the merger
that may differ from the interests of Community shareholders generally. Those
interests include, among others, provisions in the merger agreement regarding
various National Penn board positions and related compensation, indemnification,
insurance, substitute stock options, and eligibility to participate in various
National Penn employee benefit plans.
Community's board of directors was aware of these interests and
considered them in approving and recommending the merger.
MERGER EXPECTED TO OCCUR IN FIRST QUARTER 2001 (SEE PAGE 41)
The merger will become final when articles of merger are filed with the
Pennsylvania Department of State. If Community shareholders approve the merger
at the special meeting, we currently anticipate that the merger will be
completed in early January 2001, although delays could occur.
We cannot assure you that we can obtain the necessary shareholder and
regulatory approvals or that the other conditions precedent to the merger can or
will be satisfied.
STOCK OPTION AGREEMENT MAY DETER OTHERS (SEE PAGE 51)
In connection with the merger agreement, we entered into a stock option
agreement in which Community granted to National Penn an option to purchase up
to 19.9% of Community's outstanding shares of common stock in certain
circumstances. The exercise price under the stock option agreement is $10 per
share.
National Penn cannot exercise the option unless certain events occur.
These events can generally be described as business combinations or acquisition
transactions relating to
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<PAGE>
Community and certain related events. In addition to the option to purchase
common stock, National Penn may, under certain circumstances, require Community
to repurchase the option for an agreed upon cash price. We do not know of any
event that has occurred as of the date of this proxy statement/prospectus that
would allow National Penn to exercise the option.
Community agreed to grant the option to National Penn in order to
induce National Penn to enter into the merger agreement. The option could have
the effect of discouraging other companies from trying to acquire Community.
A copy of the stock option agreement is attached to this proxy
statement/prospectus as Annex B.
REGULATORY APPROVALS MUST BE OBTAINED AND OTHER CONDITIONS MUST BE SATISFIED
BEFORE MERGER WILL BE COMPLETED (SEE PAGE 46)
National Penn is required to notify and get approvals from certain
government regulatory agencies before the merger can be completed, including the
Board of Governors of the Federal Reserve System and the Pennsylvania Department
of Banking. National Penn has filed the necessary applications and notices, and
anticipates obtaining the required regulatory approvals in the near future.
In addition to the required regulatory approvals, the merger will be
completed if certain conditions, including the following, are met:
* Community shareholders approve the merger at the special
meeting.
* We each receive opinions from our respective counsel or
independent certified public accountants that the merger will
qualify as a tax-free reorganization.
* We each receive letters from our respective independent
certified public accountants confirming the "pooling of
interests" method of accounting treatment for the merger.
* Neither of us has breached any of our respective
representations or obligations under the agreement.
The merger agreement attached to this proxy statement/prospectus as
Annex A describes other conditions that must be met before the merger may be
completed.
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<PAGE>
AMENDMENT OR TERMINATION OF MERGER IS POSSIBLE (SEE PAGE 48)
The merger agreement may be amended by our written agreement. We can
amend the agreement to a certain extent without shareholder approval, even if
you have already approved the merger.
We may agree to terminate the merger agreement and not complete the
merger at any time before the merger is completed. We each can unilaterally
terminate the merger in certain circumstances. These include a failure to
complete the merger by March 15, 2001, unless the party's breach is the reason
the merger has not been completed.
Community may terminate the merger agreement if the average price of
National Penn common stock over the 20 trading days ending on _________, 2000:
* Is less than $17 per share, and
* Underperforms a group of bank or thrift holding company stocks
by more than 15% between the date of the merger agreement and
the end of the 20 trading days period.
National Penn may nullify any such termination of the merger agreement by
increasing the exchange ratio to .95 share of National Penn common stock for
each share of Community common stock.
MERGER TO BE ACCOUNTED FOR AS POOLING OF INTERESTS (SEE PAGE 65)
We intend to account for the merger under the "pooling of interests"
method of accounting, which means that, for accounting and financial reporting
purposes, National Penn and Community will be treated is if they had always been
one company.
RIGHTS OF NATIONAL PENN SHAREHOLDERS DIFFER FROM THOSE OF COMMUNITY SHAREHOLDERS
(SEE PAGES 110 AND 116)
When the merger is completed, you will automatically become a National
Penn shareholder. The rights of National Penn shareholders differ from the
rights of Community shareholders in certain important ways. Many of these have
to do with provisions in National Penn's articles of incorporation and bylaws
that differ from those of Community's. Some of these provisions are intended to
make a takeover of National Penn harder if National Penn's board of directors
does not approve it.
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COMMUNITY SHAREHOLDERS DO NOT HAVE DISSENTERS OR APPRAISAL RIGHTS (SEE PAGE 69)
Under Pennsylvania law, Community shareholders do not have any right to
a court determination of the value of their shares in connection with the merger
or to payment for such shares in cash.
STOCK CERTIFICATES TO BE EXCHANGED AFTER MERGER IS COMPLETE (SEE PAGE 57)
Promptly after the merger is completed, you will receive a letter and
instructions on how to surrender your Community stock certificates in exchange
for National Penn stock certificates. You will need to carefully review and
complete these materials and return them as instructed along with your stock
certificates for Community common stock. Please do not send Community, National
Penn or National Penn's transfer agent any stock certificates until you receive
these instructions.
If you do not have stock certificates but hold shares of Community
common stock in "street name", your broker will automatically exchange the
shares upon completion of the merger.
MARKET PRICE AND DIVIDEND INFORMATION
COMMUNITY
Since August 19, 1998, Community common stock has been traded on the
American Stock Exchange under the symbol INB. Prior to that date, the stock was
traded in the over-the-counter market. Community common stock has not been
actively traded.
The following table sets forth high and low bid prices per share of
Community common stock for the first two quarters of 1998 and the high and low
sales prices for the quarters thereafter through ____________, 2000, based upon
information obtained from the American Stock Exchange (since August 19, 1998)
and the OTC Bulletin Board. Bid prices reflect inter-dealer prices, without
retail mark-up, markdown or commissions and may not necessarily represent actual
transactions. The table also reflects cash dividends declared on the common
stock. Prices and dividends have been re-stated to reflect a two-for-one stock
split in the form of a 100% stock dividend paid on July 31, 1998.
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==============================================================================
Year Quarter High Low Cash
Dividend
Per
Share
------------------------------------------------------------------------------
1998
------------------------------------------------------------------------------
First Quarter $12.75 $11.75 $.06
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Second Quarter 14.375 12.625 .06
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Third Quarter 16.00 13.50 .06
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Fourth Quarter 14.625 12.00 .06
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1999
------------------------------------------------------------------------------
First Quarter 15.125 11.50 .06
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Second Quarter 14.25 12.00 .06
------------------------------------------------------------------------------
Third Quarter 12.00 11.50 .06
------------------------------------------------------------------------------
Fourth Quarter 11.50 11.00 .07
------------------------------------------------------------------------------
2000
------------------------------------------------------------------------------
First Quarter 11.25 9.00 .07
------------------------------------------------------------------------------
Second Quarter 10.813 8.75 .07
------------------------------------------------------------------------------
Third Quarter __ __ .07
------------------------------------------------------------------------------
Fourth Quarter
(through _________, __ __ __
2000)
==============================================================================
Information for high and low sales prices for Community common stock on
the American Stock Exchange does not exist for July 21, 2000, the last trading
day before announcement of execution of the merger agreement. The last trade in
Community common stock before announcement of execution of the merger agreement
occurred on July 18, 2000, and was for 600 shares traded at $10.00 per share.
As of ___________, 2000, there were 700,325 shares of Community common
stock outstanding, held of record by approximately 464 shareholders, and
outstanding options which were exercisable on that date (or within 60 days
thereof) for 9,633 additional shares of Community common stock.
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Holders of Community common stock are entitled to receive dividends,
when declared by Community's board of directors, out of funds legally available
therefor. Community primarily obtains funds for the payment of dividends from
dividends paid by its subsidiary, Bernville Bank. Bernville Bank is subject to
legal restrictions on the payment of dividends applicable to national banks
generally. Additionally, Community is subject to a supervisory letter from the
Federal Reserve Bank of Philadelphia requiring the Federal Reserve's prior
approval of the payment of any dividend to Community shareholders. See "Certain
Regulatory Considerations--Payment of Dividends" and "Information About
Community--Business" at pages 70 and 80, respectively.
On June 25, 1998, Community adopted a dividend reinvestment and stock
purchase plan available to shareholders who elect to reinvest cash dividends for
the purchase of additional shares of Community common stock. Participants also
may elect to make voluntary cash payments of up to $2,500 each quarter for the
purchase of additional shares of Community common stock. In accordance with the
merger agreement and as authorized by the plan, Community's board has suspended
the operation of the dividend reinvestment and stock purchase plan through the
earlier of completion of the merger and termination of the merger agreement.
NATIONAL PENN
National Penn common stock is traded on the National Market tier of the
Nasdaq Stock Market under the symbol "NPBC".
The following table sets forth the high and low closing sale prices for
shares of National Penn common stock for the periods indicated below and the
cash dividends paid per share for such periods, after giving retroactive effect
to a 5% stock dividend paid on December 22, 1999 and a 5-for-4 stock split paid
on July 31, 1998.
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===============================================================================
Year Quarter High Low Cash
Dividend
Per
Share
-------------------------------------------------------------------------------
1998
-------------------------------------------------------------------------------
First Quarter $28.19 $22.67 $ .14
-------------------------------------------------------------------------------
Second Quarter 27.48 25.14 .15
-------------------------------------------------------------------------------
Third Quarter 25.90 19.88 .15
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Fourth Quarter 31.90 19.35 .18
-------------------------------------------------------------------------------
1999
-------------------------------------------------------------------------------
First Quarter 25.95 21.19 .19
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Second Quarter 24.29 20.48 .19
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Third Quarter 26.19 20.24 .19
-------------------------------------------------------------------------------
Fourth Quarter 26.75 24.41 .20
-------------------------------------------------------------------------------
2000
-------------------------------------------------------------------------------
First Quarter 24.63 19.13 .20
-------------------------------------------------------------------------------
Second Quarter 23.00 19.00 .20
-------------------------------------------------------------------------------
Third Quarter __ __ .20
-------------------------------------------------------------------------------
Fourth Quarter
(through ________, __ __ __
2000)
===============================================================================
On July 21, 2000, the reported high and low sales prices and the last
sale price of National Penn common stock on the Nasdaq Stock Market were as
follows:
============================================================================
July 21, 2000
------------- Last Sale
High Low Price
---- --- -----
----------------------------------------------------------------------------
National $21.94 $21.25 $21.875
Penn
============================================================================
On _________, 2000, the last trading day before the date of this proxy
statement/prospectus, the reported high and low sales prices and the last sale
price of National Penn common stock on the Nasdaq Stock Market were as follows:
15
<PAGE>
===============================================================================
_________, 2000
-------------- Last Sale
High Low Price
---- --- -----
-------------------------------------------------------------------------------
National $______ $______ $______
Penn
===============================================================================
As of ______, 2000, there were _________ shares of National Penn common
stock outstanding, held of record by approximately 3,100 shareholders, and
outstanding options which were exercisable on that date (or within 60 days
thereof) for _________ additional shares of National Penn common stock.
Holders of National Penn common stock are entitled to receive
dividends, when declared by National Penn's board of directors, out of funds
legally available therefor. National Penn primarily obtains funds for the
payment of dividends from dividends paid by its principal banking subsidiary,
National Penn Bank. National Penn Bank is subject to certain legal restrictions
on the amount of dividends it can pay to National Penn. See "Certain Regulatory
Considerations--Payment of Dividends" at page 71.
National Penn maintains a dividend reinvestment plan available to
shareholders who elect to reinvest cash dividends for the purchase of additional
shares of National Penn common stock. The plan does not contain a voluntary cash
payment feature.
COMPARATIVE MARKET VALUE PER SHARE
The following table sets forth the closing sale price per share of
National Penn common stock on July 21, 2000, the last trading day before
announcement of execution of the merger agreement, and the closing sale price
per share of Community common stock on July 18, 2000, the date of the last trade
in Community common stock before such public announcement. There were no trades
of Community common stock on July 21, 2000. The table also presents the implied
equivalent per share value for Community common stock as of July 21, 2000 by
multiplying the closing sale price per share of National Penn common stock on
July 21, 2000 by the exchange ratio of .9 to one.
=============================================================================
Community Common
National Community Stock Equivalent
Penn Common Common Value (.9 x National
Date Stock Stock Penn Common Stock)
-----------------------------------------------------------------------------
July 21, 2000 $21.875 $10.00 $19.69
=============================================================================
16
<PAGE>
The market price of both National Penn common stock and Community
common stock will fluctuate prior to the merger; similarly, the market value of
the shares of National Penn common stock that Community shareholders will
receive in the merger will fluctuate following the merger. You should obtain
current market quotations for National Penn common stock and Community common
stock. The future prices for National Penn common stock and Community common
stock cannot be predicted.
SELECTED HISTORICAL FINANCIAL DATA
The following tables present selected consolidated historical data of
Community and National Penn.
The information for Community is based on its consolidated financial
statements, including its unaudited consolidated financial statements for the
six months ended June 30, 2000 and 1999, and its audited consolidated financial
statements for each of the five years ended December 31, 1999.
The information for National Penn is based on the consolidated
financial information that is contained in reports National Penn has previously
filed with the Securities and Exchange Commission, including its Quarterly
Report on Form 10-Q for the period ended June 30, 2000. All of these documents
are incorporated by reference in this proxy statement/prospectus. See "Where You
Can Find More Information" at page 130.
You should read the following tables in conjunction with the
consolidated financial statements of Community and National Penn described
above, including the notes to them, and the management's discussion and analysis
of financial condition and results of operations of Community and National Penn
included in and incorporated by reference in this proxy statement/prospectus,
respectively.
Historical results do not necessarily indicate the results that you can
expect for any future period. In the opinion of our respective managements, all
adjustments (which include only normal, recurring adjustments) necessary to
arrive at a fair statement of interim results of operations of Community and of
National Penn have been included. With respect to both Community and National
Penn, results for the six months ended June 30, 2000 do not necessarily indicate
the results which you can expect for any other interim period or for the year as
a whole.
17
<PAGE>
COMMUNITY
<TABLE>
<CAPTION>
As of and for the Six
Months Ended June 30, As of and for the Years Ended December 31,
2000 1999 1999 1998 1997 1996 1995
--------- ---------- ----------- ----------- ----------- ----------- -----------
STATEMENTS OF CONDITION (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $105,335 $106,928 $109,536 $101,722 $83,462 $68,100 $61,765
Total deposits 91,364 92,279 90,596 85,443 70,729 61,136 55,772
Loans receivable, net 82,794 84,236 85,668 79,322 64,364 52,217 48,871
Total investments 13,291 13,970 13,384 12,876 10,525 9,003 8,484
Total shareholders'equity 7,207 7,363 7,242 7,359 6,900 6,435 4,722
EARNINGS
Total interest income $3,904 $3,913 $7,953 $7,190 $5,595 $4,988 $4,308
Total interest expense 2,111 1,959 4,013 3,595 2,663 2,394 2,060
--------- ---------- ----------- ----------- ----------- ----------- -----------
Net interest income 1,793 1,954 3,940 3,595 2,932 2,594 2,248
Provision for loan losses 290 180 610 240 78 72 12
--------- ---------- ----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 1,503 1,774 3,330 3,355 2,854 2,522 2,236
Other income 326 333 699 684 431 385 254
Other expenses 1,801 1,800 3,733 3,276 2,489 2,054 1,780
--------- ---------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 28 307 296 763 796 853 710
Income taxes (benefit) (14) 83 54 219 209 236 197
--------- ---------- ----------- ----------- ----------- ----------- -----------
Net income $42 $224 $242 $544 $587 $617 $513
========= ========== =========== =========== =========== =========== ===========
Return on average assets (1) 0.08% 0.43% 0.23% 0.58% 0.80% 0.94% 0.79%
Return on average shareholders'
equity (1) 1.2% 6.1% 3.3% 7.9% 9.2% 12.1% 9.2%
Percent shareholders' equity to assets 6.84% 6.89% 6.61% 7.23% 8.27% 9.45% 7.65%
PER SHARE DATA (2)
Book value per share $10.29 $10.57 $10.37 $10.56 $9.91 $9.24 $8.57
Basic earnings 0.06 0.32 0.35 0.78 0.84 1.00 0.93
Diluted earnings 0.06 0.32 0.35 0.78 0.84 1.00 0.93
Dividends paid in cash 0.14 0.12 0.25 0.24 0.22 0.20 0.20
Dividends paid in stock --- --- --- 2-for-1 --- 3-for-2 ---
stock split stock split
</TABLE>
(1) Interim ratios have been annualized for purposes of comparability with
year-end data.
(2) Effective January 1, 1997, Community 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 methodolgy 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 Community Common Stock outstanding, as follows: 699,501 (June 30,
2000); 696,774 (June 30, 1999); 697,234 (December 31, 1999); 696,686
(December 31, 1998); 696,574 (December 31, 1997); 622,030 (December 31,
1996) and 550,890 (December 31, 1995). Diluted net income per share in all
years presented gives effect to the dilution resulting from stock options
granted by Community. Per share amounts in all years have been adjusted to
reflect retroactively prior stock dividends and splits.
18
<PAGE>
NATIONAL PENN
<TABLE>
<CAPTION>
As of and for the Six
Months Ended June 30, As of and for the Years Ended December 31,
2000 1999 1999 1998 1997 1996 1995
----------- ---------- ----------- ----------- ----------- ----------- -----------
STATEMENTS OF CONDITION (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $2,309,771 $2,166,097 $2,242,432 $2,121,248 $1,809,216 $1,604,566 $1,473,888
Total deposits 1,601,156 1,545,872 1,593,254 1,473,302 1,353,523 1,190,976 1,106,884
Loans and leases, net 1,571,550 1,467,934 1,536,404 1,404,972 1,292,601 1,212,104 1,079,235
Total investments 534,844 515,642 516,027 523,041 371,464 278,565 280,817
Total shareholders'equity 151,033 155,103 147,696 158,774 148,928 137,519 126,897
EARNINGS
Total interest income $87,585 $79,060 $164,270 $154,081 $139,266 $124,671 $115,446
Total interest expense 45,972 39,329 82,753 76,607 63,009 53,914 51,410
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net interest income 41,613 39,731 81,517 77,474 76,257 70,757 64,036
Provision for loan and lease losses 3,000 2,830 5,960 5,960 5,563 4,500 3,900
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan and lease losses 38,613 36,901 75,557 71,514 70,694 66,257 60,136
Other income 12,682 10,200 23,338 18,721 13,614 10,153 8,478
Other expenses 34,176 31,770 65,724 61,232 54,417 48,590 44,331
----------- ---------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 17,119 15,331 33,171 29,003 29,891 27,820 24,283
Income taxes 3,203 2,815 5,762 6,085 8,344 8,531 7,279
----------- ---------- ----------- ----------- ----------- ----------- -----------
Net income $13,916 $12,516 $27,409 $22,918 $21,547 $19,289 $17,004
=========== ========== =========== =========== =========== =========== ===========
Return on average assets (1) 1.22% 1.19% 1.26% 1.17% 1.28% 1.27% 1.21%
Return on average shareholders' equity (1) 18.7% 16.4% 17.9% 15.0% 15.2% 14.8% 14.9%
Percent shareholders' equity to assets 6.54% 7.16% 6.59% 7.48% 8.23% 8.57% 8.61%
PER SHARE DATA (2)
Book value per share $8.54 $8.69 $8.33 $8.90 $8.30 $7.66 $7.09
Basic earnings 0.79 0.70 1.54 1.28 1.20 1.08 0.95
Diluted earnings 0.78 0.69 1.52 1.26 1.18 1.07 0.94
Dividends paid in cash 0.40 0.37 0.75 0.57 0.49 0.41 0.37
Dividends paid in stock --- --- 5% 5-for-4 4-for-3 5% 5%
stock split stock split
</TABLE>
(1) Interim ratios have been annualized for purposes of comparability with
year-end data.
(2) Effective January 1, 1997, National Penn 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 methodolgy 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 National Penn Common Stock outstanding, as follows: 17,675,203
(June 30, 2000); 17,832,876 (June 30, 1999); 17,792,492 (December 31,
1999); 17,836,656 (December 31, 1998); 17,970,695 (December 31, 1997);
17,940,083 (December 31, 1996) and 17,819,109 (December 31, 1995). Diluted
net income per share in all years presented gives effect to the dilution
resulting from stock options granted by National Penn or acquired
companies. Per share amounts in all years have been adjusted to reflect
retroactively prior stock dividends and splits.
(3) National Penn completed its acquisition of Panasia Bank on July 11, 2000.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, financial information for National Penn has
not been restated. At the time of acquisition, Panasia had assets of $108.1
million, deposits of $100.4 million, and total loans of $39.3 million.
Goodwill of $12.2 million will be amortized on the straight- line basis
over 20 years.
19
<PAGE>
COMPARATIVE PER SHARE DATA
The following table shows certain comparative per share data relating
to earnings, cash dividends and book value. The equivalent pro forma information
assumes an exchange ratio of nine-tenths (.9) share of National Penn common
stock for each share of Community common stock.
We present the pro forma and the equivalent pro forma data for your
information only. It does not necessarily indicate the results of operations or
the combined financial position that would have resulted had National Penn and
Community completed the merger at the times indicated, and it does not
necessarily indicate what the future results of operations or the combined
financial position will be.
You should read the information shown below in conjunction with the
historical consolidated financial statements of National Penn and Community and
the notes provided with them.
<TABLE>
<CAPTION>
===========================================================================================================
For the 6 Months For the Year Ended
Ended June 30, December 31,
===========================================================================================================
2000 1999 1999 1998 1997
===========================================================================================================
Cash Dividends
Per Common Share
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
National $0.40 $0.37 $0.75 $0.57 $0.49
Penn actual
-----------------------------------------------------------------------------------------------------------
Community 0.14 0.12 0.25 0.24 0.22
actual
-----------------------------------------------------------------------------------------------------------
Community 0.36 0.33 0.68 0.51 0.44
pro forma
equivalent(1)
-----------------------------------------------------------------------------------------------------------
Net Income Per
Common Share--
Basic
-----------------------------------------------------------------------------------------------------------
National 0.79 0.70 1.54 1.28 1.20
Penn actual
-----------------------------------------------------------------------------------------------------------
Community 0.06 0.32 0.35 0.78 0.84
actual
-----------------------------------------------------------------------------------------------------------
National Penn 0.76 0.69 1.50 1.27 1.19
and
Community
pro forma(2)
20
<PAGE>
------------------------------------------------------------------------------------------------------------
Community 0.68 0.62 1.35 1.14 1.07
pro forma
equivalent(3)
------------------------------------------------------------------------------------------------------------
Net Income Per
Common share-
Diluted
------------------------------------------------------------------------------------------------------------
National Penn 0.78 0.69 1.52 1.26 1.18
actual
------------------------------------------------------------------------------------------------------------
Community 0.06 0.32 0.35 0.78 0.84
actual
------------------------------------------------------------------------------------------------------------
National Penn 0.75 0.68 1.48 1.25 1.17
and
Community
pro forma(2)
------------------------------------------------------------------------------------------------------------
Community 0.68 0.61 1.33 1.13 1.05
pro forma
equivalent(3)
------------------------------------------------------------------------------------------------------------
============================================================================================================
</TABLE>
===============================================================
Book Value Per As of June 30,
Common Share 2000
============
---------------------------------------------------------------
National Penn $ 8.54
actual
---------------------------------------------------------------
Community 10.29
actual
---------------------------------------------------------------
National Penn 8.64
and
Community
pro forma(4)
---------------------------------------------------------------
Community 7.78
pro forma
equivalent(5)
===============================================================
---------------------
(1) Represents the dividends declared on National Penn common stock during
the respective periods multiplied by the exchange ratio (.9 for 1).
(2) Represents net income per share of National Penn common stock on a pro
forma basis. Such amounts, for purposes of determining basic net income
per share of National Penn common stock, have been determined by
dividing pro forma net
21
<PAGE>
income by the sum of (a) the weighted average number of shares of
National Penn common stock outstanding during each period retroactively
adjusted for stock dividends and splits, and (b) shares of National
Penn 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 (a)
the weighted average number of shares of National Penn common stock and
stock options outstanding during each period retroactively adjusted for
stock dividends and splits, and (b) shares of National Penn common
stock and the National Penn options assumed to be issued pursuant to
the merger.
(3) Represents the amount computed pursuant to Note 2 above multiplied by
the exchange ratio (.9 for 1).
(4) Represents the pro forma combined net book value of National Penn and
Community attributable to shares of National Penn common stock, divided
by the sum of (a) the number of shares of National Penn common stock
outstanding at June 30, 2000, and (b) shares of National Penn 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 (.9 for 1).
22
<PAGE>
A WARNING ABOUT FORWARD-LOOKING INFORMATION
This proxy statement/prospectus, including information incorporated by
reference in this document, contains forward- looking statements with respect to
the financial condition, results of operations and business of each of Community
and National Penn, including National Penn's financial condition, results of
operations and business after its July 2000 acquisition of Panasia Bank. These
include statements relating to revenues and cost savings estimated to result
from the merger and generally to the anticipated benefits of the merger. You can
find many of these statements by looking for words such as "believes,"
"expects," "anticipates," "estimates", "projects" or similar words or
expressions.
These forward-looking statements involve substantial risks and
uncertainties. There are many factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements. These
factors include, among other things, the following possibilities:
* Expected cost savings from the merger, including reductions in
interest and non-interest expense, may not be fully realized
or realized as quickly as expected.
* Revenues of National Penn and its subsidiaries following the
merger may be lower than expected, or loan losses, deposit
attrition, operating costs, customer losses or business
disruption following the merger may be greater than expected.
* Commercial loan growth following the merger may be lower than
expected.
* Costs, difficulties or delays related to the integration of
our businesses may be greater or longer than expected.
* Expected cost savings from National Penn's acquisition of
Panasia Bank in July 2000 may not be fully realized or
realized as quickly as expected.
* Revenues of Panasia Bank may be lower than expected, or loan
losses, deposit attrition, operating costs, customer losses or
business disruption at Panasia Bank may be greater than
expected.
* Commercial loan growth at Panasia Bank may be lower than
expected.
23
<PAGE>
* Costs, difficulties or delays related to the integration of
Panasia Bank's business with National Penn's business may be
greater or longer than expected.
* Changes in the interest rate environment may reduce interest
margins.
* Competitive pressures among depository and other financial
institutions may increase significantly.
* General economic or business conditions, either nationally or
in the regions in which we will be doing business, may be less
favorable than expected, resulting in, among other things, a
deterioration in credit quality or a reduced demand for
credit.
* Technological changes and systems integration may be harder to
make or more expensive than expected.
* Legislation or regulatory changes may adversely affect our
businesses.
* Adverse changes may occur in the securities markets.
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
statements. We caution Community shareholders not to place undue reliance on
such statements. These statements speak only as of the date of this proxy
statement/prospectus or, if made in any document incorporated by reference, as
of the date of that document.
All written or oral forward-looking statements attributable to National
Penn or Community or any person acting on their behalf made after the date of
this proxy statement/prospectus are expressly qualified in their entirety by the
cautionary statements contained or referred to in this section. Neither National
Penn nor Community undertakes any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date of this proxy statement/prospectus or to reflect the occurrence of
unanticipated events.
24
<PAGE>
THE MEETING
DATE, PLACE, TIME
We are providing this proxy statement/prospectus to Community
shareholders in connection with the solicitation by Community's board of
directors of proxies for use at the special meeting of Community shareholders
and at any adjournments or postponements of the meeting. The special meeting is
scheduled to be held at Haag's Hotel, Shartlesville, Pennsylvania, at 1:30 p.m.,
local time, on _________, 2000.
MATTERS TO BE CONSIDERED
The purpose of the Community special meeting is to consider and vote
on:
* Approval of the merger agreement.
* Other business, if any, as may properly come before the
special meeting.
RECORD DATE, QUORUM
You have the right to vote your shares at the meeting only if you own
Community common stock on the record date, _________, 2000. As of that date,
there are _________ shares of Community common stock issued and outstanding and
entitled to vote. There is no other class of Community stock issued or
outstanding. Each outstanding share of Community common stock as of _________,
2000 is entitled to one vote on each matter properly submitted at the special
meeting.
The presence, in person or by properly executed proxy, of shareholders
holding a majority of the outstanding shares of Community common stock is
necessary to constitute a quorum at the special meeting.
VOTE REQUIRED, VOTING AGREEMENTS
Approval of the merger proposal requires the affirmative vote of a
majority of the votes cast on the merger proposal. The affirmative vote of a
majority of the shares present at the special meeting, even if a quorum is not
present, is required to adjourn the special meeting.
As of the record date, Community's directors and officers, their
immediate family members and entities they control own _________ shares, or
approximately ___% of the outstanding shares, of Community common stock. Of
these shares, Community's directors own ______ personally; they have agreed with
National Penn to vote these _________ shares for approval of the
25
<PAGE>
merger. Community's directors have also stated their intention to cause the rest
of the shares controlled by them or their affiliates to be voted for approval of
the merger.
Community's directors and management are not aware of any person or
entity beneficially owning 5% or more of the outstanding shares of Community
common stock as of the record date for the special meeting.
VOTING OF PROXIES
This proxy statement/prospectus is accompanied by a form of proxy for
use at the special meeting. If you complete the enclosed proxy card and return
it before the voting takes place, your proxy holder will vote your shares in
accordance with the instructions indicated on the proxy card. If no instructions
are indicated, such proxies will be voted "FOR" approval of the merger proposal
and, as determined by the proxy holders, as to any other matter that may come
before the special meeting. Those other matters may include, among other things,
a motion to adjourn or postpone the special meeting to another time and/or place
for the purpose of soliciting additional proxies or otherwise. No proxy with
instructions to vote against the merger proposal will be voted in favor of any
adjournment or postponement of the special meeting.
ABSTENTIONS, BROKER NON-VOTES
You may abstain from voting on the merger proposal by so marking your
proxy card.
Under the applicable rules of the New York Stock Exchange and the
National Association of Securities Dealers, Inc., brokers or members who hold
shares in street name for customers who are the beneficial owners of such shares
are prohibited from giving a proxy to vote those shares with respect to the
approval of the merger proposal, in the absence of specific instructions from
such customers. We refer to these shares as "broker non-votes".
Abstentions and broker-non votes will be deemed shares present at the
special meeting and counted toward a quorum. Abstentions and broker non-votes
will not be deemed to be cast either "FOR" or "AGAINST" the merger proposal or
any other matter voted upon at the special meeting.
REVOCABILITY OF PROXIES
A shareholder who has given a proxy may revoke it at any time prior to
its exercise at the special meeting by:
* Giving written notice of revocation to the Secretary of
Community;
26
<PAGE>
* Submitting a duly executed proxy bearing a later date;
or
* Voting in person at the special meeting.
Any written notice of revocation and other communications with respect
to the revocation of proxies should be addressed to Community Independent Bank,
Inc., 201 North Main Street, Bernville, Pennsylvania 19506, Attention: Linda L.
Strohmenger, Secretary. A shareholder whose shares are held in street name
should follow the instructions of his or her broker regarding revocation of
proxies. A proxy appointment will not be revoked by the death or incapacity of
the shareholder executing the proxy unless, before the shares are voted, notice
of such death or incapacity is filed with the Secretary of Community or other
person responsible for tabulating votes on behalf of Community.
SOLICITATION OF PROXIES
Community will bear the cost of soliciting proxies.
In addition to solicitation by mail, directors, officers and employees
of Community and its subsidiaries may solicit proxies from Community
shareholders personally or by telephone, fax or other forms of communication.
Community will not specifically compensate any of these persons for such
services, but may reimburse them for reasonable out-of-pocket expenses in
connection with such solicitation.
Community will request brokerage houses, nominees, fiduciaries and
other custodians to forward proxy soliciting materials to beneficial owners of
Community common stock, and Community will reimburse such parties for their
reasonable out-of-pocket expenses incurred in sending such materials to
beneficial owners.
RECOMMENDATION OF COMMUNITY BOARD OF DIRECTORS
Community's board of directors has unanimously approved the merger
agreement, and believes the merger to be in the best interests of Community, its
shareholders, and its other constituencies. Community's board of directors
unanimously recommends that Community shareholders vote "FOR" approval of the
merger proposal. See "The Merger--Community's Reasons for the Merger; and
--"Recommendation of Community's Board of Directors" at pages 31 and 33.
27
<PAGE>
THE MERGER
The following information describes the material terms and provisions
of the merger. This description is not complete. We qualify this discussion in
its entirety by reference to the merger agreement and the stock option
agreement, each of which we incorporate by reference in this proxy
statement/prospectus. Copies of the merger agreement and the stock option
agreement are attached hereto as Annexes A and B, respectively. We urge you to
read the full text of the agreements carefully.
The merger agreement provides that:
* Community will merge into National Penn; and
* You, as a shareholder of Community, will receive nine-tenths
(.9) share of National Penn common stock for each share of
Community common stock that you own.
The board of directors of Community has unanimously approved and
adopted the merger agreement and believes that the merger is in your best
interests as a shareholder. The board unanimously recommends that you vote FOR
the merger agreement.
BACKGROUND OF THE MERGER
For many years, the strategy of Community's board of directors has been
to increase profitability while operating as an independent community-focused
banking company. In recent years, meeting the increased efforts of both local
and regional competitors to provide new services and attract customers has
become increasingly difficult. The expenses of attempting to keep pace with
competition, combined with Community's more limited economies of scale, have
placed significant pressures on its profitability.
Following the resignation of Community's President and Chief Executive
Officer, Arlan J. Werst, in late March 2000, and the subsequent executive search
to fill the CEO position, Community's board engaged in a comprehensive review of
its strategic plan. In the course of this review, the board reviewed
presentations from Janney Montgomery Scott and First Union Securities with
respect to Community's strategic alternatives, including continued independence,
acquisitions, merger of equals and other combinations. The board was advised by
its outside legal counsel with respect to directors' fiduciary duties under
Pennsylvania law.
In late June 2000, Karl Gerhart, a director and Acting President and
Chief Executive Officer of Community, learned from Community's new senior credit
officer of potential problems in Bernville Bank's loan portfolio, in addition to
the problem loans
28
<PAGE>
already identified in 1999. Mr. Gerhart reported these problems to the full
board of directors at its June 28, 2000 meeting. During this same time period,
the board had two serious candidates under consideration to fill the position of
President and Chief Executive Officer vacated by Mr. Werst. At the June 28
meeting, after an extended discussion of the advantages and disadvantages of
remaining independent versus pursuing a combination with a larger institution,
the board authorized Mr. Gerhart and Frederick Krott, Chairman of the Board, to
investigate possible partners for a business combination, although no final
decision was made to pursue such a strategy.
Accordingly, on June 29, 2000, Mr. Krott approached representatives of
two banking institutions, including National Penn, and indicated the Board's
willingness to consider a business combination.
On July 1, 2000, Mr. Krott met with Wayne R. Weidner, President of
National Penn, and discussed the possibility of a merger of the two
institutions. Mr. Krott, Mr. Gerhart and Walter J. Potteiger, a Community
director, met with Mr. Weidner and Lawrence T. Jilk, Jr., Chairman of National
Penn, on July 10, 2000 to discuss in greater detail various issues involved in a
combination of National Penn and Community.
On July 3, 2000, Mr. Krott met with the president of the second
institution and engaged in preliminary discussions regarding a possible business
combination.
On July 14, 2000, Community entered into confidentiality agreements
with both National Penn and the second institution.
On July 19, 2000, the Community board received a non-binding indication
of interest from National Penn which proposed a merger of Community into
National Penn. The proposal provided that National Penn would issue nine-tenths
(.9) share of National Penn common stock in exchange for each share of Community
common stock. The exchange ratio would not be subject to adjustment but would be
fixed. The proposal also provided that National Penn would:
* Issue stock options exercisable for shares of National Penn
common stock in exchange for stock options outstanding for
shares of Community common stock at the .9 share exchange
ratio;
* Merge Community's bank subsidiary, Bernville Bank, into
National Penn Bank and operate it as part of a separate
Berks County Division of National Penn Bank (the "Berks
County Division");
29
<PAGE>
* Endeavor to provide employment to each Community
employee;
* Provide severance benefits in the form of salary
continuation to those Community employees not employed
by National Penn;
* Permit payment of retention bonuses for
certain Community operational employees; and
* Provide employee benefits after closing.
In addition, National Penn proposed to add one current Community
director to National Penn's board of directors and two current Community
directors to National Penn Bank's board of directors, and to create the Berks
County Division advisory board of directors, which would include all current
members of the Community board.
On July 20, 2000, the Community board met to discuss the non-binding
indication of interest from National Penn. At that meeting, the Community board
of directors authorized Mr. Gerhart and Mr. Krott, together with legal counsel,
Community's independent certified public accountants, and Janney Montgomery
Scott, Community's financial advisor, to enter into negotiations with National
Penn as to a business combination between Community and National Penn, to
conduct due diligence with regard to National Penn, and to permit National Penn
to conduct due diligence with regard to Community.
On July 21, 22 and 23, Mr. Gerhart and Mr. Krott, together with legal
counsel, Community's independent public accountants and Janney Montgomery Scott,
entered into negotiations regarding the pricing, structure and other issues
associated with a business combination generally consistent with National Penn's
indication of interest letter. During this period, which included due diligence
investigations conducted by both parties, face to face sessions and numerous
telephone conferences, the exchange ratio for the combination as well as other
issues were determined on the basis of arms-length negotiations.
In the course of the July 21-23 negotiations, in addition to the terms
set forth in its indication of interest letter, National Penn agreed to give
Community the right to terminate the merger agreement if the average market
price of National Penn common stock over a 20 trading day period ending 31 days
prior to the meeting of Community's shareholders to be held to approve the
merger (a) is less than $17 per share and (b) underperforms an index of stock
prices of a group of comparable bank or thrift holding companies by more than
15% between the date of the merger agreement and the end of such 20 trading day
period. National Penn could, however, override such termination by increasing
the
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proposed exchange ratio from .9 share to .95 share of National Penn common stock
for each share of Community common stock. Other important elements of the
negotiation included maintaining representation of Community on the National
Penn and National Penn Bank boards of directors, dividends and treatment of
Community employees. This negotiation process resulted in the definitive merger
agreement attached hereto as Annex A.
On July 23, 2000, the Community board of directors met to consider the
definitive merger agreement. Janney Montgomery Scott presented its oral opinion,
to be confirmed in writing, that the consideration to be provided to Community
shareholders in connection with the merger transaction with National Penn would
be fair from a financial point of view. Legal counsel to Community conducted a
detailed review of the merger agreement and again reviewed with the board of
directors their fiduciary duties under current law. After discussion, the
Community board unanimously approved the merger agreement and the merger
transaction with National Penn as being in the best interests of Community, its
shareholders and other constituencies. The merger agreement was executed
immediately following the meeting.
COMMUNITY'S REASONS FOR THE MERGER
At its meeting on July 23, 2000, the Community board of directors
unanimously determined that the terms of the merger agreement and the merger
transaction with National Penn were in the best interests of Community, its
shareholders and other constituencies. In making this determination, the board
concluded, among other things, that the merger transaction with National Penn
was superior to the other alternatives available to Community and to the
prospects of continuing to operate Community as an independent community-focused
banking company.
In the course of reaching its decision to approve the agreement, the
Community board of directors consulted with Janney Montgomery Scott, its legal
counsel, and its independent public accountants. The board considered, among
other things, the factors described above and the following:
* The opinion of Janney Montgomery Scott that the consideration
to be received by Community's shareholders was fair from a
financial point of view.
* The board's familiarity with and review of Community's
business, prospects and financial condition, including its
future prospects were it to remain independent.
* The pressures of competition and Community's limited economies
of scale on Community's ability to increase profitability
while continuing to operate as an independent
community-focused banking company.
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* A determination that a business combination with National Penn
would expand Community's lending capabilities and
significantly increase the range of financial products and
services available to Community's customers.
* The prices, multiples of earnings per share and premiums over
book value and market value paid in recent acquisitions of
banks.
* The earnings and financial condition of National Penn.
* The significantly higher cash dividends which have been
historically paid on shares of National Penn common stock as
compared to cash dividends historically paid on shares of
Community common stock.
* The historical market prices for shares of National Penn
common stock.
* The substantially greater liquidity of National Penn common
stock, which is publicly traded, compared to the relatively
illiquid market for Community common stock.
* National Penn's agreement that one director from Community's
board of directors would be appointed to National Penn's board
of directors, and that such director and an additional
director would be appointed to National Penn Bank's board of
directors.
* The business and prospects of National Penn, including its
prior experience acquiring banks, its existing presence in
Community's traditional market areas, the economic vitality of
the other market areas served by National Penn and the
opportunities presented by customer demand in those market
areas.
* The experience of National Penn's senior management team.
* The merger is expected to be tax-free to Community
shareholders.
* The alternatives of Community continuing as an
independent community-focused banking company or
combining with other potential merger partners,
compared to the effect of Community combining with
National Penn pursuant to the merger agreement, and the
determination that the merger transaction with National
Penn presented the best opportunity for maximizing
long-term shareholder value and serving Community's
other constituencies including, without limitation, its
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customers, employees and the communities in which it is
located.
The foregoing discussion of the information and factors considered by
the Community board of directors is not intended to be exhaustive but is
believed to include all material factors considered by the Community board of
directors. In reaching its determination to approve and recommend the merger,
the Community board of directors did not assign any relative or specific weights
to the foregoing factors and individual directors may have given differing
weights to different factors.
After deliberating with respect to the merger transaction with National
Penn, considering, among other things, the matters discussed above and the
opinion of Janney Montgomery Scott referred to above, the Community board of
directors unanimously approved and adopted the merger agreement and the merger
transaction with National Penn.
RECOMMENDATION OF COMMUNITY'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF COMMUNITY BELIEVES THAT THE TERMS OF THE
MERGER ARE IN THE BEST INTERESTS OF COMMUNITY, ITS SHAREHOLDERS AND OTHER
CONSTITUENCIES, AND HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT. THE BOARD OF
DIRECTORS OF COMMUNITY UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF COMMUNITY
APPROVE THE MERGER AGREEMENT.
OPINION OF COMMUNITY'S FINANCIAL ADVISOR
Community retained Janney Montgomery Scott LLC to render a fairness
opinion. As part of its engagement, JMS delivered its oral opinion to
Community's Board of Directors that as of July 23, 2000, based upon and subject
to the various considerations set forth therein, the exchange ratio was fair
from a financial point of view to the holders of Community common stock. JMS
has confirmed its opinion in written form as of the date of this proxy
statement/prospectus.
The full text of JMS's opinion as of the date hereof, which sets
forth the assumptions made, matters considered and limitations of the review
undertaken, is attached as Annex C to this proxy statement/prospectus and is
incorporated by reference. We urge you to read the opinion in its entirety. The
summary of the opinion that follows is qualified in its entirety by reference to
the full text of the opinion itself. The JMS opinion is directed only to the
exchange ratio and does not constitute a recommendation to any holder of
Community common stock as to how such shareholder should vote at the Community
special meeting.
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JMS was selected to render its opinions based upon its
qualifications, expertise and experience. JMS has knowledge of, and
experience with, the Pennsylvania banking market and banking organizations
operating in this market and was selected by Community because of its knowledge
of, experience with, and reputation in the financial services industry.
In arriving at its opinion, JMS, among other things:
* Reviewed the historical financial performances, current
financial positions and general prospects of Community
and National Penn;
* Considered the proposed financial terms of the merger and
examined the projected consequences of the merger with respect
to, among other things, market value, earnings per share and
book value per share of Community common stock;
* To the extent deemed relevant, analyzed selected public
information of certain other banks and bank holding companies
and compared Community and National Penn from a financial
point of view to these other banks and bank holding companies;
* Reviewed the historical market price ranges and trading
activity performance of the common stocks of Community
and National Penn;
* Reviewed publicly available information such as annual
reports and SEC filings of Community and National Penn;
* Compared the terms of the merger with the terms of certain
other comparable transactions to the extent information
concerning such acquisitions was publicly available;
* Discussed with certain members of senior management of
Community and National Penn the strategic aspects of the
merger, including estimated cost savings from the merger;
* Reviewed the merger agreement; and
* Performed other analyses and examinations as deemed necessary.
JMS 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 Community's
financial forecasts reviewed by JMS in rendering its opinion, JMS assumed
that
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such financial forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Community as to
the future financial performance of Community. JMS did not make an
independent evaluation or appraisal of the assets (including loans) or
liabilities of Community or National Penn nor was it furnished with any such
appraisal. JMS also did not independently verify and has relied on and
assumed that all allowances for loan and lease losses set forth in the balance
sheets of Community and National Penn were adequate and complied fully with
applicable law, regulatory policy, accounting principles, and sound banking
practice as of the date of such financial statements.
The following is a summary of selected analyses prepared and analyzed
by JMS in connection with its opinion but does not purport to be a complete
description of the analyses undertaken by JMS. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to a partial analysis or summary description. JMS
believes that its analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered therein, without
considering all factors and analyses, could create an incomplete view of the
analyses and processes underlying its opinion.
In performing its analyses, JMS made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which cannot be predicted and are beyond the control of
Community, National Penn and JMS. Any estimates contained in JMS's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates. Estimates on the
values of companies do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities may actually be sold. Because such
estimates are inherently subject to uncertainty, neither Community or JMS
assumes responsibility if future results or actual values are materially
different from these estimates.
Comparable Company Analysis. JMS compared selected financial and
operating data for Community with those of a peer group of selected banks and
bank holding companies located in Pennsylvania with assets less than $500
million (the "Community Peer Group"). A comparison was also made to select
financial and operating data of a peer group of selected banks and bank holding
companies located in Pennsylvania and New Jersey with assets less than $300
million. The analyses compared equity as a percentage of assets, loans as a
percentage of deposits, non-performing loans as a percentage of loans, loan loss
reserves as a percentage of non-performing loans, non-performing assets and
loans 90 days past due as a percentage of assets, non-performing assets and
loans 90 days past due as a percentage of equity and
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loan loss reserves, non-performing assets as a percentage of assets, net
charge-offs as a percentage of average loans, return on average assets, return
on average equity, net interest margin, and efficiency ratios. The analysis also
compared price per share as a percentage of book value per share, price per
share as a percentage of tangible book value per share, price per share as a
multiple of earnings per share, cash dividend yields, year-to- date and one-year
price changes, and average daily trading volume.
In addition, JMS also compared selected financial and operating data
for National Penn with those of a peer group of selected bank holding companies
located in Pennsylvania with assets between $1 billion and $10 billion (the
"National Penn Peer Group"). The analysis compared equity as a percentage of
assets, loans as a percentage of deposits, non-performing loans as a percentage
of loans, loan loss reserves as a percentage of non-performing loans,
non-performing assets and loans 90 days past due as a percentage of assets,
non-performing assets and loans 90 days past due as a percentage of equity and
loan loss reserves, non-performing assets as a percentage of assets, net
charge-offs as a percentage of average loans, return on average assets, return
on average equity, net interest margin, and efficiency ratios. The analysis also
compared price per share as a percentage of book value per share, price per
share as a percentage of tangible book value per share, price per share as a
multiple of earnings per share, cash dividend yields, year-to- date and one-year
price changes, and average daily trading volume.
Analysis of Stock Price and Volume. JMS compared the stock price per
share performance of Community to the performance of the aforementioned
Community Peer Group from July 18, 1997 through July 20, 2000. The analysis
indicated that Community outperformed the Peer Group composite. JMS also
compared the stock price per share performance of National Penn to the
performance of the aforementioned National Penn Peer Group from July 18, 1997
through July 20, 2000. The analysis indicated that National Penn outperformed
the Peer Group composite.
Pro Forma Merger Analysis. Using earnings estimates for Community and
National Penn as reported by First Call and based on conversations with the
respective managements, JMS analyzed certain pro forma effects resulting from
the merger based on the proposed exchange ratio. Based on this information, the
analysis indicated National Penn will experience estimated earnings per share
accretion of between 1.0% and 2.0% in the first year after the merger. The
analysis also indicated that, relative to Community on a stand-alone basis, the
merger would be accretive to Community's earnings per share and cash dividends
per share. The merger would be dilutive to book value per share and tangible
book value per share.
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Analysis of Selected Merger and Acquisition Transactions. JMS
analyzed certain financial aspects of selected mergers and acquisitions of bank
holding companies since January 1, 2000. JMS examined the results in three
ways. The first looked at all U.S. transactions involving sellers with assets of
less than $250 million. The second method looked at sellers located in
Pennsylvania, New Jersey and Maryland and assets less than $250 million. The
third method compared sellers with non-performing assets as a percentage of
assets greater than 2% and assets less than $250 million. In each group, JMS
compared equity as a percentage of assets, return on average assets, return on
average equity, non-performing assets as a percentage of assets, price per share
as a percentage of book value per share, price per share as a percentage of
tangible book value per share, price per share as a multiple of earnings per
share, price as a percentage of deposits, price as a percentage of assets and
the tangible book premium as a percentage of core deposits. In summary, the
indicated value to be received by shareholders of Community compared favorably
to the values received in the transactions described herein.
Discounted Dividend Analyses. Using a discounted dividend analysis,
JMS estimated the present value of the future dividend streams that Community
could produce on a stand-alone basis over a five-year period under different
assumptions, if Community performed in accordance with various earnings growth
forecasts. JMS also estimated the terminal value for Community's common stock
after the five-year period by applying a range of earnings multiples from eight
to twelve times Community's terminal year earnings and by applying a range of
book value valuations from 80% to 180%. The range of multiples used reflected a
variety of scenarios regarding the growth and profitability prospects of
Community. The dividend streams and terminal values were then discounted to
present value using discount rates ranging from 10% to 15%, reflecting different
assumptions regarding the rates of return required by holders or prospective
buyers of Community's common stock. In summary, the prices imputed by the
analysis described herein were less than the price being offered by National
Penn.
JMS stated that the discounted dividend analysis is a widely used
valuation methodology but noted that it relies on numerous assumptions,
including earnings growth rates, terminal values and discount rates. The
analysis did not purport to be indicative of the actual values or expected
values of Community common stock.
In reaching its opinion as to fairness, none of the analyses performed
by JMS was assigned a greater significance by JMS than any other. As a
result of its consideration of the aggregate of all factors present and analyses
performed, JMS reached the conclusion, and opined, that the exchange ratio,
as
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set forth in the merger agreement is fair from a financial point of view to
holders of Community common stock.
In connection with delivering its written opinion dated as of the date
of this proxy statement/prospectus, JMS updated certain analyses described
above to reflect current market conditions and events occurring since the date
of the merger agreement. Such reviews and updates led JMS to conclude that it
was not necessary to change the conclusions it had reached in connection with
its initial opinion.
JMS, as part of its investment banking business, is regularly
engaged in the valuation of assets, securities and companies in connection with
various types of asset and security transactions, including mergers,
acquisitions, private placements, and valuation for various other purposes and
in the determination of adequate consideration in such transactions.
The opinion of JMS was based solely upon the information available
to it and the economic, market and other circumstances as they existed as of the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing its opinion. JMS has not undertaken to reaffirm
or revise its opinion or otherwise comment upon any events occurring after the
date hereof.
In delivering its opinion, JMS assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the merger, no
restrictions would be imposed on National Penn that would have a materially
adverse effect on the contemplated benefits of the merger. JMS also assumed
that there would not occur any change in applicable law or regulation that would
cause a materially adverse change in the prospects or operations of Community
and National Penn after the merger.
Pursuant to the terms of the engagement letter dated July 13, 2000,
Community agreed to pay JMS 1.35% of the aggregate transaction value based on
a ten-day average of National Penn stock prior to closing. Community paid JMS
30% of that estimated amount upon the signing of the merger agreement. In
addition, Community agreed to pay JMS the remaining 70% at the time of
closing and to reimburse JMS for its reasonable out- of-pocket expenses.
Whether or not the merger is completed, Community agreed to indemnify JMS and
certain related persons against certain liabilities relating to or arising out
of its engagement.
NATIONAL PENN'S REASONS FOR THE MERGER
National Penn's acquisition strategy consists of identifying financial
institutions with business philosophies that are similar to those of National
Penn, which operate in strong
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markets that are geographically compatible with National Penn's operations, and
which can be acquired at an acceptable cost. In evaluating acquisition
opportunities, National Penn generally considers potential revenue enhancements
and operating efficiencies, asset quality, interest rate risk, and management
capabilities.
In determining the terms of its proposal for Community and whether to
enter into the merger agreement, National Penn's board of directors considered a
number of factors, including the following:
* The geographic location of Community's franchise, which is a
"fill-in" strategic fit with, and an enhancement of, National
Penn's existing franchise in Berks County, Pennsylvania.
* Community's service-oriented emphasis on small business and
retail customers, which is consistent with National Penn's
general business approach.
* The financial condition, operating results and future
prospects of National Penn and Community.
* 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.
* The historical trading prices for Community common stock and
National Penn common stock.
* A review of comparable transactions, including a comparison of
the price being paid in the merger with the prices paid in
other comparable financial institution mergers, expressed as,
among other things, multiples of book value and earnings.
* Management's view, based on, among other things, such
comparable transactions review, that the exchange ratio is
fair to National Penn and its shareholders from a financial
point of view.
In approving the transaction, the National Penn 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. Individual
directors may have given one or more factors more weight than other factors. The
emphasis of the National Penn board's discussion, in considering the
transaction, was on the financial aspects of the transaction, particularly:
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* The "fill-in" strategic fit and enhanced franchise value
discussed above, including pro forma market share information
relating to deposits in Berks County, Pennsylvania.
* Perceived opportunities to increase the combined company's
commercial lending, and to reduce the combined company's
operating expenses, following the merger.
* The absence of any significant earnings per share dilution,
and the significant potential for increased earnings, in light
of the potential revenue enhancements and cost savings after
the merger.
There can be no certainty that the financial aspects of the merger
anticipated by the National Penn board will occur. Actual results may vary
materially from those anticipated. For more information on the factors that
could affect actual results, see "A Warning About Forward-Looking Information"
at page 23.
TERMS OF THE MERGER
EFFECT OF THE MERGER
Upon completion of the merger, the separate legal existence of
Community will cease. All property, rights, powers, duties, obligations, debts
and liabilities of Community will automatically be deemed transferred to
National Penn, as the surviving corporation in the merger. National Penn will
continue to be governed by its articles of incorporation and bylaws as in effect
immediately prior to the merger.
EXCHANGE RATIO
In the merger, each outstanding share of Community common stock will be
automatically converted into, and become a right to receive, nine-tenths (.9)
share of National Penn common stock. In certain circumstances, the exchange
ratio may be increased to .95 to one. See "The Merger--Termination; Possible
Exchange Ratio Increase" at page 48. Except as described in the following
paragraph, the exchange ratio cannot be decreased to less than .9 to one.
The exchange ratio will be appropriately adjusted if there is a stock
split, stock dividend, reverse stock split or other similar event regarding
National Penn common stock before completion of the merger. For example, if
National Penn declares a 5% stock dividend payable with respect to a record date
on or prior to the effective date of the merger, then the exchange ratio
otherwise in effect will be adjusted upward by 5%.
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National Penn will pay cash to Community shareholders rather than
issuing fractional shares of National Penn common stock. Each share of Community
common stock issued and held as treasury shares by Community as of the effective
date, if any, will be canceled.
STOCK OPTIONS
As of the record date for the special meeting, various directors,
officers and employees of Community held options to purchase a total of 22,600
shares of Community common stock which had been granted under Community's stock
option plans. When the merger takes place, each Community stock option which is
still outstanding will cease to represent a right to acquire shares of Community
common stock and will be converted automatically into an option to purchase
shares of National Penn common stock, and National Penn will assume each such
option, in accordance with the terms of the Community stock option plans, except
that from and after the merger's effective date:
* National Penn and its board of directors or a duly authorized
committee thereof will be substituted for Community and
Community's board of directors or duly authorized committee
thereof administering such Community stock option plans.
* Each Community stock option assumed by National Penn may be
exercised solely for shares of National Penn common stock.
* The number of shares of National Penn common stock subject to
such Community stock option will be equal to the number of
shares of Community common stock subject to such Community
stock option immediately prior to the effective date of the
merger multiplied by the exchange ratio (as it may be
adjusted).
* The per share exercise price under each such Community stock
option will be adjusted by dividing the per share exercise
price under each such Community stock option by the exchange
ratio (as it may be adjusted).
NATIONAL PENN COMMON STOCK
Each share of National Penn common stock outstanding immediately prior
to completion of the merger will remain outstanding and unchanged by the merger.
EFFECTIVE DATE
The merger will take effect upon the filing by National Penn and
Community of articles of merger in the Pennsylvania
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Department of State. Once all conditions to the merger have been fulfilled or
waived, we will close the merger on such date as we mutually select. We
presently expect to close the merger in early January 2001. See "The
Merger--Conditions to the Merger" at page 46.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties
relating to, among other things:
* Organization of National Penn and Community and their
respective subsidiaries.
* Capital structures of National Penn and Community.
* Due authorization, execution, delivery, performance and
enforceability of the merger agreement.
* Consents or approvals of regulatory authorities or third
parties necessary to complete the merger.
* Consistency of financial statements with generally accepted
accounting principles.
* Absence of material adverse changes, since December 31, 1999,
in the consolidated assets, business, financial condition or
results of operations of National Penn or Community, except in
the case of Community, for increased non-performing assets and
potential problem loans as of June 30, 2000.
* Filing of tax returns and payment of taxes.
* Absence of undisclosed material pending or threatened
litigation.
* Compliance with applicable laws and regulations.
* Retirement and other employee plans and matters relating to
the Employee Retirement Income Security Act of 1974.
* Quality of title to assets and properties.
* Maintenance of adequate insurance.
* Absence of undisclosed brokers' or finders' fees.
* Absence of material environmental violations, actions or
liabilities.
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* Accuracy of information supplied by National Penn and
Community for inclusion in the registration statement filed
under the Securities Act of 1933 in connection with the
issuance of National Penn common stock in the merger, this
proxy statement/prospectus, and all applications filed with
regulatory authorities for approval of the merger.
* Documents filed with the Securities and Exchange Commission
and the accuracy of information contained therein.
* Validity and binding nature of loans reflected as assets in
the financial statements of Community and National Penn.
* Tax and accounting treatment of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
In the merger agreement, we each agreed to use our reasonable good
faith efforts to preserve our business organizations intact, to maintain good
relationships with employees, and to preserve the goodwill of customers and
others with whom we do business.
In addition, Community 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 consented to
by National Penn. Community also agreed in the merger agreement that neither
Community nor Bernville Bank will, without the written consent of National Penn:
* Change its articles of incorporation, articles of association
or bylaws.
* 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 22,600 shares of Community
common stock upon the exercise of Community stock
options outstanding on July 23, 2000.
* Declare, set aside or pay any dividend or other distribution
in respect of its capital stock, except that Community may pay
its regular quarterly cash dividend of $0.07 per share.
(Community's payment of any cash dividend is subject to prior
approval
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requirements imposed by the Federal Reserve. See
"Information About Community--Business" at page 80.)
* Grant any severance or termination pay, except in accordance
with policies or agreements in effect on July 23, 2000; or
enter into or amend any employment, consulting, severance,
"change-in-control" or termination contract or arrangement.
* Grant any pay increase, or pay any bonus, except for
routine periodic increases, merit pay increases and pay
raises in connection with promotions, all in accordance
with past practice, and for retention bonuses on
account of the merger granted in good faith reasonable
amounts not to exceed $50,000 in the aggregate; or grant any
job promotions except in accordance with past practice.
(National Penn has since consented that retention bonuses may
equal $75,000 in the aggregate.)
* Engage in any merger, acquisition, leasing, purchase and
assumption transaction or any similar transaction; or open,
relocate or close any office or take any action with respect
thereto.
* Dispose of or encumber any assets or incur any debt other than
in the ordinary course of business.
* Waive, release, grant or transfer any rights of value, or
modify or change in any material respect any existing
agreement to which Community is a party, other than in the
ordinary course of business, consistent with past practice.
* Change any accounting methods, principles or practices, except
as may be required by generally accepted accounting
principles.
* Implement any new employee benefit or welfare plan, or amend
any such plan except as required by law.
* Amend or otherwise modify its underwriting and other lending
guidelines and policies or otherwise fail to conduct its
lending activities in the ordinary course of business
consistent with past practice.
* Enter into, renew, extend or modify any transaction with any
affiliate of Community, other than deposit and loan
transactions in the ordinary course of business and which
comply with applicable laws and regulations.
* Enter into any interest rate swap, floor or cap or similar
arrangement.
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* Take any action that would give rise to a right of payment to
any person under any employment agreement, except in the
ordinary course of business consistent with past practice.
* Purchase any security for its investment portfolio not rated
"AAA" or higher by either Standard & Poor's Corporation or
Moody's Investor Services, Inc.
* Make any capital expenditure of $50,000 or more; undertake or
enter into any lease, contract or other commitment, other than
in the ordinary course of business, involving an unbudgeted
expenditure of more than $25,000 or extending beyond 12 months
from July 23, 2000.
* 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 Internal
Revenue Code of 1986.
* Terminate any in-house back office, support, processing or
other operational activities or services, including
accounting, loan processing and deposit services; or
substitute any contract or arrangement with any person or
entity for the provision of such activities or services.
* Agree to do any of the foregoing.
Community also agreed in the merger agreement, among other things:
* To permit National Penn, if National Penn 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
Community.
* To suspend or terminate the operation of its dividend
reinvestment and stock purchase plan. (On July 23, 2000,
Community's board of directors suspended the plan's operation
through the earlier of completion of the merger or termination
of the merger agreement.)
* To submit the proposed merger to its shareholders for approval
at a meeting to be held as soon as practicable, with an
approval recommendation by its board of directors.
We jointly agreed, among other things:
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* To prepare all applications for, and use our reasonable best
efforts to obtain, all required regulatory approvals.
* Subject to the terms of the merger agreement, to take all
actions necessary to complete the transactions contemplated by
the merger agreement.
* To maintain adequate insurance.
* To maintain accurate books and records.
* To file all tax returns and pay all taxes when due.
* To deliver to each other monthly and quarterly financial
statements.
* To deliver to each other all public disclosure documents that
may be filed under the Securities Exchange Act of 1934.
* To agree upon the form and substance of any press release or
public disclosure related to the proposed merger.
On September 7, 2000, at Community's request, National Penn Consulting
Services, Inc., a subsidiary of National Penn Bank, engaged in the business of
providing management consulting services to banks and other financial
institutions, entered into a consulting agreement with Bernville Bank. Under
this consulting agreement, Bernville Bank may obtain consulting services on such
matters as it may choose from time to time, at a cost determined by agreed upon
hourly rates. National Penn Consulting Services, Inc. will not engage in any
management role for Bernville Bank or exercise any form of decision-making
control over Bernville Bank, as provided in the consulting agreement.
CONDITIONS TO THE MERGER
Our obligations to effect the merger are subject to various conditions,
including the following:
* The merger agreement shall have been duly approved by the
Community shareholders.
* 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" at page 58.
* There shall not be any order, decree, or injunction in effect
preventing the completion of the transactions contemplated by
the merger agreement.
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* We shall each have received an opinion of our counsel
or a letter from our 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 Internal Revenue Code of 1986. See "The
Merger--Certain Federal Income Tax Consequences" at
page 65.
* We shall each have received an opinion from our independent
certified public accountants that the merger will be accounted
for under the "pooling of interests" method of accounting for
financial and accounting purposes. See "The Merger--Accounting
Treatment" at page 65.
In addition to the foregoing, our obligations to close the merger are
each conditioned on:
* The accuracy in all material respects as of July 23, 2000, and
as of the effective date of the merger, of the representations
and warranties of the other, except as to any representation
or warranty which specially relates to an earlier date and
except as otherwise contemplated by the merger agreement.
* The other's performance in all material respects of all
covenants and obligations required to be performed by it at or
prior to the effective date of the merger.
* Other conditions which are customary for transactions of the
type contemplated by the merger agreement. See "The
Merger--Representations and Warranties" and --"Conduct of
Business Pending the Merger" at pages 42 and 43,
respectively.
Except for the requirements of Community shareholder approval,
regulatory approvals and the absence of any order, decree, or injunction
preventing the transactions contemplated by the merger agreement, we each may
waive each of the conditions described above in the manner and to the extent
described in "The Merger--Amendment; Waiver" at page 48.
Neither of us anticipates waiving the conditions that:
* An opinion be received from our respective independent
certified public accountants that the merger will be treated
as a pooling of interests for financial accounting purposes,
and
* An opinion be received from our respective counsel or of
independent certified public accountants that, in the case of
National Penn, provides, among other
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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 Community, addresses, among other things, the tax
consequences of the merger to Community shareholders.
AMENDMENT; WAIVER
Subject to applicable law, at any time prior to completion of the
merger, we may:
* Amend the merger agreement.
* Extend the time for the performance of any of the obligations
or other acts of the other required in the merger agreement.
* Waive any inaccuracies in the representations and warranties
of the other contained in the merger agreement.
* Waive compliance by the other with any of the agreements or
conditions contained in the merger agreement, except for the
requirements of Community 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
merger's effective date by our mutual consent or by either party if:
* The other party, in any material respect, breaches any
representation, warranty, covenant or other obligation
contained in the merger agreement, and such breach remains
uncured 30 days after written notice of such breach was given
to the breaching party.
* The closing of the merger does not occur by March 15, 2001,
unless this is 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 before
closing.
* Any regulatory authority whose approval or consent is required
for completion of the merger issues a definitive written
denial of such approval or consent and the time period for
appeals or requests for reconsideration has expired.
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* Community shareholders do not approve the merger
agreement.
In addition, the merger agreement contains a provision under which
Community may terminate the merger agreement at any time between _________, 2000
and _________, 2000, if:
* The average closing sale price of a share of National Penn
common stock for the 20 trading days ending on ______, 2000
is less than $17; and
* The difference between the closing sale price of a share of
National Penn common stock on July 21, 2000, and
the average closing sale price of a share of National Penn
common stock for the 20 trading days ending on ______, 2000,
exceeds by 15% or more:
the difference between the average per share closing sale
price of a peer group of bank and thrift holding company
common stocks on July 21, 2000, and
the average per share closing sale price of the peer group
common stocks for the 20 trading days ending on ______, 2000.
* The peer group companies are Susquehanna
Bancshares, Inc.; Fulton Financial Corporation;
Commerce Bancorp, Inc.; BT Financial Corporation;
Hudson United Bancorp; Wilmington Trust Company;
and Harleysville National Corporation.
If any peer group company declares or effects a stock split or similar
capital transaction during the measurement period, the prices of that company's
common stock will be appropriately adjusted. If the common stock of any peer
group company ceases to be publicly traded, or any peer group company announces
a proposal for the acquisition or sale of the company or for the company's
acquisition of another company or companies in transactions having a value in
excess of 25% of the acquiror's market capitalization, the company's stock will
be removed from the calculation.
If Community elects to terminate the merger agreement under the
two-part market price test explained above, National Penn may elect during a
five-day period, at its sole option, to nullify termination of the merger
agreement by increasing the exchange ratio to .95 share of National Penn common
stock for each share of Community common stock. If National Penn makes this
election,
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the merger agreement will remain in effect at the increased exchange ratio. In
any case, this process will be completed before the special meeting of Community
shareholders.
Community's board of directors has made no decision as to whether it
would exercise its right to terminate the merger agreement if the market price
test is satisfied. In considering whether to exercise its right to terminate the
merger agreement, Community's 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 Community is dated as of the date of
this proxy statement/prospectus and is based on conditions in effect on such
date. Accordingly, the fairness opinion does not address the possibilities
presented by the market price test, including the possibility that Community's
board might elect to continue with the merger even if the market price test is
satisfied. See "The Merger--Opinion of Community's Financial Advisor" at page
33.
Approval of the merger agreement by Community's shareholders will
confer on Community's board the power to complete the merger even if the market
price test is satisfied, without any further action by, or resolicitation of the
votes of, Community shareholders.
National Penn's board of directors has made no decision as to whether
it would exercise its right to increase the exchange ratio to .95 if Community's
board elected to terminate the merger agreement under the market price test. In
considering whether to exercise its right to increase the exchange ratio,
National Penn's board 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. National Penn is under no
obligation to increase the exchange ratio.
Community shareholders should be aware that the market price of
National Penn common stock between _________, 2000 and the effective date of the
merger, as well as between _________, 2000 and the date National Penn common
stock certificates are delivered in exchange for Community common stock
certificates after completion of the merger, will fluctuate and could possibly
decline. Accordingly, the value of the National Penn common stock actually
received by holders of Community common stock may be more or less than the value
of National Penn common stock used in applying the market price test or on the
effective date of the merger.
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STOCK OPTION AGREEMENT
The following information describes the material provisions of the
stock option agreement. This description is not complete. We qualify this
discussion in its entirety by reference to the stock option agreement, which we
incorporate in this proxy statement/prospectus by reference. A copy of the stock
option agreement is attached hereto as Annex B. We urge you to read the full
text of the stock option agreement carefully.
GENERAL
As an inducement to National Penn to enter into the merger agreement,
Community executed and delivered to National Penn the stock option agreement on
July 23, 2000.
In the stock option agreement, Community granted National Penn an
option to purchase, under certain circumstances described below, up to 139,200
shares of Community common stock (representing approximately 19.9% of the
outstanding shares of Community common stock on July 23, 2000). The exercise
price for the Community common stock covered by the option is $10 per share. The
number of shares covered by the option, and the per share exercise price of the
option, are each subject to adjustment in certain circumstances described below.
EFFECT OF STOCK OPTION AGREEMENT
The stock option agreement together with:
* The agreements of Community's directors to vote their shares
in favor of the merger agreement (See "The Meeting--Vote
Required, Voting Agreements" at page 25), and
* Community's agreement not to solicit or otherwise consider
possible transactions relating to the acquisition of Community
by a third party (see "The Merger--No Solicitation of Other
Transactions" at page 56),
are intended to increase the likelihood that the merger will be completed in
accordance with the terms of the merger agreement.
Further, we entered into the stock option agreement in order to
compensate National Penn for the efforts undertaken and the expenses, losses and
opportunity costs incurred in the transaction if there is an acquisition or
potential acquisition of Community by a third party.
The stock option agreement, the Community director voting agreements,
and the "no solicitation" covenant, may have the
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effect of discouraging offers by third parties to acquire Community prior to the
completion of the merger, even if such persons were prepared to offer to pay
consideration having a higher market price than the National Penn common stock
to be received by Community shareholders under the merger agreement.
EXERCISE OF THE OPTION
National Penn may exercise the option if:
* A third party acquires beneficial ownership of 25% or
more of the outstanding shares of Community common
stock;
* A third party enters into an agreement, letter of intent or
memorandum of understanding with Community under which such
third party would:
* Merge or consolidate, or enter into any similar
transaction, with Community;
* Acquire all or substantially all of the assets or
liabilities of Community or of Bernville Bank; or
* Acquire beneficial ownership of, or the right to
acquire beneficial ownership of, or to vote, 25% or
more of the outstanding shares of common stock of
Community or of Bernville Bank; or
* Community authorizes, recommends or publicly proposes, or
publicly announces an intention to authorize, recommend or
propose, an agreement, letter of intent or memorandum of
understanding for a merger, consolidation or acquisition
transaction with Community or Bernville Bank.
To our knowledge, none of the above events has occurred as of the date
of this proxy statement/prospectus.
TERMINATION OF THE OPTION
Under the stock option agreement, the option will immediately terminate
and no longer be exercisable if and when:
* The merger is completed;
* The merger agreement is terminated in accordance with its
terms, provided that:
* The option has not yet become exercisable by its
terms;
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* Certain events preliminary to a third party's
acquisition of Community (as described below) have
not occurred; and
* Termination of the merger agreement is not under that
section of the merger agreement providing for
termination due to uncured breaches of
representations, warranties, covenants and agreements
by Community;
* 12 months have passed after termination of the merger
agreement by National Penn as a result of uncured breaches of
representations, warranties, covenants and agreements by
Community; or
* 12 months have passed after termination of the merger
agreement after the option has become exercisable by its terms
or any of the events preliminary to a third party's
acquisition of Community (as described below) has occurred.
As discussed above, the option will not terminate until 12 months after
termination of the merger agreement if, preliminary to a third party's
acquisition of Community:
* A third party acquires beneficial ownership of 10% or
more of the outstanding shares of Community common
stock;
* The shareholders of Community vote but fail to approve the
merger agreement at the special meeting, or such special
meeting is cancelled, and prior to the shareholder vote or
cancellation, it has been publicly announced that a third
party has made a bona fide proposal to:
* Merge or consolidate, or enter into any similar
transaction, with Community;
* Acquire all or substantially all of the assets or
liabilities of Community or of Bernville Bank; or
* Acquire beneficial ownership of, or the right to
acquire beneficial ownership of, or to vote, 10% or
more of the outstanding shares of common stock of
Community or of Bernville Bank; or
* The board of directors of Community:
* Fails to recommend the merger;
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* Recommends a merger, consolidation or acquisition
transaction with a third party; or
* Withdraws or adversely modifies its recommendation
that Community's shareholders approve the merger with
National Penn, and thereafter, Community's
shareholders fail to approve the merger at the
special meeting or such meeting is not scheduled or
is canceled; or
* A third party makes a bona fide proposal for a merger,
consolidation or acquisition transaction with Community or
Bernville Bank; and
While such proposal remains publicly in effect:
* Community breaches any representation, warranty,
covenant or agreement contained in the merger
agreement; and
* Such breach would entitle National Penn to terminate
the merger agreement under that section of the merger
agreement providing for termination due to uncured
breaches of representations, warranties, covenants
and agreements by Community (without regard to
possible cure of the breach).
CONDITIONS, EXTENSIONS, ADJUSTMENTS
The purchase of any shares of Community common stock pursuant to the
option is subject to compliance with applicable law, including the prior
approval of the Board of Governors of the Federal Reserve System.
National Penn's right to exercise the option and certain other rights
under the stock option agreement are subject to extension in order to obtain
required regulatory approvals, to comply with applicable regulatory waiting
periods, or if there is an injunction, order or judgment prohibiting or delaying
such exercise.
The option exercise price and the number of shares issuable under the
stock option agreement are subject to adjustment in the event of specified
changes in the capital stock of Community, such as stock splits or stock
dividends.
REGISTRATION RIGHTS
If the option becomes exercisable, National Penn has the right to
require Community to file, at Community's expense, a registration statement
under the Securities Act of 1933 covering
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an offering of the shares of Community common stock issued or issuable upon
exercise of the option.
REPURCHASE OF OPTION OR OF OPTION SHARES
The stock option agreement also provides that National Penn may require
Community to repurchase the option and all shares of Community common stock, if
any, then issued under the option if:
* A third party acquires beneficial ownership of 25% or
more of the outstanding shares of common stock of
Community;
* Community merges or consolidates with any party other
than National Penn, and Community is not the surviving
or continuing corporation;
* Any party other than National Penn merges into
Community and Community is the surviving corporation,
but (1) the shares of Community common stock are
changed into other securities of Community or another
party or cash or other property, or (2) the shares of
Community common stock outstanding immediately prior to
such merger represent less than 50% of the outstanding
shares of the surviving corporation after the merger;
or
* Community sells or otherwise transfers more than 25% of its
consolidated assets to any party other than National Penn.
The repurchase of the option and the Community stock issued thereunder
will be at a total price equal to:
* The total amount paid by National Penn for any shares
acquired by exercise of the option; and
* The difference between the highest market or offer price
(determined as provided in the stock option agreement) for a
share of Community common stock and the option exercise price
($10 before adjustments, if any), multiplied by the total
number of shares covered by the stock option agreement.
Community's repurchase of the option and of the shares of Community
common stock acquired by National Penn by exercise of the option could have the
effect of precluding a potential acquiror of Community from accounting for the
acquisition of Community as a "pooling of interests" for accounting and
financial reporting purposes.
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NO SOLICITATION OF OTHER TRANSACTIONS
Community has agreed that it will not, and will not allow others under
its control to, directly or indirectly:
* Initiate, solicit, encourage or take any other action to
facilitate, any inquiries relating to, or the making of any
proposal by a third party which relates to, an acquisition of
Community or Bernville Bank or of ownership or voting power
over 10% or more of their common stocks.
* Enter into or participate in any discussions or negotiations
with a third party regarding an acquisition of Community or
Bernville Bank or of ownership or voting power over 10% or
more of their common stocks.
* Agree to or endorse a third party's acquisition of Community
or Bernville Bank or of ownership or voting power over 10% or
more of their common stocks.
Community has also agreed to promptly notify National Penn if any
inquiries or proposals relating to a third party acquisition are received by
Community, unless it believes that such notification would violate the Community
directors' fiduciary duties.
Notwithstanding the foregoing, if Community's board of directors
concludes in good faith after consultation with its legal and financial
advisors, and based on written advice of its counsel, that failure to do any of
the following things would constitute a breach of their fiduciary duties to
Community's shareholders, Community's board may:
* Furnish confidential and non-public information
concerning Community and its businesses, properties or
assets to a third party,
* Engage in discussions or negotiations with a third
party,
* Following receipt of a third party's acquisition proposal,
take and disclose to its shareholders a position with respect
to the proposal, and/or
* Following receipt of a third party's acquisition proposal,
withdraw or modify its recommendation of the merger.
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NASDAQ LISTING
Community's obligation to complete the merger is subject to the
condition that National Penn common stock continue to be authorized for
quotation on the National Market tier of the Nasdaq Stock Market.
EXPENSES
We will each pay all costs and expenses we incur in connection with the
transactions contemplated by the merger agreement, including fees and expenses
of financial consultants, accountants and legal counsel.
EXCHANGE OF COMMUNITY STOCK CERTIFICATES
The conversion of Community common stock into National Penn common
stock will occur automatically on the merger's effective date. As soon as
possible after the effective date, the exchange agent designated by National
Penn will send you a transmittal form, with instructions, to use in exchanging
your Community stock certificates for National Penn stock certificates and cash
in lieu of fractional shares. The exchange agent will mail certificates
representing shares of National Penn common stock and checks for cash in lieu of
fractional interests to former shareholders of Community as soon as reasonably
possible following its receipt of certificates representing former shares of
Community common stock and other related documentation required by the exchange
agent.
YOU SHOULD NOT RETURN YOUR COMMUNITY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD. YOU SHOULD NOT SEND YOUR COMMUNITY STOCK CERTIFICATES TO
THE EXCHANGE AGENT UNTIL YOU RECEIVE THE TRANSMITTAL FORM.
Until the certificates representing Community 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 National Penn 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 representing shares of Community common stock outstanding at
the merger's effective date will be deemed to evidence ownership of and the
right to receive the shares of National Penn common stock (and cash in lieu of
fractional shares) into which those shares have been converted by the merger.
Neither of us will be liable to any Community shareholder for any
amount paid in good faith to a public official pursuant to any applicable
abandoned property, escheat or similar law.
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All shares of National Penn common stock issued upon conversion of
shares of Community common stock will be deemed issued in full satisfaction of
all rights pertaining to such shares of Community common stock, subject,
however, to National Penn's obligation to pay any dividends or make any other
distributions with a record date on or prior to the merger's effective date,
which may have been declared or made by Community on such shares of Community
common stock in accordance with the merger agreement and which remain unpaid at
the effective date.
No fractional shares of National Penn common stock will be issued to
any shareholder of Community upon completion of the merger. For each fractional
share that would otherwise be issued, National Penn will pay by check an amount
equal to the fractional share interest to which such holder would otherwise be
entitled multiplied by the average of the closing sale prices of National Penn
common stock over the 20 trading days ending __________, 2000.
REGULATORY APPROVALS
We must obtain certain regulatory approvals before the merger can be
completed. We cannot assure you that these regulatory approvals will be obtained
or when they will be obtained.
It is a condition to completion of the merger that we receive all
necessary regulatory approvals to the merger, without the imposition by any
regulator of any condition or requirement that would so materially and adversely
impact the economic or business benefits of the merger that, had such condition
or requirement been known, we would not, in the exercise of reasonable judgment,
have entered into the merger transaction. We cannot assure you that the
regulatory approvals of the merger will not contain terms, conditions or
requirements which would have such an impact.
We are not aware of any material governmental approvals or actions that
are required to complete the merger, except as described below. If any other
approval or action is required, we expect that we will seek such approval or
action.
The merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System pursuant to the Bank Holding Company Act of 1956,
as amended. Under this law, the Federal Reserve Board generally may not approve
any proposed transaction:
* That would result in a monopoly or that would further a
combination or conspiracy to monopolize banking in the
United States, or
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* That could substantially lessen competition in any
section of the country, that would tend to create a
monopoly in any section of the country, or that would
be in restraint of trade, unless the Federal Reserve
Board finds that the public interest in meeting the
convenience and needs of the community served clearly
outweighs the anti-competitive effects of the proposed
transaction.
The Federal Reserve Board is also required to consider the financial
and managerial resources and future prospects of the bank holding companies and
banks concerned, as well as the convenience and needs of the community to be
served. Consideration of financial resources generally focuses on capital
adequacy. Consideration of convenience and needs includes the parties'
performance under the Community Reinvestment Act of 1977.
The merger may not be completed until the 30th day following the date
of the Federal Reserve Board approval, although the Federal Reserve Board may
reduce that period to 15 days. During this period, the United States Department
of Justice has the opportunity to challenge the transaction on antitrust
grounds. The commencement of any antitrust action would stay the effectiveness
of the Federal Reserve Board's approval, unless a court of competent
jurisdiction specifically ordered otherwise.
National Penn filed notice of the proposed merger with the Federal
Reserve Bank of Philadelphia on September __, 2000, seeking prior approval of
the merger from the Federal Reserve Bank, pursuant to authority delegated to it
by the Federal Reserve Board. As of the date of this proxy statement/prospectus,
the Federal Reserve Bank has not yet approved or disapproved the merger.
The merger is also subject to the prior approval of the Pennsylvania
Department of Banking under the provisions of the Pennsylvania Banking Code of
1965, as amended. National Penn filed an application for approval of the
proposed merger with the Department of Banking on September __, 2000. As of the
date of this proxy statement/prospectus, the Department of Banking has not yet
approved or disapproved the merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The directors and executive officers of National Penn prior to the
merger will continue, after the merger takes effect, as directors and executive
officers of National Penn. In addition, one current Community director proposed
by Community's board of directors and approved by National Penn will become a
director of National Penn on the merger's effective date. Community has
proposed, and National Penn has approved, Frederick P. Krott as
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the Community nominee. National Penn will designate Mr. Krott as a Class III
director with a term through April 2002, and has agreed to re-nominate Mr. Krott
for at least one full three-year term.
Upon completion of the merger and subject to applicable legal
requirements, National Penn has also agreed that its subsidiary, National Penn
Bank, will appoint Mr. Krott and an additional Community director proposed by
Community's board of directors and approved by National Penn to serve as
directors of National Penn Bank on the merger's effective date. Community has
proposed, and National Penn has approved, Stratton D. Yatron as the additional
Community nominee. National Penn will take all steps necessary to ensure that
Messrs. Krott and Yatron are re-elected to National Penn Bank's board for each
of the five years through April 2005.
If Mr. Krott (or any successor selected as described in this sentence)
ceases for any reason to serve on National Penn's board prior to the end of the
Class III term ending April 2005, the former Community directors then serving on
the National Penn Bank Berks County Division Board (as described below) will
have the right to select a successor National Penn director, subject to the
approval of National Penn. Likewise, if either of Messrs. Krott or Yatron (or
any successor selected as described in this sentence) ceases for any reason to
serve on National Penn Bank's board prior to April 2005, the former Community
directors then serving on the National Penn Bank Berks County Division Board
will have the right to select a successor director, subject to the approval of
National Penn.
Upon completion of the merger, National Penn intends to merge
Community's subsidiary, Bernville Bank, into National Penn's principal banking
subsidiary, National Penn Bank, as provided in the bank plan of merger dated
July 23, 2000 between Bernville Bank and National Penn Bank, entered into
pursuant to the merger agreement. This merger is subject to approval by the
Office of the Comptroller of the Currency under the Bank Merger Act. National
Penn Bank filed an application with the OCC seeking approval on September __,
2000. As of the date of this proxy statement/prospectus, the OCC has not yet
approved or disapproved the merger of the banks. The OCC's approval of the bank
merger is not a condition to closing of the merger of National Penn and
Community. National Penn intends to close the merger of the two banks as soon as
legally possible after closing of the Community/National Penn merger. Once the
two banks are merged, the assets, liabilities, branches and operations of
Bernville Bank will become part of National Penn Bank's Berks County Division.
Once Bernville Bank and National Penn Bank are merged, National Penn
will appoint all persons who were serving as
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Community directors at the time of the Community/National Penn merger to the
board of directors of National Penn Bank's Berks County Division. The Division
Board advises management from time to time regarding sales, marketing and
expansion of the Division. National Penn has agreed to operate the Berks County
Division, and to maintain the Division Board, for at least five years after the
effective date of the merger, except in certain circumstances set forth in the
merger agreement.
EMPLOYMENT; SEVERANCE
Upon completion of the merger, National Penn will attempt to continue
the employment of persons who were employees of Community or Bernville Bank.
Where that is not possible for whatever reason, National Penn will make
severance payments to affected persons. National Penn will also make severance
payments to any employee who declines a position that requires re-location of
more than 40 miles from his or her current place of employment.
All employees of Community or Bernville Bank are eligible for possible
severance benefits except that:
* No person who receives any payment or benefit pursuant to any
"change-in-control" or similar agreement, plan or right is
eligible for severance benefits.
* No person with an operating systems conversion support
role of any kind is eligible for severance benefits
unless such person continues in employment for 30 days
following the actual consolidation and conversion of
Bernville Bank's operating systems with and into
National Penn Bank's operating systems, which is
presently scheduled to be completed not later than June
30, 2001.
Severance benefits will consist of one week's pay (at then current
levels) for each year and each partial year of service (but not less than four
weeks pay or more than 26 weeks pay), which will be paid as salary continuation.
A person eligible for severance benefits will remain eligible for such
benefits if his or her employment is involuntarily terminated without cause
within six months of the merger's effective date. Any person whose employment
with National Penn is involuntarily terminated without cause more than six
months after the effective date of the merger will receive such severance
benefits from National Penn as are provided under National Penn's general
severance policy for such terminations. Any such person will be given full
credit for each year of service as a Community employee.
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EMPLOYEE BENEFITS
When the merger takes effect, each Community employee who becomes an
employee of National Penn or of a National Penn subsidiary will be entitled to
full credit for each year of service with Community for purposes of determining
eligibility for participation and vesting, but not benefit accrual, in National
Penn's employee benefit plans, programs and policies.
The employee benefits provided to former Community employees after the
merger's effective date will be substantially similar to the employee benefits,
in the aggregate, provided by National Penn or its subsidiaries to their
similarly situated employees. The National Penn medical, dental and life
insurance plans, programs or policies, if any, that become applicable to former
Community 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 above assurances, after the merger takes effect,
National Penn may discontinue, amend or convert to a National Penn plan any
particular benefit or welfare plan of Community, subject to such plan's
provisions and applicable law.
INTERESTS OF MANAGEMENT AND OTHERS IN THE MERGER
SHARE OWNERSHIP
As of _________, the record date for the special meeting, the directors
and executive officers of Community may be deemed to be the beneficial owners of
_________ shares of Community common stock, or ___% of the outstanding shares of
Community common stock.
As of _________, the record date for the special meeting, the directors
and executive officers of Community may be deemed to be the beneficial owners of
436 shares of National Penn common stock, or less than 1% of the outstanding
shares of National Penn common stock.
As of _________, the record date for the special meeting, the directors
and executive officers of National Penn may be deemed to be the beneficial
owners of 107 shares of Community common stock, or less than 1% of the
outstanding shares of Community common stock.
BOARD POSITIONS AND COMPENSATION
Upon completion of the merger, National Penn has agreed that
Community's current directors will receive the following board positions:
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* One former Community director selected by Community, and
approved by National Penn (or his successor, similarly
selected), will serve as a National Penn director for at least
five years. (Frederick P. Krott has been selected and
approved.)
* That person and one other former Community director selected
by Community, and approved by National Penn (or their
successors, similarly selected), will serve as National Penn
Bank directors for at least five years. (Frederick P. Krott
and Stratton D. Yatron have been selected and approved.)
* All former Community directors will serve as members of the
board of directors of National Penn Bank's Berks County
Division for at least five years.
Each former Community director serving as a National Penn and/or
National Penn Bank director will receive the standard annual compensation paid
to members of those boards. Community's non-employee former directors who become
members of the Berks County Division board will receive annual cash compensation
for board service not less than the total amount of cash directors fees
Community paid to them in the year ending on the merger's effective date. See
"The Merger--Management and Operations after the Merger" at page 59.
INDEMNIFICATION AND INSURANCE
National Penn has agreed to indemnify the directors, officers,
employees and agents of Community against all losses, expenses, including
reasonable attorneys' fees, claims, damages or liabilities and settlement
amounts arising out of actions or omissions or alleged actions or omissions
occurring prior to the merger's effective date, including the transactions
contemplated by the merger agreement, to the fullest extent permitted under
Pennsylvania law. This includes the advancement of expenses incurred in the
defense of any proceeding, provided that the person receiving the expenses
advance provides a repayment undertaking required by Pennsylvania law.
National Penn has also agreed that for at least six years after the
merger's effective date, National Penn will use its reasonable best efforts, at
its expense, to maintain directors' and officers' liability insurance for the
former Community directors, officers and employees with respect to matters
occurring prior to the merger's effective date. Alternatively, National Penn may
obtain coverage for such persons for acts prior to the merger's effective date
under the directors' and officers' liability insurance policies maintained by
National Penn.
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Such insurance coverage is to be at least equal to the coverage
currently maintained by Community and is to contain terms and conditions which
are no less favorable to the beneficiaries. National Penn is not obligated to
make premium payments which exceed (for the portion related to Community's
directors and officers) 150% of the annual premium payments on Community's
policy in effect as of July 23, 2000.
STOCK OPTIONS
Each option to purchase Community common stock that remains unexercised
on the effective date of the merger will be converted into an option to purchase
National Penn common stock. The conversion will be based upon the number of
shares of National Penn common stock which the optionholder would have been
entitled to receive in the merger if such option had been exercised immediately
prior to the effective date at an exercise price per share of National Penn
common stock equal to the per share exercise price of the option to purchase
Community common stock divided by the exchange ratio. See "The Merger--Terms of
the Merger" at page 40.
As of June 30, 2000, Community directors and executive officers hold
stock options for a total of 2,400 shares of Community common stock which are
not exercisable until some future date. As provided in Community's stock option
plans, all substitute National Penn stock options will be immediately
exercisable, including those issued in substitution for unvested options.
DIRECTORS' DEFERRED FEES
In 1997, Bernville Bank adopted various deferred compensation plans for
certain directors of Bernville Bank. Under these plans, benefits are payable
upon the participant's retirement, death or permanent disability, or upon a
change in control of Bernville Bank followed by the participant's termination of
service as a director of Bernville Bank.
After the merger of Community into National Penn, National Penn intends
to merge Bernville Bank into National Penn Bank as soon as is legally
permissible. Upon the merger of the banks, the deferred fee accounts of the
directors will terminate, and Bernville Bank will pay the account balances in
full to the plan participants.
CONTINUED EMPLOYMENT
Upon completion of the merger, National Penn will either offer
employment to each person who is then an employee of Community or Bernville Bank
or pay severance benefits as provided
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in the merger agreement. See "The Merger--Employment; Severance"
at page 61.
EMPLOYEE BENEFITS
Community employees who become employees of National Penn will be
entitled to full credit for each year of service with Community for purposes of
determining eligibility and vesting in National Penn's employee benefit plans.
See "The Merger-- Employee Benefits" at page 62.
CERTAIN RELATIONSHIPS WITH NATIONAL PENN BANK
Stratton D. Yatron, a Community director, has a $75,000 unsecured
executive line of credit with National Penn Bank. This line of credit was
established in February 1998. Additionally, Mr. Yatron is a shareholder,
director and officer of Adelphi Kitchens, Inc., which has a $1 million line of
credit with National Penn Bank, and is a partner in Adelphi Realty Company,
which has a $400,000 line of credit with National Penn Bank.
ACCOUNTING TREATMENT
We intend for the merger to qualify under the "pooling of interests"
method of accounting for accounting and financial reporting purposes. Under this
method of accounting, the recorded assets and liabilities of National Penn and
Community will be carried forward to National Penn at their recorded amounts;
income of National Penn will include income of both National Penn and Community
for the entire fiscal year of National Penn in which the merger occurs; and the
reported income of National Penn and Community for prior periods will be
combined and restated as income of National Penn. Expenses incurred in
connection with the merger will be expensed in the period that shareholder and
regulatory approval related to the merger are received.
Our obligations to complete the merger are each conditioned on our
receipt of opinions from our respective independent certified public accountants
confirming that the merger will qualify as a "pooling of interests". As of the
date of this proxy statement/prospectus, neither of us has any reason to believe
that our respective independent certified public accountants will be unable to
deliver the required opinion.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a description of the principal anticipated material
federal income tax consequences of the merger to National Penn, Community and
holders of Community common stock.
This description is based on the Internal Revenue Code of 1986, as
amended (the "Code"), its legislative history, existing
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and proposed regulations thereunder, judicial decisions and published rulings
and other administrative interpretations issued by the Internal Revenue Service,
as currently in effect, all of which are subject to change, possibly with
retroactive effect.
This discussion does not address all aspects of federal income tax that
may be relevant to particular holders of Community 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 COMMUNITY SHAREHOLDER SHOULD 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 NATIONAL PENN COMMON STOCK
RECEIVED IN THE MERGER.
Our obligations to complete the merger are each conditioned on our
receipt of opinions from our respective special counsel (Rhoads & Sinon LLP for
Community, and Ellsworth, Carlton & Waldman, P.C. for National Penn) or from our
respective independent certified public accountants (Beard & Company, Inc. for
Community, and Grant Thornton LLP for National Penn) to the effect that:
* The merger constitutes a reorganization under Section
368(a) of the Code for federal income tax purposes, and
* The holders of Community 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
National Penn 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:
* Neither National Penn nor Community will recognize gain or
loss in connection with the merger.
* Holders of Community 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 National
Penn common stock.
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* A person's holding period for shares of National Penn common
stock received in the merger will include that person's
holding period for shares of Community common stock
surrendered in the merger, provided the shares of Community
common stock are held as capital assets.
* The tax basis of shares of National Penn common stock received
in the merger will be equal to the tax basis of shares of
Community common stock surrendered, less any basis that would
be allocable to a fractional share of National Penn common
stock for which cash is received.
* Cash received in lieu of a fractional share of National Penn
common stock will be treated as received in redemption of a
fractional share of National Penn 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.
RESALE OF NATIONAL PENN COMMON STOCK
The National Penn common stock issued in the merger will be freely
transferable under the Securities Act, except for shares issued to any Community
shareholder who may be deemed to be:
* An "affiliate" of Community for purposes of Rule 145
under the Securities Act or,
* An "affiliate" of National Penn for purposes of Rule 144 under
the Securities Act.
Affiliates will include persons (generally executive officers,
directors and 10% or more shareholders) who control, are controlled by, or are
under common control with, National Penn or Community at the time of the
Community shareholders' meeting, or National Penn at or after the effective date
of the merger.
Rules 144 and 145 will restrict the sale of shares of National Penn
common stock received in the merger by affiliates and certain of their family
members and related interests.
* Community affiliates.
* Generally, during the year following the effective
date of the merger, those persons who are affiliates
of Community at the time of the Community
shareholders' meeting, provided they are not
affiliates of National Penn at or following the
merger's effective date, may publicly resell any
shares of National Penn common stock received
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by them in the merger, subject to certain limitations
and requirements. These include the amount of
National Penn common stock that may be sold by them
in any three-month period, the manner of sale, and
the adequacy of current public information about
National Penn.
* 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 National Penn as required by Rule 144.
* National Penn affiliates.
* Persons who are affiliates of National Penn after the
merger's effective date may publicly resell the
shares of National Penn common stock received by them
in the merger subject to the same limitations and
requirements as apply to Community affiliates in the
first year and subject to certain filing requirements
specified in Rule 144.
The ability of affiliates to resell shares of National Penn common
stock received in the merger under Rule 144 or Rule 145, as summarized herein,
generally will be subject to National Penn'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 National Penn
common stock received in the merger pursuant to an effective registration
statement under the Securities Act or another available exemption from the
Securities Act registration requirements.
This proxy statement/prospectus does not cover any resales of shares of
National Penn common stock received by persons who may be deemed to be
affiliates of National Penn or Community.
Each Community director has agreed with National Penn that, as a
Community affiliate, he will not transfer any shares of National Penn common
stock received in the merger except in compliance with the Securities Act.
Each Community director and each National Penn director has agreed with
National Penn that he or she will not dispose of any shares of National Penn
common stock or of Community common stock (or any interest therein) during the
period commencing 30 days prior to the effective date of the merger through the
date on which financial results covering at least 30 days of combined
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operations of National Penn and Community after the merger have been made
public.
NO DISSENTERS RIGHTS
Community common stock is traded on the American Stock Exchange.
Accordingly, under Pennsylvania law, Community shareholders do not have any
right to a court determination of the value of their shares in connection with
the merger or to payment for such shares in cash. Further, Community's articles
of incorporation and bylaws do not grant dissenters rights to Community
shareholders.
MATERIAL CONTRACTS
Bernville Bank and National Penn Consulting Services, Inc., a National
Penn Bank subsidiary, entered into a consulting agreement on ____________, 2000.
See "The Merger--Conduct of Business Pending the Merger" at page 43.
There have been no other material contracts or other transactions
between Community and National Penn since signing the merger agreement, nor have
there been any material contracts, arrangements, relationships or transactions
between Community and National Penn during the past five years, other than in
connection with the merger agreement and as described in this proxy
statement/prospectus.
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CERTAIN REGULATORY CONSIDERATIONS
As a bank holding company, National Penn is subject to regulation under
the Bank Holding Company Act of 1956, as amended, 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 National Penn
and Community.
To the extent that the following information describes statutory and
regulatory provisions, we qualify it 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 National Penn.
GENERAL
As a bank holding company, National Penn is subject to regulation under
the Bank Holding Company Act and to its examination and reporting requirements.
Under this law, bank holding companies may not directly or indirectly acquire
the ownership or control of more than 5% of the voting shares or substantially
all of the assets of any company, including a bank or another bank holding
company, without the prior approval of, or a waiver of the requirement for such
approval by, the Board of Governors of the Federal Reserve System. In addition,
bank holding companies are generally restricted in the types of activities in
which they may engage, directly or indirectly.
As further discussed below, the Gramm-Leach-Bliley Act of 1999
established a new kind of bank holding company, called a "financial holding
company". A bank holding company that is eligible and makes an effective
election to be a financial holding company has substantially broader powers,
particularly in the areas of securities and insurance activities, than before.
As of the date of this proxy statement/prospectus, National Penn has not made an
election to be a financial holding company.
The earnings of National Penn are affected by the legislative and
governmental actions of various regulatory authorities, including the Federal
Reserve Board, the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation. In addition, there are numerous governmental
requirements and regulations which affect the activities of National Penn. The
regulation of National Penn is generally designed to protect the depositors of
National Penn's bank
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subsidiaries and their payment systems generally, and is not for the protection
of National Penn's shareholders.
PAYMENT OF DIVIDENDS
National Penn is a legal entity separate and distinct from its banking
and other subsidiaries. A major portion of National Penn's revenues result from
amounts paid as dividends to National Penn by its principal banking subsidiary,
National Penn 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.
Under the foregoing dividend restrictions, as of June 30, 2000,
National Penn Bank, without obtaining affirmative governmental approvals, could
pay aggregate dividends of $29,425,000 to National Penn. In the first six months
of 2000, National Penn Bank paid $10,012,000 in cash dividends to National Penn.
In addition, National Penn and its banking subsidiaries 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 National Penn Bank) has indicated that paying
dividends that deplete a bank's capital base to an inadequate level would be an
unsafe and unsound 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 National Penn and its nonbank subsidiaries can borrow or otherwise obtain
credit from National Penn's banking subsidiaries. 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 National Penn or such
nonbank subsidiaries, to 10% of the banking subsidiary's capital stock and
surplus, and as to National Penn
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and all such nonbank subsidiaries in the aggregate, to 20% of the banking
subsidiary's capital stock and surplus.
Under the National Bank Act, 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, National Penn is expected to act as
a source of financial strength to its banking subsidiaries and to commit
resources to support such banking subsidiaries. This support may be required at
times when, absent such Federal Reserve Board policy, National Penn 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 risk-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 8%. 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, 2000, National Penn's tier 1 and total capital ratios were
11.42% and 12.68%, respectively. On a National Penn and Community combined
basis, such ratios at June 30, 2000, would have been 11.34% and 12.60%,
respectively.
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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 3% 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 at least 4% to 5%.
National Penn's leverage ratio at June 30, 2000, was 8.73%. On a
National Penn and Community combined basis, such ratio at June 30, 2000, would
have been 8.64%.
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 National
Penn of any specific minimum leverage ratio or tangible tier 1 leverage ratio
applicable to it.
National Penn's principal banking subsidiary, National Penn Bank, is
subject to similar capital requirements adopted by the OCC. National Penn Bank
had tier 1 and total capital ratios of 9.21% and 10.47%, respectively, and a
leverage ratio of 7.00%, as of June 30, 2000. The OCC has not advised National
Penn Bank of any specific minimum leverage ratio applicable to it. On a National
Penn Bank and Bernville Bank combined basis, such ratios at June 30, 2000, would
have been 9.22%, 10.48% and 6.99%, respectively.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Act, 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 act
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.
The federal bank regulatory agencies have adopted regulations
establishing relevant capital measures and relevant capital levels applicable to
FDIC-insured banks. The relevant
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capital measures are the total capital ratio, tier 1 capital ratio and the
leverage ratio. Under the regulations, a FDIC-insured bank will be:
* "Well capitalized" if it has a total capital ratio of 10% or
greater, a tier 1 capital ratio of 6% or greater and a
leverage ratio of 5% 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.
* "Adequately capitalized" if it has a total capital ratio of 8%
or greater, a tier 1 capital ratio of 4% or greater and a
leverage ratio of 4% or greater (3% in certain circumstances)
and is not "well capitalized".
* "Undercapitalized" if it has a total capital ratio of less
than 8%, a tier 1 capital ratio of less than 4% or a leverage
ratio of less than 4% (3% in certain circumstances).
* "Significantly undercapitalized" if it has a total capital
ratio of less than 6%, a tier 1 capital ratio of less than 3%
or a leverage ratio of less than 3%.
* "Critically undercapitalized" if its tangible equity is equal
to or less than 2% 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, 2000, National Penn and National Penn Bank each had capital levels that
qualify it as being "well capitalized" under such regulations.
The Federal Deposit Insurance Act 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
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comply with such capital restoration plan. The aggregate liability of the parent
holding company is limited to the lesser of:
* An amount equal to 5% of the depository institution's
total assets at the time it became "undercapitalized",
or
* 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.
GRAMM-LEACH-BLILEY ACT
On November 12, 1999, the Gramm-Leach-Bliley Act was signed into law.
The centerpiece of this new law is a set of provisions allowing for affiliations
among banking, insurance and securities firms under a "financial holding
company". The Gramm-Leach- Bliley Act establishes certain principles of
functional regulation applicable to such affiliated operations, and certain
historic exemptions available to banks under various Federal securities laws are
significantly scaled back effective in May 2001.
The new law also establishes significant new consumer privacy
protections, which are scheduled to take effect in July
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2001. All financial institutions are required to develop a written privacy
policy, and to disclose it to their consumer customers at the time of
establishment of the customer relationship and annually thereafter. In addition,
the new law imposes stringent restrictions on the disclosure of non-public
consumer financial information to third parties.
The Gramm-Leach-Bliley Act also includes a broad range of regulatory
changes, including various provisions designed to reduce the regulatory burden
on small banks and provisions requiring disclosures of certain types of
agreements entered into relating to compliance with the Community Reinvestment
Act of 1977.
The Gramm-Leach-Bliley Act is sweeping legislation that National Penn
believes will affect the financial services industry for years to come. It is
too early to determine the effect this new law will have on National Penn or its
financial performance.
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INFORMATION ABOUT NATIONAL PENN
GENERAL
Financial and other information relating to National Penn, including
information relating to National Penn's directors and executive officers, is set
forth in National Penn's 1999 Annual Report on Form 10-K (which incorporated
certain portions of National Penn's proxy statement for its 2000 annual meeting
of shareholders), National Penn's 2000 Quarterly Reports on Form 10-Q, and
National Penn's 2000 Current Reports on Form 8-K, all of which we incorporate by
reference in this proxy statement/prospectus. National Penn will furnish you
with copies of the documents incorporated by reference upon request. See "Where
You Can Find More Information" at page 130.
As discussed herein at "Certain Regulatory Considerations", the
Gramm-Leach-Bliley Act of 1999 established a new kind of bank holding company
called a "financial holding company". A bank holding company that is eligible
and elects to become a financial holding company has substantially broader
powers than otherwise. As of the date of this proxy statement/prospectus,
National Penn has not elected to become a financial holding company.
ACQUISITIONS
National Penn frequently evaluates business combination opportunities
and frequently conducts due diligence activities in connection with possible
business combinations. As a result, business combination discussions and, in
some cases, negotiations frequently take place, and future business combinations
involving cash, debt, or equity securities can be expected. Any future business
combination or series of business combinations that National Penn might
undertake may be material, in terms of assets acquired or liabilities assumed,
to National Penn's financial condition. Business combinations in the financial
services industry typically involve the payment of a premium over book and
market value. This practice can result in dilution of book value and net income
per share for the acquiror.
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NEW NATIONAL PENN DIRECTORS
When the merger takes effect, Frederick P. Krott, a Community director,
will become a National Penn director. Mr. Krott and Stratton G. Yatron, another
Community director, will each become directors of National Penn Bank at the same
time.
Mr. Krott has served as a director of Community and Bernville Bank
since 1990. He is 53 years old. Since 1971, his principal occupation has been
Funeral Director, Lamm & Witman Funeral Home, Inc., Wernersville, Pennsylvania.
Mr. Yatron has served as a director of Community and Bernville Bank
since 1997. He is 33 years old. Since 1994, his principal occupation has been
Secretary/Treasurer, Adelphi Kitchens, Inc., Robesonia, Pennsylvania.
As of the date of this proxy statement/prospectus, Bernville Bank,
Community's subsidiary, pays each of its non-employee directors, including
Messrs. Krott and Yatron, an annual retainer fee of $1,750, plus $195 for each
meeting of the board of directors attended and $195 for each committee meeting
attended if held on a date other than a full board meeting date.
Community adopted a Stock Option Plan for Non-Employee Directors in
1996. Under this plan, Community issued to each non-employee director in office
at the time the plan was adopted non-qualified stock options to purchase 1,000
shares of Community common stock, including Mr. Krott. The plan also provides
for the automatic grant of non-qualified stock options for 1,000 shares to
persons first elected or appointed as directors after adoption of the plan.
Therefore, Mr. Yatron received stock options for 1,000 shares of Community
common stock upon his first election to the board in 1997. The plan provides
that on the fifth anniversary of the initial grants, provided that the person is
still in office as a non-employee director, Community would grant the person
non-qualified stock options for an additional 1,000 shares. Assuming the merger
of Community with National Penn is completed, the additional stock options will
not be granted. The per share exercise price for all options issued under this
stock option plan is equal to the fair market value of a share of Community
common stock on the date of grant.
In 1997, Bernville Bank adopted various deferred compensation plans for
certain directors of Bernville Bank, including Mr. Krott and Mr. Yatron. Under
these plans, benefits are payable upon the participant's retirement, death or
permanent disability, or upon a change in control of Bernville Bank followed by
the participant's termination of service as a director of Bernville Bank.
78
<PAGE>
After the merger of Community into National Penn, National Penn intends
to merge Bernville Bank into National Penn Bank as soon as is legally
permissible. Upon the merger of the banks, the deferred fee accounts of the
directors will terminate, and Bernville Bank will pay the account balances in
full to the plan participants.
79
<PAGE>
INFORMATION ABOUT COMMUNITY
BUSINESS
Community is a Pennsylvania business corporation which is registered as
a bank holding company under the Bank Holding Company Act of 1956, as amended.
Community was incorporated on December 31, 1984 for the purpose of acquiring
Bernville Bank, N.A., and thereby enabling Bernville Bank to operate within a
bank holding company structure. Community became an active bank holding company
on December 31, 1984 when it acquired Bernville Bank. Bernville Bank is a
wholly-owned subsidiary of Community.
Community's principal activities consist of owning and supervising
Bernville Bank, which engages in a full service commercial and consumer banking
business. Community, through Bernville Bank, derives substantially all of its
income from the furnishing of banking and bank-related services.
Community directs the policies and coordinates the financial resources
of Bernville Bank. Community provides and performs various technical and
advisory services for Bernville Bank, coordinates Bernville Bank's general
policies and activities, and participates in Bernville Bank's major business
decisions.
Bernville Bank was incorporated in 1907 under the laws of the United
States as a national bank under the name "The First National Bank of Bernville."
In 1971, the charter was changed to a state charter under the name "Bernville
Bank." In 1983, the charter was again changed to a national banking association
under the current name. Bernville Bank is a member of the Federal Reserve
System.
Bernville Bank engages in a full service commercial and consumer
banking business. Bernville Bank, with its main office at 201 North Main Street,
Bernville, Pennsylvania, also provides services to its customers through three
full service branch offices which include drive-in facilities. Bernville Bank's
main office, three full service branch offices, and operations center are all
located in Berks County, Pennsylvania.
On January 24, 2000, Bernville Bank entered into a Memorandum of
Understanding with the Office of the Comptroller of the Currency, its primary
federal regulator, whereby Bernville Bank agreed to take certain actions in
response to concerns raised by the OCC. The actions which Bernville Bank agreed
to take are generally in the nature of improving the Bank's internal procedures
and policies. Community believes that Bernville Bank is materially in compliance
with its obligations under the MOU. Additionally, Community received a
Supervisory Letter from the Federal Reserve Bank of Philadelphia dated April 11,
2000, requesting that Community not take certain actions, including the
80
<PAGE>
payment of dividends, without the prior approval of the Federal Reserve Bank.
Community obtained the approval of the Federal Reserve with respect to its first
and second quarter dividend and anticipates obtaining approval of subsequent
regular, quarterly dividends.
As of June 30, 2000, Community, on a consolidated basis, had total
assets of approximately $105.3 million, total loans of approximately $82.8
million, total deposits of approximately $91.4 million, and shareholders' equity
of approximately $7.2 million.
PROPERTIES
Bernville Bank owns the main office of Community and Bernville Bank
located at 201 North Main Street, Bernville, Pennsylvania, its branch offices
located on Route 422, R.D. 1, Robesonia, Pennsylvania, and on Roadside Drive,
Shartlesville, Pennsylvania and a facility on Route 183, Jefferson Township,
comprised of an ATM and a night depository. The property on which the main
office is situated is comprised of approximately 6,300 square feet of space in
the aggregate, of which approximately 2,100 square feet are used for banking
facilities. The remainder is used for corporate and other offices. The branch
office located in Robesonia is comprised of approximately 2,000 square feet. The
branch office located in Shartlesville is also comprised of approximately 2,000
square feet with a basement comprised of approximately 1,000 square feet. The
facility located in Jefferson Township is comprised of approximately 300 square
feet.
Bernville Bank also leases the premises for one branch location and an
operations center under operating lease agreements expiring in various years
through October 2017. Certain lease agreements contain escalation provisions.
Bernville Bank also has options to extend the lease agreements for additional
lease terms from five to thirty years. Bernville Bank is responsible for paying
all real estate taxes, insurance, utilities and maintenance and repairs on the
buildings. The branch office is located on Commerce Drive in Wyomissing,
Pennsylvania, and is comprised of approximately 3,300 square feet. The
operations center is located on Corporate Drive, Reading, Pennsylvania, and is
comprised of approximately 7,500 square feet with an option for lessor to
construct expansion up to an additional 7,500 square feet.
COMPETITION
Bernville Bank competes with local commercial banks as well as other
commercial banks with branches in Bernville Bank's market area. All phases of
Bernville Bank's business are highly competitive. Bernville Bank considers its
major competition to be First National Bank of Leesport, headquartered in
Leesport, Pennsylvania, and Berks County Bank, headquartered in Reading,
Pennsylvania.
81
<PAGE>
Bernville Bank, along with other commercial banks, competes with
respect to its lending activities as well as in attracting deposits, with
savings banks, savings and loan associations, insurance companies, regulated
small loan companies and credit unions. Most of these competitors have
substantially greater financial resources than Community, including a larger
capital base, which allows them to attract customers seeking larger loans than
Bernville Bank is able to make.
EMPLOYEES
As of June 30, 2000, Bernville Bank has a total of 40 full- time and 11
part-time employees. Bernville Bank provides a variety of employment benefits
and considers its relationship with its employees to be good.
LEGAL PROCEEDINGS
Community is not currently a party to any material litigation. From
time to time Bernville Bank is a party to routine litigation incidental to its
business.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information relating to beneficial
ownership of shares of common stock by Community's present directors and by all
of Community's directors and executive officers as a group, without naming them,
as of June 30, 2000. Community is not aware of any person holding, directly or
indirectly, 5% or more of the outstanding shares of Community common stock.
Unless otherwise indicated in a footnote below, each individual holds sole
voting and investment power over the shares listed in the table. For purposes of
the table, beneficial ownership also includes any shares which the individual
has the right to acquire within 60 days of June 30, 2000 through the exercise of
outstanding stock options granted pursuant to Community's stock option plans.
<TABLE>
<CAPTION>
Name and No. of Shares
Address of Position and Nature of
Beneficial with Beneficial Percentage
Owner Corporation Ownership of Class
----------- -------------- ------------- ----------
<S> <C> <C> <C>
Karl D. Gerhart Acting President 8,000 1.14%
219 Farmstead Lane and Chief Executive
Lititz, PA 17543 Officer and Director
John F. Hampson Director 1,803 (1) .26%
P.O. Box 154
Wernersville, PA 19565
82
<PAGE>
Frederick P. Krott Director 4,816 (2) .69%
Box 160A
RD 1
Richland, PA 17087
Walter J. Potteiger Director 32,666 (3) 4.66%
165 Derr Road
Bernville, PA 19506
Deborah K. Ritter Director 3,047 (4) .44%
51 Focht Road
Robesonia, PA 19551
John J. Seitzinger Director 4,800 (5) .69%
South 3rd Street
Shartlesville, PA 19554
Stratton D. Yatron Director 6,800 (6) .97%
407 N. Tulpehocken Road
Reading, PA 19601
All Directors and 65,688 (7) 9.38%
Executive Officers
(8 Persons)
------------------------------
<FN>
(1) Includes 103 shares held in trust for benefit of minor child and
1,000 shares which may be acquired upon exercise of stock options.
(2) Includes 300 shares held directly by spouse, 818 shares held in
trust for benefit of minor child and 1,000 shares which may be acquired upon
exercise of stock options.
(3) Includes 1,542 shares held directly by spouse and 1,000 shares
which may be acquired upon exercise of stock options.
(4) Includes 120 shares held in trust for benefit of minor child and
1,000 shares which may be acquired upon exercise of stock options.
(5) Includes 1,000 shares which may be acquired upon exercise of stock
options.
(6) Includes 1,000 shares held in trust for benefit of child and 1,000
shares which may be acquired upon exercise of stock options.
(7) Includes all shares beneficially owned including shares which the
individual has the right to acquire within 60 days of June 30, 2000 through the
exercise of outstanding stock options.
</FN>
</TABLE>
83
<PAGE>
COMMUNITY: SELECTED HISTORICAL FINANCIAL DATA
Selected historical financial data for Community is set forth in this
proxy statement/prospectus at "Summary--Selected Historical Financial Data".
COMMUNITY: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
The purpose of this discussion is to focus on information about
Community's financial condition and results of operations that is not otherwise
apparent from the financial statements. Reference should be made to those
statements and the selected financial data presented elsewhere for an
understanding of the following discussion and analysis.
RESULTS OF OPERATIONS
Community recorded net income of $ 242,000 ($0 .35 per share) for 1999
compared to $ 544,000 ($ 0.78 per share) in 1998. Return on average assets was
.23% for 1999 and .58% for 1998. The decrease in net income of $ 302,000 in 1999
was primarily caused by an increase in other expenses of $ 457,000 and an
increase in the provision for loan losses of $ 370,000 from 1998 to 1999, which
was offset by an increase in other income of $ 15,000, and an increase in net
interest income of $ 345,000 from 1998 to 1999. A more detailed explanation for
each contribution to the change in net income from 1998 to 1999 is included in
the remainder of this analysis.
NET INTEREST INCOME
Net interest income is the primary source of operating income for
Community. Net interest income is the difference between interest earned on
loans and securities and interest paid on deposits and other funding sources.
Generally, changes in net interest income are measured by the net interest rate
spread and net interest rate margin. The net interest rate spread is equal to
the difference between the average rate earned on earning assets and the average
rate incurred on interest-bearing liabilities. The net interest rate margin
represents the difference between interest income (including net loan fees
earned) and interest expense calculated as a percentage of average earning
assets. The factors that influence net interest income include changes in
interest rates and changes in the volume and mix of assets and liability
balances.
Net interest income increased $ 345,000 or 10% in 1999 compared to
1998. Table 1 analyzes the factors contributing to the increase in net interest
income in 1999. The average balances, interest income and expense, and the
average rates earned and paid for assets and liabilities are found in Table 2.
During 1999, the average yield on earning assets decreased .23%, while
the average cost of funds decreased .12%. An increase of $ 9,646,000 or 13% in
average loan volume during 1999 resulted in additional loan interest income of
$ 847,000. However, lower interest rates resulted in a decrease in the yield
earned on average loans in 1999 to 8.54% compared to 8.79% in 1998.
Community's securities' portfolio in 1999 grew by $ 2,379,000 or 21%
compared to 1998. Interest income increased $ 132,000 or 20% in 1999 compared to
1998 primarily due to the increased portfolio.
Average interest-bearing demand deposits, savings deposits and
certificates of deposit increased by $ 9,207,000 or 13% in 1999 compared to
1998. The increase in interest expense on these deposits of $ 325,000 or 10% was
primarily a result of the increase in deposits during 1999 as the average rate
paid on deposits decreased 11 basis points from 4.50% to 4.39%.
84
<PAGE>
NET INTEREST INCOME (CONTINUED)
Likewise, Community increased its reliance on short-term borrowings as
a source of funds in 1999. Average short-term borrowings increased $ 3,122,000,
resulting in additional interest expense of $ 172,000 while the rate paid on
these borrowings decreased interest expense by $ 10,000. Long-term debt averaged
$ 3,836,000 in 1999 compared to $ 5,000,000 in 1998, resulting in a decrease in
interest expense of $ 70,000.
TABLE 1 - VOLUME/RATE ANALYSIS
<TABLE>
<CAPTION>
1999 vs. 1998 Increase
(Decrease) Due to Changes In
Volume Rate Total
------------------------------------------
(In Thousands)
Interest income:
<S> <C> <C> <C>
Interest-bearing deposits with other banks $ (8) $ - $ (8)
Securities:
Taxable 143 (9) 134
Tax-exempt (4) 2 (2)
Federal funds sold (1) - (1)
Loans 847 (208) 639
------------------------------------------
977 (215) 762
------------------------------------------
Interest expense:
Interest-bearing demand deposits 144 (17) 127
Savings deposits (7) (3) (10)
Time deposits 293 (85) 208
Short-term borrowings 172 (10) 162
Long-term borrowings (70) - (70)
------------------------------------------
532 (115) 417
------------------------------------------
Net interest income $ 445 $ (100) $ 345
==========================================
</TABLE>
85
<PAGE>
Net Interest Income (Continued)
TABLE 2 - AVERAGE BALANCES AND INTEREST RATES
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ --------------------------------------
Interest Interest
Average Income Average Average Income Average
Balance (Expense) Rate Balance (Expense) Rate
------------------------------------------ --------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets:
Interest-bearing deposits
with other banks $ 33 $ 1 6.06 % 192 $ 10 5.21 %
Taxable securities 13,354 760 5.69 10,871 626 5.76
Tax-exempt securities 580 27 4.66 684 29 4.24
Federal funds sold - - - 17 1 5.88
Loans, net of reserves 83,912 7,164 8.54 74,266 6,525 8.79
---------------------------- --------------------------
Total interest earning assets 97,879 7,952 8.13 86,030 7,191 8.36
Other assets 8,517 - 7,326 -
---------------------------- --------------------------
Total assets $ 106,396 7,952 7.47 % $ 93,356 7,191 7.70 %
================ ============== ============= ============
Liabilities and Stockholders' Equity
Interest bearing deposits:
Demand deposits $ 23,189 769 3.32 % $ 18,948 642 3.39 %
Savings deposits 9,433 211 2.24 9,752 221 2.27
Time deposits 46,333 2,486 5.37 41,048 2,278 5.55
---------------------------- --------------------------
Total interest bearing deposits 78,955 3,466 4.39 69,748 3,141 4.50
Short-term borrowings 5,921 316 5.34 2,799 154 5.50
Long-term borrowings 3,836 231 6.02 5,000 301 6.02
---------------------------- --------------------------
Total interest bearing liabilities 88,712 4,013 4.52 77,547 3,596 4.64
Non-interest bearing demand deposits 9,678 - 8,303 -
Other liabilities 768 - 617 -
Stockholders' equity 7,238 - 6,889 -
---------------------------- --------------------------
Total liabilities and
stockholders' equity $ 106,396 $ 93,356
================ =============
Interest rate spread 2.95 % 3.07 %
============== ============
Net interest income/margin $ 3,939 4.03 % $ 3,595 4.18 %
========================== =========================
</TABLE>
For purposes of computing average loan balances, nonaccruing loans are included
in the daily average loan balance. Yields on tax-free securities are not
presented on a tax equivalent basis.
86
<PAGE>
OTHER INCOME
Other income increased by $ 8,000 or 3% from 1998 to 1999. Service
charges on deposit accounts increased $ 65,000 or 25% which directly correlated
with the increase in customer accounts. The increase in other income of $ 26,000
or 9% is due to an increase in earnings on life insurance policies and loan
related fees. Gains on loan sales decreased $ 76,000 or 58% as a result of a
decrease in the volume of loan sales.
OTHER EXPENSES
Other expenses increased $ 457,000 or 14% in 1999 to $ 3,733,000
compared to $ 3,276,000 in 1998. Salaries and benefits totaled $ 1,949,000 in
1999, an increase of $ 255,000 or 15% from 1998. Occupancy expense totaled $
377,000 in 1999, an increase of $ 52,000 or 16% compared to $ 325,000 in 1998.
Equipment and furniture expenses increased $ 50,000 or 16% in 1999 to $ 358,000
compared to $ 308,000 in 1998. Professional fees decreased $ 18,000 or 20% from
$ 90,000 in 1998 to $ 72,000 in 1999.
Other expenses increased to $ 754,000 in 1999 compared to $ 602,000 in
1998, an increase of $ 152,000 or 25%. Other expenses included in this category
include directors' fees, ATM fees, FDIC insurance premiums, examinations,
travel, telephone, dues and subscriptions, postage, training and charitable
contributions. The increase in such expense categories is primarily the result
of Community's growth.
PROVISION FOR FEDERAL INCOME TAXES
The provision for federal income taxes was $ 54,000 for 1999 as
compared to $ 219,000 for 1998. The effective tax rate, which is the ratio of
income tax expense to income before income taxes, was 18% in 1999 and 29% in
1998. The tax rate for both periods was less than the federal statutory rate of
34%, primarily because of tax-exempt securities and loan income.
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", income taxes are accounted for under the
liability method. Under the liability method, deferred tax assets and
liabilities are recognized for future tax consequences attributable to temporary
differences between the financial statement and tax basis of existing assets and
liabilities. At December 31, 1999, deferred tax assets amounted to $ 482,000 and
deferred tax liabilities amounted to $ 159,000. Deferred tax assets are
realizable primarily through carryback of existing temporary differences to
recover taxes paid in prior years, and through the future reversal of existing
temporary differences.
FINANCIAL CONDITION
Community's financial condition can be evaluated in terms of trends in
its sources and uses of funds. Table 3 illustrates how Community has managed its
sources and uses of funds that are directly affected by outside economic
factors, such as interest rate fluctuations.
87
<PAGE>
TABLE 3 - SOURCES AND USES OF FUNDS
<TABLE>
<CAPTION>
1999 Increase (Decrease) 1998
-----------------------------------------------------------------
Average Average
Balance Amount % Balance
-----------------------------------------------------------------
(In Thousands)
Funding uses:
Loans:
<S> <C> <C> <C> <C>
Commercial $ 31,430 $ 8,909 39.56 % $ 22,521
Mortgage 46,842 142 .30 46,700
Consumer 6,486 848 15.04 5,638
-------------------------------- -----------------
84,758 9,899 13.22 74,859
Less allowance for loan losses (846) (253) 42.66 (593)
-------------------------------- -----------------
83,912 9,646 12.99 74,266
-------------------------------- -----------------
Interest-bearing deposits with banks 33 (159) (82.81) 192
-------------------------------- -----------------
Securities:
Taxable 13,354 2,483 22.84 10,871
Tax-exempt 580 (104) (15.20) 684
-------------------------------- -----------------
13,934 2,379 20.59 11,555
-------------------------------- -----------------
Federal funds sold - (17) (100.00) 17
-------------------------------- -----------------
Total interest earning assets 97,879 11,849 13.77 86,030
Other assets 8,517 1,191 16.26 7,326
-------------------------------- -----------------
Total uses $ 106,396 $ 13,040 13.97 % $ 93,356
================================ =================
Funding sources:
Deposits:
Demand $ 9,678 $ 1,375 16.56 % $ 8,303
Interest-bearing demand 23,189 4,241 22.38 18,948
Savings 9,433 (319) (3.27) 9,752
Time under $ 100,000 36,133 (35) (.10) 36,168
-------------------------------- -----------------
Total core deposits 78,433 5,262 7.19 73,171
Time over $ 100,000 10,200 5,320 109.02 4,880
-------------------------------- -----------------
Total deposits 88,633 10,582 13.56 78,051
-------------------------------- -----------------
Funds borrowed:
Short-term 5,921 3,122 111.54 2,799
Long-term 3,836 (1,164) (23.28) 5,000
-------------------------------- -----------------
Total funds borrowed 9,757 1,958 25.11 7,799
-------------------------------- -----------------
Total deposits & funds borrowed 98,390 12,540 14.61 85,850
Other liabilities 768 151 24.47 617
Stockholders' equity 7,238 349 5.07 6,889
-------------------------------- -----------------
Total sources $ 106,396 $ 13,040 13.97 % $ 93,356
================================ =================
</TABLE>
88
<PAGE>
LOANS RECEIVABLE
Average loans receivable, net of the allowance for loan losses,
increased $ 9,646,000 or 13% in 1999. The increase in loans was directly
attributable to increased marketing efforts, favorable economic conditions in
Community's market area and competitive pricing. Table 4 provides an analysis of
Community's loan distribution at the end of each of the last two years. Consumer
loans include revolving credit plans, personal lines of credit, and installment
loans. Loans that are secured by real estate include residential and
nonresidential mortgages and home equity loans to individuals.
TABLE 4 - LOAN PORTFOLIO
December 31,
1999 1998
----------------------------------
(In Thousands)
Commercial, financial and agricultural $ 22,810 $ 16,019
Consumer, net of unearned discount 5,721 5,185
Real estate 58,336 58,856
All other 384 464
----------------------------------
$ 87,251 $ 80,524
==================================
TABLE 5 - LOAN MATURITIES
The following table shows the maturity of loans (excluding residential mortgages
of 1-4 family residences and consumer loans) outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Due In One Due In One Due In Over Five
Year Or Less To Five Years Years Total
---------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 3,660 $ 13,226 $ 5,924 $ 22,810
All other 36 124 224 384
---------------------------------------------------------------------
$ 3,696 $ 13,350 $ 6,148 $ 23,194
=====================================================================
Interest rates on loans which are:
Fixed $ 10,899 $ 5,853
Floating 2,451 295
-------------------------------------
$ 13,350 $ 6,148
=====================================
</TABLE>
89
<PAGE>
NONPERFORMING LOANS
Table 6 reflects Community's nonaccrual, past due and restructured
loans for each of the past two years. 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 6 - NONPERFORMING LOANS
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------------
(In Thousands)
<S> <C> <C>
Average loans outstanding $ 84,758 $ 74,859
==================================
Nonaccrual loans:
Commercial $ 2,297 $ -
Real estate 153 93
Consumer - -
----------------------------------
Total nonaccrual loans 2,450 93
Accruing loans past due 90 days or more 584 202
Restructured loans - -
----------------------------------
$ 3,034 $ 295
==================================
Ratio of nonperforming loans to average loans outstanding 3.58% 0.39%
==================================
</TABLE>
All of the nonaccrual loans at December 31, 1999 are secured by real
estate or otherwise guaranteed as to repayment. Management has identified
$ 2,525,000 as potential problem loans that are not included in the above table.
TABLE 7 - NONACCRUAL AND RESTRUCTURED LOANS - RELATED INFORMATION
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------------
(In Thousands)
<S> <C> <C>
Interest income that would have been recorded under original terms $ 59 $ 8
Interest income reported during the period - -
Commitments to lend additional funds - -
</TABLE>
90
<PAGE>
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 8 is an analysis of the allowance for loan
losses for the past two years.
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------------
(In Thousands)
<S> <C> <C>
Average loans outstanding $ 84,758 $ 74,859
==================================
Allowance for loan losses at January 1 $ 720 $ 540
----------------------------------
Losses charged to allowance:
Commercial 88 -
Real estate 40 42
Consumer 16 26
----------------------------------
144 68
----------------------------------
Recoveries credited to allowance:
Commercial 24 1
Real estate - 3
Consumer 2 4
----------------------------------
26 8
----------------------------------
Net charge-offs 118 60
Provision for loan losses 610 240
----------------------------------
Allowance for loan losses at December 31 $ 1,212 $ 720
==================================
Ratio of net charge-offs to average loans outstanding 0.14% 0.08%
==================================
</TABLE>
91
<PAGE>
ALLOWANCE FOR LOAN LOSSES (CONTINUED)
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 9 reflects the
allocations of the allowance for loan losses for each of the past two years.
TABLE 9 - ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31
1999 1998
-------------------------------------------------------------
% Of % Of
Amount Loans Amount Loans
-------------------------------------------------------------
(In Thousands)
Commercial $ 1,121 26.6 % $ 602 20.2 %
Real estate 75 66.8 103 73.4
Consumer 16 6.6 15 6.4
-------------------------------------------------------------
$ 1,212 100.0 % $ 720 100.0 %
=============================================================
Highly leveraged transactions (HLTs) generally include loans and
commitments made in connection with recapitalizations, acquisitions, and
leveraged buyouts and result in the borrower's debt-to-total assets ratio
exceeding 75%. Bernville Bank had no loans at December 31, 1999 that qualified
as HLTs.
SECURITIES
Community's securities' portfolio is classified as either "held to
maturity" or "available for sale". At December 31, 1999, all of Community's
securities were classified as available for sale. Securities classified as held
to maturity are carried at amortized cost and include those securities that the
bank has both the intent and ability to hold to maturity. Securities classified
as available for sale, which are those securities that the bank intends to hold
for an indefinite amount of time, but not necessarily to maturity, are carried
at fair value with the unrealized holding gains or losses, net of taxes,
reported as accumulated other comprehensive income on the balance sheet.
Average securities increased to $ 13,934,000 in 1999 from $ 11,555,000 in
1998. The increase of $ 2,379,000 or 21% was primarily due to the purchase of
U.S. Government agency obligations with proceeds from the deposit growth.
92
<PAGE>
SECURITIES (CONTINUED)
Table 10 sets forth the carrying amount of securities at the dates
indicated.
TABLE 10 - SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------------
(In Thousands)
Available for sale securities (at fair value):
<S> <C> <C>
U.S. Treasury securities $ 2,002 $ 4,568
U.S. Government agencies 9,370 7,099
State and political subdivisions 759 462
Corporate securities 384 -
Equity securities 869 747
----------------------------------
$ 13,384 $ 12,876
==================================
</TABLE>
Table 11 sets forth the maturities and the weighted average yields of
securities by contractual maturities at December 31, 1999. Yields on obligations
of states and political subdivisions are not presented on a tax equivalent
basis.
TABLE 11 - ANALYSIS OF SECURITIES
<TABLE>
<CAPTION>
Maturing
After One Year But After Five Years
Within One Year Within Five Years But Within Ten Years After Ten Years
--------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
--------------------------------------------------------------------------------------
(In Thousands)
Available for sale:
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 2,002 6.20 % $ - -% $ - - % $ - - %
U.S. Government agencies 1,496 6.00 7,874 5.60 - - - -
Corporate securities - - 384 6.07 - - - -
State and political subdivisions 85 4.10 369 4.55 204 4.55 101 4.10
------------- ------------- ----------- -----------
$ 3,583 6.07 % $ 8,627 5.46 % $ 204 4.55% $ 101 4.10%
============= ============= =========== ===========
</TABLE>
DEPOSITS
Community's primary source of funds continues to be core deposit
accounts which include both interest and noninterest bearing demand, savings and
time deposits under $ 100,000. Core deposits increased an average of $ 5,262,000
or 7% in 1999. The largest category of core deposits and the primary source of
funds continues to be time deposits under $ 100,000. This category includes
certificates of deposit, which allow customers to invest their funds at selected
maturity ranges from fourteen days to ten years, individual retirement accounts,
and Bernville Bank's savings accounts. The average balance of these funds
decreased $ 35,000 or .10% in 1999. An increase in the average balance of demand
deposits of $1,375,000 was noted. This represents an increase of 17% over 1998
levels.
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<PAGE>
DEPOSITS (CONTINUED)
Interest bearing demand accounts, consisting of N.O.W. and Money Market
accounts, increased an average of $4,241,000 or 22% in 1999. The increase was a
result of competitive pricing of the money market product.
TABLE 12 - AVERAGE DEPOSITS AND AVERAGE RATES BY MAJOR CLASSIFICATION
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------
Amount Rate Amount Rate
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 9,678 - % $ 8,303 - %
Interest-bearing demand 23,189 3.32 18,948 3.39
Savings deposits 9,433 2.24 9,752 2.27
Time deposits 46,333 5.37 41,048 5.55
----------------- ----------------
$ 88,633 $ 78,051
================= ================
</TABLE>
At December 31, 1999, time deposits outstanding in an individual amount
of $ 100,000 or more totaled $ 5,636,000. The maturities of these deposits are
reflected in Table 13.
TABLE 13 - MATURITIES OF TIME DEPOSITS OF $100,000 OR MORE
December 31, 1999
------------------
(In Thousands)
Three months or less $ 2,758
Over three months through six months 448
Over six months through twelve months 832
Over twelve months 1,598
------------------
$ 5,636
==================
SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Borrowed funds are utilized when timing differences occur between the
purchase of new assets and the maturity of existing assets. Management also uses
borrowed funds as an asset/liability tool to match the repricing characteristics
of certain earning assets, allowing for core funds to be used for additional
loan volume or security purchases.
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<PAGE>
SHORT-TERM BORROWINGS AND LONG-TERM DEBT (CONTINUED)
TABLE 14 - BORROWED FUNDS December 31,
1999 1998
----------------------------------
(In Thousands)
Short-term borrowings $ 10,471 $ 3,423
Long-term debt - 5,000
----------------------------------
$ 10,471 $ 8,423
==================================
Community 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 $ 391,000 and $ 88,000 at December 31, 1999 and 1998
respectively, with interest payable at a variable rate (4.52% and 4.11% at
December 31, 1999 and 1998, respectively).
Community has an arrangement with the Federal Home Loan Bank (FHLB)
which allows for borrowings up to a maximum percentage of qualifying assets. At
December 31, 1999, Bernville Bank has a maximum borrowing capacity of
$ 30,530,000.
Community has a line of credit under the "RepoPlus" Advance program
with the Federal Home Loan Bank which expires April 15, 2000 for borrowings up
to $ 20,000,000. Borrowings under this line of credit were $ 10,080,000 and
$ 3,335,000 at December 31, 1999 and 1998, respectively.
Long-term debt in 1998 is an advance from the Federal Home Loan Bank
under a note totaling $ 5,000,000 at a fixed rate of interest of 6.02% which
matured in 1999.
CAPITAL REQUIREMENTS/RATIOS
Community places a significant emphasis on maintaining a strong capital
base. The capital resources of Bernville Bank consist of two major components of
regulatory capital, stockholders' equity and the allowance for loan losses.
Bernville Bank's capital maintained growth during 1999.
Current capital guidelines issued by federal regulatory authorities
require the bank to meet minimum risk-based capital ratios in an effort to make
regulatory capital more responsive to the risk exposure related to a bank's on
and off balance sheet items.
Risk-based capital guidelines redefine the components of capital,
categorize assets into risk classes and include certain off-balance sheet items
in the calculation of capital requirements. The components of risk-based capital
are segregated as Tier I and Tier II capital. Tier I capital is composed of
total stockholders' equity reduced by goodwill and other intangible assets. Tier
II capital is comprised of the allowance for loan losses and any qualifying debt
obligations. Regulators also have adopted minimum requirements of 4% of Tier I
capital and 8% of risk-adjusted assets in total capital.
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<PAGE>
CAPITAL REQUIREMENTS/RATIOS (CONTINUED)
Community is also subject to leverage capital requirements. This
requirement compares capital (using the definition of Tier I capital) to balance
sheet assets and is intended to supplement the risk-based capital ratio in
measuring capital adequacy. The guidelines set a minimum leverage ratio of 3%
for institutions that are highly rated in terms of safety and soundness, and
which are not experiencing or anticipating any significant growth. Other
institutions are expected to maintain capital levels of at least 1% or 2% above
the minimum. As of December 31, 1999 Community had a leverage ratio of 6.54%.
TABLE 15 - CAPITAL RATIOS
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------
(In Thousands)
<S> <C> <C>
Tier I, common stockholders' equity $ 7,163 $ 7,058
Tier II, allowable portion of allowance for loan losses 999 720
-----------------------------------
Risk-based capital $ 8,162 $ 7,778
===================================
Risk adjusted assets, including off-balance-sheet exposures $ 79,886 $ 71,192
===================================
Tier 1 risk-based capital ratio
8.97% 9.91%
===================================
Total risk-based capital ratio
10.22% 10.93%
===================================
</TABLE>
Note: Unrealized gains or losses on securities available for sale are
excluded from regulatory capital components of risk-based capital and leverage
ratios.
CAPITAL ANALYSIS
During 1999, Community paid cash dividends to its stockholders
amounting to $ 174,000 compared to $ 167,000 in 1998. On a per share basis,
Community paid dividends of $ .25 in 1999 compared to $ .24 in 1998.
On June 25, 1998, the Board of Directors declared a two-for-one stock
split in the form of a 100% stock dividend on common stock outstanding, payable
on July 31, 1998 to stockholders of record on July 17, 1998. The stock split
resulted in the issuance of 348,387 additional common shares and all per share
data has been adjusted for the effect of the stock split.
Also, on June 25, 1998, Community adopted a dividend reinvestment and
stock purchase plan available to stockholders who elect to reinvest their cash
dividends for the purchase of additional shares of Community's common stock.
Participants may also elect to make voluntary cash payments not to exceed
$ 2,500 each quarter for the purchase of additional shares of Community's common
stock. The common stock must be purchased in the open market through May 1999.
Subsequent to that date, it may be purchased in the open market or from
authorized but unissued shares, substantially at prevailing market prices.
Community has reserved 225,000 shares of common stock for possible issuance
under the plan. During 1999, 1,863 shares were purchased through this plan in
the amount of $21,435.
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<PAGE>
CAPITAL ANALYSIS (CONTINUED)
Stockholders' equity is adjusted for the effect of unrealized gains and
losses, net of tax, on securities classified as available for sale. At December
31, 1999 and 1998, stockholders' equity included $ (107,000) and $ 99,000
respectively, in unrealized (losses)/gains.
The return on average equity at December 31, 1999 was 3.34%, a decrease
from 7.90% at December 31, 1998.
<TABLE>
<CAPTION>
Relationship Between
Significant Financial Ratios
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Return on average equity 3.34 % 7.90 %
Earnings retained 27.86 69.25
Internal capital growth .93 5.47
Change in average assets 13.97 27.00
Equity to average assets 6.80 7.38
Growth in average equity 5.07 7.64
Dividend payout ratio 72.14 30.75
</TABLE>
Note: Internal capital growth is equal to return on average equity multiplied by
earnings retained.
INTEREST RATE SENSITIVITY AND MARKET RISK
The operations of Community are subject to risk resulting from interest
rate fluctuations to the extent that there is a difference between the amount of
Community'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 Community'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 Community. Community 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.
Another method used by management to review its interest sensitivity
position is through "simulation". In simulation, Community projects the future
net interest streams in light of the current gap position. Various interest rate
scenarios are used to measure levels of interest income associated with
potential changes in our operating environment. Management cannot measure levels
of interest income associated with potential changes in Community's operating
environment. Management cannot predict the direction of interest rates or how
the mix of assets and liabilities will change. The use of this information will
help formulate strategies to minimize the unfavorable effect on net interest
income caused by interest rate changes.
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<PAGE>
INTEREST RATE SENSITIVITY AND MARKET RISK (CONTINUED)
The operations of Community do not subject it to foreign currency
exchange or commodity price risk. Also, Community does not utilize interest rate
swaps, caps or other hedging transactions.
Community's overall sensitivity to interest rate risk is low due to its
non-complex balance sheet. Bernville Bank has implemented several strategies to
manage interest rate risk which include selling newly originated residential
mortgages, increasing the volume of variable rate commercial loans and
maintaining a short maturity in the investment portfolio.
The following table provides information about Community'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. Community has
no market risk sensitive instruments entered into for trading purposes.
TABLE 16 - INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
Over Three Over Six Over One
Months But Months But Year But
Three Months Within Six Within One Within Three Over Three
Or Less Months Year Years Years Total
-----------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits with
other banks $ 13 $ - $ - $ - $ - $ 13
Securities (amortized cost):
U.S. treasuries 500 499 1,001 - - 2,000
U.S. Government agencies - - 1,499 8,014 - 9,513
Municipals - 85 - 200 480 765
Corporate obligations - - - 100 297 397
Loans 10,842 1,954 4,243 17,710 52,130 86,879
-----------------------------------------------------------------------------------
Total interest-earning assets 11,355 2,538 6,743 26,024 52,907 99,567
-----------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing demand deposits (1) 4,479 - - 20,081 - 24,560
Savings deposits (2) 67 - 93 - 9,008 9,168
Time deposits 12,507 4,706 8,974 17,505 2,742 46,434
Short-term borrowings 11,132 - - - - 11,132
Long-term borrowings - - - - - -
-----------------------------------------------------------------------------------
Total interest-bearing
liabilities 28,185 4,706 9,067 37,586 11,750 91,294
-----------------------------------------------------------------------------------
Interest sensitivity gap $ (16,830) $ (2,168) $ (2,324) $ (11,562) $ 41,157 $ 8,273
===================================================================================
Cumulative sensitivity gap $ (16,830) $ (18,998) $ (21,322) $ (32,884) $ 8,273
=====================================================================
<FN>
(1) Interest-bearing demand deposits over one year but within three years
include mostly money markets which normally do not reprice on a regular
basis.
(2) Three months or less consist of vacation clubs, over six months but within
one year consist of Christmas clubs and over three years consist of
regular savings which normally do not reprice on a regular basis.
</FN>
</TABLE>
98
<PAGE>
LIQUIDITY
Liquidity management involves meeting the funds flow requirements of
customers who may either be depositors wanting to withdraw funds, or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. Liquid assets consist of vault cash, securities and maturities of earning
assets.
Community's principal source of asset liquidity is the securities
portfolio. As disclosed in Note 3 of the financial statements, the carrying
value of securities maturing in less than one year equals $ 3,585,000. Other
sources of funds are principal pay downs and maturities in the loan portfolio.
The loan maturity schedule (Table 5) illustrates the maturities of commercial
loans.
Community also has sources of liability liquidity which include core
deposits and borrowing capacity at the Federal Home Loan Bank as previously
discussed.
Management believes that Community's liquidity is sufficient to meet
its anticipated needs.
EFFECTS OF INFLATION
The majority of assets and liabilities of a financial institution are
monetary in nature, and therefore, differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. The precise impact of inflation upon Community is difficult to
measure. Inflation may affect the borrowing needs of consumers, thereby
impacting the growth rate of Community's assets. Inflation may also affect the
general level of interest rates, which can have a direct bearing on Bernville
Bank.
Management believes the most significant impact on financial results is
Community's ability to react to changes in interest rates. As discussed
previously, management is attempting to maintain an essentially balanced
position between interest sensitive assets and liabilities in order to protect
against wide interest rate fluctuations.
FINANCIAL SERVICES MODERNIZATION
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999, federal legislation intended to modernize the
financial services industry by establishing a comprehensive framework to permit
affiliations among commercial banks, insurance companies, securities firms, and
other financial services providers. Generally, the Act:
o Repeals the historical restrictions and eliminates many
federal and state law barriers to affiliations among banks,
securities firms, insurance companies and other financial
insurance providers;
o Provides a uniform framework for the functional regulation
of the activities of banks, savings institutions and their
holding companies;
o Broadens the activities that may be conducted by national
banks, banking subsidiaries or financial holding companies
and their subsidiaries;
99
<PAGE>
o Provides an enhanced framework for protecting the privacy of
consumer information;
o Adopts a number of provisions related to the capitalization,
membership, corporate governance and other measures designed
to modernize the Federal Home Loan Bank System;
o Modifies the laws governing the implementation of the
Community Reinvestment Act; and
o Address a variety of other legal and regulatory issues
affecting both day- to-day operations and long-term
activities of financial institutions.
Bank holding companies that elect to become financial holding companies
will be permitted to engage in a wider variety of financial activities than
permitted under prior law, particularly with respect to insurance and securities
activities. In addition, in a change from prior law, bank holding companies may
be owned, controlled or acquired by any company engaged in financially related
activities.
Management does not believe that the Act will have a material adverse
affect on Community's operations in the near term. However, to the extent that
the Act permits banks, securities firms and insurance companies to affiliate,
the financial services industry may experience further consolidation. This could
result in a growing number of larger financial institutions that offer a wider
variety of financial services than Community currently offers and that can
aggressively compete in the markets Community currently serves.
100
<PAGE>
COMMUNITY: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Management's Discussion and Analysis of Financial Condition and Results
of Operations analyzes the major elements of Community's balance sheets and
statements of income. This should be read in conjunction with Community's
financial statements and accompanying footnotes.
OVERVIEW
Community's net loss for the second quarter of 2000 was $67,594, a
decrease of $171,057, or 165.33% from $103,463 net income for the second quarter
of 1999. Net income for the six months ended June 30, 2000 was $42,348, 81.05%
less than the $223,496 reported for the same period in 1999. Total assets
decreased to $105,335,225 at June 30, 2000, a decrease of $4,200,701, or 3.83%
from $109,535,926 at December 31, 1999.
During the six months ended June 30, 2000, loans receivable decreased
3.36% to $82,793,524 from $85,668,141 at December 31, 1999, while deposits
increased 0.85% to $91,363,524 from $90,596,201 at December 31, 1999.
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the primary source of operating income for
Community. Net interest income is the difference between interest earned on
loans and securities and interest paid on deposits and other funding sources.
Generally, changes in net interest income are measured by net interest rate
spread and net interest margin. Net interest rate spread is equal to the
difference between the average rate earned on earning assets and the average
rate incurred on interest-bearing liabilities. Net interest margin represents
the difference between interest income (including net loan fees earned) and
interest expense calculated as a percentage of average earning assets. The
factors that influence net interest income include changes in interest rates and
changes in the volume and mix of asset and liability balances.
Community's net interest income decreased $128,181 or 12.86% to
$868,503 during the second quarter of 2000 from $996,684 during the second
quarter of 1999. For the first six months of 2000, net interest income decreased
$160,500 or 8.22% to $1,792,962 from $1,953,462 during the first six months of
1999.
Interest income decreased $56,122 or 2.82%, from $1,989,990 for the
second quarter of 1999 to $1,933,868 for the second quarter of 2000, while
interest expense increased $72,059 or 7.25%, from $993,306 for the second
quarter of 1999 to $1,065,365 for the second quarter of 2000. For the first six
months of 2000, interest income decreased $8,556 or 0.22% to $3,904,091 from
$3,912,647 for the first six months of 1999; interest expense increased $151,944
or 7.76% from $1,959,185 for the first six months of 1999 to $2,111,129 for the
first six months of 2000.
The decreases in interest income are principally due to lower levels of
loans receivable and taxable securities and $2.7 million in loans on non-accrual
status while the increase in interest expense was due to interest bearing
deposits growth.
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<PAGE>
Net interest margin decreased 57 basis points from 4.07% in the second
quarter of 1999 to 3.50% in the second quarter of 2000. Net interest margin
decreased 48 basis points from 4.07% for the first six months of 1999 to 3.59%
for the first six months of 2000. Net interest margin decreased primarily due to
an increase in non-performing assets to 2.84% of total assets or $2,991,000 at
June 30, 2000 compared to $229,000 or 0.21% of total assets at June 30, 1999.
For the second quarter of 2000, the average yield on earning assets
decreased 28 basis points to 7.83% from 8.11% for the second quarter of 1999.
For the first six months of 2000, the average yield on earning assets decreased
30 basis points to 7.85% from 8.15% for the first six months of 1999. The
decrease was caused primarily by a decrease in loans receivable and investment
portfolio and the increase of $2,762,000 in non-performing assets at June 30,
2000.
For the second quarter of 2000, the average rate paid on
interest-bearing liabilities increased 34 basis points to 4.80% from 4.46% for
the second quarter of 1999. For the first six months of 2000, the average rate
paid on interest-bearing liabilities increased 19 basis points to 4.72% from
4.53% for the first six months of 1999. The increase was caused primarily by an
increase in interest-bearing deposits.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $260,000 for the second quarter of
2000 compared to $90,000 for the second quarter of 1999. For the first six
months of 2000, the loan loss provision was $290,000 compared to $180,000 for
the first six months of 1999.
The allowance for loan losses represented 1.33% and 1.39% of total
loans receivable at June 30, 2000 and at December 31, 1999, respectively.
Management performs periodic evaluations of the loan portfolio. 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 potential losses in
the portfolio. Management believes that the allowance for loan losses is
adequate for each of the periods presented, however, due to the significant
amount of non-performing loans, an additional provision of $200,000 was added to
the reserve account during the second quarter of 2000.
OTHER INCOME
Total other income increased $7,570 or 4.60% from $164,601 during the
second quarter of 1999 to $172,171 during the second quarter of 2000. For the
first six months of 2000, total other income decreased $7,611 or 2.28% to
$325,691 from $333,302 for the first six months of 1999. This decrease was
primarily due to a $16,483 decrease in net gains from the sale of mortgages and
a decrease in other income of $18,295 primarily due to a decrease in mortgage
lending activity causing a decrease in mortgage loan fees. The decreases in the
net gains from the sale of mortgages and mortgage lending activity were
partially offset by increased customer fees, insufficient fund fees, ATM
convenience fees, and CD early withdrawal penalty fees of approximately $6,000,
$11,000, $7,000, and $3,000 respectively.
102
<PAGE>
OTHER EXPENSES
Total other expenses decreased $32,955 or 3.54% during the second
quarter of 2000 versus the same period in 1999, from $930,086 to $897,131. Total
other expenses for the first six months of 2000 remained relatively the same as
the same period in 1999.
Salaries and employee benefits, which represent the largest component
of other expenses decreased $126,688 or 25.72% from $492,510 for the second
quarter of 1999 to $365,822 for the same period in 2000. Salaries and employee
benefits decreased primarily due to the unexpected resignation of the
President/CEO on March 23, 2000 and the subsequent reversal of the salary
continuation accrued liability of approximately $72,000. For the first six
months in 2000, salaries and employee benefits decreased $143,533 or 15.06% to
$809,291 from $952,824 for the same period in 1999 primarily due to the
resignation of the President/CEO in March 2000, salary continuation accrual
reversal, and reduced staff during the first six months of 2000.
Occupancy expense decreased $5,651 or 5.88%, to $90,379 for the second
quarter of 2000 versus $96,030 for the second quarter of 1999. For the first six
months of 2000, occupancy expense decreased $6,839 or 3.61% to $182,847 from
$189,686 for the same period 1999. The decrease was primarily due to reduced
leasing costs due to the closing of the Loan Center office in the third quarter
1999.
Equipment expense increased $17,924 or 20.82%, from $86,075 for the
second quarter of 1999 to $103,999 for the second quarter of 2000. For the first
six months of 2000, equipment expense increased $39,253 or 23.36% to $207,273
from $168,020 for the same period in 1999. The increase in equipment expense was
the result of increases in software support and depreciation, primarily due to
the installation of a new proof system in the fourth quarter 1999 and a new IBM
AS/400 operating system at the end of the first quarter 2000.
Marketing and advertising expenses increased $7,467 or 23.06% to
$39,853 for the second quarter of 2000 versus $32,386 for the second quarter of
1999. For the first six months of 2000, the marketing and advertising expenses
increased $17,822 or 37.13% to $65,816 from $47,994 for the same period in 1999.
The increase in marketing and advertising expenses for the first six months of
2000 was due to continued advertising efforts and advertising agency expenses to
develop Community's new image campaign.
Loan collection and foreclosed real estate expenses increased $30,597 or
376.95% to $38,714 for the second quarter of 2000 versus $8,117 for the second
quarter of 1999. For the first six months in 2000, loan collection and
foreclosed real estate expenses increased $52,759 or 347.67% to $67,934 from
$15,175 for the same period in 1999. Increases in loan collections and
foreclosed real estate expenses were primarily due to increased efforts in the
collection and work-out of non-performing assets.
Professional fees increased $68,483 or 798.45% to $77,060 for the
second quarter of 2000 versus $8,577 for the second quarter of 1999. For the
first six months of 2000, professional fees were $118,505 versus $23,827 for the
same period in 1999, an increase of $94,678 or 397.36%. Professional fees for
the second quarter and first six months of 2000 were higher than the same
periods the previous year due primarily to additional internal audits performed
by an outside firm, CEO search fees, fees related to the collection and work-out
of non-performing assets and fees incurred to initiate profitability studies.
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<PAGE>
Stationery and supplies expense decreased $10,104 or 45.38% to $12,160
for the second quarter of 2000 versus $22,264 for the second quarter of 1999.
For the first six months of 2000, stationery and supplies expense was $22,384
versus $49,294 for the same period in 1999, a decrease of $26,910 or 54.59%. The
decrease in the stationery and supplies expense is primarily a result of the
creation of supply inventory and purchasing software for managing Bernville
Bank's purchasing function.
Other operating expenses decreased from $184,127 for the second quarter
of 1999 to $169,144 for the same period in 2000, a decrease of $14,983 or 8.14%.
For the first six months of 2000, other operating expenses decreased $26,943 or
7.62% to $326,416 from $353,359 for the same period in 1999. Other operating
expenses included in this category that experienced decreases for the current
period include telephone, postage, travel, and employee programs due to
increased efforts to control expenses.
INCOME TAXES
Income tax benefit was $48,863 for the second quarter 2000 and $14,161
for the first six months of 2000. The tax benefit was primarily a result of
income on tax-exempt securities and loans outpacing taxable income, primarily
due to the effect of non-performing assets on interest and fees on the loans
receivable.
YEAR 2000
The transition to year 2000 went smoothly with no major problems being
discovered. Cash levels that were increased to accommodate year-end liquidity
needs were reduced to normal levels during the first quarter 2000.
REGULATORY AGREEMENT
On January 24, 2000, Bernville Bank entered into a Memorandum of
Understanding ("MOU") with the Office of the Comptroller of the Currency
("OCC"), whereby Bernville Bank has agreed to take certain actions in response
to concerns raised by the OCC. The MOU is not a formal supervisory action by the
OCC. The actions that Bernville Bank agreed to take are generally in the nature
of improving Bernville Bank's internal procedures and policies. Bernville Bank
believes that it is materially in compliance with the implementation of steps
necessary to comply with its obligations under the MOU.
FINANCIAL CONDITION
SECURITIES
Securities decreased to $13,290,613 at June 30, 2000, from $13,383,658
at December 31, 1999. The decrease of $93,045 or 0.70% is primarily due to a
maturing $85,000 municipal security.
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<PAGE>
LOANS
Loans receivable, net of the allowance for loan losses of $1,115,181 at
June 30, 2000 and $1,211,628 at December 31, 1999 decreased to $82,793,524 at
June 30, 2000 from $85,668,141 at December 31, 1999. The decrease of $2,874,617
or 3.36% was primarily due to decreases in the mortgage and commercial loan
portfolios and normal loan pay-downs.
LOAN AND ASSET QUALITY
Total non-performing loans (comprised of non-accruing loans and loans
past due for more than 90 days and still accruing) as a percentage of average
loans outstanding as of June 30, 2000 was 3.10%, compared with 3.59% at December
31, 1999. Total non-performing loans decreased to $2,673,000 at June 30, 2000,
from $3,040,000 at December 31, 1999. The decrease in total non-performing loans
of $367,000 is primarily attributable to a combination of non-performing loans
paid off and additional loans classified as non-performing.
Bernville Bank had other real estate owned (OREO) consisting of three
properties in the amount of $318,203 at June 30, 2000 and one property in the
amount of $47,600 at December 31, 1999.
The following schedule displays detailed information about Bernville
Bank's non-performing assets and the allowance for loan losses for the periods
ended June 30, 2000, December 31, 1999 and June 30, 1999.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999 June 30, 1999
(In thousands)
<S> <C> <C> <C>
Average loans outstanding $86,195 $84,758 $83,407
=====================================================
Allowance for loan losses $ 1,115 $ 1,212 $ 853
=====================================================
Non-performing loans:
Non-accruing loans $ 2,666 $ 2,456 $ 0
Accruing loans past due
90 days or more 7 584 90
-----------------------------------------------------
Total non-performing loans 2,673 3,040 90
Other real estate 318 48 139
-----------------------------------------------------
Total non-performing assets $ 2,991 $ 3,088 $ 229
=====================================================
Non-performing loans to average
loans outstanding 3.10% 3.59% 0.11%
Non-performing assets to total assets 2.84% 2.82% 0.21%
Allowance for loan losses to total
non-performing loans 41.72% 39.87% 947.78%
Allowance for loan losses to
average loans outstanding 1.29% 1.43% 1.02%
</TABLE>
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POTENTIAL PROBLEM LOANS
At June 30, 2000, Bernville Bank has $1,009,971 in commercial loans for
which the payments are presently current, but the borrowers are experiencing
financial difficulties. These loans are subject to constant management attention
and their classification is reviewed quarterly.
DEPOSITS
Total deposits at June 30, 2000 were $91,363,524, an increase of
$767,323 or 0.85% over total deposits of $90,596,201 at December 31, 1999. All
deposit categories except non-interest bearing demand accounts, money market
deposit accounts, and individual retirement accounts increased from December 31,
1999 to June 30, 2000, with the most significant increases in time deposits
greater than $100,000. Time deposits greater than $100,000 increased $5,049,810
or 93.18% since December 31, 1999. Interest checking deposits increased $625,763
or 13.97% in the same period. Savings accounts increased $126,470 or 1.38% since
December 31, 1999. The increase in deposits was primarily a result of
competitive pricing and was primarily used to pay down Bernville Bank's
overnight FHLB borrowings.
OTHER BORROWED FUNDS AND LONG-TERM DEBT
Other borrowed funds including securities sold under agreements to
repurchase and long-term debt decreased $4,918,045 from $11,132,129 at December
31, 1999 to $6,214,084 at June 30, 2000. The decrease was primarily a result of
the increase in deposits of $767,323, a decrease in cash and cash equivalents of
$1,329,347 and a decrease in net loans of $2,874,617. Cash and cash equivalents
levels were reduced from higher levels as higher liquidity was anticipated
during the century date rollover. The need for higher liquidity for Year 2000
concerns did not materialize and cash and cash equivalent levels were decreased
to normal levels.
STOCKHOLDERS' EQUITY AND CAPITAL RATIOS
Total stockholders' equity at June 30, 2000 was $7,207,017 compared to
$7,241,902 at December 31, 1999. In the third quarter of 1999, Community
implemented a dividend reinvestment program that resulted in additional capital
during the first six months of 2000 of $16,944. As mentioned previously, this
Plan was terminated in July 2000. The retained net earnings of Community of
$42,348 was enhanced by unrealized gains on securities available for sale of
$3,692. A comparison of Bernville Bank's capital ratios is as follows:
June 30, 2000 December 31, 1999
Tier 1 Capital 6.76% 6.54%
(to average assets)
Tier 1 Capital 9.55% 8.97%
(to risk-weighted assets)
Total Capital 10.80% 10.22%
(to risk-weighted assets)
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The minimum capital requirements imposed by federal regulatory
authorities for Leverage, Tier 1 and Total Capital are 4%, 4% and 8%,
respectively. The consolidated capital ratios are not materially different from
Bernville Bank's capital ratios. At June 30, 2000 and December 31, 1999,
Community and Bernville Bank exceeded the minimum capital ratio requirements and
are considered "well capitalized".
INTEREST RATE SENSITIVITY
The operations of Bernville Bank are subject to risk resulting from
interest rate fluctuations to the extent that there is a difference between the
amount of Bernville Bank's interest earning assets and the amount of interest
bearing liabilities that are prepaid/withdrawn, mature or re-price in specified
periods.
The principal objective of Bernville Bank'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 Bernville Bank. Bernville Bank 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 re-pricing 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.
Another method used by management to review its interest sensitivity
position is through "simulation". In simulation, Bernville Bank projects the
future net interest streams in light of the current gap position. Various
interest rate scenarios are used to measure levels of interest income associated
with potential changes in Bernville Bank's operating environment. Management
cannot measure levels of interest income associated with potential changes in
Bernville Bank's operating environment. Management cannot predict the direction
of interest rates or how the mix of assets and liabilities will change. The use
of this information will help formulate strategies to minimize the unfavorable
effect on net interest income caused by interest rate changes.
The operations of Bernville Bank do not subject it to foreign currency
exchange or commodity price risk. Also, Bernville Bank does not utilize interest
rate swaps, caps or other hedging transactions.
Bernville Bank's overall sensitivity to interest rate risk is low due
to its non-complex balance sheet. Bernville Bank has implemented several
strategies to manage interest rate risk which include selling most newly
originated residential mortgages, increasing the volume of variable rate
commercial loans and maintaining a short maturity in the investment portfolio.
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LIQUIDITY
Liquidity management involves meeting the funds flow requirements of
customers who may either be depositors wanting to withdraw funds, or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. Liquid assets consist of vault cash, securities and maturities of earning
assets.
Bernville Bank's principal source of asset liquidity is the securities
portfolio. The carrying value of securities maturing in less than one year
equals $4,700,000. Another source of funds is maturities in the loan portfolio.
Bernville Bank also has sources of liability liquidity which include
core deposits and borrowing capacity at the Federal Home Loan Bank. The
short-term borrowing capacity from FHLB was in excess of $29 million at June 30,
2000.
Management believes that Bernville Bank's liquidity is sufficient to
meet its anticipated needs.
FUTURE OUTLOOK
Bernville Bank announced the resignation of Arlan J. Werst, effective
March 23, 2000. Karl D. Gerhart and Walter J. Potteiger were then designated as
the transition team to manage the day to day affairs of the bank. On April 13,
2000, Karl D. Gerhart was appointed acting President and CEO.
A cash dividend of seven cents per share was declared to shareholders of
record on August 4, 2000, payable on August 17, 2000. Effective July 24, 2000,
Community's Dividend Reinvestment Plan was suspended with the execution of a
definitive agreement for National Penn to acquire Community.
The basic terms of the definitive agreement call for the tax-free
exchange of .9 share of National Penn common stock for each share of Community
common stock. Based on National Penn's July 21, 2000 closing price of $21.88 per
share, the value per share of Community would be $19.69. This price equates to
56.25 times Community's estimated trailing twelve months earnings, and a
multiple of 1.89 times Community's book value as of March 31, 2000. The
transaction is expected to be consummated in the first quarter of 2001.
As of July 24, 2000, Community had 700,327 shares of common stock
outstanding and options for approximately 22,600 additional shares.
Upon completion of the merger of Community into National Penn, National
Penn intends to merge Bernville Bank into National Penn Bank as part of its
Berks County Division.
One member of the Community Board will be mutually selected to become a
director of National Penn and that person and another mutually selected person
will become directors of National Penn Bank. All current members of the
Community Board will become members of National Penn Bank's Berks County
Division Board.
National Penn will have assets of $2.6 billion following the
acquisition, which is subject to regulatory approval, as well as approval of
shareholders of Community, National Penn
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anticipates that the transaction will close in the first quarter of 2001 and
will be accounted for as a pooling of interests.
National Penn currently operates 56 banking offices in southeastern
Pennsylvania through National Penn Bank and its divisions, Chestnut Hill
National Bank, 1st Main Line Bank, National Asian Bank, and Elverson National
Bank, and three banking offices in the North Jersey - New York City marketplace
through Panasia Bank. Trust and investment management services are provided
through Investors Trust company; brokerage services are provided through Penn
Securities, Inc.; and mortgage banking activities are provided through Penn 1st
Financial Services, Inc.
National Penn common stock is traded on the Nasdaq Stock Market under
the symbol "NPBC." Additional information about the National Penn family is
available on National Penn's website at http://www.natpennbank.com.
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DESCRIPTION OF NATIONAL PENN CAPITAL SECURITIES
The authorized capital stock of National Penn consists of 62,500,000
shares of common stock, no par value, and 1,000,000 shares of authorized
preferred stock.
As of the date of this proxy statement/prospectus, there are _________
shares of National Penn common stock issued and outstanding, _________ shares
held by National Penn as treasury stock, and no shares of National Penn
preferred stock issued or outstanding. There are no other shares of capital
stock of National Penn authorized, issued or outstanding.
National Penn 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 National Penn's various stock
compensation and dividend reinvestment plans.
COMMON STOCK
DIVIDENDS
The holders of National Penn common stock share ratably in dividends
when and if declared by National Penn's board of directors from legally
available funds. Declaration and payment of cash dividends by National Penn
depends upon cash dividend payments to it by National Penn Bank and National
Penn's other subsidiaries, which are National Penn's primary source of revenue
and cash flow. National Penn is a legal entity separate and distinct from its
subsidiaries. Accordingly, the right of National Penn, and consequently the
right of creditors and shareholders of National Penn, 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 National Penn in its capacity as a creditor may be recognized.
For legal limitations on the ability of National Penn Bank to pay cash
dividends to National Penn, see "Certain Regulatory Considerations--Payment of
Dividends" at page 70.
VOTING RIGHTS
Prior to the issuance of any National Penn preferred stock with voting
rights (see "Preferred Stock" below), the holders of shares of National Penn
common stock have exclusive voting rights. Each holder of shares of National
Penn common stock has one vote for each share held. National Penn shareholders
cannot cumulate votes in the election of directors.
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National Penn common stock currently trades on the National Market tier
of the Nasdaq Stock Market. Under Nasdaq's National Market rules, approval of
National Penn's shareholders is required for the issuance of shares of National
Penn common stock or securities convertible into National Penn common stock if
the issuance of such securities:
* Is in connection with the acquisition of a company, is not in
connection with a public offering for cash, and the securities
to be issued will have 20% or more of the voting power
outstanding before such issuance;
* Is in connection with the acquisition of a company in which a
director, officer of substantial shareholder of National Penn
has a 5% or greater interest, and the issuance of the
securities could result in an increase in outstanding National
Penn common stock or voting power of 5% or more;
* 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 National Penn common stock, or have 20% or more of
the voting power, outstanding before issuance; or
* Would result in a change in control of National Penn.
Under Nasdaq's National Market rules, shareholder approval is also
required to establish a stock option or purchase plan in which stock may be
acquired by officers and directors other than a broadly-based plan in which
other National Penn securities holders or employees may participate.
PRE-EMPTIVE RIGHTS, REDEMPTION
Holders of National Penn common stock do not have pre- emptive rights
to acquire any additional shares of National Penn common stock. National Penn
common stock is not subject to redemption.
LIQUIDATION RIGHTS
In the event of National Penn's liquidation, dissolution or winding-up,
whether voluntary of involuntary, holders of National Penn common stock will
share ratably in any of its assets or funds that are available for distribution
to its shareholders after satisfaction, or adequate provision is made for
satisfaction, of its liabilities, and after payment of any liquidation
preferences of any outstanding shares of National Penn preferred stock.
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PREFERRED STOCK
National Penn's board of directors is authorized to issue shares of
National Penn preferred stock, without shareholder approval. National Penn's
board will determine the rights, qualifications, limitations and restrictions of
each series of National Penn preferred stock at the time of issuance, including
without limitation rights as to dividends, voting and convertibility into shares
of National Penn common stock. Shares of National Penn preferred stock may have
dividend, redemption, voting, and liquidation rights that take priority over the
National Penn common stock, and may be convertible into National Penn common
stock.
SHAREHOLDER RIGHTS PLAN
National Penn maintains a Shareholder Rights Plan designed to protect
shareholders from attempts to acquire control of National Penn at an inadequate
price. Under the Shareholder Rights Plan, each outstanding share of National
Penn common stock has attached to it one right to purchase one one-hundredth of
a share of Series A junior participating preferred stock at an exercise price of
$27.51. These rights are not currently exercisable or transferable, and no
separate certificates evidencing these rights will be distributed, unless
certain events occur.
The National Penn rights become exercisable to purchase shares of the
Series A preferred stock if a person, group or other entity acquires or
commences a tender offer or an exchange offer for shares of National Penn stock
with 19.9% or more of total voting power. The National Penn rights also become
exercisable if a person or group who has become a beneficial owner of shares of
National Penn common stock equal to 4.9% of the total shares outstanding or with
4.9% of total voting power is declared by National Penn's board of directors to
be an "adverse person," as defined in the Shareholder Rights Plan.
After the National Penn rights become exercisable, under certain
circumstances, the National Penn rights (other than any rights held by a 19.9%
beneficial owner or an "adverse person") will entitle the holders to purchase
either shares of National Penn common stock or of the common stock of the
potential acquiror, instead of the Series A preferred stock, at a substantially
reduced price.
National Penn is generally entitled to redeem the National Penn 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 National Penn rights have become non-redeemable, National Penn's board
can
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extend the redemption period. The National Penn rights are not redeemable
following an "adverse person" determination.
ANTI-TAKEOVER CHARTER AND LAW PROVISIONS
National Penn's articles of incorporation and bylaws contain certain
provisions which may have the effect of deterring or discouraging an attempt to
take control of National Penn. These provisions:
* Empower National Penn's board of directors, without
shareholder approval, to issue shares of National Penn
preferred stock the terms of which, including voting power,
are set by National Penn's board;
* Divide National Penn's board of directors into three
classes serving staggered three-year terms;
* Restrict the ability of shareholders to remove
directors;
* Require that shares with at least 80% of total voting power
approve a merger or other similar transaction with a person or
entity holding stock with more than 5% of National Penn's
total voting power, if the transaction is not approved, in
advance, by National Penn's board of directors;
* Prohibit shareholders' actions without a meeting;
* Require that shares with at least 80%, 67%, or a majority, of
total voting power approve the repeal or amendment of certain
provisions of National Penn's articles of incorporation;
* Eliminate cumulative voting in the election of
directors; and
* 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, also
contains certain provisions applicable to National Penn which may have the
effect of deterring or discouraging an attempt to take control of National Penn.
These provisions, among other things:
* 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 or
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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 [Section 25E of the
Business Corporation Law];
* 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 person or group beneficially owning 20% or
more of a public corporation's voting power [Section 25F of
the Business Corporation Law];
* Prevent a person or group acquiring different levels of voting
power (20%, 33% and 50%) from voting any shares over the
applicable threshold, unless "disinterested shareholders"
approve such voting rights [Section 25G of the Business
Corporation Law];
* Require any person or group that publicly announces
that it may acquire control of a corporation, or that
acquires or publicly discloses an intent to acquire 20%
or more of the voting power of a corporation, to
disgorge to the corporation any profits that it
receives from sales of the corporation's equity
securities purchased over the prior 18 months [Section
25H of the Business Corporation Law];
* Expand the factors and groups (including shareholders) which a
corporation's board of directors can consider in determining
whether an action is in the best interests of the corporation;
* Provide that a corporation's board of directors need
not consider the interests of any particular group as
dominant or controlling;
* Provide that a corporation'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;
* Provide 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;
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* Provides that the fiduciary duty of a corporation'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 Pennsylvania Business Corporation Law also explicitly provides that
the fiduciary duty of directors does not require them to:
* Redeem any rights under, or to modify or render
inapplicable, any shareholder rights plan;
* Render inapplicable, or make determinations under, provisions
of the Pennsylvania Business Corporation Law relating to
control transactions, business combinations, control-share
acquisitions or disgorgement by certain controlling
shareholders following attempts to acquire control; or
* 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 acquisition of
control of the corporation or the consideration that might be
offered or paid to shareholders in such an acquisition.
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COMPARISON OF SHAREHOLDERS' RIGHTS
Upon completion of the merger, shareholders of Community will become
shareholders of National Penn. Accordingly, their rights as shareholders will be
governed by National Penn's articles of incorporation and bylaws, as well as by
the Pennsylvania Business Corporation Law of 1988, as amended. Certain
differences in the rights of shareholders arise from differences between
Community's and National Penn's articles of incorporation and bylaws.
The following is a summary of material differences in the rights of
Community shareholders and National Penn shareholders. This discussion is not a
complete statement of all differences affecting the rights of shareholders. We
qualify this discussion in its entirety by reference to the respective articles
of incorporation and bylaws of Community and National Penn.
DIRECTORS
NOMINATION
Community
Community's bylaws require that nominations for directors to be elected
at an annual meeting of shareholders be submitted to the secretary of the
corporation in writing not later than the close of business on the 20th day
preceding the date of the meeting. At any time prior to the election,
Community's board of directors may designate a substitute nominee to replace any
bona fide nominee who was nominated and for any reason becomes unavailable for
election as a director.
National Penn
National Penn's bylaws permit nominations for election to National
Penn'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 must be made, in writing,
delivered or mailed to National Penn 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 National Penn in
its proxy statement with respect to nominees of the board of directors. Any
nominations made by shareholders that are not made in the foregoing manner or
any votes cast at a meeting of
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National Penn shareholders for any candidate not duly nominated may be
disregarded by the chairman of the meeting.
ELECTION
Community
Community's bylaws provide for a board of directors consisting of three
classes of directors as nearly equal in number as possible. Approximately
one-third of the directors are elected annually for three-year terms.
National Penn
National Penn'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 has ten members. National Penn's
board of directors is divided into three classes, each serving three-year terms,
so that approximately one-third of the directors are elected at each annual
meeting of shareholders.
QUALIFICATION
Community
Community's bylaws provide that every director must be a shareholder of
Community. Additionally, no person who has reached age 70 (or 65 in the case of
a present or former officer) on or prior to the date of the election is eligible
to be elected as a director. Any director who reaches age 70 (or 65 in the case
of a present or former officer) must cease to be a director at the next annual
shareholders meeting whether or not his or her term is set to expire.
National Penn
National Penn's bylaws provide that no person who has reached age 60
and is not then a director of National Penn is qualified for nomination or
election to National Penn's board of directors. National Penn's bylaws also
provide that no person who has reached age 72 is qualified for nomination or
election to National Penn's board of directors.
REMOVAL
Community
Community's articles of incorporation provide that a director, any
class of the board of directors, or the entire board may be removed from office
only for "cause", and not
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without cause, and only with the vote of the holders of at least 75%, or such
higher percentage as may be required by law, of the outstanding shares of
capital stock of Community then eligible to vote. "Cause" is defined to mean
only (1) conviction of the director of a felony, (2) declaration by order of
court that the director is of unsound mind, or (3) gross abuse of trust.
Under this provision, no director may be removed by shareholders
without cause, even if a majority, super-majority or all of the outstanding
stock of Community then entitled to vote were voted in favor of such removal,
and a director can be removed for cause only if 75% of the stock is voted in
favor of such removal and one of the conditions of "cause" is met.
National Penn
National Penn'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 National Penn common stock at a meeting of
shareholders called for that purpose.
VACANCIES
Community
Under Community's bylaws, vacancies in Community's board of directors,
including vacancies resulting from an increase in the number of directors, may
be filled by the remaining members of the board, even less than a quorum. Any
director elected to fill a board vacancy becomes a member of the same class of
directors in which the vacancy existed; but if the vacancy is due to an increase
in the number of directors, a majority of the members of the board designates
the directorship as belonging to any one of the three classes so as to maintain
the three classes of directors as nearly equal as possible. Each director so
appointed holds office until a successor is elected by the shareholders, who may
make such election at the next annual meeting of shareholders or at any special
meeting of shareholders called for such purpose.
National Penn
National Penn's bylaws provide that vacancies on National Penn'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 National Penn'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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SHAREHOLDER MEETINGS
CALL
Community
Special meetings of Community's shareholders may be called at any time
by Community's board of directors, chief executive officer, chairman of the
board, president, or shareholders entitled to cast at least one-third of the
votes which all shareholders are entitled to cast at the particular meeting.
National Penn
Special meetings of National Penn shareholders may be called at any
time by National Penn's board of directors or chief executive officer or by any
other person authorized by statute. National Penn shareholders are not entitled
to call a special meeting of shareholders.
NOTICE
Community
Written notice of every meeting of Community shareholders must be given
by, or at the direction of, the secretary or other authorized person of
Community to each shareholder of record entitled to vote at the meeting at least
10 days prior to the date named for a meeting considering a fundamental change
or five days prior to the day named for a meeting in any other case.
National Penn
National Penn'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 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.
REQUIRED SHAREHOLDER VOTE
GENERAL
Community
Subject to the rights, if any, of holders of any shares of preferred
stock then outstanding, all Community voting rights are vested in the holders of
shares of its common stock. Holders of Community common stock are entitled to
one vote for each share held, except that Community's articles of incorporation
prohibit
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any person or group from casting more than 10% of the total votes which
shareholders are entitled to cast unless authorized to do so by Community's
board of directors. See --"Anti-Takeover Provisions" below. Assuming no
preferred stock is issued, for general corporate action of the shareholders of
Community, 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.
National Penn
Subject to the voting rights of any series of National Penn preferred
stock then outstanding, if any (see "Description of National Penn Capital
Securities--Preferred Stock"), the holders of National Penn common stock possess
exclusive voting rights. Each holder of National Penn common stock is entitled
to one vote for each share held of record. Assuming no preferred stock is
issued, for general corporate action of the shareholders of National Penn, 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
Community
Under Pennsylvania law, 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 Community other than in the usual and
regular course of business) or similar transaction, must be approved by the
affirmative vote of Community's board of directors and the affirmative vote of
shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast.
National Penn
National Penn'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
National Penn 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.
National Penn's articles of incorporation require the affirmative vote
of shareholders with at least 80% of National Penn's total voting power to
approve any merger, consolidation,
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share exchange, or asset transfer (in respect of a sale, lease, exchange or
other disposition of all, or substantially all, the assets of National Penn) or
similar transaction involving a shareholder holding 5% or more of National
Penn's voting power, unless the transaction has been approved in advance by a
majority of National Penn's directors who are not affiliated with the 5% or more
shareholder.
AMENDMENT OF ARTICLES OF INCORPORATION
Community
Community's articles of incorporation provide that the affirmative vote
of at least 75% of the outstanding shares of common stock of Community is
required to adopt any shareholder proposal to amend Community's articles of
incorporation which has not been previously approved by Community's board of
directors.
National Penn
National Penn's articles of incorporation contain two provisions that
require a super-majority 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 National Penn'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 shareholders holding at least two-
thirds of the votes which all shareholders then hold
for an election of directors.
* Amendment or repeal of, or adoption of any provision
inconsistent with, the provisions of National Penn's articles
of incorporation relating to a merger, consolidation or
similar transaction with a 5% or more shareholder of National
Penn requires the affirmative vote of shareholders holding at
least 80% of the votes which all shareholders then hold.
AMENDMENT OF BYLAWS
Community
Community's articles of incorporation provide that the affirmative vote
of at least 75% of the outstanding shares of common stock of Community is
required for the adoption of any shareholder proposal to amend Community's
bylaws which has not been previously approved by Community's board of directors.
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National Penn
The authority to amend or repeal National Penn's bylaws is vested in
National Penn's board of directors, subject to the power of National Penn's
shareholders to change such action by the affirmative vote of a majority of the
votes cast by all shareholders entitled to vote thereon with the following
exception. Any amendment to the limitation of directors' liability and
indemnification provisions of the bylaws requires the affirmative vote of 80% of
the members of National Penn's entire board of directors or of shareholders
holding at least 80% of the votes that all shareholders then hold.
SHAREHOLDER RIGHTS PLAN
Community
Community does not have a shareholder rights plan.
National Penn
National Penn maintains a shareholder rights plan under which holders
of National Penn common stock are entitled, under certain circumstances
generally involving an accumulation of shares of National Penn common stock, to
purchase shares of National Penn common stock or common stock of the potential
acquiror at a substantially reduced price. See "Description of National Penn
Capital Securities--Shareholder Rights Plan" at page 112.
ANTI-TAKEOVER PROVISIONS
Community
* Evaluation of Takeover Offers
Consistent with Pennsylvania law, Community's articles of incorporation
provide that, in evaluating a takeover offer, Community's board of directors may
consider all relevant factors, including:
* The impact of the acquisition on employees, depositors
and customers of Community and its subsidiaries and on
the communities which Community and its subsidiaries
serve;
* The reputation and business practices of the offeror
and its management and affiliates;
* The value of any securities offered in exchange for
Community's stock; and
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<PAGE>
* Any anti-trust or other legal and regulatory issues that are
raised by the offer.
Under Community's articles of incorporation, the board is also
permitted to consider any other factors it deems relevant, including the
long-term and short-term interests of Community and its shareholders, whether or
not such other factors are monetary or non-monetary or are shareholder or
non-shareholder considerations.
If Community's board determines that an offer should be rejected, the
articles of incorporation provide that the board is authorized to take any
lawful action to accomplish its purpose including without limitation any or all
of the following:
* Advising shareholders not to accept the offer;
* Litigation against the offeror;
* Filing complaints with all governmental and regulatory
authorities;
* Acquiring Community's securities;
* Selling or otherwise issuing authorized but unissued
securities or treasury stock or granting options with
respect thereto;
* Acquiring a company to create an anti-trust
or other regulatory problem for the offeror;
and
* Obtaining a more favorable offer from another
individual or entity;
Community's articles of incorporation also eliminate any duty of the
directors to auction Community or any subsidiary in the event of a proposed sale
or merger of Community or any subsidiary and permit the board to negotiate with
only one acquiror.
* 10% Voting Limitation
The articles of incorporation of Community provide that no "person"
shall have the right to cast more than 10% of the total votes entitled to be
cast by all holders of Community's voting securities at any meeting without the
approval of Community's board of directors and subject to such conditions as the
board may impose.
Because this provision has not, to the board's knowledge, ever been
violated, the board has not had to consider the
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<PAGE>
adoption of any such conditions. The term "person" includes individuals,
partnerships, corporations, groups or other entities and also includes
"shareholder groups." When two or more persons act together as a partnership,
limited partnership, syndicate, association or other group for the purpose of
acquiring, holding, disposing of or voting shares of stock, or are deemed a
"group" for purposes of Section 13(d) of the Securities Exchange Act of 1934 and
the regulations thereunder, they will be deemed a "shareholder group" under the
articles of incorporation and treated as a single person.
The board's determination of the existence of a shareholder group and
of the number of votes any person or each member of a shareholder group is
entitled to cast is final and conclusive absent clear and convincing evidence of
bad faith.
The term "person" does not, however, include Community or Bernville
Bank when either holds voting securities for itself or as a fiduciary for its
customers or as a trustee pursuant to one or more employee benefit plans
sponsored by Community or Bernville Bank.
The 10% voting limitation in the articles of incorporation does not
apply to the casting of votes by a person as a proxy holder for other
shareholders pursuant to proxies that were revocable and secured from
shareholders who are not part of a shareholder group which includes the person
voting such proxies.
* 10% Ownership Limitation
Community's articles of incorporation also provide that no "person" (as
such term is defined in the preceding subsection) may have "holdings" that
exceed 10% of Community's voting securities except as authorized by, and subject
to such conditions as may be imposed by, Community's board of directors.
Because this provision has not, to the board's knowledge, ever been
violated, the board has not had to adopt any such conditions. The term
"holdings" means the voting securities (a) which the person owns of record, (b)
as to which the person has direct or indirect beneficial ownership (as such term
is used in Section 13(d)), and (c) owned of record or beneficially by members of
a "shareholder group" (as such term is defined in the preceding paragraph) which
includes such person.
Community's board may terminate the voting rights of any person who
acquires holdings that cause a violation of this provision of the articles for
so long as such violation continues, commence litigation to require divestiture
of the holdings in excess of the 10% limit, or take such other action as it
deems appropriate, including seeking injunctive relief or purchasing such excess
shares as described below.
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<PAGE>
The board's determination with respect to the existence of a violation
of this provision will be conclusive in the absence of clear and convincing
evidence of bad faith.
* Sanctions for Violations of 10% Limitations
Shares of Community acquired in violation of either the voting or
holdings limitations, as described in the preceding two subsections, may, among
other things, not be voted by the holder thereof or, if any votes are cast in
violation of these provisions, such votes will not be counted.
In addition, the articles of incorporation provide a mechanism by which
shares held in violation of the voting or holdings limitations would be
purchased by Community or its designee and which would create a potential
economic loss to the violator of such provisions.
Specifically, the articles of incorporation grant Community or its
designee an option to purchase all or any part of a person's holdings that
exceed 10% of Community's issued and outstanding voting securities. If the
person is a shareholder group, Community need not exercise its purchase option
proportionately with respect to the individual members of the group, but may
exercise such option as to any one or more or all of such individual members.
Community's board is authorized to exercise this option by adopting a resolution
to such effect.
The purchase price for the voting securities is intended to equal the
average market price for such voting securities during the period beginning 65
trading days prior to the date on which the resolution was adopted and ending
five trading days prior to the date of adoption of the resolution. However, with
respect to voting securities which are to be purchased and either:
(1) the resolution is adopted within one year after the
voting securities were acquired by the shareholder; or
(2) the resolution is adopted within one year after the earlier of (a)
the date of public disclosure of such person's acquisition of such voting
securities, or (b) the date on which the directors were first notified in
writing of such person's acquisition of such voting securities;
the purchase price cannot exceed the direct cost to acquire such securities
(excluding legal, accounting, brokerage, investment advisory, interest, points
or other carrying charges or indirect costs) incurred by the person from whom
such securities are purchased. The purpose of this provision is to prevent a
person who violates the voting or holdings limitations from making a profit on
voting securities held less than one year or for which ownership was first
disclosed, either publicly or to Community's board, within one year before
Community's adoption of the resolution (even though the securities were owned
for more than one year).
The purchase price will be computed by an independent public accounting
firm selected by the board of directors and such firm's computation will be
conclusive in the absence of clear and convincing evidence of bad faith.
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<PAGE>
* Other
The Pennsylvania Business Corporation Law includes various provisions
that are applicable to a corporation, like Community, which has a class of
equity securities registered under the Securities and Exchange Act of 1934,
unless the corporation "opts out" of such provisions in its articles of
incorporation. These provisions are contained in Subchapters 25E through 25J of
the Pennsylvania Business Corporation Law. Community's articles of incorporation
provide that Subchapters 25E, 25G, 25H, 25I and 25J of the Pennsylvania Business
Corporation Law do not apply to Community.
Subchapter 25F, which applies to Community, relates to business
combinations, and 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.
Community's board of directors has the discretion to waive certain of
the anti-takeover provisions in the articles of incorporation and the
Pennsylvania Business Corporation Law to facilitate the acceptance of an offer
which it determines to be favorable. Accordingly, the ability of the board to
waive provisions may, in effect, give the board a veto with respect to certain
types of offers for control of Community.
National Penn
* Evaluation of Takeover Offers
Unlike Community, National Penn's articles of incorporation do not
contain any provisions specifically dealing with the evaluation of takeover
offers. Under Pennsylvania law, National Penn's board may consider a wide
variety of factors and groups in determining whether an action, including a
takeover offer, is in the best interests of the corporation. See "Description of
National Penn Capital Securities--Anti-Takeover Charter and Law Provisions" at
page 113.
* 10% Voting or Ownership Limitation
Unlike Community, National Penn's articles of incorporation do not
contain any provisions that limit the voting or ownership of National Penn's
common stock. Like Community, because National Penn is a bank holding company,
certain acquisitions of voting power or ownership of National Penn's common
stock are subject to various regulatory approvals.
126
<PAGE>
* Other
Like Community, National Penn is subject to those provisions of the
Pennsylvania Business Corporation Law that are applicable to a corporation which
has a class of equity securities registered under the Securities and Exchange
Act of 1934, unless the corporation "opts out" of such provisions in its
articles of incorporation. These provisions are contained in Subchapters 25E
through 25J of the Pennsylvania Business Corporation Law. Unlike Community,
National Penn has not opted out of any of these provisions. All of these
provisions apply to National Penn. See "Description of National Penn Capital
Securities--Anti-Takeover Charter and Law Provisions" at page 113.
DISSENTERS RIGHTS
Community
Because Community's shares are listed on the American Stock Exchange,
which is a national securities exchange, Community's shareholders do not have
dissenters rights under the Pennsylvania Business Corporation Law. Further,
Community's articles of incorporation and bylaws do not grant dissenters rights
to Community's shareholders.
National Penn
Because National Penn's shares are listed on the Nasdaq Stock Market,
which is not a national securities exchange, National Penn's shareholders will
generally have dissenters rights under the Pennsylvania Business Corporation
Law, unless there are more than 2,000 shareholders of record of National Penn
common stock at the time in question. As of the date of this proxy
statement/prospectus, National Penn has approximately 3,100 shareholders of
record.
Further, National Penn's articles of incorporation and bylaws do not
grant dissenters rights to National Penn's shareholders.
127
<PAGE>
EXPERTS
The consolidated financial statements of National Penn as of December
31, 1999, and 1998, and for each of the three years in the period ended December
31, 1999, incorporated by reference in this proxy statement/prospectus, have
been audited by Grant Thornton LLP, independent certified public accountants,
and incorporated by reference herein in reliance upon the report of Grant
Thornton given upon the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Community as of December 31,
1999 and 1998, and for each of the years then ended, 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 Beard & Company, Inc. are expected to be present at
the special meeting. 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 National Penn common stock to be issued in the
merger and certain other legal matters relating to the merger are being passed
upon for National Penn by the law firm of Ellsworth, Carlton & Waldman, P.C.,
Wyomissing, Pennsylvania. As of the date of this proxy statement/prospectus,
attorneys in the law firm of Ellsworth, Carlton & Waldman, P.C. own, directly or
indirectly, a total of 6,400 shares of National Penn common stock.
Certain legal matters relating to the merger are being passed upon for
Community by the law firm of Rhoads & Sinon LLP, Harrisburg, Pennsylvania.
OTHER BUSINESS
As of the date of this proxy statement/prospectus, Community's board of
directors knows of no matters that will be presented for consideration at the
special meeting other than as described in this proxy statement/prospectus.
However, if any other matter shall properly come before the special meeting or
any adjournments or postponements thereof and shall be voted upon, the form of
proxy shall be deemed to confer 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; provided, however, that no proxy that is
128
<PAGE>
voted against the merger proposal will be voted in favor of any adjournment or
postponement of the special meeting.
SHAREHOLDER PROPOSALS
Community's 2001 annual meeting of shareholders is currently scheduled
to be held on or about April 26, 2001, subject to the earlier completion of the
merger. The 2001 annual meeting of shareholders may be postponed beyond such
date, in accordance with Community's articles of incorporation and bylaws, if
the effective date of the merger is expected to occur close to April 26, 2001.
If Community's 2001 annual meeting of shareholders is held, any
Community shareholder who desires to submit a proposal to be considered for
inclusion in Community's proxy materials relating to the annual meeting must
submit such proposal to Community, in writing, addressed to Community
Independent Bank, Inc., 201 North Main Street, Bernville, PA 19506, Attention:
Linda L. Strohmenger, Secretary, on or before November 17, 2000. If Community
receives notice of any shareholder proposal after February 5, 2001, the persons
named as proxies for the 2001 annual meeting of shareholders, assuming it is
held, will have discretionary voting authority to vote on such proposal at the
meeting.
129
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
National Penn and Community each file annual, quarterly and current
reports, proxy and information statements, and other information with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
You may read and copy this information at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers, such as
National Penn and Community, that file electronically with the SEC. The address
of that site is http://www.sec.gov.
In addition, you can read and copy this information at the regional
offices of the SEC located at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can also inspect reports, proxy and information statements,
and other information about National Penn at the offices of the Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006.
National Penn maintains an Internet site that contains information
about National Penn and its subsidiaries. Its address is
http://www.natpennbank.com.
National Penn filed a registration statement with the SEC under the
Securities Act of 1933, relating to the National Penn common stock offered to
the Community shareholders in connection with the merger. The registration
statement contains additional information about National Penn and the National
Penn common stock. The SEC allows a registrant such as National Penn to omit
certain information included in the registration statement from this proxy
statement/prospectus. You may read and copy the registration statement at the
SEC's public reference facilities described above.
This proxy statement/prospectus incorporates by reference important
business and financial information about National Penn that is not included in
or delivered with this proxy statement/prospectus. The following documents filed
with the SEC by National Penn are incorporated by reference in this proxy
statement/prospectus (SEC File No. 000-10957):
* National Penn's Annual Report on Form 10-K for the year ended
December 31, 1999.
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<PAGE>
* National Penn's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000.
* National Penn's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000.
* National Penn's Current Report on Form 8-K dated July 11,
2000.
* The description of National Penn common stock contained in
National Penn's registration statement on Form 8-A dated
February 24, 1983, and any amendment or report filed for the
purpose of updating such description.
* The description of National Penn's Shareholder Rights Plan
contained in National Penn's registration statement on Form
8-A dated September 11, 1989, as amended by Amendment No. 1
dated August 21, 1999.
National Penn also incorporates by reference in this proxy
statement/prospectus additional documents filed by it with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this proxy statement/prospectus and before the final adjournment of
the special meeting of Community shareholders.
Any statement contained in this proxy statement/prospectus or in a
document incorporated in this proxy statement/prospectus will be deemed to be
modified or superseded to the extent that a statement contained herein or in any
later filed document which also is incorporated by reference herein modifies or
supersedes the statement.
You may obtain copies of the information incorporated by reference in
this proxy statement/prospectus upon written or oral request. Page 2 of this
proxy statement/prospectus, immediately preceding the table of contents,
contains information about how such requests should be made.
All information contained or incorporated by reference in this proxy
statement/prospectus about National Penn was supplied or verified by National
Penn. All information contained in this proxy statement/prospectus about
Community was supplied or verified by Community.
131
<PAGE>
INDEX TO COMMUNITY INDEPENDENT BANK, INC.'S
FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITOR'S REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets - as of December 31, F-3
1999 and 1998
Consolidated statements of income - for the years F-4
ended December 31, 1999 and 1998
Consolidated statements of stockholders' equity - for F-5
the years ended December 31, 1999 and 1998
Consolidated statements of cash flows - for the years F-6
ended December 31, 1999 and 1998
Notes to consolidated financial statements F-7
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated balance sheets - as of June 30, 2000 and F-28
December 31, 1999
Consolidated statements of income - for the three and F-29
six months ended June 30, 2000 and 1999
Consolidated statements of comprehensive income - for F-30
the six months ended June 30, 2000 and 1999
Consolidated statement of stockholders' equity - for F-31
the six months ended June 30, 2000
Consolidated statements of cash flows - for the six F-32
months ended June 30, 2000 and 1999
Notes to consolidated financial statements F-33
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Community Independent Bank, Inc.
Bernville, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Community Independent Bank, Inc. and its wholly-owned subsidiary, Bernville
Bank, N.A., as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Community Independent Bank, Inc. and its wholly-owned subsidiary, Bernville
Bank, N.A., as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Beard & Company, Inc.
Reading, Pennsylvania
January 21, 2000
F-2
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
December 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 4,139,228 $ 2,998,485
Interest bearing deposits in other banks 13,238 25,707
----------------------------------------
Cash and cash equivalents 4,152,466 3,024,192
Securities available for sale 13,383,658 12,876,464
Mortgage loans held for sale 68,000 1,051,500
Loans receivable, net of allowance for loan losses
1999 $ 1,211,628; 1998 $ 719,788 85,668,141 79,322,201
Bank premises and equipment, net 2,828,800 2,710,743
Accrued interest receivable and other assets 3,434,861 2,736,735
----------------------------------------
Total assets $ 109,535,926 $ 101,721,835
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 10,434,304 $ 9,551,421
Interest bearing 80,161,897 75,891,372
----------------------------------------
Total deposits 90,596,201 85,442,793
Securities sold under agreements to repurchase 661,092 -
Other borrowed funds 10,471,037 3,423,300
Long-term debt - 5,000,000
Other liabilities 565,694 496,270
----------------------------------------
Total liabilities 102,294,024 94,362,363
----------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $ 5.00 per share; authorized and
unissued 1,000,000 shares - -
Common stock, par value $ 5.00 per share; authorized
5,000,000 shares; issued and outstanding 1999
698,637 shares; 1998 696,774 shares 3,493,185 3,483,870
Surplus 154,268 142,148
Retained earnings 3,701,727 3,634,445
Accumulated other comprehensive income (loss) (107,278) 99,009
----------------------------------------
Total stockholders' equity 7,241,902 7,359,472
----------------------------------------
Total liabilities and stockholders' equity $ 109,535,926 $ 101,721,835
========================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998
----------------------------------------------------------------------------------------------------------------------------
Interest income:
<S> <C> <C>
Loans receivable, including fees $ 7,164,397 $ 6,524,913
Securities:
Taxable 698,606 586,566
Tax-exempt 26,551 28,794
Other 63,274 50,057
-------------------------------------
Total interest income 7,952,828 7,190,330
-------------------------------------
Interest expense:
Deposits 3,466,401 3,140,848
Other borrowed funds 316,028 153,841
Long-term debt 230,904 301,000
-------------------------------------
Total interest expense 4,013,333 3,595,689
-------------------------------------
Net interest income 3,939,495 3,594,641
Provision for loan losses 610,000 240,000
-------------------------------------
Net interest income after provision for loan losses 3,329,495 3,354,641
-------------------------------------
Other income:
Customer service fees 319,968 256,276
Mortgage banking activities 56,678 131,537
Other 322,677 296,639
-------------------------------------
Total other income 699,323 684,452
-------------------------------------
Other expenses:
Salaries and employee benefits 1,949,059 1,693,963
Occupancy 377,355 324,666
Equipment 358,327 307,792
Marketing and advertising 91,389 88,769
Loan collection and foreclosed real estate 27,511 89,342
Stationery and supplies 103,431 79,311
Professional fees 72,266 90,258
Other 754,136 601,959
-------------------------------------
Total other expenses 3,733,474 3,276,060
-------------------------------------
Income before income taxes 295,344 763,033
Federal income taxes 53,811 219,280
-------------------------------------
Net income $ 241,533 $ 543,753
=====================================
Basic and diluted earnings per share $ 0.35 $ 0.78
=====================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------------
Common Stock Accumulated
------------------------------- Other
Number Par Retained Comprehensive
Of Shares Value Surplus Earnings Income (Loss) Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 348,287 $ 1,741,435 $ 1,882,808 $ 3,257,894 $ 18,269 $ 6,900,406
----------------
Comprehensive income:
Net income - - - 543,753 - 543,753
Net change in unrealized gain
(loss) on securities
available for sale,
net of taxes - - - - 80,740 80,740
----------------
Total comprehensive income 624,493
----------------
Stock options exercised 100 500 1,275 - - 1,775
Two-for-one stock split 348,387 1,741,935 (1,741,935) - - -
Cash dividends ($ .24 per share) - - - (167,202) - (167,202)
---------------------------------------------------------------------------------------------
Balance, December 31, 1998 696,774 3,483,870 142,148 3,634,445 99,009 7,359,472
----------------
Comprehensive income:
Net income - - - 241,533 - 241,533
Net change in unrealized gain
(loss) on securities
available for sale,
net of taxes - - - - (206,287) (206,287)
----------------
Total comprehensive income 35,246
----------------
Shares issued in dividend
reinvestment plan 1,863 9,315 12,120 - - 21,435
Cash dividends ($ .25 per share) - - - (174,251) - (174,251)
---------------------------------------------------------------------------------------------
Balance, December 31, 1999 698,637 $ 3,493,185 $ 154,268 $ 3,701,727 $ (107,278) $ 7,241,902
=============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1999 1998
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 241,533 $ 543,753
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 610,000 240,000
Provision for depreciation 305,187 264,097
Loss on disposal of property and equipment 12,634 -
Net gains on sale of loans (56,678) (131,537)
Net amortization of securities premiums and discounts 6,538 6,073
Amortization of mortgage servicing rights 32,458 20,223
Loans originated for sale (2,960,475) (9,560,950)
Proceeds from sale of loans 4,000,653 8,640,987
Increase in accrued interest receivable and other assets (345,509) (94,704)
Increase in other liabilities 69,424 135,565
--------------------------------------
Net cash provided by operating activities 1,915,765 63,507
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of securities held to maturity - 1,000,000
Proceeds from maturities of securities available for sale 3,000,000 2,135,000
Purchase of securities available for sale (3,823,327) (5,370,591)
Net increase in loans (6,995,949) (15,283,134)
Proceeds from sale of property and equipment 750 -
Purchases of bank premises and equipment (436,628) (337,859)
Proceeds from life insurance policies surrendered 208,242 -
Purchase of life insurance (450,000) (315,000)
--------------------------------------
Net cash used in investing activities (8,496,912) (18,171,584)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 5,153,408 14,713,725
Net increase in other borrowed funds and securities sold under
agreements to repurchase 7,708,829 2,951,492
Payments on long-term debt (5,000,000) -
Cash dividends (174,251) (167,202)
Proceeds from shares issued in dividend reinvestment plan 21,435 -
Proceeds from common stock options exercised - 1,775
--------------------------------------
Net cash provided by financing activities 7,709,421 17,499,790
--------------------------------------
Increase (decrease) in cash and cash equivalents 1,128,274 (608,287)
Cash and cash equivalents:
Beginning 3,024,192 3,632,479
--------------------------------------
Ending $ 4,152,466 $ 3,024,192
======================================
Cash payments for:
Interest $ 4,013,816 $ 3,558,642
======================================
Income taxes $ 260,963 $ 250,939
======================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
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 by the
Office of the Comptroller of the Currency and the Federal Deposit Insurance
Corporation. The bank holding company (Parent Company) is subject to
regulation of the Federal Reserve Bank. The area served by the Bank is
principally Berks County, Pennsylvania.
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
Community Independent Bank, Inc. (the Corporation) and its wholly-owned
subsidiary, Bernville Bank, N.A. (the Bank). All significant intercompany
accounts and transactions have been eliminated.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and interest-bearing demand deposits
in other banks.
Securities:
Securities classified as available for sale are those securities that the
Bank intends to hold for an indefinite period of time but not necessarily
to maturity. Any decision to sell a security classified as available for
sale would be based on various factors, including significant movement in
interest rates, changes in maturity mix of the Bank's assets and
liabilities, liquidity needs, regulatory capital considerations and other
similar factors. Available for sale securities are carried at fair value.
Unrealized gains or losses, net of tax, on available for sale securities
are reported as a net amount in other comprehensive income. Gains and
losses on the sale of available for sale securities are determined using
the specific-identification method. Premiums and discounts are recognized
in interest income using the interest method over the period to maturity.
Bonds, notes and debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method
over the period to maturity.
Management determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation as of each balance
sheet date.
Mortgage loans held for sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the aggregate. All
sales are made without recourse. Net unrealized losses, if any, are
recognized through a valuation allowance by charges to income.
F-7
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans receivable:
Loans generally 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 estimated
life of the loan.
A loan is generally considered impaired when it is probable the Bank will
be unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. The accrual of interest is
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 of the collateral for certain
collateral dependent loans. By the time a loan becomes probable of
foreclosure, it has been charged down to fair value, less estimated costs
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.
F-8
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation of property and equipment is computed
principally on the straight-line method over the estimated useful lives of
the related assets.
Advertising costs:
The Bank follows the policy of charging the costs of advertising to expense
as incurred.
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
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 and
letters of credit. Such financial instruments are recorded in the balance
sheets when they are funded.
Earnings per share:
Basic earnings per share represents income available to common stockholders
divided by the weighted-average number of shares outstanding during the
period. Diluted earnings per share reflects additional common shares that
would have been outstanding if dilutive potential common shares had been
issued as well as any adjustment to income that would result from the
assumed issuance. Potential common shares that may be issued by the
Corporation relate solely to outstanding stock options and are determined
using the treasury stock method.
F-9
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1
--------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment reporting:
The Bank acts as an independent community financial services provider, and
offers traditional banking and related services to individual, business and
government customers. Through its branch and automated teller machine
network, the Bank offers a full array of commercial and retail financial
services, including the taking of time, savings and demand deposits; the
making of commercial, consumer and mortgage loans; and the providing of
other financial services.
Management does not separately allocate expenses, including the cost of
funding loan demand, between the commercial and retail operations of the
Bank. As such, discrete financial information is not available and segment
reporting would not be meaningful.
New accounting standard:
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June
1998. This Statement was subsequently amended by Statement No. 137, which
delays the effective date. The Bank is required to adopt the Statement on
January 1, 2001. The adoption of the Statement is not expected to have a
significant impact on the financial condition or results of operations of
the Bank.
2
--------------------------------------------------------------------------------
RESTRICTIONS ON CASH AND DUE FROM BANK BALANCES
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The total of those reserve balances was approximately $ 350,000
for December 31, 1999 and $ 400,000 at December 31, 1998.
F-10
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
3
--------------------------------------------------------------------------------
SECURITIES
The amortized cost of available for sale securities and their approximate fair
value at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------------------------------------------------------------
Available for sale securities:
December 31, 1999:
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,000,065 $ 1,809 $ - $ 2,001,874
U.S. Government agency obligations 9,512,880 - (142,827) 9,370,053
Obligations of states and political
subdivisions 764,934 509 (6,101) 759,342
Corporate obligations 396,859 - (12,970) 383,889
Equity securities 868,500 - - 868,500
----------------------------------------------------------------------
$ 13,543,238 $ 2,318 $ (161,898) $ 13,383,658
======================================================================
December 31, 1998:
U.S. Treasury securities $ 4,504,588 $ 63,381 $ - $ 4,567,969
U.S. Government agency obligations 7,019,921 80,562 (1,283) 7,099,200
Obligations of states and political
subdivisions 454,940 7,355 - 462,295
Equity securities 747,000 - - 747,000
----------------------------------------------------------------------
$ 12,726,449 $ 151,298 $ (1,283) $ 12,876,464
======================================================================
</TABLE>
Equity securities are principally comprised of stock in the Federal Reserve Bank
and Federal Home Loan Bank.
F-11
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
3
--------------------------------------------------------------------------------
SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1999, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available For Sale
--------------------------------------
Amortized Fair
Cost Value
--------------------------------------
<S> <C> <C>
Due in one year or less $ 3,584,585 $ 3,583,095
Due after one year through five years 8,780,200 8,626,534
Due after five years through ten years 206,981 203,891
Due after ten years 102,972 101,638
Equity securities 868,500 868,500
--------------------------------------
$ 13,543,238 $ 13,383,658
======================================
</TABLE>
There were no sales of securities during the years ended December 31, 1999 and
1998.
Securities with a carrying value of $ 8,907,854 and $ 4,055,000 at December 31,
1999 and 1998, respectively, were pledged to secure public deposits and for
other purposes as required or permitted by law.
4
--------------------------------------------------------------------------------
LOANS RECEIVABLE
Loans receivable are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
----------------------------------------
<S> <C> <C>
Commercial $ 32,983,282 $ 27,184,490
Consumer 6,623,183 6,172,544
Mortgage 47,644,323 47,167,224
----------------------------------------
87,250,788 80,524,258
Allowance for loan losses (1,211,628) (719,788)
Net deferred loan fees and costs (371,019) (482,269)
----------------------------------------
$ 85,668,141 $ 79,322,201
========================================
</TABLE>
F-12
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
4
--------------------------------------------------------------------------------
LOANS RECEIVABLE (CONTINUED)
The following table presents changes in the allowance for loan losses:
Years Ended December 31,
1999 1998
-----------------------------------
Balance, beginning $ 719,788 $ 540,158
Provision for loan losses 610,000 240,000
Loans charged off (143,613) (68,129)
Recoveries 25,453 7,759
-----------------------------------
Balance, ending $ 1,211,628 $ 719,788
===================================
Impaired loans, not requiring an allowance for loan losses, were $ -0- at
December 31, 1999. Impaired loans requiring an allowance for loan losses were
$ 2,297,000 at December 31, 1999. At December 31, 1999, the related allowance
for loan losses associated with these loans was $ 353,000. For the year ended
December 31, 1999, average impaired loans were $ 64,000. Interest income on
impaired loans of $ -0- was recognized for cash payments received in 1999. There
were no impaired loans at December 31, 1998.
5
--------------------------------------------------------------------------------
LOAN SERVICING
The Bank capitalized $ 40,009 and $ 84,962 of mortgage servicing rights for
loans originated and sold in 1999 and 1998, respectively, and amortized $ 32,458
and $ 20,223 of those rights for the years ended December 31, 1999 and 1998,
respectively.
The amortization of originated mortgage servicing rights is recorded as a
reduction of servicing revenue in other income. Mortgage servicing rights are
included in other assets.
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balance of mortgage loans
serviced for others totaled $ 16,583,511 and $ 14,145,720 at December 31, 1999
and 1998, respectively. Servicing income, net of mortgage servicing rights
amortization, for the years ended December 31, 1999 and 1998 was $ 7,762 and
$ 6,992, respectively.
F-13
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
6
--------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------------------
<S> <C> <C>
Land and land improvements $ 262,562 $ 262,562
Bank buildings and leasehold improvements 2,048,387 2,047,972
Bank furniture and equipment 2,340,893 1,978,327
--------------------------------------
4,651,842 4,288,861
Less accumulated depreciation 1,823,042 1,578,118
--------------------------------------
$ 2,828,800 $ 2,710,743
======================================
</TABLE>
7
--------------------------------------------------------------------------------
DEPOSITS
The components of deposits at December 31, 1999 and 1998 are as follows:
December 31,
1999 1998
----------------------------------------
Demand, non-interest bearing $ 10,434,304 $ 9,551,421
Demand, interest bearing 24,559,817 21,148,971
Savings 9,168,362 9,621,079
Time, $ 100,000 and over 5,636,307 5,493,701
Time, other 40,797,411 39,627,621
----------------------------------------
$ 90,596,201 $ 85,442,793
========================================
F-14
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
7
--------------------------------------------------------------------------------
DEPOSITS (CONTINUED)
At December 31, 1999, the scheduled maturities of time deposits are as follows:
2000 $ 26,041,718
2001 14,723,000
2002 2,923,000
2003 1,593,000
2004 772,000
Thereafter 381,000
--------------------
$ 46,433,718
====================
8
--------------------------------------------------------------------------------
OTHER BORROWED FUNDS AND LONG-TERM DEBT
Securities sold under agreements to repurchase generally mature within one day
of the transaction date. Securities with a fair value of $ 1,502,000 were
pledged as collateral for these agreements. The securities underlying the
agreements were under the Bank's control.
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 $ 391,037 and $ 88,300 at December 31, 1999 and 1998, respectively,
with interest payable at a variable rate (4.52% and 4.11% at December 31, 1999
and 1998, respectively).
The Bank has a line of credit under the "RepoPlus" Advance program with the
Federal Home Loan Bank which expires April 15, 2000 for borrowings up to
$ 20,000,000. Borrowings under this line of credit were $ 10,080,000 and
$ 3,335,000 at December 31, 1999 and 1998, respectively.
Long-term debt at December 31, 1998 was an advance from the Federal Home Loan
Bank in the amount of $ 5,000,000 that matured on October 8, 1999 with an
interest rate of 6.02%.
F-15
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
9
--------------------------------------------------------------------------------
REGULATORY MATTERS AND STOCKHOLDERS' EQUITY
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet the 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 I capital (as defined in the regulations) to risk-weighted
assets, and of Tier I capital to average assets. Management believes, as of
December 31, 1999, that the Bank meets all capital adequacy requirements to
which it is subject.
As of December 31, 1999, 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. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. 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. The
consolidated capital ratios are not materially different from the Bank's capital
ratios.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------
As of December 31, 1999: [GREATER THAN OR EQUAL TO] [GREATER THAN OR EQUAL TO]
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $ 8,162,000 10.22% $ 6,391,000 8.00% $ 7,989,000 10.00%
Tier I capital (to risk weighted assets) 7,163,000 8.97 3,195,000 4.00 4,793,000 6.00
Tier I capital (to average assets) 7,163,000 6.54 4,379,000 4.00 5,474,000 5.00
As of December 31, 1998:
Total capital (to risk weighted assets) $ 7,778,000 10.93% $ 5,695,000 8.00% $ 7,119,000 10.00%
Tier I capital (to risk weighted assets) 7,058,000 9.91 2,848,000 4.00 4,272,000 6.00
Tier I capital (to average assets) 7,058,000 7.04 4,010,000 4.00 5,013,000 5.00
</TABLE>
Banking laws and regulations limit the amount of dividends that may be paid and
any dividends declared by the Bank are subject to approval by the Bank's
regulatory agencies. Under current banking laws, the Bank would be limited to
approximately $ 538,000 of dividends in 2000 plus an additional amount equal to
the Bank's net income for 2000, up to the date of any such dividend declaration.
On June 25, 1998, the Board of Directors declared a two-for-one stock split in
the form of a 100% stock dividend on common stock outstanding, payable on July
31, 1998 to shareholders of record on July 17, 1998. The stock split resulted in
the issuance of 348,387 additional common shares. All per share data has been
adjusted for the effect of the stock split.
F-16
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
10
--------------------------------------------------------------------------------
STOCKHOLDER AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
On June 25, 1998, the Corporation adopted a dividend reinvestment and stock
purchase plan available to stockholders who elect to reinvest their cash
dividends for the purchase of additional shares of the Corporation's common
stock. Participants may also elect to make voluntary cash payments not to exceed
$ 2,500 each quarter for the purchase of additional shares of the Corporation's
common stock. The common stock was required to be purchased in the open market
through May 1999. Subsequent to that date, it may be purchased in the open
market or from authorized but unissued shares, substantially at prevailing
market prices. The Corporation has reserved 225,000 shares of common stock for
possible issuance under the plan. During 1999, 1,863 shares were issued under
this plan.
11
--------------------------------------------------------------------------------
EARNINGS PER COMMON SHARE
The following table sets forth the computations of basic and diluted earnings
per share for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Net income $ 241,533 $ 543,753
==================================
Weighted average shares outstanding 697,234 696,686
Effect of dilutive securities, stock options 2,129 2,842
----------------------------------
Weighted average shares and assumed conversion 699,363 699,528
==================================
</TABLE>
12
--------------------------------------------------------------------------------
COMPREHENSIVE INCOME
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available for sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
F-17
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
12
--------------------------------------------------------------------------------
COMPREHENSIVE INCOME (CONTINUED)
The components of other comprehensive income (loss) and related tax effects are
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
-------------------------------
<S> <C> <C>
Net unrealized holding (losses) gains on available for sale securities $ (309,595) $ 122,333
Tax effect 103,308 (41,593)
-------------------------------
Net of tax amount $ (206,287) $ 80,740
===============================
</TABLE>
13
--------------------------------------------------------------------------------
EMPLOYEE BENEFITS
The Bank has a 401(k) Profit Sharing Plan and Trust for its employees. Employees
are permitted to contribute up to 17% of their compensation, but not over the
statutory limit. The profit sharing plan covers employees who meet the
eligibility requirements of having worked 1,000 hours in a plan year and have
attained the age of 21. The amount of matching 401(k) contributions and profit
sharing plan contributions is at the discretion of the Bank's Board of
Directors. The expense related to this plan was $ 28,153 and $ 21,067 in 1999
and 1998, respectively.
The Bank has various deferred compensation plans for certain directors and
officers of the Bank. Under the Plans' provisions, benefits will be payable upon
retirement, death or permanent disability of the participant. At December 31,
1999 and 1998, $ 148,577 and $ 76,157, respectively, had been accrued under
these contracts. To fund the benefits under these agreements, the Bank is the
owner and the beneficiary of life insurance policies on the lives of the
directors and officers. The policies had an aggregate cash surrender value of
$ 2,224,779 and $ 1,887,123 at December 31, 1999 and 1998, respectively.
F-18
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
13
--------------------------------------------------------------------------------
EMPLOYEE BENEFITS (CONTINUED)
The Bank has an Employee Stock Option Plan that covers all officers and key
employees of the Corporation and its subsidiary and is administered by a
committee of the Board of Directors. The Plan covers 50,000 shares of common
stock. The option price for 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 grant.
Options granted under the Plan vest over a three-year period, commencing one
year after the date of grant, on a cumulative basis. Options expire on the
earlier of ten years after the date of grant, three months from the
participants' termination of employment or one year from the date of the
participants' death or disability.
The Bank has a Non-Employee Directors' Stock Option Plan that covers 20,000
shares of common stock. The Plan covers all directors of the Corporation and its
subsidiary who are not employees. The option price for options issued under the
Plan will be equal to the fair market value of the Corporation's common stock on
the date of grant. On the fifth anniversary date of the initial option grant
date, and every five years thereafter, each non-employee director shall be
granted options to purchase 1,000 shares of common stock. Options are
exercisable one year from the date of grant and expire on the earlier of ten
years after the date of grant, three months from the date the participant ceases
to be a director of the Corporation or three months from the date of the
participants' death or disability.
The Corporation has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee and director stock options. Under
APB 25, because the exercise price of the Bank's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is required by
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", and has been determined as if the Corporation had
accounted for its stock options under the fair value method of that statement.
The fair values for options that were granted during 1999 and 1998 were
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions: risk-free interest rate of 6.1% and
4.6%; volatility factor of the expected market price of the Bank's common stock
of 20.67% and 8.2%; expected life of the options of 7 years and a cash dividend
yield of 2.64% and 1.84%, respectively.
F-19
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
13
--------------------------------------------------------------------------------
EMPLOYEE BENEFITS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Corporation's pro
forma information follows:
Years Ended December 31,
1999 1998
------------------------------------
Net income:
As reported $ 241,533 $ 543,753
Pro forma $ 235,870 $ 538,369
Earnings per share:
As reported, basic $ 0.35 $ 0.78
Pro forma, basic $ 0.34 $ 0.77
As reported, diluted $ 0.35 $ 0.78
Pro forma, diluted $ 0.34 $ 0.77
Stock option transactions under the Plans were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
-------------------------------------------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Options Price Options Price
-------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at the beginning of the year 13,900 $ 10.47 15,800 $ 10.24
Granted 1,000 11.25 1,700 12.13
Exercised - - (200) 8.88
Forfeited (1,300) 10.11 (3,400) 10.56
-------------------------------------------------------
Outstanding at the end of the year 13,600 $ 10.56 13,900 $ 10.47
=======================================================
Exercisable at December 31 10,467 $ 10.18
============================
Weighted-average fair value of options
granted during the year $ 3.38
================
</TABLE>
Options available for grant at December 31, 1999 were 56,200.
The weighted-average remaining contractual life of the above options is
approximately 7.8 years.
F-20
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
14
--------------------------------------------------------------------------------
INCOME TAXES
The components of income tax expense were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
---------------------------------
<S> <C> <C>
Current $ 223,047 $ 245,329
Deferred (169,236) (26,049)
---------------------------------
$ 53,811 $ 219,280
=================================
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:
Years Ended December 31,
1999 1998
---------------------------------
Computed statutory tax expense $ 100,417 $ 259,431
Tax-exempt interest (16,842) (19,055)
Disallowance of interest expense 2,612 3,093
Bank-owned life insurance (32,605) (28,203)
Other 229 4,014
---------------------------------
$ 53,811 $ 219,280
=================================
Net deferred tax assets consisted of the following components:
December 31,
1999 1998
----------------------------------
Deferred tax assets:
Allowance for loan losses $ 382,504 $ 215,279
Unrealized losses on securities available for sale 52,302 -
Deferred compensation 47,597 25,893
----------------------------------
Total deferred tax assets 482,403 241,172
----------------------------------
Deferred tax liabilities:
Bank premises and equipment (114,775) (97,721)
Mortgage servicing rights (43,915) (41,276)
Unrealized gains on securities available for sale - (51,006)
----------------------------------
Total deferred tax liabilities (158,690) (190,003)
----------------------------------
Net deferred tax assets $ 323,713 $ 51,169
==================================
</TABLE>
F-21
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
15
--------------------------------------------------------------------------------
LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Bank leases the premises for one branch location and an operations center
under operating lease agreements expiring in various years through October 2017.
Certain lease agreements contain escalation provisions. The Bank also has
options to extend the lease agreements for additional lease terms from five to
thirty years. The Bank is responsible to pay all real estate taxes, insurance,
utilities and maintenance and repairs on the buildings.
Future minimum lease payments by year and in the aggregate, under noncancellable
operating leases with initial or remaining terms of one year or more, consisted
of the following at December 31, 1999:
2000 $ 124,735
2001 125,940
2002 127,929
2003 133,961
2004 135,125
Thereafter 1,334,185
------------------
$ 1,981,875
==================
The total rental expense included in the statements of income for the years
ended December 31, 1999 and 1998 is $ 134,318 and $ 111,446, respectively.
16
--------------------------------------------------------------------------------
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, 1999 and 1998, these
persons were indebted to the Bank for loans totaling $ 1,565,000 and
$ 1,476,000, respectively. During 1999, $ 349,000 of new loans were made and
repayments totaled $ 260,000.
F-22
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
17
--------------------------------------------------------------------------------
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 and letters of
credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
A summary of the Bank's financial instrument commitments is as follows:
December 31,
1999 1998
-----------------------------------
Commitments to grant loans $ 3,046,000 $ 1,844,000
Unfunded commitments under lines of credit 7,964,000 5,163,000
Outstanding letters of credit 96,000 755,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon extension of credit, is based on management's credit
evaluation. Collateral held varies but may include personal or commercial real
estate, accounts receivable, inventory and equipment.
Outstanding letters of credit 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.
18
--------------------------------------------------------------------------------
CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in Berks County, 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-23
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
19
--------------------------------------------------------------------------------
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 reevaluated or updated for purposes of these 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 and liabilities. 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
by the Bank in estimating its fair value disclosures for financial instruments:
Cash and due from banks and interest bearing deposits in other banks:
The carrying amounts reported approximate those assets' fair value.
Securities:
Fair values of 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 instruments.
Mortgage loans held for sale:
Fair values are based on quoted market prices of similar loans sold.
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 other loans receivable were estimated using discounted
cash flow analysis, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
Accrued interest receivable and payable:
The carrying amount of accrued interest receivable and payable
approximate their fair values.
Deposit liabilities:
The fair values disclosed for demand deposits (e.g., interest-bearing
and noninterest-bearing checking, passbook, savings and certain types
of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for fixed-rate certificates of deposit are estimated using
a discounted cash flow calculation that applies interest rates
currently being offered on certificates of deposit to a schedule of
aggregated expected monthly maturities on time deposits.
F-24
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
19
--------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Other borrowed funds and securities sold under agreements to repurchase:
The current carrying amounts of other borrowed funds approximate their
fair values.
Long-term debt:
The current carrying value of the debt approximates the fair value.
Off-balance sheet instruments:
Off-balance sheet instruments of the Bank consist of letters of credit,
loan commitments and unfunded lines of credit. Fair values for the
Bank's off-balance sheet instruments are based on fees currently
charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit
standing. Any fees charged are immaterial.
A summary of the estimated fair values of the Bank's financial instruments are
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------------------------------------------------------
(In Thousands)
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 4,139 $ 4,139 $ 2,998 $ 2,998
Interest-bearing deposits in other banks 13 13 26 26
Securities 13,384 13,384 12,876 12,876
Mortgage loans held for sale 68 68 1,052 1,052
Loans receivable, net 85,668 84,603 79,322 81,830
Accrued interest receivable 570 570 485 485
Financial liabilities:
Deposits 90,596 90,620 85,443 86,288
Other borrowed funds and securities sold under
agreements to repurchase 11,132 11,132 3,423 3,423
Long-term debt - - 5,000 5,000
Accrued interest payable 297 297 298 298
Off-balance sheet financial instruments:
Commitments to extend credit - - - -
Standby letters of credit - - - -
</TABLE>
F-25
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
20
--------------------------------------------------------------------------------
COMMUNITY INDEPENDENT BANK, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Balance Sheets
December 31,
1999 1998
------------------------------------
Assets:
<S> <C> <C>
Cash $ 137,779 $ 173,314
Investment in Bank subsidiary 7,055,595 7,157,000
Other assets 48,528 29,158
------------------------------------
Total assets $ 7,241,902 $ 7,359,472
====================================
Stockholders' equity $ 7,241,902 $ 7,359,472
====================================
Statements of Income
Years Ended December 31,
1999 1998
------------------------------------
Dividends from Bank subsidiary $ 174,251 $ 167,202
Other expenses (56,970) (85,761)
Income tax benefits 19,370 29,158
Equity in undistributed earnings of Bank subsidiary 104,882 433,154
------------------------------------
Net income $ 241,533 $ 543,753
====================================
</TABLE>
F-26
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
20
--------------------------------------------------------------------------------
COMMUNITY INDEPENDENT BANK, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION (CONTINUED)
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
------------------------------------
Operating activities:
<S> <C> <C>
Net income $ 241,533 $ 543,753
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed earnings of Bank subsidiary (104,882) (433,154)
Increase in other assets (19,370) (29,158)
------------------------------------
Net cash provided by operating activities 117,281 81,441
------------------------------------
Financing activities:
Cash dividends (174,251) (167,202)
Proceeds from dividend reinvestment plan 21,435 -
Proceeds from common stock options exercised - 1,775
------------------------------------
Net cash used in financing activities (152,816) (165,427)
------------------------------------
Decrease in cash (35,535) (83,986)
Cash:
Beginning 173,314 257,300
------------------------------------
Ending $ 137,779 $ 173,314
====================================
</TABLE>
F-27
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, 2000 December 31, 1999
(Unaudited)
------------- -------------
<S> <C> <C>
Cash and due from banks $ 2,798,025 $ 4,139,228
Interest-bearing deposits in other banks 25,094 13,238
------------- -------------
Cash and cash equivalents 2,823,119 4,152,466
Securities available for sale 13,290,613 13,383,658
Mortgage loans held for sale 168,000 68,000
Loans receivable, net of allowance for
loan losses June 30, 2000 $1,115,181
Dec. 31, 1999 $1,211,628 82,793,524 85,668,141
Bank premises and equipment, net 2,765,964 2,828,800
Accrued interest receivable and other assets 3,494,005 3,434,861
------------- -------------
TOTAL ASSETS $ 105,335,225 $ 109,535,926
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 9,469,392 $ 10,434,304
Interest bearing 81,894,132 80,161,897
------------- -------------
TOTAL DEPOSITS 91,363,524 90,596,201
Securities sold under agreements
to repurchase 721,717 661,092
Other borrowed funds 5,492,367 10,471,037
Other liabilities 550,600 565,694
------------- -------------
TOTAL LIABILITIES 98,128,208 102,294,024
------------- -------------
Stockholders' equity:
Preferred stock, par value $5.00 per
share; authorized and unissued
1,000,000 shares -- --
Common stock, par value $5.00
per share; authorized 5,000,000
shares; issued and outstanding
June 30, 2000 700,327 shares;
December 31, 1999 698,637 shares 3,501,635 3,493,185
Surplus 162,762 154,268
Retained earnings 3,646,206 3,701,727
Accumulated other comprehensive income (loss) (103,586) (107,278)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 7,207,017 7,241,902
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 105,335,225 $ 109,535,926
============= =============
</TABLE>
F-28
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended For the Three Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-----------------------------------------------------------------
Interest income:
<S> <C> <C> <C> <C>
Loans receivable, including fees $ 3,510,540 $ 3,537,018 $ 1,743,102 $ 1,801,077
Securities:
Taxable 331,912 340,035 162,988 170,941
Tax-exempt 16,260 10,072 5,394 5,028
Other 45,379 25,522 22,384 12,944
----------- ----------- ----------- -----------
Total interest income 3,904,091 3,912,647 1,933,868 1,989,990
----------- ----------- ----------- -----------
Interest expense:
Deposits 1,771,566 1,741,911 929,558 880,887
Other borrowed funds 339,563 68,011 135,807 37,465
Long-term debt 0 149,263 0 74,954
----------- ----------- ----------- -----------
Total interest expense 2,111,129 1,959,185 1,065,365 993,306
----------- ----------- ----------- -----------
Net interest income 1,792,962 1,953,462 868,503 996,684
Provision for loan losses 290,000 180,000 260,000 90,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 1,502,962 1,773,462 608,503 906,684
----------- ----------- ----------- -----------
Other income:
Customer service fees 182,385 155,218 93,206 78,097
Net gains from sale of mortgages 18,287 34,770 11,373 8,437
Other 125,019 143,314 67,592 78,067
----------- ----------- ----------- -----------
Total other income 325,691 333,302 172,171 164,601
----------- ----------- ----------- -----------
Other expenses:
Salaries and employee benefits 809,291 952,824 365,822 492,510
Occupancy 182,847 189,686 90,379 96,030
Equipment 207,273 168,020 103,999 86,075
Marketing and advertising 65,816 47,994 39,853 32,386
Loan collection and foreclosed real estate 67,934 15,175 38,714 8,117
Professional fees 118,505 23,827 77,060 8,577
Stationery and supplies 22,384 49,294 12,160 22,264
Other 326,416 353,359 169,144 184,127
----------- ----------- ----------- -----------
Total other expenses 1,800,466 1,800,179 897,131 930,086
----------- ----------- ----------- -----------
Income(loss) before income taxes 28,187 306,585 (116,457) 141,199
Federal income taxes(benefit) (14,161) 83,089 (48,863) 37,736
----------- ----------- ----------- -----------
Net income(loss) $ 42,348 $ 223,496 $ (67,594) $ 103,463
=========== =========== =========== ===========
Basic and diluted earnings(loss) per share $ 0.06 $ 0.32 $ (0.10) $ 0.15
=========== =========== =========== ===========
Weighted average number of common
shares outstanding 699,501 696,774 699,928 696,774
See Notes to Consolidated Financial Statements
</TABLE>
F-29
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 2000 June 30, 1999
----------------------------------
<S> <C> <C>
Net income $ 42,348 $ 223,496
Other comprehensive income (loss)
net of tax
Unrealized holding gains (losses)
arising during the period, net of
tax expense (benefit) 2000 $1,903;
1999 ($67,496) 3,692 (136,772)
--------- ---------
Total comprehensive income $ 46,040 $ 86,724
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
F-30
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Surplus Earnings Income Total
---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $3,493,185 $ 154,268 $ 3,701,727 $ (107,278) $ 7,241,902
Net income - - 42,348 - 42,348
Cash dividends
($.14 per share) (97,869) (97,869)
Net change in unrealized
gain (loss) on securities
available for sale,
net of taxes - - - 3,692 3,692
Issuance of 1,690 shares
of common stock under
dividend reinvestment
program 8,450 8,494 16,944
------------ ---------- ------------- ------------- -----------
Balance, June 30, 2000 $3,501,635 $ 162,762 $ 3,646,206 $ (103,586) $ 7,207,017
============ ========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
F-31
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, 2000 June 30, 1999
--------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 42,348 $ 223,496
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for loan losses 290,000 180,000
Provision for depreciation 186,701 142,645
Net gains on sale of mortgage loans (18,287) (34,770)
Proceeds from sale of mortgage loans 1,457,300 2,530,203
Mortgage loans originated for sale (1,289,300) (1,604,683)
Net amortization of securities premiums and discounts (1,829) 3,626
Amortization of mortgage servicing rights 15,939 15,545
Increase in accrued interest receivable and other assets (228,053) (316,619)
Increase (decrease) in other liabilities (15,094) 162,620
----------- -----------
Net cash provided by operating activities 439,725 1,302,063
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities of securities available for sale 1,085,000 1,000,000
Purchase of securities available for sale (984,531) (2,301,240)
Net (increase) decrease in loans 2,051,409 (5,210,635)
Purchases of bank premises and equipment (123,865) (215,058)
Purchase of life insurance policies 0 (450,000)
Proceeds from surrender of life insurance policies 434,563 208,242
----------- -----------
Net cash provided by (used in) investing activities 2,462,576 (6,968,691)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 767,323 6,836,223
Net increase in securities sold
under agreements to repurchase 60,625 570,763
Net decrease in other borrowed funds (4,978,671) (2,366,335)
Dividends paid (97,869) (83,612)
Proceeds from shares issued under dividend
reinvestment program 16,944 --
----------- -----------
Net cash provided by (used in) financing activities (4,231,648) 4,957,039
----------- -----------
Decrease in cash and cash equivalents (1,329,347) (709,589)
Cash and cash equivalents:
Beginning 4,152,466 3,024,192
----------- -----------
Ending $ 2,823,119 $ 2,314,603
=========== ===========
Cash payments for:
Interest $ 2,085,992 $ 1,987,657
Income taxes $ 109,748 $ 139,267
Non-cash investing and financing activities:
Loans transferred to Other Real Estate Owned $ 270,603 $ --
</TABLE>
See Notes To Consolidated Financial Statements
F-32
<PAGE>
COMMUNITY INDEPENDENT BANK, INC.
AND ITS WHOLLY-OWNED SUBSIDIARY,
BERNVILLE BANK, N.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2000
Note A. Basis of Presentation
The unaudited consolidated financial statements include the accounts of
Community Independent Bank, Inc. and its wholly-owned subsidiary, Bernville
Bank, N.A. All significant intercompany accounts and transactions have been
eliminated. The accompanying unaudited consolidated financial statements have
been prepared in accordance 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 the opinion of management, all adjustments
considered necessary for fair presentation have been included. Operating results
for the six month period ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2000.
Note B. New Accounting Standard
The Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998
which was amended by Statement No. 137 and Statement 138. The Company is
required to adopt the Statement on January 1, 2001. The adoption of the
Statement is not expected to have a significant impact on the Company.
Note C. Cash Dividend
On July 20, 2000, the Board of Directors declared a dividend of $.07
per share to shareholders of record on August 4, 2000. The dividend will be paid
on August 17, 2000.
Note D. Subsequent Events
Effective July 24, 2000, the Company's Dividend Reinvestment Plan was suspended
with the execution of a definitive agreement for National Penn Bancshares to
acquire Community Independent Bank, Inc.
The basic terms of the definitive agreement call for the tax-free exchange of .9
share of National Penn common stock for each share of Community Independent
Bank, Inc. common stock. Based on National Penn's July 21, 2000 closing price of
$21.88 per share, the value per share of Community Independent Bank, Inc. would
be $19.69. This price equates to 56.25 times CIB's estimated trailing twelve
months earnings, and a multiple of 1.89 times CIB's book value as of March 31,
2000. The transaction is expected to be consummated in the first quarter of
2001.
F-33
<PAGE>
ANNEX A
AGREEMENT
THIS AGREEMENT, dated as of July 23, 2000 ("Agreement"), is made by and
between NATIONAL PENN BANCSHARES, INC., a Pennsylvania corporation ("NPB"), and
COMMUNITY INDEPENDENT BANK, INC., a Pennsylvania corporation ("CIB").
BACKGROUND
1. NPB and CIB desire for CIB to merge with and into NPB, with NPB
surviving such merger, in accordance with the applicable laws of the
Commonwealth of Pennsylvania and this Agreement.
2. As a condition and inducement to NPB to enter into this Agreement,
(a) the directors and certain officers of CIB are concurrently executing Letter
Agreements with NPB in the form attached hereto as Exhibit 1, and (b) CIB is
concurrently granting to NPB an option to acquire up to 19.9% of CIB's common
stock (the "NPB Option") pursuant to a Stock Option Agreement which is
concurrently being executed between CIB and NPB, in the form attached hereto as
Exhibit 2.
3. NPB and CIB 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.
A-1
<PAGE>
Agreement means this agreement, which constitutes a "plan of merger"
between NPB and CIB, including any amendment or supplement hereto.
Application means an application for regulatory approval which is
required by the transactions contemplated hereby.
Articles of Merger mean the articles of merger to be executed by NPB
and CIB and to be filed in the PDS, in accordance with the applicable laws of
the Commonwealth of Pennsylvania.
Bank Merger means the merger of BBank with and into NPBank, with NPBank
surviving such merger, contemplated by Section 1.03 of this Agreement.
Bank Plan of Merger has the meaning given to that term in Section 1.03
of this Agreement.
BBank means Bernville Bank, N.A., a national banking association, all
the outstanding capital stock of which is owned by CIB.
BCL means the Pennsylvania Business Corporation Law of 1988, as
amended.
BHC Act means the Bank Holding Company Act of 1956, as amended.
CIB means Community Independent Bank, Inc., a Pennsylvania
---
corporation.
CIB Benefit Plan has the meaning given to that term in Section 2.12 of
this Agreement.
CIB Certificate has the meaning given to such term in Section
1.02(g)(i) of this Agreement.
CIB Common Stock has the meaning given to that term in Section 2.02(a)
of this Agreement.
CIB Disclosure Schedule means, collectively, the disclosure schedules
delivered by CIB to NPB at or prior to the execution and delivery of this
Agreement.
CIB Financials means (i) the audited consolidated financial statements
of CIB as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999, and (ii) the unaudited interim consolidated
financial statements of CIB for each calendar quarter after December 31, 1999,
including the quarter ended March 31, 2000.
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CIB Nominee has the meaning given to that term in Section 1.02(d)(i) of
this Agreement.
CIB NPBank Nominee has the meaning given to that term in Section
4.07(c)(iii) of this Agreement.
CIB Shareholders Meeting means the meeting of the holders of CIB Common
Stock concerning the Merger pursuant to the Prospectus/Proxy Statement.
CIB Stock Option Plans means each stock option plan maintained by CIB
immediately prior to the Effective Date.
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.
Confidentiality Agreement means the confidentiality agreement dated
July 13, 2000, between NPB and CIB.
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
CIB Shareholders Meeting.
Determination Period has the meaning given to such term in Section
1.02(e)(ii)(D) of this Agreement.
Division has the meaning given to that term in Section 4.07(c)(iv)(A)
of this Agreement.
Division Board has the meaning given to that term in Section
4.07(c)(iv)(B) of this Agreement.
Effective Date means the date upon which the Articles of Merger shall
be filed in the PDS and shall be the same as the Closing 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
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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(g)(v)
of this Agreement.
Exchange Ratio means the exchange ratio set forth in Section
1.02(e)(ii)(A), as it may be adjusted pursuant to Section 1.02(h).
FDIC means the Federal Deposit Insurance Corporation.
FRB means the Federal Reserve Board.
IRC means the Internal Revenue Code of 1986, as amended.
IRS means the Internal Revenue Service.
Knowledge of CIB means the knowledge of CIB'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 CIB on a consolidated
basis (when such term is used in Article 2 hereof or otherwise with respect to
CIB) or NPB on a consolidated basis (when such term is used in Article 3 hereof
or otherwise with respect to NPB) other than, in each case, any change,
circumstance or effect relating to (i) the economy or financial markets in
general, (ii) the banking industry and not specifically related to CIB or NPB,
or (iii) any action or omission of a party taken with the prior written consent
of the other party to this Agreement, or (b) the ability of such party to
consummate the transactions contemplated by this Agreement.
Merger means the merger of CIB with and into NPB, contemplated by this
Agreement.
Merger Consideration has the meaning given to such term in Section
1.02(g)(i) of this Agreement.
NASD means the National Association of Securities Dealers, Inc.
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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 Certificate has the meaning given to such term in Section
1.02(g)(ii) of this Agreement.
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 CIB 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, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999, and (ii) the unaudited interim consolidated
financial statements of NPB for each calendar quarter after December 31, 1999,
including the quarter ending March 31, 2000.
NPB Market Value has the meaning given to such term in Section
1.02(e)(ii)(D) of this Agreement.
NPB Option means the option granted to NPB to acquire certain shares of
CIB Common Stock referred to in the Background of this Agreement.
NPBank means National Penn Bank, a national banking association, all
the outstanding capital stock of which is owned by NPB.
OCC means the Office of the Comptroller of the Currency.
PDB means the Department of Banking of the Commonwealth of
Pennsylvania.
PDS means the Department of State of the Commonwealth of Pennsylvania.
Prospectus/Proxy Statement means the prospectus/proxy statement,
together with any supplements thereto, to be sent to holders of CIB Common Stock
in connection with the transactions contemplated by this Agreement.
Registration Statement means the registration statement on Form S-4,
including any pre-effective or post-effective amendments or supplements thereto,
as filed with the SEC under the Securities Act with respect to the NPB Common
Stock to be issued in connection with the transactions contemplated by this
Agreement.
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Regulatory Agreement has the meaning given to that term in Sections
2.11(d) and 3.10(d) 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 FRB, the FDIC, the PDB, the OCC, the NASD, and
the respective staffs 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, as
amended August 21, 1999, 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.
Securities Documents means all registration statements, schedules,
statements, forms, reports, proxy material, and other documents required to be
filed under the Securities Laws.
Securities Laws means the Securities Act and the Exchange Act 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.
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 BCL, on the Effective Date:
(i) CIB shall merge with and into NPB;
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(ii) the separate existence of CIB shall cease;
(iii) NPB shall be the surviving corporation in the Merger;
and
(iv) all of the property (real, personal and mixed), rights,
powers, duties, obligations and liabilities of CIB shall be taken and deemed to
be transferred to and vested in NPB, as the surviving corporation in the Merger,
without further act or deed;
all in accordance with the applicable laws of the Commonwealth of Pennsylvania.
(c) NPB's Articles of Incorporation and Bylaws. On and after the
Effective Date, the articles of incorporation and bylaws of NPB, as in effect
immediately prior to the Effective Date, shall automatically be and remain the
articles of incorporation and bylaws of NPB, as the surviving corporation in the
Merger, until thereafter altered, amended or repealed.
(d) NPB's Board of Directors and Officers.
(i) On and after the Effective Date, (A) the directors of NPB
duly elected and holding office immediately prior to the Effective Date, and (B)
one person (the "CIB Nominee") selected by CIB's Board of Directors (consistent
with the 60 years age limitation contained in NPB's Bylaws) and approved by NPB
(which approval will not be unreasonably withheld) shall be the directors of
NPB, as the surviving corporation in the Merger, each to hold office until his
successor is elected and qualified or otherwise in accordance with applicable
law, the articles of incorporation and bylaws of NPB. NPB shall designate the
CIB Nominee as a Class III director with a term of office through April 2002 and
NPB agrees to re-nominate the CIB Nominee for at least one full three-year term
thereafter.
(ii) If the CIB Nominee, or any successor, resigns, dies or is
otherwise removed from NPB's Board of Directors prior to the end of the Class
III term ending April 2005, the former CIB directors then serving on the
Division Board, by a plurality vote, shall have the right to select (consistent
with the 60 years age limitation contained in NPB's Bylaws) the successor to
such CIB Nominee, or any successor, subject to approval of such person by NPB
(which approval will not be unreasonably withheld), and NPB shall take all
reasonable steps to elect such successor to the NPB Board of Directors.
(iii) On and after the Effective Date, the officers of NPB
duly elected and holding office immediately prior to the Effective Date shall be
the officers of NPB, as the surviving corporation in the Merger, each to hold
office until his or her
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successor is elected and qualified or otherwise in accordance with applicable
law, the articles of incorporation and bylaws of NPB.
(e) Conversion of Shares.
(i) NPB Common Stock.
(A) Outstanding Shares. Each share of NPB Common
Stock issued and outstanding immediately prior to the Effective Date shall, on
and after the Effective Date, continue to be issued and outstanding as an
identical share of NPB Common Stock.
(B) Treasury Stock. Each share of NPB Common Stock
issued and held in the treasury of NPB immediately prior to the Effective Date,
if any, shall, on and after the Effective Date, continue to be issued and held
in the treasury of NPB.
(ii) CIB Common Stock.
(A) Conversion. Subject to Sections 1.02(e)(ii)(B)
and 1.02(e)(ii)(C) hereof with respect to treasury stock and fractional shares,
each share of CIB 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
Section 1.02(h) hereof, nine-tenths (9/10) share of NPB Common Stock, including
the associated rights to purchase securities pursuant to the Rights Agreement.
(B) Treasury Stock. Each share of CIB Common Stock
issued and held in the treasury of CIB immediately prior to the Effective Date,
if any, shall be cancelled on the Effective Date, 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 CIB 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 (e)(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
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Determination Period shall not begin prior to the ten days after the date of
this Agreement.
(f) Stock Options.
(i) On the Effective Date, each option (a "CIB Option") to
purchase one or more shares of CIB Common Stock issued by CIB 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
CIB Option 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.
(ii) As soon as practicable after the Effective Date, NPB
shall deliver to the holders of CIB Options appropriate notices setting forth
such holders' rights pursuant to the CIB Stock Option Plans, and the agreements
evidencing the grants of such CIB Options shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section
1.02(f) after giving effect to the Merger and the terms of the CIB Stock Option
Plans). NPB shall comply with the terms of the CIB Stock Option Plans and shall
take such reasonable steps as are necessary or required by, and subject to the
provisions of, such CIB Stock Option Plans, to have the CIB 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 CIB 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 CIB
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Stock Option Plans in a manner consistent with the exemptions provided by Rule
16b-3 promulgated under the Exchange Act.
(g) Surrender and Exchange of CIB Stock Certificates.
(i) Each holder of shares of CIB Common Stock who surrenders
to NPB the certificate or certificates representing such shares (each, a "CIB
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 CIB Common Stock
have been converted by the Merger, together with a check for cash in lieu of any
fractional share in accordance with Section 1.02(e)(ii)(C) hereof (the "Merger
Consideration").
(ii) Each certificate for shares of NPB Common Stock (each, an
"NPB Certificate") issued in exchange for CIB Certificates pursuant to Section
1.02(g)(i) hereof 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 CIB Certificate shall, from and after
the Effective Date, evidence solely the right to receive NPB Certificates
pursuant to Section 1.02(g)(i) hereof and a check for cash in lieu of any
fractional share in accordance with Section 1.02(e)(ii)(C) hereof. If a CIB
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
Section 1.02(g)(ii) upon surrender of CIB Certificates. Notwithstanding the
foregoing, no party hereto shall be liable to any holder of CIB 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 CIB
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 CIB Certificate delivered for exchange under this
Section 1.02(g) 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 CIB
Common Stock will be closed and no further transfers of CIB Common Stock will
thereafter be made or recognized. All CIB Certificates surrendered pursuant to
this Section 1.02(g) will be cancelled.
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(v) As soon as reasonably practicable after the Effective
Date, NPB shall cause NPBank or another institutional entity selected by NPB, as
exchange agent (the "Exchange Agent"), to mail to each holder of a CIB
Certificate:
(A) a letter of transmittal which shall specify that
delivery shall be effected, and risk of loss and title to the CIB Certificates
shall pass, only upon delivery of the CIB Certificates to the Exchange Agent,
and which letter shall be in customary form and have such other provisions as
NPB reasonably may specify; and
(B) instructions for effecting the surrender of such
CIB Certificates in exchange for the applicable Merger Consideration.
Upon surrender of a CIB 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 CIB Certificate shall be entitled to
receive in exchange therefor:
(X) 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(e) (after taking into account all
shares of CIB Common Stock then held by such holder); and
(Y) 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(g)(ii).
In the event of a transfer of ownership of CIB Common Stock which is not
registered in the transfer records of CIB, 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(g)(ii), may be issued with respect to such CIB Common Stock to such
a transferee if the CIB Certificate representing such shares of CIB 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.
(h) Anti-Dilution Provisions. If NPB shall, at any time before the
Effective Date:
(i) issue a dividend in shares of NPB Common Stock;
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(ii) combine the outstanding shares of NPB Common Stock into a
smaller number of shares;
(iii) split or subdivide the outstanding shares of NPB Common
Stock; or
(iv) reclassify the shares of NPB Common Stock;
then, in any such event, the number of shares of NPB Common Stock to be
delivered to CIB shareholders who are entitled to receive shares of NPB Common
Stock in exchange for shares of CIB Common Stock shall be adjusted so that each
CIB 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 Section
1.02(e)(ii)(A) hereof shall be adjusted upward by 7%.)
1.03 Bank Merger. NPB and CIB shall each use their best efforts to
cause BBank to merge with and into NPBank, with NPBank surviving such merger
(the "Bank Merger") as soon as practicable after the Effective Date.
Concurrently with the execution of this Agreement, NPB shall cause NPBank to
execute, and CIB shall cause BBank to execute, the Bank Plan of Merger attached
hereto as Exhibit 3 (the "Bank Plan of Merger"). The Bank Merger shall not be
effected prior to the Effective Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF CIB
CIB hereby represents and warrants to NPB as follows:
2.01 Organization.
(a) CIB is a corporation duly incorporated, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania. CIB is a bank
holding company duly registered under the BHC Act. CIB has the corporate power
and authority 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. CIB 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 would not have a Material
Adverse Effect, and all such licenses, registrations and qualifications are in
full force and effect in all material respects.
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(b) BBank is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of America.
BBank has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the properties and
assets now owned and being operated by it. BBank 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
would not have a Material Adverse Effect, and all such licenses, registrations
and qualifications are in full force and effect in all material respects.
(c) BBank is a commercial bank, the deposits of which are insured by
the Bank Insurance Fund of the FDIC to the extent provided in the Federal
Deposit Insurance Act.
(d) CIB has no Subsidiaries other than BBank and those identified in
CIB Disclosure Schedule 2.01(d).
(e) The respective minute books of CIB and each CIB Subsidiary
accurately record, in all material respects, all material corporate actions of
their respective shareholders and boards of directors, including committees, in
each case in accordance with normal business practice of CIB and the CIB
Subsidiary.
(f) CIB has delivered to NPB true and correct copies of the articles of
incorporation and bylaws of CIB, the articles of association and bylaws of
BBank, and the articles of incorporation and bylaws of each other CIB
Subsidiary, each as in effect on the date hereof.
2.02 Capitalization.
(a) The authorized capital stock of CIB consists of (i) 5,000,000
shares of common stock, par value $5 per share ("CIB Common Stock"), of which at
the date hereof 700,327 shares are validly issued and outstanding, fully paid
and nonassessable, and free of preemptive rights, and none are held as treasury
shares, and (ii) 1,000,000 shares of preferred stock, par value $5 per share, of
which at the date hereof none are issued. Except for the NPB Option and this
Agreement, CIB has not issued nor is CIB 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 CIB Common Stock or any other security of CIB or
any securities representing the right to vote, purchase or otherwise receive any
shares of CIB Common Stock or any other security of CIB, except (i) for CIB
Options for 22,600 shares of
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CIB Common Stock issued and outstanding under the CIB Stock Option Plans, or
(ii) pursuant to CIB's Dividend Reinvestment Plan.
(b) CIB owns, directly or indirectly, all of the capital stock of BBank
and the other CIB Subsidiaries, free and clear of any liens, security interests,
pledges, charges, encumbrances, agreements and restrictions of any kind or
nature. Except for the Bank Plan of Merger, there are no subscriptions, options,
warrants, calls, commitments, agreements or other Rights outstanding with
respect to the capital stock of BBank or any other CIB Subsidiary. Except for
the CIB Subsidiaries, CIB does not possess, directly or indirectly, any material
equity interest in any corporation, except for equity interests in BBank's
investment portfolio, equity interests held by BBank in a fiduciary capacity,
and equity interests held in connection with BBank's commercial loan activities.
(c) To the Knowledge of CIB, except as set forth on CIB Disclosure
Schedule 2.02(c), no person or group is the beneficial owner of 5% or more of
the outstanding shares of CIB Common Stock (the terms "person", "group" and
"beneficial owner" are as defined in Section 13(d) of the Exchange Act, and the
rules and regulations thereunder).
2.03 Authority; No Violation.
(a) CIB 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 CIB and the consummation by CIB of
the transactions contemplated hereby have been duly and validly approved by the
Board of Directors of CIB and, except for approval by the shareholders of CIB as
required by the BCL, no other corporate proceedings on the part of CIB are
necessary to consummate the Merger. This Agreement has been duly and validly
executed and delivered by CIB and, subject to approval by the shareholders of
CIB and subject to the required approvals of Regulatory Authorities described in
Section 3.04 hereof, constitutes the valid and binding obligation of CIB,
enforceable against CIB 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 CIB, (ii)
subject to receipt of approvals from the CIB shareholders and the Regulatory
Authorities referred to in Section 3.04 hereof and CIB's and NPB's compliance
with any conditions contained therein, the consummation of the Merger, and (iii)
compliance by CIB or any CIB Subsidiary with any of the terms or provisions
hereof, do not and will not:
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(A) conflict with or result in a breach of any
provision of the respective articles of incorporation or association or bylaws
of CIB or any CIB Subsidiary;
(B) violate any statute, rule, regulation, judgment,
order, writ, decree or injunction applicable to CIB or any CIB Subsidiary 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 CIB or any
CIB Subsidiary under any of the terms or conditions of any note, bond, mortgage,
indenture, license, lease, agreement, commitment or other instrument or
obligation to which CIB or any CIB Subsidiary 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) 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 CIB or the Bank Plan of Merger by BBank or,
subject to the consents, approvals, filings and registrations from or with the
Regulatory Authorities referred to in Section 3.04 hereof and compliance with
any conditions contained therein and subject to the approval of this Agreement
by the shareholders of CIB as required under the BCL, the consummation by CIB of
the transactions contemplated hereby or by BBank of the Bank Merger.
2.05 Financial Statements.
(a) CIB has delivered to NPB the CIB Financials, except those
pertaining to quarterly periods commencing after March 31, 2000, which it will
deliver to NPB within 45 days after the end of the respective quarter. The
delivered CIB Financials fairly present, in all material respects, the
consolidated financial position, results of operations and cash flows of CIB as
of and for the periods ended on the dates thereof, in accordance with generally
accepted accounting principles, 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 CIB, CIB did not have any liabilities or
obligations of any nature, whether absolute, accrued, contingent
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or otherwise, which are not fully reflected or reserved against in the balance
sheets included in the CIB Financials at the date of such balance sheets which
would have been required to be reflected therein in accordance with generally
accepted accounting principles 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. Neither CIB nor any CIB Subsidiary has
suffered any adverse change in their respective assets, business, financial
condition or results of operations since December 31, 1999 which change has had
a Material Adverse Effect, it being understood that (a) the expenses incurred by
CIB in connection with this Agreement and the Merger, including, without
limitation, the engagement of legal and financial advisors, and (b) any increase
in non-performing assets or potential problem loans (as those terms are defined
in SEC guidelines) through the date of this Agreement, shall not constitute a
Material Adverse Effect.
2.07 Taxes.
(a) CIB and the CIB Subsidiaries are members of the same affiliated
group within the meaning of IRC Section 1504(a). CIB has filed, and will file,
in correct form all federal, state and local tax returns required to be filed
by, or with respect to, CIB and the CIB Subsidiaries 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 CIB or any CIB Subsidiary 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) No consent pursuant to IRC Section 341(f) has been filed, or will
be filed prior to the Closing Date, by or with respect to CIB or any CIB
Subsidiary.
(c) To the Knowledge of CIB, there are no material disputes pending, or
claims asserted in writing, for taxes or assessments upon CIB or any CIB
Subsidiary, nor has CIB or any CIB Subsidiary 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.
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(d) Proper and accurate amounts have been withheld by CIB and each CIB
Subsidiary from their 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 CIB Disclosure Schedule 2.08(a) or 2.12,
neither CIB nor any CIB Subsidiary is 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;
(iv) any agreement which by its terms limits the payment of
dividends by CIB or any CIB Subsidiary;
(v) 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 CIB or any CIB
Subsidiary is an obligor to any person, other than deposits, repurchase
agreements, bankers acceptances and "treasury tax and loan" accounts established
in the ordinary course of business, instruments relating to transactions entered
into in the customary course of the banking business of BBank, and transactions
in "federal funds", or which contains financial covenants or other restrictions,
other than those relating to the payment of principal and interest when due,
which would be applicable on or after the Closing Date;
(vi) any contract, other than this Agreement, which restricts
or prohibits it from engaging in any type of business permissible under
applicable law;
(vii) any contract, plan or arrangement which provides for
payments or benefits in certain circumstances which, together with other
payments or benefits payable to any participant therein or party thereto, might
render any portion of any such payments or
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benefits subject to disallowance of deduction therefor as a result of the
application of Section 280G of the IRC; or
(viii) except in the ordinary course of business, any
lease for real property.
(b) (i) All the contracts, plans, arrangements and instruments listed
in CIB Disclosure Schedule 2.08(a) or 2.12 are in full force and effect on the
date hereof, and neither CIB, any CIB Subsidiary nor, to the Knowledge of CIB,
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.
(ii) Except as otherwise described in CIB Disclosure Schedule
2.08(a) or 2.12, no plan, employment agreement, termination agreement or similar
agreement or arrangement to which CIB or any CIB Subsidiary is a party or by
which CIB or any CIB Subsidiary may be bound:
(A) contains provisions which permit an employee or
an independent contractor to terminate it without cause and continue to accrue
future benefits thereunder;
(B) 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 CIB or any CIB Subsidiary; or
(C) requires CIB or any CIB Subsidiary to provide a
benefit in the form of CIB Common Stock or determined by reference to the value
of CIB Common Stock.
2.09 Ownership of Property; Insurance Coverage.
(a) CIB and each CIB Subsidiary 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 CIB or such CIB Subsidiary,
whether real or personal, tangible or intangible, including securities, assets
and properties reflected in the balance sheets contained in the CIB 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),
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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 CIB Disclosure Schedule 2.09(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) pledges to secure deposits and other liens incurred in
the ordinary course of banking business;
(v) such imperfections of title, easements and encumbrances,
if any, as are not material in character, amount or extent; and
(vi) dispositions and encumbrances for adequate consideration
in the ordinary course of business.
CIB and each CIB Subsidiary have the right under leases of material properties
used by CIB or such CIB Subsidiary in the conduct of their respective businesses
to occupy and use all such properties in all material respects as presently
occupied and used by them.
(b) With respect to all agreements pursuant to which CIB or any CIB
Subsidiary has purchased securities subject to an agreement to resell, if any,
CIB or such CIB Subsidiary 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) CIB and each CIB Subsidiary maintain insurance in amounts
considered by CIB to be reasonable for their respective operations, and such
insurance is similar in scope and coverage in all material respects to that
maintained by other businesses similarly situated. Neither CIB nor any CIB
Subsidiary has received notice from any insurance carrier that:
(i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated; or
(ii) premium costs with respect to such insurance will be
substantially increased;
except to the extent such cancellation, reduction, elimination or increase would
not have a Material Adverse Effect.
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(d) CIB and each CIB Subsidiary maintains such fidelity bonds and
errors and omissions insurance as may be customary or required under applicable
laws or regulations.
2.10 Legal Proceedings. Neither CIB nor any CIB Subsidiary is a party
to any, and there are no pending or, to the Knowledge of CIB, threatened, legal,
administrative, arbitration or other proceedings, claims, actions, customer
complaints, or governmental investigations or inquiries of any nature:
(a) against CIB or any CIB Subsidiary;
(b) to which the assets of CIB or any CIB Subsidiary are subject;
(c) challenging the validity or propriety of any of the transactions
contemplated by this Agreement; or
(d) which could materially adversely affect the ability of CIB, BBank
or any other CIB Subsidiary to perform their respective obligations under this
Agreement and the Bank Plan of Merger;
except for any proceedings, claims, actions, investigations, or inquiries
referred to in clauses (a) or (b) which, individually or in the aggregate, would
not have a Material Adverse Effect.
2.11 Compliance with Applicable Law.
(a) CIB and each CIB Subsidiary 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
its businesses nor otherwise have a Material Adverse Effect.
(b) CIB and each CIB Subsidiary 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, would not have a Material Adverse Effect.
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(c) No Regulatory Authority has initiated any proceeding or, to the
Knowledge of CIB, investigation into the business or operations of CIB or any
CIB Subsidiary, 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 CIB nor any CIB Subsidiary has received any notification or
communication from any Regulatory Authority:
(i) asserting that CIB or any CIB Subsidiary is not in
substantial compliance 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 CIB or any CIB Subsidiary;
(iii) requiring or threatening to require CIB or any CIB
Subsidiary, or indicating that CIB or any CIB 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 CIB or any CIB Subsidiary, including without
limitation any restriction on the payment of dividends; or
(iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of CIB or any CIB
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 heretofore disclosed to NPB.
(e) Neither CIB nor any CIB Subsidiary has received, consented to, or
entered into any Regulatory Agreement, except as heretofore disclosed to NPB.
(f) To the Knowledge of CIB, 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 CIB or any CIB
Subsidiary would have a Material Adverse Effect.
(g) There is no injunction, order, judgment or decree imposed upon CIB
or any CIB Subsidiary or the assets of CIB or any CIB Subsidiary which has had,
or, to the Knowledge of CIB, would have, a Material Adverse Effect.
2.12 ERISA.
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(a) CIB 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 CIB 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 CIB
or any CIB Subsidiary (collectively, the "CIB Benefit Plans"), together with:
(i) the most recent actuarial (if any) and financial reports
relating to those CIB Benefit Plans which constitute "qualified plans" under IRC
Section 401(a);
(ii) the most recent Form 5500 (if any) relating to such CIB
Benefit Plans filed by them, respectively, with the IRS; and
(iii) the most recent IRS determination letter which pertain
to any such CIB Benefit Plans.
(b) Neither CIB nor any CIB Subsidiary, and no pension plan (within the
meaning of ERISA Section 3(2)) maintained by CIB or any CIB Subsidiary, has
incurred any liability to the Pension Benefit Guaranty Corporation or to the IRS
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.
(c) Neither CIB nor any CIB Subsidiary has incurred any liability under
ERISA Section 4201 for a complete or partial withdrawal from a multi-employer
plan.
(d) Each CIB 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.
(e) As of the date hereof, there is no existing, or, to the Knowledge
of CIB, contemplated, audit of its employee benefit plans by the IRS or the U.S.
Department of Labor.
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(f) With respect to any services which CIB or any CIB Subsidiary may
provide as a sponsor, fiduciary, trustee or otherwise for any plan, program, or
assignment subject to ERISA (other than any CIB Benefit Plan), CIB and each CIB
Subsidiary:
(i) have correctly computed all contributions, payments or
other amounts for which it is responsible;
(ii) have not engaged in any prohibited transactions (as
defined in ERISA Section 406 for which an exemption does not exist); and
(iii) have 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 CIB, any CIB Subsidiary, nor any of
their respective 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
JMS Montgomery Scott, Inc. ("JMS"), whose engagement letter with CIB is
included in CIB Disclosure Schedule 2.13.
2.14 Environmental Matters.
(a) Except as set forth on CIB Disclosure Schedule 2.14, to the
Knowledge of CIB, neither CIB nor any CIB Subsidiary, nor any property owned or
operated by CIB or any CIB 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 set forth on CIB 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 CIB, threatened, or any
investigation pending, relating to the liability of CIB or any CIB Subsidiary
with respect to any property owned or operated by CIB or any CIB Subsidiary
under any Environmental Law, except as to any such actions or other matters
which would not result in a Material Adverse Effect.
(b) Except as set forth on CIB Disclosure Schedule 2.14, no property,
now or formerly owned or operated by CIB or any CIB Subsidiary or on which CIB
or any CIB Subsidiary holds or held a mortgage or other security interest or has
foreclosed or taken a deed in lieu of foreclosure, has been listed or proposed
for listing on the National Priority List under the Comprehensive
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Environmental Response Compensation and Liability Act of 1980, as amended
("CERCLA"), 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 CIB or any CIB 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 CIB. Since December 31, 1999, neither CIB nor any CIB
Subsidiary has, in any material respect:
(a) 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);
(b) eliminated employee benefits;
(c) deferred routine maintenance of real property or leased premises;
(d) eliminated a reserve where the liability related to such reserve
has remained;
(e) failed to depreciate capital assets in accordance with past
practice or to eliminate capital assets which are no longer used in its
business; or
(f) had extraordinary reduction or deferral of ordinary or necessary
expenses.
2.16 CRA Compliance. CIB and BBank are in material compliance with the
applicable provisions of the CRA, and, as of the date hereof, BBank has received
a CRA rating of "satisfactory" or better from the OCC. To the Knowledge of CIB,
there is no fact or circumstance or set of facts or circumstances which would
cause CIB or BBank to fail to comply with such provisions in a manner which
would have a Material Adverse Effect.
2.17 Bank Merger.
(a) BBank has full corporate power and authority to execute and deliver
the Bank Plan of Merger and to consummate the Bank Merger. The execution and
delivery of the Bank Plan of Merger by BBank and the consummation by BBank of
the Bank Merger have been duly and validly approved by the Board of Directors of
BBank and by CIB as sole shareholder of BBank, and no other corporate
proceedings on the part of BBank are necessary to consummate the Bank Merger.
The Bank Plan of Merger, upon its execution and delivery by BBank concurrently
with the execution and delivery of
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this Agreement, will constitute the valid and binding obligation of BBank,
enforceable against BBank 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) The execution and delivery of the Bank Plan of Merger and the
consummation of the Bank Merger will not:
(i) conflict with or result in a breach of any provision of
the respective articles of incorporation or association or bylaws of CIB or
BBank;
(ii) violate any statute, rule, regulation, judgment, order,
writ, decree or injunction applicable to CIB or BBank or any of their respective
properties or assets; or
(iii) violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
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 respective properties or assets of
CIB or BBank under, any of the terms or conditions of any note, bond, mortgage,
indenture, license, lease, agreement, commitment or other instrument or
obligation to which CIB or BBank is a party, or by which they or any of their
respective properties or assets may be bound or affected;
excluding from clauses (ii) and (iii) any such items which, in the aggregate,
would not have a Material Adverse Effect.
2.18 Information to be Supplied.
(a) The information supplied by CIB 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 CIB,
and up to and including the date of the CIB Shareholders Meeting, 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.
(b) The information supplied by CIB for inclusion in the Applications
will, at the time each such document is filed with any Regulatory Authority and
up to and including the dates of any required regulatory approvals or consents,
as such Applications may be amended by subsequent filings, be accurate in all
material respects.
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2.19 Related Party Transactions.
(a) Except as set forth on CIB Disclosure Schedule 2.19, or as is
disclosed in the footnotes to the CIB Financials, as of the date hereof, neither
CIB nor any CIB Subsidiary is 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 CIB or any CIB Subsidiary, 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.
(b) Except as set forth in CIB Disclosure Schedule 2.19, as of the date
hereof, no loan or credit accommodation to any Affiliate of CIB or any CIB
Subsidiary 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 the Knowledge of CIB, 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. All loans reflected as assets in the CIB Financials are
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and correct, and to the extent secured, are secured by valid liens
and security interests which have been perfected, excluding loans as to which
the failure to satisfy the foregoing standards would not have a Material Adverse
Effect.
2.21 Accounting for the Merger; Reorganization. As of the date hereof,
CIB does not have any reason to believe that the Merger will fail to qualify for
"pooling of interests" accounting treatment under generally accepted accounting
principles, or as a "reorganization" under Section 368(a) of the IRC.
2.22 Fairness Opinion. CIB has received an oral opinion from JMS to the
effect that, as of the date hereof, the consideration to be received by
shareholders of CIB pursuant to this Agreement is fair, from a financial point
of view, to such shareholders.
2.23 Year 2000 Compliance. All software, hardware, embedded microchips
and other processing capabilities utilized by and material to the operations of
CIB or any CIB Subsidiary are able to interpret, process, manage and manipulate
data involving all calendar dates correctly, including single century formulas
and multi-century formulas, all leap years, and all dates on or after
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January 1, 2000, including February 29, 2000. All computer systems of CIB or any
CIB Subsidiary function correctly for purposes of date and time calculations.
2.24 Securities Documents. CIB has delivered to NPB copies of:
(a) CIB's annual reports on SEC Form 10-KSB for the years ended
December 31, 1999 and 1998;
(b) CIB's quarterly report on SEC Form 10-QSB for the quarter ended
March 31, 2000;
(c) all other reports, registration statements and filings of CIB filed
with the SEC since January 1, 2000; and
(d) CIB's proxy materials used in connection with its meetings of
shareholders held in 2000 and 1999.
Such reports and proxy materials complied, in all material respects, and all
future SEC reports, filings, and proxy materials will comply, in all material
respects, 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 their 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.
2.25 Quality of Representations. To the Knowledge of CIB, no
representation made by CIB in this Agreement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NPB
NPB hereby represents and warrants to CIB 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 BHC Act. NPB has the corporate power
and authority 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
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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 would not have a
Material Adverse Effect, and all such licenses, registrations and qualifications
are in full force and effect in all material respects.
(b) NPBank is a national banking association duly organized, validly
existing and in good standing under the laws of the United States of America.
NPBank has the corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the properties and
assets now owned and being operated by it. NPBank 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
would 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 each NPB Subsidiary
accurately record, in all material respects, all material corporate actions of
their respective shareholders and boards of directors, including committees, in
each case in accordance with normal business practice of NPB and the NPB
Subsidiary.
(d) NPB has delivered to CIB true and correct copies of the respective
articles of incorporation, articles of association and bylaws of NPB and NPBank,
as in effect on the date hereof.
3.02 Capitalization.
(a) The authorized capital stock of NPB consists of (i) 62,500,000
shares of common stock, without par value ("NPB Common Stock"), of which at the
date hereof 17,661,609 shares are validly issued and outstanding, fully paid and
nonassessable, and free of preemptive rights, and 182,163 are held as treasury
shares, and (ii) 1,000,000 shares of preferred stock, without par value, of
which at the date hereof 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,
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dividend reinvestment plan and directors' fee plan, and (iii) pursuant to the
Rights Agreement.
(b) NPB owns, directly or indirectly, all of the capital stock of
NPBank and the other NPB Subsidiaries, free and clear of any liens, security
interests, pledges, charges, encumbrances, agreements and restrictions of any
kind or nature. There are no subscriptions, options, warrants, calls,
commitments, agreements or other Rights outstanding with respect to the capital
stock of NPBank or any other NPB Subsidiary. Except for the NPB Subsidiaries,
NPB does not possess, directly or indirectly, any material equity interest in
any corporation, except for equity interests in the investment portfolios 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.
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. 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 and no other corporate proceedings on the part of NPB
are necessary to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by NPB and, subject to 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.
(b) (i) The execution and delivery of this Agreement by NPB, (ii)
subject to receipt of approvals from the Regulatory Authorities referred to in
Section 3.04 hereof and NPB's and CIB's compliance with any conditions contained
therein, the consummation of the Merger, and (iii) compliance by NPB or any NPB
Subsidiary 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 any NPB Subsidiary;
(B) violate any statute, rule, regulation, judgment,
order, writ, decree or injunction applicable to NPB or any NPB Subsidiary or any
of their respective properties or assets; or
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(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 any
NPB Subsidiary 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 any NPB Subsidiary 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 FRB, the PDB, the NASD, the OCC, 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 and the Bank Plan of Merger by NPBank or the
consummation of the Merger.
3.05 Financial Statements.
(a) NPB has delivered to CIB the NPB Financials, except those
pertaining to quarterly periods commencing after March 31, 2000, which it will
deliver to CIB 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, 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 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.
3.06 No Material Adverse Change. Neither NPB nor any NPB Subsidiary has
suffered any adverse change in their respective
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assets, business, financial condition or results of operations since December
31, 1999 which change has had a Material Adverse Effect.
3.07 Taxes.
(a) NPB and the NPB Subsidiaries are members of the same affiliated
group within the meaning of IRC Section 1504(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 and the NPB Subsidiaries 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 or any NPB Subsidiary 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 or any NPB
Subsidiary, nor has NPB or any NPB Subsidiary 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 and each NPB
Subsidiary from their 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 and each NPB Subsidiary 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 or such NPB Subsidiary,
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:
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(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) pledges to secure deposits and other liens incurred in
the ordinary course of banking business;
(v) such imperfections of title, easements and encumbrances,
if any, as are not material in character, amount or extent; and
(vi) dispositions and encumbrances for adequate consideration
in the ordinary course of business.
NPB and each NPB Subsidiary have the right under leases of material properties
used by NPB or such NPB Subsidiary in the conduct of their respective businesses
to occupy and use all such properties in all material respects as presently
occupied and used by them.
(b) With respect to all agreements pursuant to which NPB or any NPB
Subsidiary has purchased securities subject to an agreement to resell, if any,
NPB or such NPB Subsidiary 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 and each NPB Subsidiary maintain insurance in amounts
considered by NPB to be reasonable for their respective operations, and such
insurance is similar in scope and coverage in all material respects to that
maintained by other businesses similarly situated. Neither NPB nor any NPB
Subsidiary has received notice from any insurance carrier that:
(i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated; or
(ii) premium costs with respect to such insurance will be
substantially increased;
except to the extent such cancellation, reduction, elimination or increase would
not have a Material Adverse Effect.
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(d) NPB and each NPB Subsidiary maintain 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 the Knowledge of NPB, threatened, legal,
administrative, arbitration or other proceedings, claims, actions, customer
complaints, or governmental investigations or inquiries of any nature:
(a) against NPB or any NPB Subsidiary;
(b) to which the assets of NPB or any NPB Subsidiary are subject;
(c) challenging the validity or propriety of any of the transactions
contemplated by this Agreement; or
(d) which could materially adversely affect the ability of NPB, NPBank
or any other NPB Subsidiary to perform their respective obligations under this
Agreement and the Bank Plan of Merger;
except for any proceedings, claims, actions, investigations, or inquiries
referred to in clauses (a) or (b) which, individually or in the aggregate, would
not have a Material Adverse Effect.
3.10 Compliance with Applicable Law.
(a) NPB and each NPB Subsidiary 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 each NPB Subsidiary 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, would not have a Material Adverse Effect.
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(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 is not in
substantial compliance 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, including without
limitation any restriction on the payment of dividends; or
(iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of 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.
(e) 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.
(f) 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 or any NPB
Subsidiary would have a Material Adverse Effect.
(g) 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, would have, a Material Adverse Effect.
3.11 ERISA.
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(a) NPB has delivered to CIB 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
or any NPB Subsidiary (collectively, 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 IRS; and
(iii) the most recent IRS determination letters which pertain
to any such NPB Benefit Plans.
(b) Neither NPB nor any NPB Subsidiary, and no pension plan (within the
meaning of ERISA Section 3(2)) maintained by NPB or any NPB Subsidiary, has
incurred any liability to the Pension Benefit Guaranty Corporation or to the IRS
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.
(c) Neither NPB nor any NPB Subsidiary has incurred any liability under
ERISA Section 4201 for a complete or partial withdrawal from a multi-employer
plan.
(d) 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.
(e) As of the date hereof, there is no existing, or, to the Knowledge
of NPB, contemplated, audit of its employee benefit plans by the IRS or the U.S.
Department of Labor.
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(f) 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) have correctly computed all contributions, payments or
other amounts for which it is responsible;
(ii) have not engaged in any prohibited transactions (as
defined in ERISA Section 406 for which an exemption does not exist); and
(iii) have 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, any NPB Subsidiary, nor any of
their respective 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.
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 set forth on 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 would 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 or foreclosure, has been listed or proposed
for listing on the National Priority List under CERCLA on the Comprehensive
Environmental Response Compensation and Liabilities Information System, or any
similar state list, or which is the
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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 December 31, 1999, neither NPB nor any NPB
Subsidiary has, in any material respect:
(a) increased the wages, salaries, compensation, pension or other
employee benefits payable to any executive officer, employee or director;
(b) eliminated employee benefits;
(c) deferred routine maintenance of real property or leased premises;
(d) eliminated a reserve where the liability related to such reserve
has remained;
(e) failed to depreciate capital assets in accordance with past
practice or to eliminate capital assets which are no longer used in its
business; or
(f) had extraordinary reduction or deferral of ordinary or necessary
expenses.
3.15 CRA Compliance. NPB and NPBank are in material compliance with the
applicable provisions of the CRA, and, as of the date hereof, NPBank has
received a CRA rating of "satisfactory" or better from the OCC. To the Knowledge
of NPB, there is no fact or circumstance or set of facts or circumstances which
would cause NPBank to fail to comply with such provisions in a manner which
would have a Material Adverse Effect.
3.16 Bank Merger.
(a) NPBank has full corporate power and authority to execute and
deliver the Bank Plan of Merger and to consummate the Bank Merger. The execution
and delivery of the Bank Plan of Merger by NPBank and the consummation by NPBank
of the Bank Merger have been duly and validly approved by the Board of Directors
of NPBank and by NPB as sole shareholder of NPBank, and no other corporate
proceedings on the part of NPBank are necessary to consummate the Bank Merger.
The Bank Plan of Merger, upon its execution and delivery by NPBank concurrently
with the execution and delivery of this Agreement, will constitute the valid and
binding obligation of NPBank, enforceable against NPBank in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws
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affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity.
(b) The execution and delivery of the Bank Plan of Merger and the
consummation of the Bank Merger will not:
(i) conflict with or result in a breach of any provision of
the respective articles of incorporation or association or bylaws of NPB or
NPBank;
(ii) violate any statute, rule, regulation, judgment, order,
writ, decree or injunction applicable to NPB or NPBank or any of their
respective properties or assets; or
(iii) violate, conflict with, result in a breach of any
provisions of, constitute a default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, result in the termination of,
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 respective properties or assets of
NPB or NPBank 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 NPBank is a party, or by which they or any of their
respective properties or assets may be bound or affected;
excluding from clauses (ii) and (iii) any such items which, in the aggregate,
would not have a Material Adverse Effect.
3.17 Information to be Supplied.
(a) 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 CIB,
and up to and including the date of the CIB Shareholders Meeting, 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.
(b) The information supplied by NPB for inclusion in the Applications
will, at the time each such document is filed with any Regulatory Authority and
up to and including the dates of any required regulatory approvals or consents,
as such Applications may be amended by subsequent filings, be accurate in all
material respects.
3.18 Related Party Transactions.
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(a) Except as set forth on NPB Disclosure Schedule 3.18 or in the
footnotes to the NPB Financials, as of the date hereof, neither NPB nor any NPB
Subsidiary is 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 or any NPB Subsidiary, 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.
(b) 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 or any NPB
Subsidiary 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 the Knowledge of NPB, 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. All loans reflected as assets in the NPB Financials are
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and correct, and to the extent secured, are secured by valid liens
and security interests which have been perfected, excluding loans as to which
the failure to satisfy the foregoing standards would not have a Material Adverse
Effect.
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 for
"pooling of interests" accounting treatment under generally accepted accounting
principles, or as a "reorganization" under Section 368(a) of the IRC.
3.21 Year 2000 Compliance. All software, hardware, embedded microchips
and other processing capabilities utilized by and material to the operations of
NPB or any NPB Subsidiary are able to interpret, process, manage and manipulate
data involving all calendar dates correctly, including single century formulas
and multi-century formulas, all leap years, and all dates on or after January 1,
2000, including February 29, 2000. All computer systems of NPB or any NPB
Subsidiary function correctly for purposes of date and time calculations.
3.22 NPB Common Stock. The shares of NPB Common Stock to be issued and
delivered to CIB shareholders in accordance with this Agreement, when so issued
and delivered, will be validly authorized
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and issued and fully paid and non-assessable, and no shareholder of NPB shall
have any preemptive right with respect thereto.
3.23 Securities Documents. NPB has delivered to CIB copies of:
(a) NPB's annual reports on SEC Form 10-K for the years ended December
31, 1999 and 1998;
(b) NPB's quarterly report on SEC Form 10-Q for the quarter ended March
31, 2000;
(c) all other reports, registration statements and filings of NPB filed
with the SEC since January 1, 2000; and
(d) NPB's proxy materials used in connection with its meetings of
shareholders held in 2000 and 1999.
Such reports and proxy materials complied, in all material respects, and all
future SEC reports, filings, and proxy materials will comply, in all material
respects, 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 their 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.
3.24 Quality of Representations. To the Knowledge of NPB, no
representation made by NPB in this Agreement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Conduct of CIB's Business. Through the Closing Date, CIB shall,
and shall cause each CIB Subsidiary to, 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. CIB shall, and shall cause each CIB Subsidiary to, 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 CIB or the CIB Subsidiaries and others with whom business
relationships exist. 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
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Agreement, CIB shall not, and CIB shall not permit any CIB Subsidiary to:
(a) change any provision of its articles of incorporation or
association or of its bylaws;
(b) change the number of authorized or issued shares of its capital
stock; repurchase any shares of capital stock; 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; declare, set aside or pay any dividend or other
distribution in respect of capital stock; or redeem or otherwise acquire any
shares of capital stock; except that (i) CIB may issue up to an aggregate of
22,600 shares of CIB Common Stock upon the valid exercise of any CIB Options
issued and outstanding on the date hereof, and (ii) CIB may pay its regular
quarterly cash dividend of $.07 per share of CIB Common Stock;
(c) grant any severance or termination pay, other than pursuant to
policies or agreements of CIB or any CIB Subsidiary 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 CIB or any CIB Subsidiary;
(d) except for (i) routine periodic pay increases, merit pay increases
and pay-raises in connection with promotions, all in accordance with past
practice, and (ii) retention bonuses on account of the Merger to be granted in
good faith reasonable amounts not to exceed $50,000 in the aggregate and to be
payable to designated persons not earlier than 30 days after the operational
merger of BBank and NPBank, increase the rate of compensation of, or pay any
bonus to, any director, officer, employee, independent contractor, agent or
other person associated with CIB or any CIB Subsidiary; or grant job promotions
other than in accordance with past practice;
(e) merge or consolidate with any other corporation; sell or lease all
or any substantial portion of its assets or businesses; make any acquisition of
all or any substantial portion of the business or assets of any other person,
firm, association, corporation or business organization; enter into a purchase
and assumption transaction with respect to deposits, loans or liabilities;
permit BBank to relocate or surrender its certificate of authority to maintain,
or file an application for the relocation of, any existing branch office; or
permit BBank to file an application for a certificate of authority to establish
a new branch office;
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(f) sell or otherwise dispose of any material asset, other than in the
ordinary course of business, consistent with past practice; subject any asset 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 it 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 it 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;
(k) amend or otherwise modify its underwriting and other lending
guidelines and policies in effect as of the date hereof or otherwise fail to
conduct its lending activities in the ordinary course of business consistent
with past practice;
(l) enter into, renew, extend or modify any other transaction with any
Affiliate, other than deposit and loan transactions in the ordinary course of
business and which are in compliance with the requirements of applicable laws
and regulations;
(m) enter into any interest rate swap, floor or cap or similar
commitment, agreement or arrangement;
(n) take any action that would give rise to a right of payment to any
individual under any employment agreement 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;
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(p) make any capital expenditure of $50,000 or more; or undertake or
enter into any lease, contract or other commitment for its account, other than
in the ordinary course of business, involving an unbudgeted expenditure of more
than $25,000, or extending beyond twelve (12) months from the date hereof;
(q) take any action that 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;
(r) terminate any in-house back office, support, processing or other
operational activities or services, including without limitation accounting,
loan processing and deposit services; or substitute any contract or arrangement
with any person or entity for the provision of such activities or services; or
(s) agree to do any of the foregoing.
4.02 Access; Confidentiality.
(a) Through the Closing Date, CIB and NPB shall each afford to the
other, including its authorized agents and representatives, reasonable access to
its and its Subsidiaries' businesses, properties, assets, books and records and
personnel, at reasonable hours and after reasonable notice; and the officers of
CIB and NPB shall each 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 such 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) NPB and CIB each agree 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 CIB 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 CIB 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
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accordance with, the confidentiality agreement dated July 13, 2000 between NPB
and CIB (the "Confidentiality Agreement").
4.03 Regulatory Matters. Through the Closing Date:
(a) NPB and CIB 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. NPB and CIB shall each 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.
(b) CIB 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) CIB and NPB shall each cooperate with the 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, CIB 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 cause to be taken by each of its
Subsidiaries, all actions, and to do, or 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. CIB 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:
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(a) 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
herein);
(b) enter into or maintain or continue discussions or negotiate with
any person in furtherance of an Acquisition Proposal; or
(c) agree to or endorse any Acquisition Proposal.
CIB shall (unless it believes, based upon written advice of its counsel, such
notification would violate the CIB 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) CIB may furnish or cause to be furnished confidential and
non-public information concerning CIB and its businesses, properties or assets
to a third party;
(ii) CIB may engage in discussions or negotiations with a
third party;
(iii) following receipt of an Acquisition Proposal, CIB 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 CIB
Board of Directors may withdraw or modify its recommendation of the Merger;
but in respect of the foregoing clauses (i) through (iv) only if the CIB Board
of Directors shall conclude in good faith after consultation with its legal and
financial advisors, and based upon written advice of its counsel, that failure
to do so would result in a breach by such directors of their fiduciary duties to
CIB's shareholders.
As used herein, the term "Acquisition Proposal" means the public announcement of
a bona fide proposal (including a written communication that is or becomes the
subject of public disclosure) for: (x) any merger, consolidation or acquisition
of all or substantially all the assets or liabilities of CIB, BBank, any CIB
Subsidiary, or any other business combination involving CIB, BBank or any CIB
Subsidiary; or (y) a transaction involving the transfer of beneficial ownership
of securities representing, or the right to acquire beneficial ownership or to
vote securities representing, 10% or more of the then outstanding shares of CIB
Common Stock, the
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then outstanding shares of common stock of BBank, or the then outstanding shares
of common stock of any CIB Subsidiary.
4.06 Update of Disclosure Schedules. Through the Closing Date, CIB
shall update the CIB 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 CIB.
(a) Undertakings of CIB.
(i) Shareholder Approval. CIB shall submit this Agreement to
its shareholders for approval at the CIB Shareholders Meeting with the
recommendation of its Board of Directors to such shareholders to approve this
Agreement. The CIB Shareholders Meeting may, in CIB's sole discretion, be held
after all consents of any Regulatory Authorities to the Merger 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 CIB.
(ii) Phase I Environmental Audit. CIB 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 CIB or any
CIB Subsidiary.
(iii) Updated Fairness Opinion. CIB shall use its reasonable
best efforts to obtain an updated written opinion from JMS to the effect that
the consideration to be received by shareholders of CIB pursuant to this
Agreement is fair, from a financial point of view, to such shareholders, dated
not more than ten days prior to the date of mailing of the Prospectus/Proxy
Statement to the shareholders of CIB, for inclusion in such Prospectus/Proxy
Statement.
(iv) Dividend Reinvestment Plan. Within ten days after the
date of this Agreement, CIB shall suspend, effective the date of this Agreement
and through the earlier of the Closing Date or the termination of this
Agreement, the operation of CIB's Dividend Reinvestment Plan.
(b) Undertakings of NPB and CIB.
(i) Filings and Approvals. NPB and CIB shall each cooperate
with the other in the preparation and filing, as soon as practicable, of:
(A) the Applications;
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(B) the Registration Statement (including the
Prospectus/Proxy Statement) and related filings, if any, under state securities
laws relating to the Merger; and
(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 CIB 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 CIB shall each
maintain insurance in such amounts as NPB or CIB, as the insured, believes are
reasonable to cover such risks as are customary in relation to the character and
location of its and its Subsidiaries' properties and the nature of its and its
Subsidiaries' businesses.
(iv) Maintenance of Books and Records. NPB and CIB shall each
maintain books of account and records on a basis consistent with past practice.
(v) Taxes. NPB and CIB 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) Delivery of Financial Statements. NPB and CIB shall each
deliver to the other, 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, 2000 and the quarter ended June 30, 2000, 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, its
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.
(vii) Delivery of SEC Documents. NPB and CIB shall each
deliver to the other copies of all reports filed with the SEC under the Exchange
Act promptly upon the filing thereof.
(c) Undertakings of NPB.
(i) Employees, Severance Policy.
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(A) NPB will endeavor to continue the employment of
all current employees of CIB or any CIB Subsidiary in positions that will
contribute to the successful performance of the combined organization. Where
there is a coincidence of responsibilities, NPB will try to reassign the
affected individual to a needed position that utilizes the skills and abilities
of the individual. If that is impracticable or if NPB elects to eliminate a
position, NPB will make severance payments to the displaced employee as set
forth in this Section 4.07(c)(i). NPB will also make severance payments to an
employee who declines a position that requires re- location more than 40 miles
from his current place of employment.
(B) Subject to the following minimum and maximum
benefits, NPB will grant an eligible employee one week of severance pay (at his
then current pay rate) for each year of an employee's service with CIB or any
CIB Subsidiary prior to the employment termination date. The minimum benefit
shall be four weeks' salary for full-time exempt and nonexempt employees, which
will be pro- rated for part-time employees. The maximum severance benefit will
be 26 weeks' salary.
(C) All employees of CIB or of any CIB Subsidiary on
the date hereof will be eligible for severance benefits set forth in this
Section 4.07(c)(i), except that:
(1) No employee of CIB or of any CIB
Subsidiary who shall receive any payments or benefits pursuant to any "change in
control" agreement or similar plan or right shall be eligible for any severance
benefits; and
(2) No employee of CIB or of any CIB
Subsidiary with an operating systems conversion support role of any kind shall
be eligible for any severance benefits unless such employee continues in
employment for 30 days following the actual consolidation and conversion of
BBank's operating systems with and into NPBank's operating systems, which, as of
the date hereof, is scheduled to be completed not later than June 30, 2001.
(D) Persons eligible for severance benefits will
remain eligible for such benefits in the event of any termination of employment,
other than for "cause", within six months of the Effective Date. Any person
whose employment with NPB is terminated by NPB without "cause" after six months
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 CIB or any CIB Subsidiary).
(E) For purposes of this Section 4.07(c)(i), "cause"
means the employer's good faith reasonable belief that the employee (1)
committed fraud, theft or embezzlement; (2) falsified corporate records; (3)
disseminated confidential information
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concerning customers, NPB, any NPB Subsidiary or any of its or their employees;
(4) had documented unsatisfactory job performance under NPB's dismissal policy;
or (5) violated NPB's Code of Conduct. The foregoing definition of "cause" is
the definition of "cause" used by NPB and its Subsidiaries in the ordinary
course of its business.
(ii) Employee Benefits.
(A) As of the Effective Date, each employee of CIB or
of any CIB Subsidiary who becomes an employee of NPB or of any NPB Subsidiary
shall be entitled to full credit for each year of service with CIB or the CIB
Subsidiary for purposes of determining eligibility for participation and
vesting, but not benefit accrual, in NPB's, or as appropriate, the NPB
Subsidiary's, employee benefit plans, programs and policies.
(B) The employee benefits provided to former
employees of CIB or a CIB Subsidiary 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 medical,
dental and life insurance plans, programs or policies, if any, that become
applicable to former employees of CIB or any CIB Subsidiary shall not contain
any exclusion or limitation with respect to any pre-existing condition of any
such employees or their dependents.
(C) Subject to the foregoing, after the Effective
Date, NPB or any NPB Subsidiary may discontinue, amend or convert to an NPB or
an NPB Subsidiary plan any particular benefit or welfare plan of CIB or any CIB
Subsidiary, subject to such plan's provisions and applicable law.
(iii) Election of NPBank Directors.
(A) Upon consummation of the Merger and subject to
compliance with all applicable legal requirements, NPB shall cause NPBank to
elect the CIB Nominee (selected pursuant to Section 1.02(d)(i) hereof) and one
other person selected by CIB's Board of Directors (consistent with the 60 years
age limitation contained in NPBank's Bylaws) and approved by NPB (which approval
will not be unreasonably withheld) (each, a "CIB NPBank Nominee") as directors
of NPBank, effective the Effective Date, to hold office until their successors
are elected and qualified or otherwise in accordance with applicable law, the
articles of association and bylaws of NPBank; and NPB and NPBank shall take all
steps necessary to insure that each CIB NPBank Nominee is re-elected to NPBank's
Board of Directors for each of the five years following the Effective Date if
such person is in office as director of NPBank on the annual election dates.
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(B) If either CIB NPBank Nominee, or any successor,
resigns, dies or is otherwise removed from NPBank's Board of Directors prior to
the end of the fifth one-year term, the former CIB directors then serving on the
Division Board, by a plurality vote, shall have the right to select (consistent
with the 60 years age limitation contained in NPBank's Bylaws) the successor to
such CIB NPBank Nominee, or any successor, subject to approval of such person by
NPB (which approval will not be unreasonably withheld), and NPB shall take all
reasonable steps to elect such successor to the NPBank Board of Directors.
(iv) Banking Division, Division Board.
(A) Upon consummation of the Bank Merger and subject
to compliance with all applicable legal requirements, NPB shall cause NPBank to
combine the assets, branches and operations of BBank with those of NPBank in
Berks County, to create the Berks County Division (the "Division"). The BBank
branches located in Bernville and Shartlesville shall each be operated under a
local identity sign, "Bernville Bank, Division of National Penn Bank".
(B) Upon consummation of the Bank Merger, and subject
to compliance with all applicable legal requirements, NPB shall cause NPBank to
establish the "Berks County Division Board of Directors" (the "Division Board").
The Division Board shall initially consist of the members of CIB's Board of
Directors immediately preceding the Effective Date and various NPB and NPBank
executive officers and other persons as selected by NPB. The Division Board will
have authority to add additional members from time to time. NPB anticipates that
the Division Board will emphasize sales, marketing and expansion relating to the
Division.
(C) Non-employee members of the Division Board who
are former directors of CIB shall receive annual cash compensation for service
on the Division Board, in a combination of an annual fee and Division Board
attendance fees, in an aggregate amount not less than the aggregate amount of
directors' fees paid in cash to them by CIB or any CIB Subsidiary in the year
preceding the Effective Date. Other persons who may be selected for service as
non-employee members of the Division 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. The former
CIB directors shall have the option of electing to receive such NPB standard
compensation. Employee members of the Division Board shall not be separately
compensated for serving on such Board. The Division Board shall have
indemnification and insurance coverage no less favorable than members of
NPBank's other divisional advisory boards.
(D) NPB shall operate the Division, and maintain the
Division Board at the foregoing compensation level, for a period of at least
five years after the Effective Date, except that
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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.
(v) Indemnification, Insurance.
(A) NPB shall indemnify, defend, and hold harmless
the directors, officers, employees and agents of CIB (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 by the BCL,
including provisions relating to advances of expenses incurred in the defense of
any proceeding to the fullest extent permitted by the BCL upon receipt of any
undertaking required by the BCL. 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, and it shall cause NPBank to, keep in
effect provisions in its articles of incorporation or association and bylaws
providing for exculpation of director and officer liability and its
indemnification of the Indemnified Parties to the fullest extent permitted by
the BCL, 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.
(C) NPB shall use its reasonable best efforts (and
CIB shall cooperate and assist prior to the Effective Date in these efforts), at
no expense to the beneficiaries, to:
(1) maintain directors' and officers'
liability insurance ("D&O Insurance") for the Indemnified Parties with respect
to matters occurring at or prior to the Effective Date, issued by a carrier
assigned a claims-paying ability rating by A.M. Best & Co. of "A (Excellent)" or
higher; or
(2) obtain coverage for Prior Acts for the
Indemnified Parties under the directors' and officers' liability insurance
policy currently maintained by NPB;
in either case, providing at least the same coverage as the D&O Insurance
currently maintained by CIB 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,
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that NPB shall not be obligated to make premium payments for such six-year
period in respect of the D&O Insurance which exceed, for the portion related to
CIB's directors and officers, 150 percent of the annual premium payments
($6,812) at the date hereof) of CIB'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) If any claim is made against present or former
directors, officers or employees of CIB or any CIB Subsidiary who are covered or
potentially covered by insurance, neither NPB nor any NPB Subsidiary 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)(v).
(F) The provisions of this Section 4.07(c)(v) 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)(v).
(vi) Pooling of Interests; Reorganization. Through the Closing
Date, 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.
(vii) 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.
ARTICLE V
CONDITIONS
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5.01 Conditions to CIB's Obligations under this Agreement. The
obligations of CIB hereunder shall be subject to satisfaction at or prior to the
Closing Date of each of the following conditions, unless waived by CIB pursuant
to Section 7.03 hereof:
(a) Corporate Proceedings. All action required to be taken by, or on
the part of, NPB and NPBank to authorize the execution, delivery and performance
of this Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement, shall have been
duly and validly taken by NPB and NPBank, respectively; and CIB shall have
received certified copies of the resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of NPB and NPBank
required by this Agreement to be performed by NPB or NPBank 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 CIB 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 CIB 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 CIB a
certificate, dated the Closing Date and signed, without personal liability, by
its Chairman or President, to the effect that the conditions set forth in
Section 5.01(a) through (d) 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, if any, deemed
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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. CIB shall have received an opinion of Rhoads
& Sinon LLP, special counsel to CIB, or a letter from Beard & Company, Inc.,
CIB's independent certified public accountants, dated the Closing Date, to the
effect that (1) the Merger constitutes a reorganization under Section 368(a) of
the IRC, and (2) no gain or loss will be recognized by shareholders of CIB who
receive shares of NPB Common Stock in exchange for their shares of CIB 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 or
accountants may require and rely upon representations and agreements, including
those contained in certificates of officers of CIB, NPB and others.
(h) Approval by CIB's Shareholders. This Agreement shall have been
approved by the shareholders of CIB by such vote as is required by the articles
of incorporation and bylaws of CIB and by the BCL.
(i) Pooling of Interests. CIB shall have received a letter from Beard &
Company, Inc., CIB's independent certified public accountants, and from 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.
(j) Other Documents. CIB shall have received such other certificates,
documents or instruments from NPB or its officers or others as CIB shall have
reasonably requested in connection with accounting or income tax treatment of
the Merger or related securities law compliance.
(k) Nasdaq Listing. The NPB Common Stock shall continue to be
authorized for quotation on Nasdaq.
(l) 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 CIB 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:
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(a) Corporate Proceedings. All action required to be taken by, or on
the part of, CIB and BBank to authorize the execution, delivery and performance
of this Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement, shall have been
duly and validly taken by CIB and BBank, respectively; and NPB shall have
received certified copies of the resolutions evidencing such authorizations.
(b) Covenants; Representations. The obligations of CIB and BBank
required by this Agreement to be performed by CIB or BBank 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 CIB 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 CIB 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 CIB 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. CIB shall have delivered to NPB a
certificate, dated the Closing Date and signed, without personal liability, by
its Chairman or President, to the effect that the conditions set forth in
Sections 5.01(a) through (d) 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, if any, 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.
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(g) Tax Opinion or Letter. NPB shall have received an opinion of
Ellsworth, 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 (1) the Merger constitutes a reorganization
under Section 368(a) of the IRC, and (2) no gain or loss will be recognized by
shareholders of CIB who receive shares of NPB Common Stock in exchange for their
shares of CIB 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 or accountants may require and rely upon representations and
agreements, including those contained in certificates of officers of CIB, NPB
and others.
(h) Approval by CIB's Shareholders. This Agreement shall have been
approved by the shareholders of CIB by such vote as is required under the
articles of incorporation and bylaws of CIB and by the BCL.
(i) Pooling of Interests. NPB shall have received a letter from Grant
Thornton LLP, NPB's independent certified public accountants, and Beard &
Company, Inc., CIB'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.
(j) Other Documents. NPB shall have received such other certificates,
documents or instruments from CIB 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.
(k) 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.
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 CIB:
(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
cannot be, or shall
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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
March 15, 2001 (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 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 the shareholder vote contemplated by this Agreement is
not obtained at the CIB Shareholders Meeting.
(c) By CIB, at any time during the ten-day period following the
Determination Date, if both of the following conditions occur on the
Determination Date:
(i) the NPB Market Value shall be less than $17.00 per share;
and
(ii) (A) the quotient obtained by dividing the NPB Market
Value by $21.875 per share shall be less than (B) the quotient obtained by
dividing the Average Index Price by the Index Price on the Starting Date and
subtracting 0.15 from the quotient in this clause (ii)(B);
subject, however, to the following: If CIB 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 to ninety-five hundredths (95/100) share of NPB
Common Stock in exchange for each share of CIB 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 CIB 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.
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"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) Susquehanna Bancshares, Inc.; (2) Fulton
Financial Corporation; (3) Commerce Bancorp, Inc.; (4) BT Financial Corporation;
(5) Hudson United Bancorp; (6) Wilmington Trust Corporation; and (7)
Harleysville National Corporation.
"Index Price" on a given date means the average of the closing sale
prices of the common stocks 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.
"Starting Date" means July 21, 2000.
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).
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 CIB to the
other, except for any liability of NPB or CIB 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. 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.
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 Agreement. 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
CIB Nominee may enforce Section 1.02(d); the CIB NPBank Nominees may enforce
Section 4.07(c)(iii); and any Indemnified Party may enforce Section 4.07(c)(v).
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:
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(a) If to NPB, to:
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
P.O. Box 547
Boyertown, Pennsylvania 19512-0547
Attention: Wayne R. Weidner, President
Telecopy No.: 610-369-6236
with a copy to:
H. Anderson Ellsworth
Jay W. Waldman
Ellsworth, Carlton & Waldman, P.C.
1105 Berkshire Boulevard
Suite 320
Wyomissing, Pennsylvania 19610
Telecopy No.: 610-371-9510
(b) If to CIB, to:
Community Independent Bank, Inc.
201 North Main Street
Bernville, Pennsylvania 19506
Attention: Frederick P. Krott, Chairman
Telecopy No.: 610-488-0952
with a copy to:
Charles J. Ferry
Rhoads & Sinon LLP
One South Market Square, 12th Floor
P.O. Box 1146
Harrisburg, PA 17108-1146
Telecopy No.: 717-231-6669
7.07 Disclosure Schedules. Information contained on either the CIB
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
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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.
7.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic internal law of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
NATIONAL PENN BANCSHARES, INC.
(Corporate Seal) By:/s/ Wayne R. Weidner
----------------------------
Name: Wayne R. Weidner
Title: President
Attest:/s/ Sandra L. Spayd
---------------------------
Name: Sandra L. Spayd
Title: Secretary
COMMUNITY INDEPENDENT BANK, INC.
(Corporate Seal) By:/s/ Frederick P. Krott
---------------------------
Name: Frederick P. Krott
Title: Chairman
Attest:/s/ Karl D. Gerhart
---------------------------
Name: Karl D. Gerhart
Title: President and CEO
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EXHIBIT 1
July 23, 2000
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
Boyertown, Pennsylvania 19512
Ladies and Gentlemen:
National Penn Bancshares, Inc. ("NPB") and Community Independent Bank,
Inc. ("CIB") are considering execution of an Agreement dated July 23, 2000 (the
"Agreement").
Pursuant to the proposed Agreement, and subject to the terms and
conditions set forth therein, (a) NPB will acquire CIB by a merger of CIB with
and into NPB, (b) shareholders of CIB will receive shares of NPB common stock in
exchange for their shares of CIB common stock owned on the closing date, and (c)
optionholders of CIB will receive stock options exercisable for common stock of
NPB in exchange for options exercisable for common stock of CIB outstanding on
the closing date (the foregoing, collectively, the "Merger").
NPB has required as a condition to its execution and delivery to CIB of
the Agreement, that the undersigned, being a director of CIB, execute and
deliver to NPB this Letter Agreement.
The undersigned, in order to induce NPB to execute the Agreement, and
intending to be legally bound hereby, irrevocably agrees and represents as
follows:
1. The undersigned agrees to vote or cause to be voted for approval of
the Merger all shares of CIB common stock over which the undersigned exercises
sole voting power.
2. Through the record date for the meeting of CIB shareholders to vote
upon the Merger and for the period and to the extent provided in Paragraph 6
hereof, the undersigned agrees not to offer, sell, transfer or otherwise dispose
of, or to permit the offer, sale, transfer or other disposition of, any shares
of CIB common stock over which the undersigned exercises sole voting power.
3. The undersigned has sole voting power over the number of shares of
CIB common stock, and holds stock options for the number of shares of CIB common
stock, if any, set forth below opposite the signature line for the undersigned.
NPB recognizes that with respect to any such shares which have been pledged to a
third
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party, the undersigned will not be able to control the voting or disposition of
such shares in the event of a default.
4. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any shares of NPB common stock received pursuant to the Merger,
except:
(a) at such time as a registration statement under the
Securities Act of 1933, as amended ("Securities Act"), covering sales of such
NPB common stock is effective and a prospectus is made available under the
Securities Act;
(b) within the limits, and in accordance with the applicable
provisions of, Rule 145 under the Securities Act ("Rule 145"); or
(c) in a transaction which, in the opinion of counsel
satisfactory to NPB or as described in a "no-action" or interpretive letter from
the staff of the Securities and Exchange Commission ("SEC"), is not required to
be registered under the Securities Act;
and the undersigned acknowledges and agrees that NPB is under no obligation to
register the sale, transfer or other disposition of NPB common stock by the
undersigned or on behalf of the undersigned, or to take any other action
necessary to make an exemption from registration available.
5. NPB shall take all steps necessary to ensure that NPB is in
compliance with all those requirements of Rule 145 with which NPB must comply in
order for the resale provisions of Rule 145(d) to be available to the
undersigned.
6. Notwithstanding the foregoing, the undersigned agrees not to sell,
or in any other way reduce the risk of the undersigned relative to, any shares
of common stock of CIB or of common stock of NPB, during the period commencing
thirty (30) days prior to the effective date of the Merger and ending on the
date on which financial results covering at least thirty (30) days of
post-Merger combined operations of NPB and CIB have been published within the
meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies; provided, however, that excluded from the foregoing undertaking shall
be such sales, pledges, transfers or other dispositions of shares of CIB common
stock or shares of NPB common stock which, in NPB's reasonable judgment, are
individually and in the aggregate de minimis within the meaning of Topic 2-E of
the Staff Accounting Bulletin Series of the SEC.
7. The undersigned agrees that neither CIB nor NPB shall be bound by
any attempted sale of any shares of CIB common stock or NPB common stock,
respectively, and CIB's and NPB's transfer agents shall be given appropriate
stop transfer orders and shall not be
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required to register any such attempted sale, unless the sale has been effected
in compliance with the terms of this Letter Agreement; and the undersigned
further agrees that the certificates representing shares of NPB common stock
owned by the undersigned may be endorsed with restrictive legends consistent
with the terms of this Letter Agreement.
8. The undersigned represents that he has no plan or intention to
offer, sell, exchange, or otherwise dispose of any shares of common stock of NPB
prior to expiration of the time period referred to in subparagraph 6 hereof.
9. The undersigned agrees, if he is an optionholder, to exchange his
options to acquire shares of common stock of CIB for options to acquire such
number of shares of common stock of NPB as he would have acquired if he had
exercised such options immediately prior to consummation of the Merger, and
otherwise on the same terms and conditions as the exchanged CIB options (unless
the undersigned shall have exercised any such option prior to the Merger).
10. The undersigned represents that he has the capacity to enter into
this Letter Agreement and that it is a valid and binding obligation enforceable
against the undersigned in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting creditors' rights and general equitable
principles.
The parties hereto acknowledge that this Letter Agreement is being
executed by the undersigned in his capacity solely as a shareholder of CIB, and
not in any other capacity (including as a director of CIB), and nothing herein
contained shall derogate from the undersigned's ability to act in such other
capacity, including the exercise of fiduciary duty, even if in conflict with the
foregoing.
This Letter Agreement may be executed in two or more counterparts, each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same Letter.
This Letter Agreement shall be effective upon acceptance by NPB.
This Letter Agreement shall terminate concurrently with, and
automatically upon, any termination of the Agreement in accordance with its
terms, except that any such termination shall be without prejudice to NPB's
rights arising out of any willful breach or any covenant or representation
contained herein.
Very truly yours,
Number of Shares,
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and Shares Subject
to Stock Options,
Held:
-------------------------------- --------------------------
[Name]
Accepted:
NATIONAL PENN BANCSHARES, INC.
By:___________________________
Name:
Title:
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THE STOCK OPTION AGREEMENT IS INCLUDED HEREIN AS ANNEX B
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EXHIBIT 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Bank Plan of Merger") dated July 23, 2000,
is by and between NATIONAL PENN BANK, a national banking association ("NPBank"),
and BERNVILLE BANK, N.A., a national banking association ("BBank").
BACKGROUND
1. NPBank is a wholly-owned subsidiary of National Penn Bancshares,
Inc., a Pennsylvania corporation ("NPB").
2. BBank is a wholly-owned subsidiary of Community Independent Bank,
Inc., a Pennsylvania corporation ("CIB").
3. NPB and CIB have executed an Agreement dated July 23, 2000 (the
"Agreement"). The Agreement provides for the merger of BBank with and into
NPBank, with NPBank surviving such merger, but only after closing of the
"Merger" provided for in the Agreement. After closing of the "Merger", NPBank
and BBank will each be direct wholly-owned subsidiaries of NPB. This Bank Plan
of Merger is being executed by NPBank and BBank pursuant to the Agreement.
AGREEMENT
In consideration of the premises and of the mutual covenants and
agreements herein contained, and in accordance with the applicable laws and
regulations of the United States of America, NPBank and BBank, intending to be
legally bound hereby, agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Bank Plan of Merger, and in
accordance with the applicable laws and regulations of the United States of
America, on the Effective Date (as that term is defined in Article V hereof):
(a) BBank shall merge with and into NPBank, under the charter of
NPBank;
(b) the separate existence of BBank shall cease; and
(c) NPBank shall be the surviving bank.
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Such transaction is referred to herein as the "Bank Merger", and NPBank, as the
surviving bank in the Bank Merger, is referred to herein as the "Surviving
Bank".
ARTICLE II
NAME AND BUSINESS OF ASSOCIATION
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.
This business shall be conducted by the Surviving Bank at its main office which
shall be located at Reading and Philadelphia Avenues, Boyertown, Pennsylvania
19512, and its legally established branches and other facilities.
ARTICLE III
ARTICLES OF ASSOCIATION AND BYLAWS
3.1 Articles of Association. On and after the Effective Date, the
articles of association of the Surviving Bank shall read in their entirety as
set forth on Schedule 3.1 attached hereto and made a part hereof, until changed
in accordance with applicable law, such articles of association, and the
Surviving Bank's bylaws.
3.2 Bylaws. On and after the Effective Date, the bylaws of NPBank, as
in effect immediately prior to the Effective Date, 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.
ARTICLE IV
BOARD OF DIRECTORS AND OFFICERS
4.1 Board of Directors.
(a) On and after the Effective Date, (1) the directors of NPBank duly
elected and holding office immediately prior to the Effective Date and (2) two
persons (each a "CIB NPBank Nominee") selected by CIB's Board of Directors
(consistent with the 60 years age limitation contained in NPBank's Bylaws) 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 CIB NPBank Nominees, NPB and NPBank shall take all
steps necessary to ensure that such persons are re-elected to NPBank's Board of
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Directors for each of the five years following the Effective Date if such
persons are in office as directors of NPBank on the annual election dates.
(b) If either CIB NPBank Nominee, or any successor, resigns, dies or is
otherwise removed from NPBank's Board of Directors prior to the end of the fifth
one-year term, the former CIB directors then serving on the Division Board (as
defined in the Agreement), by a plurality vote, shall have the right to select
(consistent with the 60 years age limitation contained in NPBank's Bylaws) the
successor to such CIB NPBank Nominee, or any successor, subject to approval of
such person by NPB (which approval will not be unreasonably withheld), and NPB
shall take all reasonable steps to elect such successor to the NPBank Board of
Directors.
4.2 Officers. On and after the Effective Date, the officers of NPBank
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.
ARTICLE V
CONVERSION OF SHARES
5.1 NPBank Capital Stock. Each share of NPBank capital stock issued and
outstanding immediately prior to the Effective Date shall, on and after the
Effective Date, continue to be issued and outstanding as a share of identical
capital stock of the Surviving Bank.
5.2 BBank Capital Stock. Each share of BBank capital stock issued and
outstanding immediately prior to the Effective Date shall, on the Effective
Date, be cancelled, and no cash, stock or other property shall be delivered in
exchange therefor.
ARTICLE VI
EFFECTIVE DATE OF THE MERGER
The Bank Merger shall be effective at the time specified in a merger
approval to be issued by the Office of the Comptroller of the Currency of the
United States of America (the "Effective Date").
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ARTICLE VII
EFFECT OF THE MERGER
On the Effective Date: the separate existence of BBank shall cease; and
all of the property (real, personal and mixed), rights, powers, duties and
obligations of NPBank and BBank shall be taken and deemed to be transferred to
and vested in the Surviving Bank, without further act or deed, as provided by
applicable laws and regulations.
ARTICLE VIII
CONDITIONS PRECEDENT
The obligations of NPBank and BBank to effect the Bank Merger shall be
subject to closing of the "Merger" provided for in the Agreement.
ARTICLE IX
TERMINATION
This Bank Plan of Merger shall terminate automatically upon any
termination of the Agreement in accordance with its terms; provided, however,
that any such termination of this Bank Plan of Merger shall not relieve any
party hereto from liability on account of a breach by such party of any of the
terms hereof or thereof.
ARTICLE X
AMENDMENT
This Bank Plan of Merger may be amended at any time prior to
consummation of the Bank Merger, but only by an instrument in writing signed by
duly authorized officers on behalf of the parties hereto.
ARTICLE XI
MISCELLANEOUS
11.1 Extensions; Waivers. Each party, by a written instrument signed by
a duly authorized officer, may extend the time for the performance of any of the
obligations or other acts of the other party hereto and may waive compliance
with any of the covenants, or performance of any of the obligations, of the
other party contained in this Bank Plan of Merger.
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11.2 Notices. Any notice or other communication required or permitted
under this Bank Plan of Merger shall be given, and shall be effective, in
accordance with the provisions of Section 7.06 of the Agreement.
11.3 Captions. The headings of the several Articles herein are intended
for convenience of reference only and are not intended to be part of, or to
affect the meaning or interpretation of, this Bank Plan of Merger.
11.4 Counterparts. For the convenience of the parties hereto, this Bank
Plan of Merger may be executed in several counterparts, each of which shall be
deemed the original, but all of which together shall constitute one and the same
instrument.
11.5 Governing Law. This Bank Plan of Merger shall be governed by and
construed in accordance with the laws of the United States of America and, in
the absence of controlling Federal law, in accordance with the laws of the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, National Penn Bank and Bernville Bank, N.A., have
caused this Bank Plan of Merger to be executed by their duly authorized officers
and their corporate seals to be hereunto affixed on the date first written
above, each pursuant to a resolution of its board of directors, acting by a
majority.
NATIONAL PENN BANK
(Corporate Seal) By:/s/ Wayne R. Weidner
---------------------------
Name: Wayne R. Weidner
Title: President
Attest:/s/ Sandra L. Spayd
---------------------------
Name: Sandra L. Spayd
Title: Secretary
BERNVILLE BANK, N.A.
(Corporate Seal) By:/s/ Frederick P. Krott
---------------------------
Name: Frederick P. Krott
Title: Chairman
Attest:/s/ Karl D. Gerhart
---------------------------
Name: Karl D. Gerhart
Title: President and CEO
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SCHEDULE 3.1
ARTICLES OF ASSOCIATION
NATIONAL PENN BANK
FIRST: The title of this Association, which shall carry on the business
of banking under the laws of the United States, shall be "National Penn Bank."
SECOND: The place where the main banking house or offices of this
Association shall be located, its operations of discount and deposit carried on,
and its general business conducted, shall be Boyertown, County of Berks, State
of Pennsylvania.
THIRD: The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five persons, as such number may from time
to time be fixed by a majority of the Board of Directors. The Board of Directors
may, between annual meetings of shareholders, increase the number of directors
by not more than two where the number of directors last elected by shareholders
was fifteen or less and by not more than four where the number of directors last
elected by shareholders was sixteen or more and may appoint persons to fill the
resulting vacancies. A majority of the Board of Directors shall be necessary to
constitute a quorum for the transaction of business. All members of the Board of
Directors shall own qualifying shares in accordance with the provisions of the
National Bank Act set forth in Section 72 of Title 12 of the United States Code,
as amended, and the regulations and interpretations of the Comptroller of the
Currency thereunder.
FOURTH: The regular annual meeting of the shareholders of this
Association shall be held at its main banking house, or other convenient place
duly authorized by the Board of Directors, on such date of each year as is
specified therefor in the By-Laws.
FIFTH: The amount of authorized capital stock of this Association shall
be Six Million Dollars ($6,000,000) divided into 400,000 shares of common stock
with a par value per share of Fifteen Dollars ($15.00) each, but the capital
stock may be increased or decreased from time to time, in accordance with the
provisions of the laws of the United States. No shareholder shall be entitled to
preemptive rights.
The Association, at any time and from time to time, may
authorize and issue debt obligations, whether or not subordinated, without the
approval of the shareholders.
SIXTH: The Board of Directors shall appoint one of its members
President of this Association, who shall be Chairman of the Board; but the Board
of Directors may appoint a Director, in lieu of the President, to be Chairman of
the Board, who shall perform
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such duties as may be designated by the Board of Directors. The Board of
Directors shall have the power to appoint one or more Vice Presidents, who shall
be authorized, in the absence of the President, to perform all acts and duties
pertinent to the office of President, except such acts and duties as only the
President is authorized by law to perform; to appoint a Cashier and such other
officers as may be required to transact the business of this Association; to fix
salaries to be paid to all officers of this Association; and to dismiss such
officers, or any of them.
The Board of Directors shall have the power to define the
duties of officers and employees of this Association, to require bonds from
them, and to fix the penalty thereof; to regulate the manner in which Directors
shall be elected or appointed, and to appoint judges of the election; to make
all by-laws that may be lawful for them to make for the general regulation of
the business of this Association and the management of its affairs; and
generally to do and perform all acts that it may be lawful for a Board of
Directors to do and perform.
SEVENTH: The Board of Directors shall have the power to change the
location of the main office of this Association to any other place within the
limits of Boyertown, Pennsylvania, without the approval of the shareholders of
this Association, but subject to the approval of the Comptroller of the
Currency; and shall have the power to establish or change the location of any
branch or branches of this Association to any other place or places without the
approval of the shareholders of this Association, but subject to the approval of
the Comptroller of the Currency.
EIGHTH: Any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that such person is or was a director or officer of the Association, or is or
was serving at the request of the Association as a director, officer, employee,
agent, or fiduciary of another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, shall be indemnified by the
Association against expenses (including attorneys' fees), judgments, fines,
excise taxes, and amounts paid in settlement actually and reasonably incurred by
such person in connection with such action, suit, or proceeding to the fullest
extent permitted to Pennsylvania corporations under Pennsylvania law.
Any person claiming indemnification within the scope of this
Article shall be entitled to advances from the Association for payment of the
expenses of defending actions against such person in the manner and to the
fullest extent permitted to Pennsylvania corporations under Pennsylvania law.
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Notwithstanding anything contained herein to the contrary, no
director, officer, or employee of the Association shall be entitled to
indemnification against expenses, penalties, or other payments incurred in an
administrative proceeding or action instituted by an appropriate bank regulatory
agency, which proceeding or action results in a final order assessing civil
money penalties or requiring affirmative action by an individual or individuals
in the form of payments to the Association.
On the request of any person requesting indemnification or an
advance under this Article, the Board of Directors, by a majority vote of a
quorum consisting of directors who are not parties to the above-referenced
action, suit, or proceeding, shall determine whether the standards required by
this Article have been met. If, however, such a quorum of directors is not
obtainable or is not empowered by statute to make such determination or if a
majority of said quorum so directs, such determination shall be made by
independent legal counsel.
The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any insurance or other agreement, vote of shareholders or
disinterested directors, or otherwise, both as to actions in their official
capacity and as to actions in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors, and administrators of such
person.
NINTH: The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
TENTH: The Board of Directors of this Association or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time; provided, however, that, unless otherwise provided by law, not less than
ten days prior to the date fixed for any such meeting, a notice of the time,
place, and purpose of the meeting shall be given by first-class mail, postage
prepaid, to all shareholders of record of this Association at their respective
addresses as shown upon the books of the Association. These Articles of
Association may be amended at any regular or special meeting of the shareholders
by the affirmative vote of the shareholders owning at least a majority of the
stock of this Association, subject to the provisions of the banking laws of the
United States; provided, however, that the notice of any shareholders' meeting
at which an amendment to the Articles of Association of this Association is to
be considered shall be given as hereinabove set forth.
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ELEVENTH: Notwithstanding anything to the contrary contained herein,
whenever the vote of shareholders at a meeting thereof is required or permitted
to be taken in connection with any corporate action by any provisions of law or
these Articles of Association or of the bylaws, the meeting and vote of
shareholders may be dispensed with, if all of the shareholders shall consent in
writing to such corporate action being taken.
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COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 23rd day of July, 2000, 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 association and the
seal affixed to it to be its seal.
WITNESS my official seal and signature this day and year.
/s/ Deborah M. Johnson
-----------------------------------
(Seal of Notary) Notary Public
My commission expires 7/14/01
COMMONWEALTH OF PENNSYLVANIA :
:ss.
COUNTY OF BERKS :
On this 23rd day of July, 2000, before me, a notary public for this
state and county, personally came Karl D. Gerhart, as President, and Frederick
P. Krott, as Chairman of the Board, of Bernville Bank, N.A. 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.
/s/ Tamara D. Galan
-----------------------------------
(Seal of Notary) Notary Public
My commission expires 6/30/03
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ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Stock Option Agreement") dated
as of July 23, 2000, is by and between NATIONAL PENN BANCSHARES,
INC., a Pennsylvania corporation ("NPB"), and COMMUNITY INDEPENDENT
BANK, INC., a Pennsylvania corporation ("CIB").
BACKGROUND
1. NPB and CIB desire to enter into an Agreement, dated as of July 23,
2000 (the "Agreement"), providing, among other things, for the acquisition by
NPB of CIB through the merger of CIB with and into NPB, with NPB surviving the
merger (the "Merger").
2. As a condition and inducement to NPB to enter into the Agreement,
CIB is granting to NPB an option to purchase up to that number of shares of
common stock, par value $5.00 per share (the "Common Stock"), of CIB as shall
equal 19.9% of shares of Common Stock of CIB issued and outstanding as of the
date hereof, on the terms and conditions hereinafter set forth.
3. By resolution of the Board of Directors of CIB, the Board of
Directors of CIB has explicitly authorized and determined that it is in the best
interests of CIB, pursuant to Sections 8(A) and 9(A) of CIB's Amended and
Restated Articles of Incorporation ("Amended Articles"), that the provisions of
Articles 8, 9 and 10 of CIB's Amended Articles shall not apply to NPB if NPB
purchases any shares of CIB Common Stock by reason of the exercise of the option
to purchase shares of CIB Common Stock set forth in this Stock Option Agreement,
nor shall such provisions apply to any other Person (as defined in Article 15 of
the Amended Articles) who purchases any such shares from NPB. By resolution of
the Board of Directors of CIB, the Board of Directors of CIB has also explicitly
authorized and determined that no conditions, other than those conditions
imposed by this Stock Option Agreement, shall be imposed on NPB's ability to
vote or hold any shares of CIB Common Stock purchased by NPB by reason of the
exercise of the option to purchase shares of CIB Common Stock set forth in this
Stock Option Agreement, nor shall any conditions be imposed upon any other
Person (as defined in Article 15 of the Amended Articles) who purchases any such
shares from NPB.
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual
covenants, agreements and representations herein contained, the parties,
intending to be legally bound hereby, agree as follows:
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1. Grant of Option. CIB hereby grants to NPB, on the terms and
conditions set forth herein, the option to purchase (the "Option") up to 139,200
shares of Common Stock of CIB (as adjusted as set forth herein, the "Option
Shares") at a price per share (as adjusted as set forth herein, the "Option
Price") equal to $10.00, provided, however, that in no event shall the aggregate
number of Option Shares for which the Option is exercisable exceed 19.9% of the
issued and outstanding shares of CIB Common Stock without giving effect to any
shares subject to or issued pursuant to the Option.
2. Exercise of Option.
(a) Provided that:
(i) NPB shall not be, on the date of exercise, in material
breach of the agreements or covenants contained in the Agreement or
this Stock Option Agreement; and
(ii) no preliminary or permanent injunction or other order
against the delivery of shares covered by the Option issued by any
court of competent jurisdiction in the United States shall be in effect
on the date of exercise;
upon or after the occurrence of a Triggering Event (defined below) NPB may
exercise the Option, in whole or in part, at any time or one or more times, from
time to time;
provided that the Option shall terminate and be of no further force and effect
upon the earliest to occur of:
(A) the Effective Date of the Merger, as provided in the
Agreement;
(B) termination of the Agreement in accordance with the
terms thereof prior to the occurrence of a Triggering Event or a
Preliminary Triggering Event (defined below), other than a
termination of the Agreement by NPB pursuant to Section 6.01(b)(i)
as a result of a willful breach of the Agreement by CIB (such a
termination by NPB is hereinafter referred to as a "Default
Termination");
(C) 12 months after the termination of the Agreement by
NPB pursuant to a Default Termination; and
(D) 12 months after termination of the Agreement (other
than pursuant to a Default Termination) following the occurrence of
a Triggering Event or a Preliminary Triggering Event; and
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<PAGE>
provided, further, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable securities and banking laws. The rights
set forth in Section 3 hereof shall terminate when the right to exercise the
Option terminates (other than as a result of a complete exercise of the Option)
as set forth above.
(b) As used herein, the term "Triggering Event" means the occurrence of
either of the following events:
(i) a person or group (as those terms are defined or used in
Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder), other than
NPB or an affiliate of NPB, acquires beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 25% or more of the
then outstanding shares of Common Stock (excluding any shares eligible
to be reported on Schedule 13G of the Securities and Exchange
Commission ("SEC")); or
(ii) a person or group, other than NPB or an affiliate of NPB,
enters into an agreement or letter of intent or memorandum of
understanding with CIB pursuant to which such person or group or any
affiliate of such person or group would:
(A) merge or consolidate, or enter into any similar
transaction, with CIB;
(B) acquire all or substantially all of the assets or
liabilities of CIB or all or substantially all of the assets or
liabilities of Bernville Bank, N.A., a wholly-owned subsidiary of
CIB ("BBank"); or
(C) acquire beneficial ownership of securities
representing, or the right to acquire beneficial ownership or to
vote securities representing, 25% or more of the then outstanding
shares of Common Stock (excluding any shares eligible to be reported
on Schedule 13G of the SEC) or the then outstanding shares of common
stock of BBank; or
CIB shall have authorized, recommended or publicly proposed, or
publicly announced an intention to authorize, recommend or propose,
such an agreement or letter of intent or memorandum of understanding.
(c) As used herein, the term "Preliminary Triggering Event"
means the occurrence of any of the following events:
(i) a person or group (as those terms are defined
or used in Section 13(d) of the Exchange Act and the rules and
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regulations thereunder), other than NPB or an affiliate of NPB,
acquires beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of 10% or more of the then outstanding shares of
Common Stock (excluding any shares eligible to be reported on Schedule
13G of the SEC);
(ii) a person or group, other than NPB or an
affiliate of NPB, publicly announces a bona fide proposal (including a
written communication that is or becomes the subject of public
disclosure) for:
(A) any merger, consolidation or acquisition of all or
substantially all the assets or liabilities of CIB, BBank, or any
other business combination involving CIB or BBank; or
(B) a transaction involving the transfer of beneficial
ownership of securities representing, or the right to acquire
beneficial ownership or to vote securities representing, 10% or more
of the then outstanding shares of Common Stock or the then
outstanding shares of common stock of BBank, (collectively, a
"Proposal");
and thereafter, if such Proposal has not been Publicly Withdrawn
(defined below) at least 30 days prior to the meeting of shareholders
of CIB called to vote on the Merger, CIB's shareholders fail to approve
the Merger by the vote required by applicable law at the meeting of
shareholders called for such purpose or such meeting has been
cancelled;
(iii) the Board of Directors of CIB shall:
(A) fail to recommend the Merger;
(B) recommend a Proposal; or
(C) have withdrawn or modified in a manner adverse to NPB
the recommendation of the Board of Directors of CIB with respect to
the Agreement and thereafter CIB's shareholders fail to approve the
Merger by the vote required by applicable law at the meeting of
shareholders called for such purpose or such meeting is not
scheduled or has been cancelled; or
(iv) a person or group, other than NPB or an
affiliate of NPB, makes a bona fide Proposal and thereafter, but before
such Proposal has been Publicly Withdrawn, CIB shall have breached any
representation, warranty, covenant or obligation contained in the
Agreement and such breach would entitle NPB to terminate the Agreement
under Section 6.01(b)(i) of the Agreement (without regard to the cure
period
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<PAGE>
provided for therein unless such cure is promptly effected without
jeopardizing consummation of the Merger pursuant to the Agreement).
If more than one of the transactions giving rise to a Triggering Event
or a Preliminary Triggering Event under this Section 2 is undertaken or
effected, then all such transactions shall give rise only to one Triggering
Event or Preliminary Triggering Event, as applicable, which Triggering Event or
Preliminary Triggering Event shall be deemed continuing for all purposes
hereunder until all such transactions are abandoned.
For purposes of this Section 2, "Publicly Withdrawn" shall mean an
unconditional bona fide withdrawal of the Proposal coupled with a public
announcement of no further interest in pursuing such Proposal or in acquiring
any controlling influence over CIB or in soliciting or inducing any other person
(other than NPB or an affiliate of NPB) to do so.
Notwithstanding the foregoing, the obligation of CIB to issue Option
Shares upon exercise of the Option shall be deferred (but shall not terminate):
(i) until the receipt of all required governmental or
regulatory approvals or consents necessary for CIB to issue the Option
Shares or NPB to exercise the Option, or until the expiration or
termination of any waiting period required by law, or
(ii) so long as any injunction or other order, decree or
ruling issued by any federal or state court of competent jurisdiction
is in effect which prohibits the sale or delivery of the Option Shares,
and, in each case, notwithstanding any other provision, the Option
shall not expire or otherwise terminate.
CIB shall notify NPB promptly in writing of the occurrence of any
Triggering Event or Preliminary Triggering Event known to it, it being
understood that the giving of such notice by CIB shall not be a condition to the
right of NPB to exercise the Option. CIB will not take any action which would
have the effect of preventing or disabling CIB from delivering the Option Shares
to NPB upon exercise of the Option or otherwise performing its obligations under
this Stock Option Agreement, except to the extent required by applicable
securities and banking laws and regulations. In the event NPB wishes to exercise
the Option, NPB shall send a written notice to CIB (the date of which is
hereinafter referred to as the "Notice Date") specifying the total number of
Option Shares it wishes to purchase and a place and date between two and ten
business days inclusive from the Notice Date for the closing of such a purchase
(a "Closing"); provided, however, that a Closing shall not occur prior to two
days after the later of receipt of any
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<PAGE>
necessary regulatory approvals or the expiration of any legally required notice
or waiting period, if any.
3. Repurchase of Option by CIB.
(a) Subject to the last sentence of Section 2(a), at the
request of NPB at any time commencing upon the first occurrence of a Repurchase
Event (defined below) and ending 12 months immediately thereafter, CIB shall
repurchase from NPB (x) the Option and (y) all shares of Common Stock purchased
by NPB pursuant hereto with respect to which NPB then has beneficial ownership.
The date on which NPB exercises its rights under this Section 3 is referred to
as the "Request Date". Such repurchase shall be at an aggregate price (the
"Section 3 Repurchase Consideration") equal to the sum of:
(i) the aggregate Option Price paid by NPB for any
shares of Common Stock acquired pursuant to the Option with respect to
which NPB then has beneficial ownership;
(ii) the excess, if any, of:
(A) the Applicable Price (defined below) for each share of
Common Stock over:
(B) the Option Price (subject to adjustment pursuant to
Section 6);
multiplied by the number of shares of Common Stock with
respect to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price
over the Option Price (subject to adjustment pursuant to Section 6)
paid (or, in the case of Option Shares with respect to which the Option
has been exercised, but the Closing has not occurred, payable) by NPB
for each share of Common Stock with respect to which the Option has
been exercised and with respect to which NPB then has beneficial
ownership, multiplied by the number of such shares.
(b) (i) If NPB exercises it rights under this Section 3, CIB
shall, within ten (10) business days after the Request Date, pay the Section 3
Repurchase Consideration to NPB in immediately available funds, and
contemporaneously with such payment, NPB shall surrender to CIB the Option and
the certificate evidencing the shares of Common Stock purchased under the Option
with respect to which NPB then has beneficial ownership, and NPB shall warrant
that it has sole record and beneficial ownership of such shares, and that the
same are then free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever.
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<PAGE>
(ii) Notwithstanding Section 3(b)((i), to the extent
that prior notification to or approval of any banking agency or department of
any federal or state government, including without limitation the OCC, the FRB,
or the respective staffs thereof (the "Regulatory Authority"), is required in
connection with the payment of all or any portion of the Section 3 Repurchase
Consideration, NPB shall have the ongoing option to revoke its request for
repurchase pursuant to Section 3, in whole or in part, or to require that CIB
deliver from time to time that portion of the Section 3 Repurchase Consideration
that it is not then so prohibited from paying and promptly file the required
notice or application for approval and expeditiously process the same. Each
party shall cooperate with the other in the filing of any such notice or
application and the obtaining of any such approval. In any such case, the ten
(10) business day period of time that would otherwise run pursuant to Section
3(b)(i) for the payment of the portion of the Section 3 Repurchase Consideration
shall run instead from the date on which, as the case may be, any required
notification period has expired or been terminated or such approval has been
obtained and, in either event, any requisite waiting period shall have passed.
(iii) If any Regulatory Authority disapproves of any
part of CIB's proposed repurchase pursuant to this Section 3, CIB shall promptly
give notice of such fact to NPB. If any Regulatory Authority prohibits the
repurchase pursuant to this Section 3, CIB shall promptly give notice of such
fact to NPB. If any Regulatory Authority prohibits the repurchase in part but
not in whole, then NPB shall have the right (x) to revoke the repurchase
request, or (y) to the extent permitted by such Regulatory Authority, to
determine whether the repurchase should apply to the Option and/or Option Shares
and to what extent to each, and NPB shall thereupon have the right to exercise
the Option as to the number of Option Shares for which the Option was
exercisable at the Request Date less the sum of the number of shares covered by
the Option in respect of which payment has been made pursuant to Section
3(a)(ii) and the number of shares covered by the portion of the Option (if any)
that has been repurchased. NPB shall notify CIB of its determination under the
preceding sentence within five (5) business days of receipt of notice of
disapproval of the repurchase.
(c) For purposes of this Agreement, the "Applicable Price"
means the highest of:
(i) the highest price per share of Common Stock
paid for any such share by the person or group described in
Section 3(d)(i);
(ii) the price per share of Common Stock received by
a holder of Common Stock in connection with any merger or other
business combination transaction described in Section 3(d)(ii), (iii)
or (iv); or
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(iii) the highest closing sales price per share of
Common Stock quoted on the American Stock Exchange during the 15
business days preceding the Request Date;
provided, however, that in the event of a sale of less than all of CIB's assets,
the Applicable Price shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of CIB as determined
by a nationally- recognized investment banking firm selected by NPB, divided by
the number of shares of Common Stock outstanding at the time of such sale. If
the consideration to be offered, paid or received pursuant to either of clauses
(i) or (ii) shall be other than in cash, the value of such consideration shall
be determined in good faith by an independent nationally-recognized investment
banking firm selected by NPB and reasonably acceptable to CIB, which
determination shall be conclusive for all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if:
(i) any person or group (as those terms are defined
or used in Section 13(d) of the Exchange Act and the rules and
regulations thereunder), other than NPB or an affiliate of NPB,
acquires beneficial ownership (within the meaning of Rule 13d-3 under
the Exchange Act) of, or the right to acquire beneficial ownership of,
25% or more of the then-outstanding shares of Common Stock;
(ii) CIB shall have merged or consolidated with any
person, other than NPB or an affiliate of NPB, and shall not be the
surviving or continuing corporation of such merger or consolidation;
(iii) any person, other than NPB or an affiliate of
NPB, shall have merged into CIB and CIB shall be the surviving
corporation, but, in connection with such merger, the then-outstanding
shares of Common Stock have been changed into or exchanged for stock or
other securities of CIB or any other person or cash or any other
property or the outstanding shares of Common Stock immediately prior to
such merger shall after such merger represent less than 50% of the
outstanding shares and share equivalents of the surviving corporation;
or
(iv) CIB shall have sold or otherwise transferred
more than 25% of its consolidated assets to any person, other than NPB
or an affiliate of NPB.
4. Payment and Delivery of Certificates. At any Closing hereunder:
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(a) NPB will make payment to CIB of the aggregate price for
the Option Shares so purchased by wire transfer of immediately available funds
to an account designated by CIB;
(b) CIB will deliver to NPB a stock certificate or
certificates representing the number of Option Shares so purchased, registered
in the name of NPB or its designee, in such denominations as were specified by
NPB in its notice of exercise; and
(c) NPB will pay any transfer or other taxes required by
reason of the issuance of the Option Shares so purchased.
A legend will be placed on each stock certificate evidencing Option
Shares issued pursuant to this Stock Option Agreement, which legend will read
substantially as follows:
"The shares of stock evidenced by this certificate have not
been the subject of a registration statement filed under the Securities
Act of 1933, as amended (the "Act"), and declared effective by the
Securities and Exchange Commission. These shares may not be sold,
transferred or otherwise disposed of prior to such time unless
Community Independent Bank, Inc. receives an opinion of counsel
acceptable to it stating that an exemption from the registration
provisions of the Act is available for such transfer."
5. Registration Rights.
(a) Upon or after the occurrence of a Triggering Event and
upon receipt of a written request from NPB, CIB shall prepare and file as soon
as practicable a registration statement under the Securities Act of 1933 (the
"Securities Act") with the SEC covering such number of Option Shares as NPB
shall specify in its request, and CIB shall use its best efforts to cause such
registration statement to be declared effective in order to permit the sale or
other disposition of the Option Shares; provided that:
(i) NPB shall in no event have the right to have
more than one such registration statement become effective;
(ii) CIB shall not be required to prepare and file
any such registration statement in connection with any proposed sale
with respect to which counsel to CIB delivers to CIB and to NPB its
opinion to the effect that no such filing is required under applicable
laws and regulations with respect to such sale or disposition; and
(iii) CIB may delay any registration of Option Shares
for a period not exceeding 90 days in the event that CIB shall in good
faith determine that any such registration would adversely affect an
offering or contemplated offering of
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securities by CIB. NPB shall provide all information reasonably
requested by CIB for inclusion in any registration statement to be
filed hereunder.
In connection with such filing, CIB shall use its reasonable best efforts to
cause to be delivered to NPB such certificates, opinions, accountant's letters
and other documents as NPB shall reasonably request and as are customarily
provided in connection with the registration of securities under the Securities
Act. CIB shall provide to NPB such number of copies of the preliminary
prospectus and final prospectus and any amendments and supplements thereto as
NPB may reasonably request.
(b) All reasonable expenses incurred by CIB in complying with
the provisions of this Section 5, including, without limitation, all
registration and filing fees, reasonable printing expenses, reasonable fees and
disbursements of counsel for CIB and blue sky fees and expenses, shall be paid
by CIB. Underwriting discounts and commissions to brokers and dealers relating
to the Option Shares, fees and disbursements of counsel to NPB and any other
expenses incurred by NPB in connection with such filing shall be borne by NPB.
(c) In connection with any filing under this Section 5, CIB
shall indemnify and hold NPB harmless against any losses, claims, damages or
liabilities, joint or several, to which NPB may become subject, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any preliminary or final registration statement or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; and
CIB will reimburse NPB for any legal or other expense reasonably incurred by NPB
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that CIB will not be liable in any case
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such preliminary or final registration statement or
such amendment or supplement thereto in reliance upon and in conformity with
written information furnished by or on behalf of NPB specifically for use in the
preparation of such preliminary or final registration statement or such
amendment or supplement thereto.
(d) NPB will indemnify and hold harmless CIB to the same
extent as set forth in the immediately preceding sentence but only with
reference to written information furnished by or on behalf of NPB for use in the
preparation of such preliminary or final registration statement or such
amendment or supplement thereto; and
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NPB will reimburse CIB for any legal or other expense reasonably incurred by CIB
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(e) Notwithstanding any provision of Sections 5(c) or 5(d), no
indemnifying party shall be liable for any settlement effected without its prior
written consent.
6. Adjustment Upon Changes in Capitalization. In the event of any
change in the Common Stock by reason of stock dividends, split-ups,
recapitalizations, combinations, conversions, divisions, exchanges of shares or
the like, then the number and kind of Option Shares and the Option Price shall
be appropriately adjusted.
7. Filings and Consents. Each of NPB and CIB will use its reasonable
best efforts to make all filings with, and to obtain consents of, all third
parties and governmental authorities necessary to the consummation of the
transactions contemplated by this Stock Option Agreement. Within 10 days from
the date hereof, NPB shall file a report of beneficial ownership on Form 13D
with the SEC under the Exchange Act which discloses the rights of NPB hereunder.
8. Representations and Warranties of CIB. CIB hereby represents and
warrants to NPB as follows:
(a) Due Authorization. CIB has full corporate power and
authority to execute, deliver and perform this Stock Option Agreement and all
corporate action necessary for execution, delivery and performance of this Stock
Option Agreement has been duly taken by CIB. This Stock Option Agreement
constitutes a legal, valid and binding obligation of CIB, enforceable against
CIB in accordance with its terms (except as may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity).
(b) Authorized Shares. CIB has taken all necessary corporate
action to authorize and reserve for issuance all shares of Common Stock that may
be issued pursuant to any exercise of the Option.
9. Representations and Warranties of NPB. NPB hereby represents and
warrants to CIB that NPB has full corporate power and authority to execute,
deliver and perform this Stock Option Agreement and all corporate action
necessary for execution, delivery and performance of this Stock Option Agreement
has been duly taken by NPB. This Stock Option Agreement constitutes a legal,
valid and binding obligation of NPB, enforceable against NPB in accordance with
its terms (except as may be limited by applicable bankruptcy, insolvency and
similar laws affecting
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creditors' rights generally and subject, as to enforceability, to
general principles of equity).
10. Specific Performance. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Stock Option Agreement and
that the obligations of the parties hereto shall be specifically enforceable.
11. Entire Agreement. This Stock Option Agreement and the Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof.
12. Assignment or Transfer. NPB may not sell, assign or otherwise
transfer its rights and obligations hereunder, in whole or in part, to any
person or group of persons other than to an NPB subsidiary. NPB represents that
it is acquiring the Option for NPB's own account and not with a view to, or for
sale in connection with, any distribution of the Option or the Option Shares.
NPB is aware that neither the Option nor the Option Shares is the subject of a
registration statement filed with, and declared effective by, the SEC pursuant
to Section 5 of the Securities Act, but instead each is being offered in
reliance upon the exemption from the registration requirement provided by
Section 4(2) of the Securities Act and the representations and warranties made
by NPB in connection therewith.
13. Amendment of Stock Option Agreement. By mutual consent of the
parties hereto, this Stock Option Agreement may be amended in writing at any
time, for the purpose of facilitating performance hereunder or to comply with
any applicable regulation of any governmental authority or any applicable order
of any court or for any other purpose.
14. Validity. The invalidity or unenforceability of any provision of
this Stock Option Agreement shall not affect the validity or enforceability of
any other provisions of this Stock Option Agreement, which shall remain in full
force and effect.
15. Notices. All notices 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, to:
National Penn Bancshares, Inc.
Philadelphia and Reading Avenues
P.O. Box 547
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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, Carlton & Waldman, P.C.
1105 Berkshire Boulevard
Suite 320
Wyomissing, Pennsylvania 19610
Telecopy No.: 610-371-9510
(b) If to CIB, to:
Community Independent Bank, Inc.
201 North Main Street
Bernville, Pennsylvania 19506
Attention: Frederick P. Krott, Chairman
Telecopy No.: 610-488-0952
with a copy to:
Charles J. Ferry
Rhoads & Sinon LLP
One South Market Square, 12th Floor
P.O. Box 1146
Harrisburg, PA 17108-1146
Telecopy No.: 717-231-6669
16. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the domestic internal law (but not the law of
conflicts of law) of the Commonwealth of Pennsylvania.
17. Captions. The captions in this Stock Option Agreement are inserted
for convenience and reference purposes, and shall not limit or otherwise affect
any of the terms or provisions hereof.
18. Waivers and Extensions. The parties hereto may, by mutual consent,
extend the time for performance of any of the obligations or acts of either
party hereto. Each party may waive (i) compliance with any of the covenants of
the other party contained in this Stock Option Agreement and/or (ii) the other
party's performance of any of its obligations set forth in this Stock Option
Agreement.
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19. Parties in Interest. This Stock Option Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and, nothing in this
Stock Option Agreement, express or implied, is intended to confer upon any other
person any rights or remedies of any nature whatsoever under or by reason of
this Stock Option Agreement.
20. Counterparts. This Stock Option Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
21. Expenses. Except as otherwise provided herein, all costs and
expenses incurred by the parties hereto in connection with the transactions
contemplated by this Stock Option Agreement or the Option shall be paid by the
party incurring such cost or expense.
22. Defined Terms. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Option
Agreement to be executed by their duly authorized officers and have caused their
corporate seal to be affixed hereunto and to be duly attested, all as of the day
and year first above written.
NATIONAL PENN BANCSHARES, INC.
(Corporate Seal) By:/s/ Wayne R. Weidner
---------------------------
Name: Wayne R. Weidner
Title: President
Attest:/s/ Sandra L. Spayd
---------------------------
Name: Sandra L. Spayd
Title: Secretary
COMMUNITY INDEPENDENT BANK, INC.
(Corporate Seal) By:/s/ Frederick P. Krott
---------------------------
Name: Frederick P. Krott
Title: Chairman
Attest:/s/ Karl D. Gerhart
---------------------------
Name: Karl D. Gerhart
Title: President and CEO
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<PAGE>
ANNEX C
, 2000
The Board of Directors
Community Independent Bank, Inc.
201 North Main Street
Bernville, PA 19506
Members of the Board:
Community Independent Bank, Inc. ("Community") and National Penn Bancshares,
Inc. ("National Penn") have entered into an Agreement and Plan of Merger
("Merger Agreement") providing for the merger of Community with and into
National Penn (the "Merger"). The proposed consideration is outlined in the
Merger Agreement dated July 23, 2000. You have asked our opinion, as of the date
hereof, whether the Exchange Ratio pursuant to the Merger Agreement is fair,
from a financial point of view, to the shareholders of Community.
Pursuant to the Merger Agreement, each share of Community Common Stock shall be
converted into and exchangeable for that number of nine-tenths (0.9) shares of
National Penn Common Stock ("Exchange Ratio"), subject to certain adjustments
(as more fully described in the Merger Agreement).
Janney Montgomery Scott LLC, as part of its investment banking business, is
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions. In addition, in the ordinary course of
our business as a broker-dealer, we may, from time to time, have a long or short
position in, and buy or sell, debt or equity securities of Community or National
Penn for our own account or for the accounts of our customers. Additionally, we
have received a fee for rendering this opinion.
In rendering our opinion, we have, among other things:
(a) reviewed the historical financial performances, current financial positions
and general prospects of Community and National Penn;
(b) considered the proposed financial terms of the Merger and have examined the
projected consequences of the Merger with respect to, among other things,
market value, earnings and book value per share of Community Common Stock;
(c) to the extent deemed relevant, analyzed selected public information of
certain other banks and bank holding companies and compared Community and
National Penn from a financial point of view to these other banks and bank
holding companies;
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(d) reviewed the historical market price ranges and trading activity
performance of Common Stock of Community and National Penn;
(e) reviewed publicly - available information such as annual reports, SEC
filings and research reports;
(f) compared the terms of the Merger with the terms of certain other comparable
transactions to the extent information concerning such acquisitions was
publicly available;
(g) discussed with certain members of senior management of Community and
National Penn the strategic aspects of the Merger, including estimated cost
savings from the Merger;
(h) reviewed the Merger Agreement; and
(i) performed such other analyses and examinations as we deemed necessary.
We have relied upon and assumed the accuracy and completeness of all information
provided to us by Community and National Penn or publicly available and we have
not independently verified such information. We have relied upon the management
of Community as to the reasonableness and achievability of the financial and
operational forecasts and projections, and the assumptions and bases therefor,
provided to us, and we have assumed that such forecasts and projections reflect
the best currently available estimates and judgements of such management.
Our conclusion is rendered on the basis of market, economic and other conditions
prevailing as of the date hereof and on the conditions and prospects, financial
and otherwise, of Community and National Penn as they exist and are known to us
on the date hereof. Furthermore, this opinion does not represent our opinion as
to what the value of National Penn necessarily will be when the National Penn
Common Stock is issued to Community shareholders upon consummation of the
Merger. In addition, we express no recommendation as to how the shareholders of
Community should vote at the shareholders meeting held in connection with the
Merger.
On the basis of and subject to the foregoing, we are of the opinion that as of
the date hereof, the Exchange Ratio pursuant to the Merger Agreement is fair,
from a financial point of view, to the shareholders of Community.
Very truly yours,
JANNEY MONTGOMERY SCOTT LLC
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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 these 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 the 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 (a) the director has
breached or failed to perform the duties of office as a director, and (b) the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness.
The bylaws of the Registrant provide for (a) indemnification of
directors, officers, employees and agents of the Registrant and of its
subsidiaries, and (b) the elimination of a director's liability for monetary
damages, each to the fullest extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities by
an insurance policy obtained by the Registrant.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits.
2.1 Agreement dated as of July 23, 2000, between National
Penn Bancshares, Inc. and Community Independent Bank,
Inc. (included as Annex A to the proxy
statement/prospectus). Schedules are omitted; National
Penn Bancshares, Inc. agrees to furnish copies of such
schedules to the Commission upon request.
2.2 Stock Option Agreement dated as of July 23, 2000,
between National Penn Bancshares, Inc. and Community
Independent Bank, Inc. (included as Annex B to the
proxy statement/prospectus).
5.1 Opinion of Ellsworth, Carlton & Waldman, P.C. re:
Validity of securities being registered (including
consent).
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8.1 Opinion of Rhoads & Sinon LLP re: Federal income tax
matters (including consent).
8.2 Opinion of Ellsworth, Carlton & Waldman, P.C. 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, Carlton & Waldman, P.C. (included
in Exhibit 5.1).
23.4 Consent of Rhoads & Sinon LLP (included in Exhibit
8.1).
23.5 Consent of Ellsworth, Carlton & Waldman, P.C. (included
in Exhibit 8.2).
23.6 Consent of Janney Montgomery Scott LLC.
24.1 Powers of Attorney.
99.1 Opinion of Janney Montgomery Scott LLC (included as
Annex C to the proxy statement/prospectus).
99.2 Form of Proxy for Shareholders of Community Independent
Bank, Inc.
99.3 Letter to Shareholders of Community Independent Bank,
Inc.
99.4 Notice of Special Meeting of Shareholders of Community
Independent Bank, Inc.
(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
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<PAGE>
(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 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
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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 Securities Act of 1933 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
Securities Act of 1933 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.
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<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 September 7, 2000.
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 (Principal September 7, 2000
----------------------- Financial and
Gary L. Rhoads Accounting Officer)
/s/John H. Body Director September 7, 2000
-----------------------
John H. Body
/s/J. Ralph Borneman, Jr. Director September 7, 2000
-------------------------
J. Ralph Borneman, Jr.
/s/Frederick H. Gaige Director September 7, 2000
-----------------------
Frederick H. Gaige
/s/John W. Jacobs Director September 7, 2000
-----------------------
John W. Jacobs
/s/Lawrence T. Jilk, Jr. Director, Chairman September 7, 2000
------------------------ and Chief Executive
Lawrence T. Jilk, Jr. Officer (Principal
Executive Officer)
/s/Patricia L. Langiotti Director September 7, 2000
------------------------
Patricia L. Langiotti
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/s/Kenneth A. Longacre Director September 7, 2000
-----------------------
Kenneth A. Longacre
Director
-----------------------
Robert E. Rigg
/s/C. Robert Roth Director September 7, 2000
-----------------------
C. Robert Roth
/s/Wayne R. Weidner Director and September 7, 2000
----------------------- President
Wayne R. Weidner
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EXHIBIT INDEX
Exhibit Number Description
2.1 Agreement dated as of July 23, 2000, between National
Penn Bancshares, Inc. and Community Independent Bank,
Inc. (included as Annex A to the proxy
statement/prospectus). Schedules are omitted; National
Penn Bancshares, Inc. agrees to furnish copies of such
schedules to the Commission upon request.
2.2 Stock Option Agreement dated as of July 23, 2000,
between National Penn Bancshares, Inc. and Community
Independent Bank, Inc. (included as Annex B to the
proxy statement/prospectus).
5.1 Opinion of Ellsworth, Carlton & Waldman, P.C. re:
Validity of securities being registered (including
consent).
8.1 Opinion of Rhoads & Sinon LLP re: Federal income tax
matters (including consent).
8.2 Opinion of Ellsworth, Carlton & Waldman, P.C. 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, Carlton & Waldman, P.C. (included
in Exhibit 5.1).
23.4 Consent of Rhoads & Sinon LLP (included in Exhibit
8.1).
23.5 Consent of Ellsworth, Carlton & Waldman, P.C. (included
in Exhibit 8.2).
23.6 Consent of Janney Montgomery Scott LLC.
24.1 Powers of Attorney.
99.1 Opinion of Janney Montgomery Scott LLC (included as
Annex C to the proxy statement/prospectus).
99.2 Form of Proxy for Shareholders of Community Independent
Bank, Inc.
99.3 Letter to Shareholders of Community Independent Bank,
Inc.
99.4 Notice of Special Meeting of Shareholders of Community
Independent Bank, Inc.
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