<PAGE>
As filed with the Securities and Exchange Commission on [_] November 5, 1996
Registration No. 333-14301
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
Amendment No. 1 to
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
Susquehanna Bancshares, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania 6022 23-2201716
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification No.)
</TABLE>
26 North Cedar Street
Lititz, Pennsylvania 17543
(717) 626-4721
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
-----------------------
ROBERT S. BOLINGER
President and Chief Executive Officer
26 North Cedar Street
Lititz, Pennsylvania 17543
(717) 626-4721
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-----------------------
Copies to:
<TABLE>
<S> <C> <C>
CHARLES L. O'BRIEN LAWRENCE R. WISEMAN JUSTIN P. KLEIN
Morgan, Lewis & Bockius LLP Blank Rome Comisky & McCauley Ballard Spahr Andrews & Ingersoll
One Commerce Square Four Penn Center Plaza 1735 Market Street
417 Walnut Street Philadelphia, PA 19102 51st Floor
Harrisburg, PA 17101 (215) 569-5549 Philadelphia, PA 19103-7599
(717) 237-4030 (215) 864-8606
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effectiveness of this Registration Statement and after
the effective time of the merger of a wholly-owned subsidiary of the registrant
with and into Atcorp, Inc. and the merger of a second wholly-owned subsidiary of
the registrant with and into Farmers Banc Corp., as described in the
Prospectus/Proxy Statement included herein.
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]
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Proposed Maximum Proposed Maximum Amount of
Class of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered Per Unit Price Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $2.00
per share..................... 771,750 shares (1) $27.25 (1) $21,030,188 $6,372.78
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $2.00
per share..................... 692,620 shares (2) $33.72 (2) $10,238,994 $3,102,73
- ------------------------------------------------------------------------------------------------------------------------------------
Total.......................... $31,269,182 $9,475.51
====================================================================================================================================
</TABLE>
(1) Shares to be issued in the AI Merger (as defined herein) computed in
accordance with Rule 457(f)(2), solely for the purpose of calculating the
registration fee, based upon the average of the Bid & Ask Prices on October
11, 1996 of AI Common Stock (as defined herein), the latest practicable
date prior to the date of filing of this Registration Statement.
(2) Shares to be issued in the FBC Merger (as defined herein) computed in
accordance with Rule 457(f)(2), solely for the purpose of calculating the
registration fee, based upon the book value of FBC Common Stock at June 30,
1996, the latest practicable date prior to the date of filing of this
Registration Statement.
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>
SUSQUEHANNA BANCSHARES, INC.
Cross-Reference Sheet
<TABLE>
<CAPTION>
Item Number Location in Proxy
in Form S-4 Statement/Prospectus
- ----------- --------------------
<S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus.......................................... Facing Page; Cross-Reference Sheet;
Cover Page of Proxy
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus........... Available Information; Incorporation
of Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................................. Cover Page of Proxy
Statement/Prospectus; Summary;
Selected Financial Data; Unaudited Pro
Forma Selected Financial Data
4. Terms of the Transaction.......................................... Notices of Meetings of Shareholders;
Summary; Introduction; Approval of
the AI Merger; Approval of the FBC
Merger; Description of Susquehanna
Capital Stock; Dividends and Market
Prices of Securities
5. Pro Forma Financial Information................................... Summary; Unaudited Pro Forma
Selected Financial Data; Unaudited Pro
Forma Financial Statements;
Susquehanna Pro Forma Schedules
6. Material Contacts with the Company Being Acquired................. Approval of the AI Merger; Approval
of the FBC Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters..................... Resale Restrictions
8. Interests of Named Experts and Counsel............................ Legal Opinions; Experts
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities........................................ *
10. Information with Respect to S-3 Registrants....................... *
11. Incorporation of Certain Information by Reference................. Incorporation of Documents by
Reference
12. Information with Respect to S-2 or S-3 Registrants................ *
13. Incorporation of Certain Information by Reference................. *
14. Information with Respect to Registrants Other Than S-3
or S-2 Registrants................................................ *
</TABLE>
<PAGE>
<TABLE>
<S> <C>
15. Information with Respect to S-3 Companies........................ *
16. Information with Respect to S-2 or S-3 Companies................. *
17. Information with Respect to Companies Other Than S-3 or
S-2 Companies.................................................... Summary; Introduction; Approval of
the AI Merger; Approval of the FBC
Merger; Dividends and Market Prices
of Securities; Selected Financial Data;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of AI;
Management's Discussion and
Analysis of Financial Condition and
Results of Operations of FBC;
Business of AI; Business of FBC; AI
Consolidated Financial Statements;
FBC Consolidated Financial
Statements
18. Information if Proxies, Consents or Authorizations are to
be Solicited..................................................... Notices of Meetings of Shareholders;
Cover Page of Proxy Statement/
Prospectus; Summary; The AI
Meeting; The FBC Meeting; Approval
of the AI Merger; Approval of the FBC
Merger
19. Information if Proxies, Consents or Authorizations are not
to be Solicited or in an Exchange Offer.......................... *
</TABLE>
- -----------------
* Omitted because the item is inapplicable or the answer thereto is
negative.
<PAGE>
[ATCORP LETTERHEAD]
November 12, 1996
Dear Shareholder:
We invite you to attend the Special Meeting ("AI Meeting") of
Shareholders of Atcorp, Inc. ("AI"), the holding company of Equity National Bank
("ENB"), to be held at the offices of AI at 8000 Sagemore Drive, Marlton, New
Jersey, on Wednesday, December 18, 1996 at 6:00 p.m. The AI Meeting is being
held as a result of the proposed acquisition of AI and ENB by Susquehanna
Bancshares, Inc. ("Susquehanna or SBI"), a $3 billion bank holding company with
106 community banking offices in Pennsylvania and Maryland.
The attached Notice of Special Meeting and Proxy Statement/Prospectus
describe the formal business to be transacted at the AI Meeting. During the AI
Meeting, we will also report on the operations of AI. Directors and officers of
AI will be present to respond to any questions that our shareholders may have.
At the AI Meeting, the shareholders will be asked to consider and vote
upon a proposal to approve an Agreement and Plan of Affiliation dated July 18,
1996 ("AI Merger Agreement") among AI, ENB, Susquehanna and Susquehanna
Bancshares East, Inc. ("SBI Merger Sub"), a corporate subsidiary of Susquehanna
organized to facilitate the acquisition of AI and ENB. Pursuant to the AI Merger
Agreement, SBI Merger Sub will merge with and into AI ("AI Merger"), and AI will
become a wholly-owned subsidiary of Susquehanna. Upon the consummation of the AI
Merger, you will receive in exchange for each share of AI Common Stock which you
own, the number of shares of Susquehanna Common Stock set forth in the AI Merger
Agreement, so long as the average closing price per share of Susquehanna Common
Stock for a ten business day period ending shortly before the closing of the AI
Merger is between $25.00 and $31.00, together with a cash payment in lieu of any
fractional share of Susquehanna Common Stock which you would otherwise be
entitled to receive. Susquehanna may terminate the AI Merger Agreement if the
average closing price is greater than $31.00, and AI may terminate the AI Merger
Agreement if the average closing price is less than $25.00. Additionally, if the
AI Merger is not consummated by March 31, 1997 but is subsequently consummated,
then an additional 5,000 shares of Susquehanna Common Stock will be distributed
to AI's shareholders. Consummation of the AI Merger is subject to certain
conditions, including the approval of the AI Merger Agreement by the requisite
vote of AI's shareholders and by various regulatory agencies.
Berwind Financial Group, L.P. and Janney Montgomery Scott Inc., AI's
financial advisors, have each advised your Board of Directors that in their
respective opinions the consideration to be received by AI's shareholders
pursuant to the AI Merger is fair, from a financial point of view, to the
shareholders of AI. The Board of AI has carefully considered the AI Merger
Agreement and has determined that the AI Merger is in the best interests of AI
and its shareholders. Accordingly, your Board of Directors recommends that you
vote "FOR" approval of the AI Merger Agreement.
Your participation in the AI Meeting, in person or by proxy, is
important. The affirmative vote of the holders of sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares entitled to vote at the AI Meeting
is required to approve the AI Merger Agreement. An abstention or failure to vote
has the same effect as voting against the AI Merger Agreement. Therefore, we
urge you to complete, sign, date and return the enclosed proxy card in the
enclosed postage-paid envelope as soon as possible to assure that your shares
will be voted at the AI Meeting. On behalf of the Board of Directors, I thank
you for your support and urge you to vote "FOR" approval of the agreement and
the transactions contemplated thereby.
Sincerely,
/s/ Marc L. Reitzes
Marc L. Reitzes
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME
<PAGE>
[FARMERS BANC CORP. LETTERHEAD]
November 12, 1996
Dear Shareholder:
We invite you to attend the Special Meeting ("FBC Meeting") of
Shareholders of Farmers Banc Corp. ("FBC"), the holding company of Farmers
National Bank ("FNB"), to be held at the Mullica Hill Grange Hall, 78 North Main
Street, Mullica Hill, New Jersey, on Monday, December 16, 1996 at 10:00 a.m. The
FBC Meeting is being held as a result of the proposed acquisition of FBC and FNB
by Susquehanna Bancshares, Inc. ("Susquehanna or SBI"), a $3 billion bank
holding company with 106 community banking offices in Pennsylvania and Maryland.
The attached Notice of Special Meeting and Proxy Statement/Prospectus
describe the formal business to be transacted at the FBC Meeting. Directors and
officers of FBC will be present to respond to any questions that our
shareholders may have concerning the FBC Merger.
At the FBC Meeting, the shareholders will be asked to consider and
vote upon a proposal to approve an Agreement and Plan of Affiliation dated as of
July 18, 1996 ("FBC Merger Agreement") by and among FBC, FNB, Susquehanna and a
corporate subsidiary of Susquehanna and the transactions described therein.
Pursuant to the FBC Merger Agreement, FBC will become a wholly owned subsidiary
of Susquehanna by means of a merger ("FBC Merger") of FBC with the corporate
subsidiary of Susquehanna. Upon the consummation of the FBC Merger, you will
receive in exchange for each share of FBC Common Stock which you own, 2.281
shares of Susquehanna Common Stock as set forth in the FBC Merger Agreement.
Susquehanna may terminate the FBC Merger Agreement if the average closing price
of Susquehanna Common Stock is greater than $31.00, and FBC may terminate the
agreement if the average closing price of Susquehanna Common Stock is less than
$25.00. Consummation of the FBC Merger is subject to certain conditions,
including the approval of the agreement and the transactions contemplated
thereby by the requisite vote of FBC's shareholders and by various regulatory
agencies.
The aggregate consideration to be received by FBC's shareholders under
the FBC Merger Agreement was negotiated by your Board of Directors in light of
various factors, including FBC's and Susquehanna's recent operating results,
current financial condition and future prospects. Berwind Financial Group, L.P.,
FBC's financial advisor, has advised your Board of Directors that in its opinion
the merger is fair, from a financial point of view, to the shareholders of FBC.
Your Board has determined that the FBC Merger is in the best interests of FBC
and its shareholders and recommends that you vote "FOR" approval of the FBC
Merger Agreement and the transactions contemplated thereby.
It is very important that your shares be represented at the FBC
Meeting, whether or not you plan to attend in person. The affirmative vote of
seventy percent of the votes eligible to be cast at the meeting is required to
approve the FBC Merger Agreement and the transactions contemplated thereby. An
abstention or failure to vote has the same effect as voting against the FBC
Merger. Therefore, we urge you to execute, date and return the enclosed proxy
card in the enclosed postage-paid envelope as soon as possible to assure that
your shares will be voted at the FBC Meeting. On behalf of the Board of
Directors, we thank you for your support and urge you to vote "FOR" approval of
the FBC Merger Agreement and the transactions contemplated thereby.
Sincerely,
/s/ Joseph H. Doble
Joseph H. Doble
/s/ William H. White
William H. White
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME
<PAGE>
ATCORP, INC.
Sagemore Corporate Center
Route 73 and Marlton Parkway
Marlton, New Jersey 08053
(609) 983-4000
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, DECEMBER 18, 1996
NOTICE IS HEREBY GIVEN that the Special Meeting (the "AI Meeting") of
Shareholders of Atcorp, Inc. ("AI"), the holding company of Equity National Bank
("ENB"), will be held at the offices of AI at 8000 Sagemore Drive, Marlton, New
Jersey on Wednesday, December 18, 1996 at 6:00 p.m. A Proxy Card and a Proxy
Statement/Prospectus for the AI Meeting are enclosed.
The AI Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Affiliation dated July 18, 1996
(the "AI Merger Agreement") by and among Susquehanna Bancshares, Inc.
("Susquehanna"), Susquehanna Bancshares East, Inc. ("SBI Merger Sub"), AI
and ENB. Pursuant to the AI Merger Agreement, SBI Merger Sub will merge with
and into AI and AI will become a wholly-owned subsidiary of Susquehanna.
Upon the consummation of the AI Merger, each AI shareholder will receive in
exchange for each share of the common stock of AI, par value $5.00 per share
("AI Common Stock"), the number of shares of common stock of Susquehanna,
par value $2.00 per share ("Susquehanna Common Stock"), set forth in the AI
Merger Agreement, so long as the average closing price per share of
Susquehanna Common Stock for a ten business day period ending on the second
business day before the closing of the AI Merger is between $25.00 and
$31.00, together with a cash payment in lieu of any fractional share of
Susquehanna Common Stock which the AI shareholder would otherwise be
entitled to receive;
2. The adjournment of the AI Meeting to a later date, if necessary, to permit
further solicitation of proxies in the event there are not sufficient votes
at the time of the AI Meeting to constitute a quorum or to approve the AI
Merger Agreement; and
3. Such other matters as may properly come before the AI Meeting or any
adjournment thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the AI Meeting.
Any action may be taken on any one of the foregoing proposals at the AI Meeting
on the date specified above, or on any date or dates to which, by original or
later adjournment, the AI Meeting may be adjourned. Pursuant to the By-laws of
AI, the Board of Directors has fixed the close of business on November 8, 1996,
as the record date for determination of the shareholders entitled to vote at the
AI Meeting and any adjournments thereof.
You are requested to complete, sign and date the enclosed Proxy Card, which is
solicited by the Board of Directors, and to promptly mail it in the enclosed
envelope. The giving of such proxy does not affect your right to vote in person
in the event you attend the AI Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Marlton, New Jersey
November 12, 1996
IMPORTANT: PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY WHETHER OR NOT YOU
PLAN TO ATTEND THE AI MEETING. THE PROMPT RETURN OF PROXIES WILL SAVE AI THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM. AN ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
FARMERS BANC CORP.
114 North Main Street
Mullica Hill, New Jersey 08062
(609) 478-2817
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MONDAY, DECEMBER 16, 1996
NOTICE IS HEREBY GIVEN that the Special Meeting (the "FBC Meeting") of
Shareholders, of Farmers Banc Corp. ("FBC"), the holding company of Farmers
National Bank ("FNB"), will be held at the Mullica Hill Grange Hall, 78 North
Main Street, Mullica Hill, New Jersey on Monday, December 16, 1996 at 10:00 a.m.
A Proxy Card and a Proxy Statement/Prospectus for the FBC Meeting are enclosed.
The FBC Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Affiliation dated July 18, 1996
(the "FBC Merger Agreement") by and among Susquehanna Bancshares, Inc.
("Susquehanna"), Susquehanna Bancshares East II, Inc. ("SBI Merger Sub II"),
FBC and FNB and the transactions contemplated thereby. Pursuant to the FBC
Merger Agreement, FBC will become a wholly owned subsidiary of Susquehanna
by means of a merger of FBC with SBI Merger Sub II (the "FBC Merger"). Upon
the consummation of the FBC Merger, each FBC shareholder will receive in
exchange for each share of common stock of FBC, par value $0.83 per share
("FBC Common Stock"), 2.281 shares of Common Stock of Susquehanna, par value
$2.00 per share ("Susquehanna Common Stock"), as set forth in the FBC Merger
Agreement together with a cash payment in lieu of any fractional share of
Susquehanna Common Stock which the FBC shareholder would otherwise be
entitled to receive, all as more fully explained in the FBC Proxy;
2. The adjournment of the FBC Meeting to a later date, if necessary to solicit
additional proxies in the event insufficient votes are cast in person or by
proxy at the FBC Meeting to approve the FBC Merger Agreement and the
transactions described therein; and
3. Such other matters as may properly come before the FBC Meeting or any
adjournment thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the FBC Meeting.
Any action may be taken on any one of the foregoing proposals at the FBC Meeting
on the date specified above, or on any date or dates to which, by original or
later adjournment, the FBC Meeting may be adjourned. Pursuant to the Bylaws of
FBC, the Board of Directors has fixed the close of business on November 7, 1996,
as the record date for determination of the shareholders entitled to vote at the
FBC Meeting and any adjournments thereof.
You are requested to complete, sign and date the enclosed Proxy Card, which is
solicited by the Board of Directors, and to promptly mail it in the enclosed
envelope. The giving of such proxy does not affect your right to vote in person
in the event you attend the FBC Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
Mullica Hill, New Jersey
November 12, 1996
IMPORTANT: PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY. THE PROMPT RETURN
OF PROXIES WILL SAVE FBC THE EXPENSE OF FURTHER REQUESTS FOR PROXIES TO ENSURE A
QUORUM. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT/PROSPECTUS
ATCORP, INC.
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 18, 1996
FARMERS BANC CORP.
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 16, 1996
SUSQUEHANNA BANCSHARES, INC.
PROSPECTUS
FOR
1,464,370 SHARES OF COMMON STOCK
PAR VALUE $2.00 PER SHARE
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Atcorp, Inc. ("AI"), the
holding company of Equity National Bank ("ENB"), to be used at the Special
Meeting of Shareholders of AI (the "AI Meeting") which will be held at the
offices of AI at 8000 Sagemore Drive, Marlton, New Jersey on December 18, 1996
at 6:00 p.m. The accompanying Notice of Special Meeting, Proxy Card and this
Proxy Statement/Prospectus are being first mailed to shareholders on or about
November 12, 1996.
At the AI Meeting, holders of record of common stock of AI, par value
$5.00 per share ("AI Common Stock"), as of November 8, 1996 (the "AI Record
Date") will consider and vote upon the approval of the Agreement and Plan of
Affiliation dated July 18, 1996 (the "AI Merger Agreement") by and among
Susquehanna Bancshares, Inc. ("Susquehanna"), Susquehanna Bancshares East, Inc.
("SBI Merger Sub"), AI and ENB. A copy of the AI Merger Agreement is attached
hereto as Appendix C. In addition, shareholders of AI may consider and vote upon
the approval of the adjournment of the AI Meeting in the event there are not
sufficient votes cast in person or by proxy at the AI Meeting to constitute a
quorum or to approve the AI Merger Agreement, and such other matters as may
properly come before the AI Meeting or any adjournments thereof.
Pursuant to the AI Merger Agreement, SBI Merger Sub will merge with and
into AI, and AI will become a wholly-owned subsidiary of Susquehanna. Upon the
consummation of the AI Merger, each AI shareholder will receive for each share
of AI Common Stock, the number of shares of common stock of Susquehanna, par
value $2.00 per share ("Susquehanna Common Stock"), set forth in the AI Merger
Agreement, so long as the average closing price per share of Susquehanna Common
Stock for a ten business day period ending on the second business day before the
closing of the AI Merger is between $25.00 and $31.00, together with a cash
payment in lieu of any fractional share of Susquehanna Common Stock which the AI
shareholder would otherwise be entitled to receive. If such average closing
price is less than $25.00, AI has the right to terminate the AI Merger
Agreement. If such average closing price is more than $31.00, Susquehanna has
the right to terminate the AI Merger Agreement. If the AI Merger had been closed
on the date of this Proxy Statement/Prospectus, each share of AI Common Stock
would have been converted into the right to receive 1.0 share of Susquehanna
Common Stock. Consummation of the AI Merger is conditioned upon, among other
things, the approval of the AI Merger Agreement by the requisite vote of AI's
shareholders and by various regulatory agencies.
The consideration to be received by AI's shareholders pursuant to the AI
Merger Agreement was negotiated by the Board of Directors of AI ("AI Board of
Directors") in light of various factors, including AI's and Susquehanna's
<PAGE>
recent operating results, current financial condition and perceived future
prospects. Berwind Financial Group, L.P. ("Berwind") and Janney Montgomery Scott
Inc. ("JMS"), AI's financial advisors, have each advised the AI Board of
Directors that in their respective opinions the consideration to be received by
AI's shareholders pursuant to the AI Merger is fair, from a financial point of
view, to the shareholders of AI. A copy of the Berwind opinion dated November 8,
1996 is attached hereto as Appendix E. A copy of the JMS opinion dated November
8, 1996 is attached hereto as Appendix F. THE AI BOARD OF DIRECTORS BELIEVES
THAT THE AI MERGER IS IN THE BEST INTEREST OF AI'S SHAREHOLDERS AND RECOMMENDS
THAT AI'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AI MERGER AGREEMENT.
AI Common Stock is currently traded in the over-the-counter market.
Susquehanna Common Stock currently is traded, and the Susquehanna Common Stock
to be issued pursuant to the AI Merger Agreement will be traded, in the
over-the-counter market and will be authorized for quotation on The Nasdaq Stock
Market. The last reported sales price per share of AI Common Stock was $28.00 on
November 4, 1996. The last reported sales price per share of Susquehanna Common
Stock as reported on The Nasdaq Stock Market on November 1, 1996 was $29.00.
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Farmers Banc Corp. ("FBC"),
the holding company of Farmers National Bank ("FNB"), to be used at the Special
Meeting of Shareholders of FNB (the "FBC Meeting") which will be held at the
Mullica Hill Grange Hall, Mullica Hill, New Jersey on Monday, December 16, 1996
at 10:00 a.m. The accompanying Notice of Special Meeting and Proxy Card and this
Proxy Statement/Prospectus are being first mailed to shareholders on or about
November 12, 1996.
At the FBC Meeting, holders of record of common stock of FBC, par value
$0.83 per share ("FBC Common Stock"), as of November 7, 1996 (the "FBC Record
Date") will consider and vote upon the approval of the Agreement and Plan of
Affiliation dated July 18, 1996 (the "FBC Merger Agreement") among Susquehanna,
Susquehanna Bancshares East II, Inc. (the "SBI Merger Sub II"), FBC and FNB and
the transactions contemplated thereby. A copy of the FBC Merger Agreement is
attached hereto as Appendix D. In addition, shareholders of FBC may consider and
vote upon the approval of the adjournment of the FBC Meeting, in the event there
are not sufficient votes cast in person or by proxy at the FBC Meeting to
constitute a quorum or to approve the FBC Merger Agreement and the transactions
described therein, and such other matters as may properly come before the FBC
Meeting or any adjournments thereof.
Pursuant to the Merger Agreement, FBC will become a wholly owned
subsidiary of Susquehanna by means of a merger of FBC with SBI Merger Sub II
(the "FBC Merger"). Upon the consummation of the FBC Merger, each FBC
shareholder will receive for each share of FBC Common Stock, 2.281 shares of
Susquehanna Common Stock, as set forth in the FBC Merger Agreement, together
with a cash payment in lieu of any fractional share of Susquehanna Common Stock
which the shareholder would otherwise be entitled to receive. If the average
closing price of Susquehanna Common Stock is less than $25.00, FBC has the right
to terminate the FBC Merger Agreement. If such average closing price is more
than $31.00, Susquehanna has the right to terminate the FBC Merger Agreement.
Consummation of the FBC Merger is conditioned upon, among other things, the
approval of the FBC Merger Agreement and the transactions described herein by
the requisite vote of FBC's shareholders and by various regulatory agencies.
The consideration to be received by FBC's shareholders pursuant to the
FBC Merger Agreement was negotiated by the Board of Directors of FBC ("FBC Board
of Directors" or "FBC Board") in light of various factors, including FBC's and
Susquehanna's recent operating results, current financial condition and
perceived future prospects. Berwind, FBC's financial advisor, has advised the
FBC Board of Directors that in its opinion the consideration to be received by
FBC's shareholders pursuant to the FBC Merger is fair, from a financial point of
view, to the shareholders of FBC. A copy of the Berwind opinion dated November
8, 1996 is attached hereto as Appendix G. THE FBC BOARD OF DIRECTORS BELIEVES
THAT THE FBC MERGER IS IN THE BEST INTEREST OF FBC'S SHAREHOLDERS AND RECOMMENDS
THAT FBC'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE FBC MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
-2-
<PAGE>
FBC Common Stock is not traded in the over-the-counter market.
Susquehanna Common Stock currently is traded, and the Susquehanna Common Stock
to be issued pursuant to the FBC Merger Agreement will be traded, in the over-
the-counter market and authorized for quotation on The Nasdaq Stock Market. The
last known sales price per share of FBC Common Stock was $64.00 on August 15,
1996. Susquehanna Common Stock as reported on The Nasdaq Stock Market on
November 1, 1996 was $29.00.
This Proxy Statement/Prospectus constitutes a prospectus of Susquehanna
filed as part of a registration statement filed with the Securities and Exchange
Commission relating to the 1,464,370 shares of Susquehanna Common Stock issuable
pursuant to the AI Merger Agreement and the FBC Merger Agreement. All
information contained in this Proxy Statement/Prospectus with respect to
Susquehanna and its subsidiaries has been supplied by Susquehanna, and all
information with respect to AI, FBC and their respective subsidiaries has been
supplied by AI and FBC, respectively.
This Proxy Statement/Prospectus does not cover any resales of the
Susquehanna Common Stock issuable in the AI Merger and the FBC Merger by any
shareholders deemed to be affiliates of AI, FBC or Susquehanna. No person is
authorized to make use of this Proxy Statement/Prospectus in connection with
such resales, although such stock may be traded without use of this Proxy
Statement/Prospectus by former shareholders of AI and FBC who are not deemed to
be affiliates of AI, FBC or Susquehanna.
THE SHARES OF SUSQUEHANNA COMMON STOCK ISSUABLE IN THE AI MERGER AND THE
FBC MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF SUSQUEHANNA COMMON STOCK ISSUABLE IN THE AI MERGER AND THE
FBC MERGER ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is November 12, 1996
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No person is authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
and, if given or made, such other information or representations must not be
relied upon as having been authorized by Susquehanna, AI or FBC. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any security other than the securities covered by this Proxy
Statement/Prospectus, or the solicitation of a proxy to or from any person in
any jurisdiction where it is unlawful to make such offer or solicitation of an
offer or proxy solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor any distribution of securities made hereunder shall,
under any circumstances, create any implication that there has been no change in
the information about Susquehanna, AI or FBC contained in this Proxy
Statement/Prospectus since the date hereof.
AVAILABLE INFORMATION
Each of Susquehanna and AI is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
at Seven World Trade Center, New York, New York 10048. Copies of such documents
may also be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Susquehanna Common Stock is authorized for quotation on The Nasdaq Stock
Market. Such materials and other information concerning Susquehanna, therefore,
can also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. FBC is not subject to the
informational requirements of the Exchange Act.
Susquehanna has filed with the Commission under the Securities Act of
1933, as amended (the "Securities Act"), a Registration Statement on Form S-4
(including all amendments and exhibits thereto, the "Registration Statement")
with respect to the Susquehanna Common Stock issuable pursuant to each of the AI
Merger Agreement and the FBC Merger Agreement. This Proxy Statement/Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. The Registration Statement, including any amendments and
exhibits thereto, is available for inspection and copying as set forth above.
Statements contained in this Proxy Statement/Prospectus as to the contents of
any contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
This Proxy Statement/Prospectus incorporates by reference documents
relating to Susquehanna which are not presented herein or delivered herewith.
These documents (not including exhibits thereto, unless such exhibits are
specifically incorporated by reference herein) are available without charge to
any shareholder of AI or FBC, including any beneficial owner to whom this Proxy
Statement/Prospectus is delivered, upon written or oral request directed to the
Secretary, Susquehanna Bancshares, Inc., 26 North Cedar Street, Lititz,
Pennsylvania 17543, telephone number (717) 626-4721. In order to ensure timely
delivery of the documents in advance of the meeting to which this Proxy
Statement/Prospectus relates, any request should be made no later than December
9, 1996.
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INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by Susquehanna with the Commission
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement/Prospectus as follows:
(1) the Proxy Statement for the Annual Meeting of Shareholders for the
year 1996;
(2) the Annual Report on Form 10-K for the year ended December 31, 1995;
(3) the Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
(4) the Quarterly Report on Form 10-Q for the quarter ended June 30,
1996;
(5) the Current Report on Form 8-K dated January 23, 1996;
(6) the Current Report on Form 8-K dated February 1, 1996;
(7) the Current Report on Form 8-K dated July 18, 1996;
(8) the Registration Statement on Form S-3 dated November 22, 1995 and
amended November 30, 1995;
(9) the Registration Statement on Form S-3 dated December 21, 1994, and
amended January 26, 1995;
(10) the Registration Statement on Form S-3 dated January 9, 1996;
(11) the Current Report on Form 8-K dated November 21, 1995; and
(12) the Current Report on Form 8-K dated December 21, 1994.
All documents filed by Susquehanna pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date hereof and prior to the consummation
of each of the AI Merger and the FBC Merger shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing thereof. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement/Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement/Prospectus.
All information appearing in this Proxy Statement/Prospectus should be read in
conjunction with, and is qualified in its entirety by, the information and
financial statements (including notes thereto) appearing in the documents
incorporated herein by reference, except to the extent set forth in the
immediately preceding statement.
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TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................... -4-
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... -5-
SUMMARY................................................................... -10-
SELECTED FINANCIAL DATA................................................... -21-
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA............................... -25-
THE AI MEETING............................................................ -29-
General............................................................ -29-
Voting, Revocation and Solicitation of Proxies..................... -29-
Voting Securities and Security Ownership........................... -30-
Other Matters...................................................... -31-
Shareholder Proposals for the AI Meeting........................... -31-
Auditors of AI..................................................... -31-
THE FBC MEETING........................................................... -32-
General............................................................ -32-
Voting, Revocation and Solicitation of Proxies..................... -32-
Voting Securities and Security Ownership........................... -33-
Other Matters...................................................... -34-
Auditors of FBC.................................................... -34-
APPROVAL OF THE AI MERGER................................................. -35-
Background of the AI Merger........................................ -35-
Reasons for the AI Merger and Recommendation of the Board of Directors
of AI............................................................. -36-
Vote Required...................................................... -37-
Opinions of Financial Advisors..................................... -37-
No Dissenters' Rights for AI....................................... -43-
Terms of the AI Merger............................................. -43-
Regulatory Approvals of AI......................................... -48-
Interest of Certain Persons in the AI Merger....................... -49-
Management and Operations Following the AI Merger.................. -50-
Accounting Treatment of the AI Merger.............................. -50-
Income Tax Consequences of the AI Merger........................... -50-
APPROVAL OF THE FBC MERGER................................................ -52-
Background of the FBC Merger....................................... -52-
Reasons for the FBC Merger and Recommendation of the FBC Board of
Directors......................................................... -53-
Vote Required...................................................... -54-
Opinion of Financial Advisor....................................... -54-
No Dissenters' Rights for FBC...................................... -57-
Terms of the FBC Merger............................................ -57-
Regulatory Approvals of FBC........................................ -62-
Interest of Certain Persons in the FBC Merger...................... -62-
Continued Employment............................................... -63-
Management and Operations Following the FBC Merger................. -64-
Accounting Treatment of the FBC Merger............................. -64-
Income Tax Consequences of the FBC Merger.......................... -64-
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RESALE RESTRICTIONS....................................................... -65-
DESCRIPTION OF SUSQUEHANNA AND ITS CAPITAL STOCK.......................... -65-
Information Concerning Susquehanna................................. -65-
General............................................................ -66-
Common Stock....................................................... -66-
Preferred Stock.................................................... -67-
Pennsylvania Anti-Takeover Law Provisions.......................... -67-
Provisions in Susquehanna's Articles of Incorporation and Bylaws... -68-
COMPARISON OF SHAREHOLDER RIGHTS.......................................... -70-
Introduction....................................................... -70-
Dividends.......................................................... -70-
Classified Board of Directors...................................... -70-
Number of Directors................................................ -70-
Nomination of Directors............................................ -71-
No Cumulative Voting............................................... -71-
Removal of Directors............................................... -71-
Filling Vacancies on the Board of Directors........................ -72-
Call of Special Shareholders' Meeting.............................. -72-
Notice of Shareholders' Meetings................................... -72-
Quorum Requirements and Adjournment of Meetings.................... -72-
Shareholder Proposals; New Business at a Meeting................... -73-
Action Without Meeting............................................. -73-
Dissenters' Rights................................................. -73-
Preemptive Rights.................................................. -74-
Limitations on Directors' Liability................................ -74-
Indemnification.................................................... -74-
State Anti-Takeover Law Provisions................................. -75-
Anti-Takeover Provisions in the Susquehanna Articles and AI and FBC
Certificates;
Approval of Certain Transactions........................... -76-
Amendment of Certificates of Incorporation and Articles of
Incorporation..................................................... -77-
Amendment of Bylaws................................................ -78-
DIVIDENDS AND MARKET PRICES OF SECURITIES................................. -79-
Susquehanna........................................................ -79-
AI................................................................. -79-
FBC................................................................ -80-
REGULATIONS AFFECTING DIVIDENDS........................................... -81-
Susquehanna........................................................ -81-
AI................................................................. -82-
FBC................................................................ -82-
BUSINESS OF AI............................................................ -83-
General............................................................ -83-
Lending Activities................................................. -83-
Regulation......................................................... -84-
Competition........................................................ -85-
Employees.......................................................... -85-
Certain Relationships and Related Party Transactions............... -85-
Litigation......................................................... -85-
Properties......................................................... -86-
BUSINESS OF FBC........................................................... -87-
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General............................................................ -87-
Regulation......................................................... -87-
Effect of Governmental Policy...................................... -89-
Recent Legislation................................................. -89-
Competition........................................................ -90-
Employees.......................................................... -91-
Certain Relationships and Related Party Transactions............... -91-
Litigation......................................................... -91-
Properties......................................................... -91-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF AI................................................ -92-
Liquidity and Capital Resources of AI.............................. -92-
Sources of Funds of AI............................................. -92-
Borrowings of AI................................................... -94-
Interest Rate Sensitivity of AI.................................... -95-
Financial Condition of AI.......................................... -95-
Risk Assets of AI.................................................. -96-
Investment Activities of AI........................................ -96-
Rate/Volume Analysis of AI......................................... -97-
Net Interest Income of AI.......................................... -97-
Provision for Loan Losses of AI.................................... -98-
Allowance for Loan and Lease Losses of AI.......................... -98-
Noninterest Income of AI........................................... -99-
Noninterest Expense of AI.......................................... -99-
Income Tax Provision of AI......................................... -99-
Net Income......................................................... -99-
Effects of Inflation/Changing Prices on AI......................... -103-
Accounting Standards Issued But Not Effective on AI................ -103-
Liquidity and Capital Resources of AI.............................. -103-
Sources of Funds of AI............................................. -104-
Borrowings of AI................................................... -104-
Interest Rate Sensitivity.......................................... -105-
Financial Condition of AI.......................................... -105-
Risk Assets of AI.................................................. -105-
Investment Activities of AI........................................ -106-
Rate/Volume Analysis of AI......................................... -106-
Results of Operations for the Three Years Ended December 31, 1995.. -106-
Interest Income of AI.............................................. -106-
Interest Expense of AI............................................. -107-
Provision for Loan Losses of AI.................................... -107-
Allowance for Loan and Lease Losses of AI.......................... -107-
Noninterest Income of AI........................................... -107-
Noninterest Expense of AI.......................................... -107-
Income Tax Provision of AI......................................... -108-
Effects of Inflation/Changing Prices on AI......................... -108-
Accounting Standards Issued But Not Effective on AI................ -108-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FBC.................................................. -120-
RESULTS OF OPERATIONS.............................................. -120-
Summary of June 1996 Compared to June 1995....................... -120-
Summary of 1995 Compared to 1994................................. -120-
Net Interest Income - Taxable Equivalent Basis................... -120-
Provision and Allowance for Loan Losses.......................... -121-
</TABLE>
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Other Income....................................................... -122-
Other Expenses..................................................... -122-
Income Taxes....................................................... -123-
FINANCIAL CONDITION.................................................. -123-
Investment Securities.............................................. -123-
Loans.............................................................. -123-
Deposits........................................................... -124-
Asset/Liability Management......................................... -124-
Capital Adequacy................................................... -125-
Summary of 1994 Compared to 1993................................... -125-
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................................. -139-
Pro Forma Combined Condensed Balance Sheet as of June 30, 1996....... -139-
Pro Forma Combined Condensed Statement of Income for the Six Months
Ended June 30, 1996................................................ -141-
Pro Forma Combined Condensed Statement of Income for the Year Ended
December 31, 1995.................................................. -142-
Pro Forma Combined Condensed Statements of Income for
the Years Ended December 31, 1994 and 1993......................... -143-
Pro Forma Combined Condensed Statement of Income For the Year Ended
December 31, 1993.................................................. -144-
ADJOURNMENT OF THE AI MEETING............................................. -146-
ADJOURNMENT OF THE FBC MEETING............................................ -146-
INDEPENDENT ACCOUNTANTS................................................... -146-
EXPERTS................................................................... -146-
Susquehanna.......................................................... -146-
AI................................................................... -147-
FBC.................................................................. -147-
LEGAL OPINIONS............................................................ -147-
</TABLE>
APPENDIX A - ATCORP, INC. CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX B - FARMERS BANC CORP. CONSOLIDATED FINANCIAL STATEMENTS
APPENDIX C - AI MERGER AGREEMENT
APPENDIX D - FBC MERGER AGREEMENT
APPENDIX E - OPINION OF BERWIND FINANCIAL GROUP, L.P. - AI
APPENDIX F - OPINION OF JANNEY MONTGOMERY SCOTT INC. - AI
APPENDIX G - OPINION OF BERWIND FINANCIAL GROUP, L.P. - FBC
APPENDIX H - SUSQUEHANNA PRO FORMA SCHEDULES
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SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere or incorporated by
reference in this Proxy Statement/Prospectus and the Appendices hereto.
Shareholders are urged to read this entire Proxy Statement/Prospectus, including
the Appendices hereto. Certain terms used in this summary and elsewhere in this
Proxy Statement/Prospectus are used as defined in this summary or elsewhere in
this Proxy Statement/Prospectus.
The AI Meeting
The AI Meeting will be held at the offices of AI at 8000 Sagemore Drive,
Marlton, New Jersey on Wednesday, December 18, 1996 at 6:00 p.m. At the AI
Meeting, holders of record of AI Common Stock as of the AI Record Date will
consider and vote upon the approval of the AI Merger Agreement by and among
Susquehanna, SBI Merger Sub, AI and ENB. In addition, shareholders of AI may
consider and vote upon the approval of the adjournment of the AI Meeting in the
event there are not sufficient votes cast in person or by proxy at the AI
Meeting to constitute a quorum or to approve the AI Merger Agreement, and such
other matters as may properly come before the AI Meeting or any adjournments
thereof. The holders of record of shares of AI Common Stock at the close of
business on the AI Record Date, November 8, 1996, will be entitled to one vote
for each such share then so held. The presence, in person or by proxy, of at
least a majority of the total number of shares of AI Common Stock outstanding
and entitled to vote as of the AI Record Date will be required to constitute a
quorum at the Meeting. For additional information, see "THE AI MEETING."
The FBC Meeting
The FBC Meeting will be held at _____________, Mullica Hill, New Jersey on
Monday, December 16, 1996 at ___:___ __.m. At the FBC Meeting, holders of record
of FBC Common Stock as of the close of business on the FBC Record Date will
consider and vote upon the approval of the FBC Merger Agreement by and among
Susquehanna, SBI Merger Sub II, FBC and FNB and the transactions contemplated
thereby. In addition, shareholders of FBC may consider and vote upon the
approval of the adjournment of the FBC Meeting in the event there are not
sufficient votes cast in person or by proxy at the FBC Meeting to constitute a
quorum or to approve the FBC Merger Agreement and the transactions contemplated
thereby, and such other matters as may properly come before the FBC Meeting or
any adjournments thereof. The holders of record of shares of FBC Common Stock at
the close of business on the FBC Record Date, November 7, 1996, will be entitled
to one vote for each such share then so held. The presence, in person or by
proxy, of at least 151,801 shares of FBC Common Stock outstanding as of the FBC
Record Date will be required to constitute a quorum at the FBC Meeting. For
additional information, see "THE FBC MEETING."
AI and ENB
AI is a New Jersey corporation formed in August 1988, and functions as the
bank holding company for ENB. AI's principal business has been directing,
planning and coordinating the business activities of ENB.
ENB is a national banking association headquartered in Atco, New Jersey,
which conducts business through five (5) offices, all located in Camden and
Burlington Counties, New Jersey.
AI's executive offices are located at Sagemore Corporate Center, Route 73
and Marlton Parkway, Marlton, New Jersey 08053, and its telephone number is
(609) 983-4000.
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FBC and FNB
FBC is a New Jersey corporation formed in 1985, and functions as the bank
holding company for FNB. FBC's principal business has been directing, planning
and coordinating the business activities of FNB.
FNB is a national banking association headquartered in Mullica Hill, New
Jersey, which conducts business through two (2) offices located in Gloucester
County, New Jersey.
FBC's executive offices are located at 114 North Main Street, Mullica Hill,
New Jersey 08062, and its telephone number is (609) 478-2817.
Susquehanna
Susquehanna is a bank holding company whose sole activity consists of
owning and supervising its five bank subsidiaries, three federal savings bank
subsidiaries and three non-depository subsidiaries. Susquehanna's depository
subsidiaries consist of Atlantic Federal Savings Bank, Baltimore, Maryland;
Citizens National Bank of Southern Pennsylvania, Greencastle, Pennsylvania;
Fairfax Savings, FSB, Baltimore, Maryland; Farmers & Merchants Bank and Trust,
Hagerstown, Maryland; Farmers First Bank, Lititz, Pennsylvania; First National
Trust Bank, Sunbury, Pennsylvania; Reisterstown Federal Savings Bank,
Reisterstown, Maryland; and Williamsport National Bank, Williamsport,
Pennsylvania. Susquehanna's subsidiaries provide banking and banking-related
services in central and south-central Pennsylvania, principally in Franklin,
Lancaster, Northumberland, Snyder, York and Lycoming Counties, and in Northern
Maryland, principally in Washington and Allegany Counties, the City of Baltimore
and its surrounding suburbs. The day-to-day management of Susquehanna's
subsidiaries is conducted by each subsidiary's officers subject to review by
their respective Boards of Directors.
Susquehanna was incorporated in Pennsylvania in 1982. Its executive offices
are located at 26 North Cedar Street, Lititz, Pennsylvania 17543, and its
telephone number is (717) 626-4721.
The AI Merger and the FBC Merger
AI and ENB
----------
In the AI Merger, AI will become a wholly-owned subsidiary of Susquehanna
by means of a merger of SBI Merger Sub with and into AI, with AI as the
surviving entity (the "AI Surviving Corporation"). Upon the consummation of the
AI Merger, AI shareholders will receive in exchange for all of the outstanding
shares of AI Common Stock, 771,750 shares of Susquehanna Common Stock as set
forth in the AI Merger Agreement, so long as the average per share closing price
of Susquehanna Common Stock before the closing of the AI Merger is between
$25.00 and $31.00. AI shareholders will receive a cash payment in lieu of any
fractional share of Susquehanna Common Stock which the AI shareholders would
otherwise be entitled to receive. If the AI Merger is not consummated by March
31, 1997 but is subsequently consummated, then an additional 5,000 shares of
Susquehanna Common Stock will be distributed to AI's shareholders. If the AI
Merger had been closed on the date of this Proxy Statement/Prospectus, each
share of AI Common Stock would have been converted into the right to receive 1.0
share of Susquehanna Common Stock. The last reported sale price of Susquehanna
Common Stock on The Nasdaq Stock Market on November 1, 1996 was $29.00 per
share. Consummation of the AI Merger is conditioned upon, among other things,
the approval of the AI Merger Agreement by the requisite vote of AI's
shareholders and by various regulatory agencies. See "APPROVAL OF THE AI
MERGER."
General
Pursuant to the AI Merger Agreement, SBI Merger Sub will merge with
and into AI, with AI as the AI Surviving Corporation, as a result of which AI
will become a direct wholly-owned subsidiary of Susquehanna, and
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ENB will become a second-tier subsidiary of Susquehanna (the "ENB Bank
Acquisition"). The name of the AI Surviving Corporation will be "Susquehanna
Bancshares East, Inc."
Exchange Ratio
Pursuant to the AI Merger Agreement, the outstanding shares of AI
Common Stock will be exchanged for shares of Susquehanna Common Stock in
accordance with the exchange ratio ("AI Exchange Ratio") set forth in the AI
Merger Agreement ("AI Merger Consideration"). This number may be adjusted
subject to conditions set forth in the AI Merger Agreement.
The number of shares of Susquehanna Common Stock to be issued to
holders of AI Common Stock in accordance with the AI Exchange Ratio will be
based upon the average closing price per share of Susquehanna Common Stock over
a ten day trading period ending two days prior to the closing of the AI Merger.
In general, 771,750 shares of Susquehanna Common Stock will be exchanged for AI
Common Stock; however, if the average closing price over such period is less
than $25.00, AI will have the right to terminate the AI Merger Agreement, and if
the average closing price over such period is greater than $31.00, Susquehanna
will have the right to terminate the AI Merger Agreement. Additionally, both AI
and Susquehanna will have the right to terminate the AI Merger Agreement if the
AI Merger is not consummated by March 31, 1997; if the AI Merger Agreement is
extended by mutual agreement of the parties, then AI's shareholders will receive
an additional 5,000 shares of Susquehanna Common Stock.
Fractional Shares
No fractional shares of Susquehanna Common Stock will be issued.
Susquehanna will furnish to any holder of AI Common Stock otherwise entitled to
a fractional share a check for an amount of cash equal to the fraction of a
share of Susquehanna Common Stock represented by the certificates so surrendered
multiplied by the average closing price per share as determined in accordance
with the AI Merger Agreement.
Closing; Effective Date
The AI Merger Agreement provides that the AI closing ("AI Closing")
will occur following three business days notice to AI, as shall be agreed upon
by all parties which date shall not be later than the 22nd business day after:
(i) the last approval of required governmental authorities is granted and any
related waiting periods expire; (ii) the lifting, discharge or dismissal of any
stay of any such governmental approval or of any injunction against the AI
Merger or the ENB Bank Acquisition; and (iii) all shareholder approvals required
by the parties pursuant to the AI Merger Agreement are received. Immediately
following the AI Closing, and provided the AI Merger Agreement has not been
terminated or abandoned in accordance with the terms thereof, AI and SBI Merger
Sub will cause a certificate of merger to be properly prepared and completed and
filed with the Secretary of State of New Jersey. The AI Merger, and the
transactions described in the AI Merger Agreement, will become effective at
12:01 a.m. on the day following the day on which the certificate of merger has
been duly filed with and accepted by the Secretary of State of New Jersey (the
"AI Merger Effective Date"). The presentation of the certificate for acceptance
and filing is subject to the rights of the AI Board of Directors and the Board
of Directors of Susquehanna ("Susquehanna Board of Directors") of Susquehanna
and AI to terminate the AI Merger Agreement under certain circumstances.
FBC and FNB
-----------
In the FBC Merger, FBC will become a wholly owned subsidiary of Susquehanna
by means of a merger of SBI Merger Sub II with and into FBC. Upon the
consummation of the FBC Merger, each FBC shareholder will receive in exchange
for each share of FBC Common Stock, 2.281 shares of Susquehanna Common Stock, as
set forth in the FBC Merger Agreement. Susquehanna may terminate the FBC Merger
Agreement if the average closing price is greater than $31.00, and FBC may
terminate the agreement if the average closing price is less than $25.00. The
last reported sale price of Susquehanna Common Stock on The Nasdaq Stock Market
on November 1, 1996 was $29.00 per share. Consummation of the FBC Merger is
conditioned upon, among other things, the approval of the FBC Merger Agreement
-12-
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and the transactions contemplated thereby by the requisite vote of FBC's
shareholders and by various regulatory agencies See "APPROVAL OF THE FBC
MERGER."
General
Pursuant to the FBC Merger Agreement, SBI Merger Sub II will merge
with and into FBC, with FBC as the surviving entity (sometimes referred to as
the "FBC Surviving Corporation"), as a result of which FBC will become a direct
wholly-owned subsidiary of Susquehanna, and FNB will become a second-tier
subsidiary of Susquehanna (the "FNB Bank Acquisition"). The name of the FBC
Surviving Corporation will be "Susquehanna Bancshares East II, Inc."
Exchange Ratio
Pursuant to the FBC Merger Agreement, the outstanding shares of FBC
Common Stock will be exchanged for shares of Susquehanna Common Stock in
accordance with the exchange ratio ("FBC Exchange Ratio") set forth in the FBC
Merger Agreement ("FBC Merger Consideration").
The number of shares of Susquehanna Common Stock to be issued to
holders of FBC Common Stock will be as set forth in the FBC Exchange Ratio based
upon the average price per share of Susquehanna Common Stock over a ten day
trading period ending five days prior to the consummation of the FBC Merger.
Holders of FBC Common Stock will receive 2.281 shares of Susquehanna Common
Stock for each share of FBC Common Stock; however, if the average price over
such period is less than $25.00, FBC will have the right to terminate the FBC
Merger Agreement, and if the average price over such period is greater than
$31.00, then Susquehanna will have the right to terminate the FBC Merger
Agreement.
Fractional Shares
No fractional shares of Susquehanna Common Stock will be issued.
Susquehanna will furnish to any holder of FBC Common Stock otherwise entitled to
a fractional share a check for an amount of cash equal to the fraction of a
share of Susquehanna Common Stock represented by the certificates so surrendered
multiplied by the average price per share as determined in accordance with the
FBC Merger Agreement.
Closing; Effective Date
The FBC Merger Agreement provides that the closing of the FBC Merger
and the FNB Bank Acquisition by Susquehanna ("FBC Closing") will occur following
three business days' notice to FBC, as shall be agreed upon by all parties,
which date shall not be later than the 22nd business day after: (i) the last
approval of required regulatory authorities is granted and any related waiting
periods expire; (ii) the lifting, discharge or dismissal of any stay of any
governmental approval or of any injunction against the transactions contemplated
in the FBC Merger Agreement; and (iii) all shareholder approvals required by the
parties have been received. Immediately following the FBC Closing, and provided
the FBC Merger Agreement has not been terminated or abandoned in accordance with
the terms thereof, SBI Merger Sub II and FBC will cause a certificate of merger
to be properly prepared and completed and filed with the Secretary of State of
New Jersey. The FBC Merger shall become effective as 12:01 a.m. on the day (the
"FBC Merger Effective Date") following the day of which the certificate of
merger has been filed and accepted by the Secretary of State of New Jersey.
-13-
<PAGE>
Opinions of Financial Advisors
AI
--
Berwind and JMS have each rendered an opinion to the AI Board of Directors
that in their respective opinions the consideration to be received by AI
shareholders pursuant to the AI Merger is fair, from a financial point of view,
to the shareholders of AI. The opinions, which are attached hereto as Appendix E
and F, respectively, should be read in their entirety with respect to the
assumptions made and other matters considered by Berwind and JMS in rendering
such opinions. See "APPROVAL OF THE AI MERGER -- Opinions of Financial
Advisors."
FBC
---
Berwind has rendered its opinion to the FBC Board of Directors that in its
opinion the FBC Merger Consideration is fair, from a financial point of view, to
the shareholders of FBC. This opinion, which is attached hereto as Appendix G,
should be read in its entirety with respect to the assumptions made and other
matters considered by Berwind in rendering such opinion. See "APPROVAL OF THE
FBC MERGER -- Opinion of Financial Advisor."
Recommendations of the Boards of Directors
AI
--
The consideration to be received by AI's shareholders pursuant to the AI
Merger Agreement was negotiated by the AI Board of Directors in light of various
factors, including AI's and Susquehanna's recent operating results, current
financial condition and perceived future prospects. THE AI BOARD OF DIRECTORS
BELIEVES THAT THE AI MERGER IS IN THE BEST INTEREST OF AI'S SHAREHOLDERS AND
RECOMMENDS THAT AI'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE AI MERGER
AGREEMENT.
FBC
---
The consideration to be received by FBC's shareholders pursuant to the FBC
Merger Agreement was negotiated by the FBC Board of Directors in light of
various factors, including FBC's and Susquehanna's recent operating results,
current financial condition and perceived future prospects. THE FBC BOARD OF
DIRECTORS BELIEVES THAT THE FBC MERGER IS IN THE BEST INTEREST OF FBC'S
SHAREHOLDERS AND RECOMMENDS THAT FBC'S SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
FBC MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Votes Required
AI
--
The affirmative vote of the holders of sixty-six and two-thirds percent (66
2/3%) of the outstanding shares of AI's Common Stock entitled to vote at the AI
Meeting is required to approve the AI Merger Agreement. Directors and executive
officers are expected to vote substantially all of the 281,217 shares held by
them, representing 36.44% of the AI Common Stock outstanding at the AI Record
Date and entitled to vote at the AI Meeting, "FOR" approval of the AI Merger
Agreement and the transactions contemplated thereby.
FBC
---
The affirmative vote of seventy percent (70%) of the outstanding shares of
FBC Common Stock entitled to vote at the FBC Meeting is required to approve the
FBC Merger Agreement and the transactions contemplated thereby. Directors and
executive officers are expected to vote substantially all of the 55,255 shares
held by them,
-14-
<PAGE>
representing 18.20% of the FBC Common Stock outstanding at the FBC Record Date
and entitled to vote at the FBC Meeting, "FOR" approval of the FBC Merger
Agreement and the transactions contemplated thereby.
No Dissenters' Rights
AI
--
Holders of AI Common Stock will not have dissenters' rights in connection
with the AI Merger.
FBC
---
Holders of FBC Common Stock will not have dissenters' rights in connection
with the FBC Merger.
Federal Income Tax Consequences of the AI Merger and the FBC Merger
AI
--
It is anticipated that the AI Merger will be a tax-free reorganization for
federal income tax purposes and that no gain or loss will be recognized by
shareholders of AI on the exchange of AI Common Stock for Susquehanna Common
Stock (other than with respect to cash received in lieu of fractional shares).
AI SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS REGARDING THE TAX
CONSEQUENCES OF THE AI MERGER WITH RESPECT TO THEIR OWN PARTICULAR
CIRCUMSTANCES. See "APPROVAL OF THE AI MERGER --Federal Income Tax Consequences
of the AI Merger."
FBC
---
It is anticipated that the FBC Merger will be a tax-free reorganization for
federal income tax purposes and that no gain or loss will be recognized by
shareholders of FBC on the exchange of FBC Common Stock for Susquehanna Common
Stock (other than with respect to cash received in lieu of fractional shares).
FBC SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS REGARDING THE TAX
CONSEQUENCES OF THE FBC MERGER WITH RESPECT TO THEIR OWN PARTICULAR
CIRCUMSTANCES. See "APPROVAL OF THE FBC MERGER --Federal Income Tax Consequences
of the FBC Merger."
Accounting Treatment
AI
--
The AI Merger is intended to be accounted for as a pooling of interests.
See "APPROVAL OF THE AI MERGER-- Accounting Treatment of the AI Merger."
FBC
---
The FBC Merger is intended to be accounted for as a pooling of interests.
See "APPROVAL OF THE FBC MERGER-- Accounting Treatment of the FBC Merger."
Comparison of Shareholder Rights
AI and Susquehanna
------------------
Upon the consummation of the AI Merger, holders of AI Common Stock, whose
rights presently are governed by New Jersey corporate law and AI's certificate
of incorporation and bylaws, will become shareholders of Susquehanna, a
Pennsylvania business corporation. Accordingly, their rights will be governed by
Pennsylvania corporate law and the
-15-
<PAGE>
articles of incorporation and bylaws of Susquehanna. Certain differences arise
from changes in the governing law, as well as from differences between the
articles of incorporation and bylaws of Susquehanna and the certificate of
incorporation and bylaws of AI, including, among other things, in connection
with cumulative voting and preemptive rights, the calling of special meetings of
shareholders, the number and term of Directors, informal action by shareholders
by unanimous consent, advance notice requirements for nominations of Directors
and presentation of new business at meetings of shareholders, limitations on
acquisitions of capital stock, limitations on the voting of capital stock,
liabilities and indemnification of Directors and officers, anti-takeover
provisions, approval requirements for significant corporate transactions and
amendment of governing corporate documents. See "COMPARISON OF SHAREHOLDER
RIGHTS."
FBC and Susquehanna
--------------------
Upon the consummation of the FBC Merger, holders of FBC Common Stock, whose
rights presently are governed by New Jersey corporate law and FBC's certificate
of incorporation and bylaws, will become shareholders of Susquehanna, a
Pennsylvania business corporation. Accordingly, their rights will be governed by
Pennsylvania corporate law and the articles of incorporation and bylaws of
Susquehanna. Certain differences arise from changes in the governing law, as
well as from differences between the articles of incorporation and bylaws of
Susquehanna and the certificate of incorporation and bylaws of FBC, including,
among other things, the calling of special meetings of shareholders, the number
of Directors, removals and vacancies on the Boards of Directors, advance notice
requirements for nominations of Directors and presentation of new business at
meetings of shareholders, limitations on acquisitions of capital stock,
limitations on the voting of capital stock, anti-takeover provisions, approval
requirements for significant corporate transactions and amendment of governing
corporate documents. See "COMPARISON OF SHAREHOLDER RIGHTS."
Conditions to the AI Merger and the FBC Merger
AI
--
Consummation of the AI Merger is subject to various conditions, including
approval of the AI Merger by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") and the Department of Banking of the State of
New Jersey ("New Jersey Department of Banking"). See "APPROVAL OF THE AI
MERGER -- Regulatory Approvals of AI." The AI Merger is also subject to
satisfaction of various other conditions specified in the AI Merger Agreement,
including the approval of the AI Merger Agreement by the requisite vote of AI's
shareholders. See "APPROVAL OF THE AI MERGER -- Terms of the AI Merger --
Conditions Precedent."
FBC
---
Consummation of the FBC Merger is subject to various conditions, including
approval of the FBC Merger by the Federal Reserve Board and the New Jersey
Department of Banking. See "APPROVAL OF THE FBC MERGER -- Regulatory Approvals
of FBC." The FBC Merger is also subject to satisfaction of various other
conditions specified in the FBC Merger Agreement, including the approval of the
FBC Merger Agreement and the transactions contemplated thereby by the requisite
vote of FBC's shareholders. See "APPROVAL OF THE FBC MERGER -- Terms of the FBC
Merger -- Conditions Precedent."
Operations After the AI Merger and the FBC Merger
AI
--
Certain incumbent Directors of ENB, together with persons appointed by
Susquehanna, will serve as members of the AI Board of Directors following the AI
Merger.
-16-
<PAGE>
FBC
---
Certain incumbent Directors of FNB, together with persons appointed by
Susquehanna, will serve as members of the FBC Board of Directors following the
FBC Merger.
Termination of the AI Merger and the FBC Merger
AI
--
The AI Merger Agreement provides that, whether before or after its approval
by the shareholders of AI, it may be terminated and the transactions described
in the AI Merger Agreement abandoned at any time prior to the AI Merger
Effective Date: (i) by mutual consent of Susquehanna and AI, if the Board of
Directors of each so determines by majority vote of the members of the entire
Board; (ii) by AI in the event (a) of a material breach by Susquehanna of any
representation, warranty, covenant or agreement contained in the AI Merger
Agreement which is not cured or not curable within 30 days after written notice
of such breach is given to Susquehanna by AI, or (b) by written notice to
Susquehanna that any condition precedent to AI's obligations as set forth in the
AI Merger Agreement, Article V, has not been met or waived by AI at such time as
such condition can no longer be satisfied, or (c) the AI Board of Directors
fails to make, withdraws or modifies or changes its favorable recommendation to
the shareholders or (d) the AI Board of Directors recommends to the shareholders
of AI that an Acquisition Proposal (as defined in the AI Merger Agreement) is
likely to be more favorable, from a financial point of view, to the shareholders
of AI than the AI Merger; (iii) by Susquehanna in the event (a) of a material
breach by AI or ENB of any representation, warranty, covenant or agreement
contained in the AI Merger Agreement which is not cured or not curable within 30
days after written notice of such breach is given to AI by Susquehanna or (b)
that any condition precedent to Susquehanna's obligations as set forth in
Article V of the AI Merger Agreement has not been met or waived by Susquehanna
at such time as such condition can no longer be satisfied; (iv) by AI, by giving
written notice of such election to Susquehanna within two business days
following a determination that the average closing price per share of
Susquehanna Common Stock before closing is less than $25.00 per share at the
time such calculation is required to be made pursuant to the AI Merger
Agreement; (v) by Susquehanna, if Susquehanna chooses to give written notice of
such election within two business days following a determination that the
average closing price per share of Susquehanna Common Stock before closing is
greater than $31.00 per share at the time such calculation is required to be
made pursuant to the AI Merger Agreement; or (vi) by Susquehanna or AI if the AI
Merger is not consummated by March 31, 1997, unless the failure to so consummate
by such time is due to the breach of any representation, warranty or covenant
contained in the AI Merger Agreement by the party seeking to terminate;
provided, however, that such date may be extended by the written agreement of
the parties.
FBC
---
The FBC Merger Agreement provides that, whether before or after its
approval by the shareholders of FBC, it may be terminated and the transactions
contemplated in the FBC Merger Agreement abandoned at any time prior to the FBC
Merger Effective Date: (i) by mutual consent of Susquehanna and FBC, if the
Board of Directors of each so determines by majority vote of the members of the
entire Board; (ii) by FBC in the event (a) of a material breach by Susquehanna
of any representation, warranty, covenant or agreement contained in the FBC
Merger Agreement which is not cured or not curable within 30 days after written
notice of such breach is given to Susquehanna by FBC, or (b) by written notice
to Susquehanna that any condition precedent to FBC's obligations as set forth in
the FBC Merger Agreement, Article V, has not been met or waived by FBC at such
time as such condition can no longer be satisfied, (c) the FBC Board of
Directors fails to make, withdraws or modifies or changes its favorable
recommendation to shareholders, or (d) the FBC Board of Directors recommends to
the shareholders of FBC that an Acquisition Proposal (as defined in the FBC
Merger Agreement) is likely to be more favorable, from a financial point of
view, to the shareholders of FBC than the FBC Merger; (iii) by Susquehanna in
the event (a) of a material breach by FBC or FNB of any representation,
warranty, covenant or agreement contained in the FBC Merger Agreement which is
not cured or not curable within 30 days after written notice of such breach is
given to FBC, or (b) that any condition precedent to Susquehanna's obligations
as set forth in Article V of the FBC Merger Agreement has not been met or waived
by
-17-
<PAGE>
Susquehanna at such time as such condition can no longer be satisfied; (iv) by
FBC by giving written notice of such election to Susquehanna within one business
day following a determination that the average closing price per share of the
Susquehanna Common Stock before closing is less than $25.00 per share at the
time such calculation is required to be made pursuant to the FBC Merger
Agreement; and (v) by Susquehanna if Susquehanna chooses to give written notice
within one business day following a determination that the average closing price
per share of the Susquehanna Common Stock before closing is greater than $31.00
per share at the time such calculation is required to be made pursuant to the
FBC Merger Agreement; or (vi) by Susquehanna or FBC if the FBC Merger is not
consummated by March 31, 1997, unless the failure to so consummate by such time
is due to the breach of any representation, warranty or covenant contained in
the FBC Merger Agreement by the party seeking to terminate; provided, however,
that such date may be extended by the written agreement of the parties.
Adjournment of the AI Meeting and the FBC Meeting
AI
--
In the event that there is an insufficient number of votes cast in person
or by proxy at the AI Meeting to approve the AI Merger Agreement, the AI Board
of Directors intends to adjourn the AI Meeting to a later date to permit the
further solicitation of sufficient votes to approve the AI Merger Agreement. The
affirmative vote of a majority of the shares represented and voting at the AI
Meeting is required in order to approve any such adjournment. The AI Board of
Directors recommends that shareholders vote "FOR" the proposal to adjourn the AI
Meeting if necessary to permit further solicitation of proxies to approve the AI
Merger Agreement. See "ADJOURNMENT OF THE AI MEETING."
FBC
---
In the event that there is an insufficient number of votes cast in person
or by proxy at the FBC Meeting to approve the FBC Merger Agreement and the
transactions contemplated thereby, the FBC Board of Directors intends to adjourn
the FBC Meeting to a later date for the solicitation of additional votes in
favor thereof. The affirmative vote of a majority of the shares represented and
voting at the FBC Meeting is required in order to approve any such adjournment.
The FBC Board of Directors recommends that shareholders vote "FOR" the proposal
to adjourn the FBC Meeting if necessary to permit further solicitation of
proxies to approve the FBC Merger Agreement and the transactions contemplated
thereby. See "ADJOURNMENT OF THE FBC MEETING."
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<PAGE>
Comparative Per Share Data
The following table sets forth certain historical per share data of
Susquehanna, AI and FBC, and unaudited pro forma combined per share data of
Susquehanna, AI and FBC, based on the assumption that the AI Merger and the FBC
Merger are effective on January 1, 1993 and accounted for as a pooling-of-
interests. The pro forma data is not necessarily indicative of results that
would have been achieved had such transactions been consummated on such dates
and should not be construed as representative of future operations. This
presentation is subject to the assumptions set forth in the notes to the
Unaudited Pro Forma Financial Statements and the Susquehanna Pro Forma Schedules
appearing elsewhere in this Proxy Statement/Prospectus. The information
presented should be read in conjunction with such pro forma financial statements
and schedules, and notes thereto, and the historical consolidated financial
statements, and notes thereto, of Susquehanna, AI and FBC incorporated by
reference or appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
Six Months Ended -----------------------------------
June 30, 1996 1995 1994 1993
---------------- ---- ---- ----
<S> <C> <C> <C> <C>
Susquehanna Historical per share [1]:
Net income from operations $1.24 $2.23 $1.96 $1.96
Cash dividends declared 0.58 1.10 1.02 0.92
Book value 21.48 21.11 -- --
AI Historical per share [2]:
Net income from operations $0.97 $1.37 $1.11 $1.17
Cash dividends declared 0 0 0 0
Book value 13.54 13.56 -- --
FBC Historical per share [3]:
Net income from operations $2.25 $3.89 $3.76 $3.77
Cash dividends declared 0.75 1.25 1.21 1.21
Book value 33.72 33.08 -- --
Pro Forma per Susquehanna
Common Share [4]:
Net income from operations $1.23 $2.18 $1.90 $1.89
Cash dividends declared 0.58 1.10 1.02 0.92
Book value 20.75 20.39 -- --
Pro Forma Equivalent per AI
Common Share [5]:
Net income from operations $1.23 $2.18 $1.90 $1.89
Cash dividends declared 0.58 1.10 1.02 0.92
Book value 20.75 20.39 -- --
Pro Forma Equivalent per FBC
Common Share [6]:
Net income from operations $2.81 $4.33 $4.31
Cash dividends declared 1.32 $4.97 2.33 2.10
Book value 47.33 2.51 -- --
46.51
</TABLE>
[1] Susquehanna historical amounts are adjusted for the five-for-four stock
split in 1993.
[2] AI historical amounts are adjusted for the 5% stock dividend in 1995, the
8.14% stock dividend in 1994 and the 5% stock dividend in 1993.
[3] FBC historical amounts are adjusted for the three-for-one stock split in
1995 and the 10% stock dividend paid in 1995.
[4] Pro forma amounts give effect to the Fairfax acquisition as if the Fairfax
acquisition took place January 1, 1995 and gives effect to the Reistertown
acquisition as if the Reistertown acquisition took to the place January 1,
1995. These amounts also include the combination of AI and FBC based upon
their respective exchange ratios.
[5] Pro forma amounts per share were calculated by taking the corresponding per
share amounts for Susquehanna, AI, and FBC combined and multiplying that by
an exchange ratio of one share of Susquehanna for each outstanding share of
AI at each reporting date.
[6] Pro forma amounts per share were calculated by taking the corresponding per
share amounts for Susquehanna, AI, and FBC combined and multiplying that by
an exchange ratio of 2.281 shares of Susquehanna for each outstanding share
of FBC at each reporting date.
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<PAGE>
Market Value of Securities
The table below sets forth the last sale prices on The Nasdaq Stock
Market for Susquehanna Common Stock and on the over-the-counter market for AI
Common Stock for July 18, 1996, the last trading day before the announcement of
the AI Merger. The table also sets forth the equivalent market value per share
of AI Common Stock on such date, based upon the AI Exchange Ratio.
<TABLE>
<CAPTION>
AI
-----------------------------
Equivalent
Susquehanna Market Value
Historical Historical Per Share
---------- ---------- ---------
<S> <C> <C> <C>
July 18, 1996....... $27.75 $14.00 $27.75
</TABLE>
There is no established public trading market for FBC Common Stock, and
accordingly, there are no published market quotations for such stock. Trading in
FBC Common Stock is limited and sporadic. In addition, FBC is not subject to the
requirement of filing periodic reports with the Commission. The absence of an
established market and publicly available information regarding FBC may affect
the prices at which FBC's shares are traded. Subject to the foregoing, the most
recent transaction of which management is aware is the sale of an aggregate of
184 shares of FBC Common Stock at $64.00 per share on August 15, 1996 .
-20-
\
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected consolidated historical
financial information for Susquehanna, AI and FBC. This data is derived from and
should be read in conjunction with, and is qualified in its entirety by, the
consolidated financial statements of Susquehanna, AI and FBC, including the
notes thereto, incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus. Interim unaudited data for the six month period ended June
30, 1996 reflects, in the opinion of Susquehanna's, AI's and FBC's respective
managements, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of such data. Results for the period ended
June 30, 1996 are not necessarily indicative of results which may be expected
for any other period or for the fiscal year as a whole.
-21-
<PAGE>
Susquehanna Historical
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
At or for the Six Months
Ended June 30, At or for Year Ended December 31,
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $62,751 $51,200 $107,209 $94,145 $87,027 $83,761 $77,898
Provision for loan and lease losses 2,379 2,571 4,994 3,987 5,130 4,721 4,869
Other income 10,711 7,038 16,080 15,098 15,816 15,284 13,262
Other expense 46,729 39,331 80,911 72,710 66,004 63,611 58,489
Income before taxes, extraordinary
item and cumulative effect of a
change in accounting principle 24,354 16,336 37,384 32,546 31,709 30,713 27,802
Extraordinary item -- -- -- (732) -- -- --
Cumulative effect of a change
in accounting principle -- -- -- -- 1,023 -- --
Net income 16,355 11,619 26,017 22,096 23,205 22,172 21,287
Earnings per common share before
extraordinary item and cumulative
effect of a change in accounting
principle $1.24 $1.00 $2.23 $1.96 $1.96 $1.99 $1.91
Dividends declared per common share 0.58 0.54 1.10 1.02 0.92 0.87 0.84
Balance Sheet Data
Assets $3,011,195 $2,520,671 $2,586,157 $2,231,409 $2,051,994 $1,967,450 $1,903,819
Loans and leases, net of unearned
income 2,130,353 1,712,460 1,712,951 1,466,186 1,309,907 1,282,457 1,288,981
Deposits 2,516,633 2,095,298 2,116,042 1,866,330 1,717,807 1,671,352 1,596,279
Shareholders' equity 283,003 229,898 273,399 217,104 218,428 193,804 180,765
Shareholders' equity per share (book
value) $21.48 $19.75 $21.11 $18.66 $18.78 $17.35 $16.19
Selected Ratios
Return on average assets
before extraordinary item and
cumulative effect of a change in
accounting principle 1.12% 1.00% 1.07% 1.08% 1.13% 1.15% 1.14%
Return on average shareholders'
equity before extraordinary item and
cumulative effect of a change in
accounting principle 11.76 10.55 11.29 10.51 10.96 11.88 12.25
Average shareholders' equity to assets 9.51 9.47 9.48 10.23 10.29 9.72 9.34
Net interest yield (tax equivalent) 4.74 4.89 4.89 4.94 4.94 4.89 4.75
Net charge-offs to average loans and
leases 0.21 0.25 0.28 0.13 0.15 0.25 0.25
Allowance for loan and lease losses
to period-end loans and leases 1.50 1.62 1.61 1.63 1.66 1.41 1.28
Nonperforming assets to
period-end loans and leases and
OREO 1.74 2.39 1.79 2.00 2.05 2.06 1.91
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AI Historical
(Dollars in thousands except per share data)
At or for the Six Months
Ended
June 30, At or for the Year Ended December 31,
-------------------------- ------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $ 3,693 $ 2,825 $ 5,909 $ 5,203 $ 4,789 $ 4,466 $ 4,323
Provision for loan and lease losses 43 60 115 160 75 216 660
Other income 313 432 809 828 910 480 368
Other expense 2,931 2,550 5,189 4,626 4,272 4,262 3,981
Income before taxes, extraordinary
item and cumulative effect of a
change in accounting principle 1,032 647 1,414 1,245 1,352 468 50
Cumulative effect of a change in
accounting principle -- -- -- -- 100 -- --
Net income 749 469 1,054 857 1,003 327 43
Earnings per common share before
extraordinary item and cumulative
effect of a change in accounting
principle $ 0.97 $ 0.61 $ 1.37 $ 1.11 $ 1.17 $ 0.42 $ 0.06
Balance Sheet Data
Assets $204,213 $133,801 $157,775 $118,398 $105,154 $90,732 $90,812
Loans and leases, net of unearned
income 115,754 85,596 96,129 71,460 65,091 58,515 66,435
Deposits 186,368 123,322 145,294 108,563 96,112 82,917 82,201
Shareholders' equity 10,452 9,430 10,468 8,782 8,015 7,012 6,685
Shareholders' equity per share (book
value) $13.54 $12.22 $13.56 $11.38 $10.39 $9.09 $8.66
Selected Ratios
Return on average assets before
cumulative effect of a change in
accounting principle 0.82% 0.75% 0.78% 0.80% 0.96% 0.37% 0.05%
Return on average shareholders'
equity before cumulative effect of a
change in accounting principle 14.46 10.57 11.64 10.50 12.11 4.80 0.64
Average shareholders' equity to assets 5.66 7.09 6.71 7.66 7.90 7.73 7.04
Net interest yield (non-tax
equivalent) 4.28 4.80 4.67 5.22 5.51 5.50 4.91
Net charge-offs to average loans and
leases (0.06) (0.07) (0.02) 0.36 (0.17) 0.32 0.39
Allowance for loan and lease losses
to period-end loans and leases 1.17 1.45 1.31 1.61 1.82 1.81 1.56
Nonperforming assets to period-end
loans and leases and OREO 0.81 1.59 1.61 1.44 2.66 2.89 2.58
- -------------------
</TABLE>
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<PAGE>
FBC Historical
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
At or for the Six Months
Ended
June 30, At or for the Year Ended December 31,
----------------------------- --------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $ 1,858 $ 1,825 $ 3,588 $ 3,566 $ 3,336 $ 3,091 $ 2,709
Provision for loan and
lease losses 30 30 55 100 75 93 143
Other income 161 152 247 201 308 235 182
Other expense 1,114 1,052 2,217 2,144 2,051 1,939 1,717
Income before taxes,
extraordinary item and
cumulative effect of a change
in accounting principle 875 895 1,563 1,523 1,518 1,294 1,031
Extraordinary item -- -- -- -- -- -- --
Cumulative effect of a change in
accounting principle -- -- -- -- -- 12 --
Net income 683 703 1,181 1,142 1,146 952 724
Earnings per common share before
extraordinary item and cumulative
effect of a change in accounting
principle $2.25 $2.32 $3.89 $3.76 $3.77 $3.24 $2.58
Dividends declared per common share $0.75 $0.60 $1.25 $1.21 $1.21 $0.91 $0.83
Balance Sheet Data
Assets $85,399 $81,552 $84,705 $80,585 $77,408 $72,359 $63,378
Loans and leases, net of unearned
income 40,624 39,140 36,849 36,866 32,695 33,665 31,506
Deposits 74,718 71,601 74,241 71,371 68,711 64,418 56,699
Shareholders' equity 10,236 9,592 10,043 8,879 8,371 7,515 6,234
Shareholders' equity per
share (book value) $33.72 $34.75 $33.08 $29.25 $27.57 $24.75 $22.22
Selected Ratios
Return on average assets before
extraordinary item and
cumulative effect of a change
in accounting principle 1.63% 1.76% 1.46% 1.46% 1.53% 1.00% 0.85%
Return on average shareholders'
equity before Extraordinary
item and cumulative effect of a
change in accounting principle 13.49 15.27 12.35 13.12 14.33 14.08 13.77
Average shareholders'
equity to assets 12.05 11.57 11.70 11.02 10.64 10.23 9.55
Net interest yield (tax equivalent) 5.08 5.25 4.94 5.07 4.99 4.77 4.61
Net charge-offs to average
loans and leases (0.08) 0.02 0.10 0.17 0.33 0.03 0.10
Allowance for loan and lease
losses to period-end loans and
leases 1.17 1.12 1.17 1.12 1.15 1.24 1.06
Nonperforming assets to period
-end loans and leases and OREO 2.90 2.33 3.82 2.77 2.02 1.58 1.56
- ---------------
</TABLE>
-24-
<PAGE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
Susquehanna Pro Forma with AI Only
The following tables set forth unaudited pro forma selected data for
Susquehanna which gives effect to the AI Merger. The pro forma selected data is
not necessarily indicative of the results that would have been achieved had such
transactions been consummated on such dates and should not be construed as
representative of future operations. This presentation is subject to the
assumptions set forth in the notes to the Unaudited Pro Forma Financial
Statements and the Susquehanna Pro Forma Schedules appearing elsewhere in this
Proxy Statement/Prospectus. The information presented should be read in
conjunction with such pro forma financial statements and schedules, and the
notes thereto, and the historical consolidated financial statements, including
the notes thereto, of Susquehanna and AI incorporated by reference or appearing
elsewhere in this Proxy Statement/Prospectus.
Pro Forma Earnings and Balance Sheet Data
(Dollars in thousands)
<TABLE>
<CAPTION>
At or for the Six At or for the Year Ended
Months Ended December 31,
June 30, -------------------------------
1996 1995 1994 1993
----------------- ---- ---- ----
Earnings Data
<S> <C> <C> <C> <C>
Net interest income $67,562 $132,091 $99,348 $91,816
Provision for loan and lease losses 2,924 5,154 4,147 5,205
Other income 11,512 20,100 15,926 16,726
Other expense 50,361 102,055 77,336 70,276
Net income from operations 17,239 30,747 23,685 23,085
Period-end Balances
Total assets $3,215,408 $3,206,830 $2,349,807 $2,157,048
Loans and leases,
net of unearned income 2,246,107 2,230,970 1,537,646 1,373,763
Investment securities 675,893 682,376 632,442 590,958
Deposits 2,703,001 2,652,816 1,974,893 1,813,919
Long-term debt 131,658 140,621 49,314 58,301
Shareholders' equity 293,455 288,802 225,886 226,443
- -------------------
</TABLE>
-25-
<PAGE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
Susquehanna Pro Forma with FBC Only
The following tables set forth unaudited pro forma selected data for
Susquehanna which gives effect to the FBC Merger. The pro forma selected data is
not necessarily indicative of the results that would have been achieved had such
transactions been consummated on such dates and should not be construed as
representative of future operations. This presentation is subject to the
assumptions set forth in the notes to the Unaudited Pro Forma Financial
Statements and the Susquehanna Pro Forma Schedules appearing elsewhere in this
Proxy Statement/Prospectus. The information presented should be read in
conjunction with such pro forma financial statements and schedules, and the
notes thereto, and the historical consolidated financial statements, including
the notes thereto, of Susquehanna and FBC incorporated by reference or appearing
elsewhere in this Proxy Statement/Prospectus.
Pro Forma Earnings and Balance Sheet Data
(Dollars in thousands)
<TABLE>
<CAPTION>
At or for the Six At or for the Year Ended
Months Ended December 31,
June 30, ------------------------------
1996 1995 1994 1993
-------------- ---- ---- ----
Earnings Data
<S> <C> <C> <C> <C>
Net interest income $ 65,727 $129,770 $97,711 $90,363
Provision for loan and lease losses 2,911 5,094 4,087 5,205
Other income 11,360 19,538 15,299 16,124
Other expense 48,544 99,082 74,854 68,054
Net income from operations 17,173 30,874 23,970 23,328
Period-end Balances
Total assets $3,096,594 $3,133,760 $2,311,994 $2,129,402
Loans and leases,
net of unearned income 2,170,977 2,170,223 1,503,052 1,342,602
Investment securities 642,239 670,796 631,179 593,039
Deposits 2,591,351 2,581,763 1,937,701 1,786,518
Long-term debt 126,658 140,621 49,314 58,301
Shareholders' equity 293,239 288,377 225,983 226,799
- -------------------
</TABLE>
-26-
<PAGE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
Susquehanna Pro Forma with Both AI and FBC
The following tables set forth unaudited pro forma selected data for
Susquehanna which gives effect to the AI Merger and the FBC Merger. The pro
forma selected data is not necessarily indicative of the results that would have
been achieved had such transactions been consummated on such dates and should
not be construed as representative of future operations. This presentation is
subject to the assumptions set forth in the notes to the Unaudited Pro Forma
Financial Statements and the Susquehanna Pro Forma Schedules appearing elsewhere
in this Proxy Statement/Prospectus. The information presented should be read in
conjunction with such pro forma financial statements and schedules, and the
notes thereto, and the historical consolidated financial statements, including
the notes thereto, of Susquehanna, AI and FBC incorporated by reference or
appearing elsewhere in this Proxy Statement/Prospectus.
Pro Forma Earnings and Balance Sheet Data
(Dollars in thousands)
<TABLE>
<CAPTION>
At or for the Six At or for the Year Ended
Months Ended December 31,
June 30, ------------------------------
1996 1995 1994 1993
-------------- ---- ---- ----
Earnings Data
<S> <C> <C> <C> <C>
Net interest income $69,420 $135,679 $102,914 $95,152
Provision for loan and lease losses 2,954 5,209 4,247 5,280
Other income 11,673 20,347 16,127 17,034
Other expense 51,475 104,271 79,480 72,326
Net income from operations 17,922 31,928 24,827 24,231
Period-end Balances
Total assets $3,300,807 $3,291,535 $2,430,392 $2,234,456
Loans and leases,
net of unearned income 2,286,731 2,267,819 1,574,512 1,406,458
Investment securities 712,771 721,133 665,625 621,034
Deposits 2,777,719 2,727,057 2,046,264 1,882,630
Long-term debt 131,658 140,621 49,314 58,301
Shareholders' equity 303,691 298,845 234,765 234,814
- -------------------
</TABLE>
-27-
<PAGE>
Pro Forma Key Financial Ratios and Other Data
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
-----------------
Pro Forma Key Financial Ratios and Other Data
<S> <C>
Return on average assets 1.12 %
Return on average equity 12.01%
Average shareholders' equity to average assets ratio 9.36%
Noninterest income to average assets 0.73%
Noninterest expense to average assets 3.23%
Nonperforming loans to total loans 1.47%
Nonperforming assets to total assets 1.19%
Average interest-earning assets to average interest-bearing liabilities 117.42%
Allowance for loan and lease losses to nonperforming loans 102.17%
Net interest income to noninterest expense 134.86%
Net interest income after provision for loan and lease losses to noninterest expense 129.12%
- -------------------
</TABLE>
-28-
<PAGE>
THE AI MEETING
General
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the AI Board of Directors to be used at the AI
Meeting which will be held at the offices of AI at 8000 Sagemore Drive, Marlton,
New Jersey on Wednesday, December 18, 1996 at 6:00 p.m .
At the AI Meeting, holders of record of AI Common Stock as of the AI Record
Date will consider and vote upon the approval of the AI Merger Agreement. In
addition, shareholders of AI may consider and vote upon the approval of the
adjournment of the AI Meeting, in the event there are not sufficient votes cast
in person or by proxy at the AI Meeting to constitute a quorum or to approve the
AI Merger Agreement, and such other matters as may properly come before the AI
Meeting or any adjournments thereof.
Pursuant to the AI Merger Agreement, AI will become a wholly-owned subsidiary of
Susquehanna by means of a merger of SBI Merger Sub with and into AI. Thereupon,
ENB will become a wholly owned second tier subsidiary of Susquehanna. Upon the
consummation of the AI Merger, each AI shareholder will receive in exchange for
each share of AI Common Stock, the number of shares of Susquehanna Common Stock
set forth in the AI Merger Agreement, so long as the average closing price per
share of Susquehanna Common Stock for a ten business day period ending two days
before the closing of the AI Merger is between $25.00 and $31.00, together with
a cash payment in lieu of any fractional share of Susquehanna Common Stock which
the AI shareholder would otherwise be entitled to receive. If the average price
per share of Susquehanna Common Stock before closing is less than $25.00, AI has
the right to terminate the AI Merger Agreement. If the average price per share
of Susquehanna Common Stock before closing is more than $31.00, Susquehanna has
the right to terminate the AI Merger Agreement. The average price per share of
Susquehanna Common Stock before closing will be determined by adding the price
at which Susquehanna Common Stock is reported to have closed by The Nasdaq Stock
Market over a period of ten business days ending on the second business day
preceding the date set for the AI Closing, and dividing such total by ten. If
the AI Merger had been closed on the date of this Proxy Statement/Prospectus,
each share of AI Common Stock would have been converted into the right to
receive 1.0 share of Susquehanna Common Stock. Additionally, if the AI Merger is
not consummated by March 31, 1997 but is subsequently consummated, then AI's
shareholders will receive an additional 5,000 shares of Susquehanna Common
Stock. The last reported sale price of Susquehanna Common Stock on The Nasdaq
Stock Market on November 1, 1996 was $29.00 per share. Consummation of the AI
Merger is conditioned upon, among other things, the approval of the AI Merger
Agreement by the requisite vote of AI's shareholders.
Voting, Revocation and Solicitation of Proxies
The presence, in person or by proxy, of at least a majority of the total
number of shares of the AI Common Stock outstanding and entitled to vote on the
AI Record Date, November 8, 1996, will be required to
constitute a quorum at the AI Meeting. Shareholders who execute proxies retain
the right to revoke them at any time. Unless so revoked, the shares represented
by such proxies will be voted at the AI Meeting and all adjournments thereof.
Proxies may be revoked by written notice to the Secretary of AI, the filing of a
later dated proxy prior to a vote being taken on a particular proposal at the AI
Meeting or by attendance at the AI Meeting and voting in person. A written
notice revoking a previously executed proxy should be sent to Atcorp, Inc.,
Sagemore Corporate Center, Route 73 and Marlton Parkway, Marlton, New Jersey
08053 -- Attention: Secretary.
Proxies solicited by the AI Board of Directors will be voted in accordance
with the directions given therein. Where no instructions are indicated, proxies
will be voted in favor of each of the proposals set forth in this Proxy
Statement/Prospectus for consideration at the AI Meeting. The proxy confers
discretionary authority on the persons named therein to vote with respect to
matters incident to the conduct of the AI Meeting. If any other business is
presented at the AI Meeting, proxies will be voted by those named therein in
their best judgment. Proxies marked as abstentions will not be counted as votes
cast. In addition, shares held in street name which have been designated by
-29-
<PAGE>
brokers on proxy cards as not voted will not be counted as votes cast. Proxies
marked as abstentions or as broker no-votes, however, will be treated as shares
present for purposes of determining whether a quorum is present.
The cost of soliciting proxies will be borne by AI. AI will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of
AI Common Stock. In addition to solicitations by mail, Directors, officers and
regular employees of AI may solicit proxies personally or by telegraph or
telephone without additional compensation.
Voting Securities and Security Ownership
Holders of record of AI Common Stock as of the close of business on the AI
Record Date are entitled to one vote for each share then held. As of that date,
there were 771,750 shares of AI Common Stock issued and outstanding, and there
were approximately 311 shareholders of record.
The following table sets forth information as of the AI Record Date: (i)
with respect to any person who was believed by AI to be the beneficial owner of
more than five percent of the outstanding AI Common Stock; and (ii) as to AI
Common Stock beneficially owned by each Director of AI, each executive officer
of AI and all Directors and executive officers of AI as a group.
<TABLE>
<CAPTION>
Percent of Shares
Position Number of Shares of Capital Stock
Name with AI Beneficially Owned(1) Outstanding
---- -------- --------------------- ------------
<S> <C> <C> <C>
Frank J. Bartolone(2) Director 33,236 4.31%
Stewart A. Collins(3) Director, Executive Officer 4,978 0.65
Walter F. Crossley Director 69,343 8.99
Bonnie J. DeLorenzo(4) Executive Officer 4,259 0.55
A. R. DeMarco Enterprises Profit
Sharing Trust 5% Beneficial Owneer 43,563 5.64
Jerold D. Gerstein Director 9,533 1.24
Dorothy S. Hannaway Director 3,057 0.40
Warren H. Hannaway Director 2,905 0.38
L&S Rest Home Employees Retirement
Plan Trust Pliner Designated Fund(5) 5% Beneficial Owner 163,821 21.23
Donald A. Morano Director 36,129 4.68
Michael M. Quick Director, Executive Officer 1,700 0.22
William E. Reifsteck Director 20,130 2.61
Marc L. Reitzes(6) Director, Executive Officer 33,085 4.29
M. Zev Rose Director 11,660 1.51
Stephen D. Samost Director 8,571 1.11
Jonathan D. Weiner Director 18,042 2.34
Michael J. Wimmer(7) Director 28,584 3.70
All Directors and executive officers
as a group (15 persons) 281,217 36.44%
- ----------------------
</TABLE>
(1) A person is deemed to be the beneficial owner of securities if he has
or shares voting power (which includes the power to vote, or to direct
the voting of such securities) or investment power (which includes the
power to dispose, or to direct the disposition, of such securities). A
person is also deemed to be the beneficial owner of any securities of
which he has the power to acquire beneficial ownership within 60 days.
Under these rules, more than one person may be deemed the beneficial
owner of the same securities. The information set forth in the table
above includes all shares of Common Stock of AI over which the above-
named persons,
-30-
<PAGE>
individually or together, share voting power or investment power,
adjusted, however, to eliminate the reporting of shares more than once
in order not to overstate the aggregate beneficial ownership of such
persons.
(2) Includes 6,821 shares owned by members of Mr. Bartolone's immediate
family and 788 shares owned by Bartolone & Snyder, PA, of which Mr.
Bartolone is a principal owner.
(3) Includes 3,995 shares owned jointly with Bonnie J. DeLorenzo, an
executive officer of AI, who is Mr. Collins' wife.
(4) Includes 3,995 shares owned jointly with Stewart Collins, a director
and executive officer of AI, who is Ms. DeLorenzo's husband.
(5) Does not include any shares held by beneficiaries of the trust, the
address of each of which is 401 Jackson Road, Atco, New Jersey 08004.
Beneficiaries of the trust include the following individuals, whose
direct stock ownership when aggregated with the shares owned by the
trust which are attributable to their respective accounts is as
follows:
<TABLE>
<CAPTION>
Shares Owned If
Aggregated with
Shares Owned The Trust
Number/Percent Number/Percent
-------------- ---------------
<S> <C> <C>
Ilene Pliner Armato 8,737/1.13% 35,418/4.59%
Victoria Pliner Kravitz 7,336/0.95% 52,223/6.77%
Gerald Pliner 17,577/2.28% 101,007/13.09%
Judith Pliner 1,282/0.17% 10,105/1.32%
</TABLE>
Such individuals, who are related, disclaim beneficial ownership of
shares owned by each other, as well as the shares owned by the trust
not attributable to their respective accounts. See "Business of AI-
Litigation" for a description of restrictions on the voting of certain
of these shares.
(6) Includes 9,812 shares owned by members of Mr. Reitzes' immediate
family.
(7) Includes 22,647 shares registered to Hann & Co., of which Mr. Wimmer is
a principal owner.
Other Matters
The AI Board of Directors is not aware of any business to come before
the AI Meeting other than those matters described in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the AI Meeting, it is intended that proxies in the accompanying form will be
voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies.
Shareholder Proposals for the AI Meeting
Due to the AI Merger, it is presently anticipated that no Annual
Meeting of Shareholders of AI will be held in 1996. In the event the AI Merger
is not consummated or is delayed, the shareholders of AI will be advised as to
the date of AI's 1996 Annual Meeting of Shareholders and as to the date by which
proposals of shareholders must be received by AI in order to be considered for
inclusion in AI's proxy statement for that meeting.
Auditors of AI
The auditors of AI is the firm of Arthur Andersen LLP ("Arthur
Andersen"), 1601 Market Street, Philadelphia, PA 19103. Representatives
of Arthur Andersen are expected to be at the AI Meeting to make a statement
and also to be available to respond to appropriate questions.
-31-
<PAGE>
THE FBC MEETING
General
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the FBC Board of Directors to be used at the FBC
Meeting which will be held at the Mullica Hill Grange Hall, 78 North Main
Street, Mullica Hill, New Jersey on Monday, December 16, 1996 at 10:00 a.m.
At the FBC Meeting, holders of record of FBC Common Stock as of the FBC
Record Date will consider and vote upon the approval of the FBC Merger Agreement
and the transactions described therein. In addition, shareholders of FBC may
consider and vote upon the approval of the adjournment of the FBC Meeting, in
the event there are not sufficient votes cast in person or by proxy at the FBC
Meeting to approve the FBC Merger Agreement, and such other matters as may
properly come before the FBC Meeting or any adjournments thereof.
Pursuant to the FBC Merger Agreement, FBC will become a wholly owned
subsidiary of Susquehanna by means of a merger of FBC with SBI Merger Sub II.
Thereupon, FNB will become a wholly owned second tier subsidiary of Susquehanna.
Upon the consummation of the FBC Merger, each shareholder will receive in
exchange for each share of FBC Common Stock, the number of shares of Susquehanna
Common Stock as set forth in the FBC Merger Agreement, so long as the average
closing price per share of Susquehanna Common Stock for a ten business day
period ending five days before the closing of the FBC Merger is between $25.00
and $31.00, together with a cash payment in lieu of any fractional share of
Susquehanna Common Stock which the shareholder would otherwise be entitled to
receive. If the average price per share of Susquehanna Common Stock before
closing is less than $25.00, FBC has the right to terminate the FBC Merger
Agreement. If the average price per share of Susquehanna Common Stock before
closing is more than $31.00, Susquehanna has the right to terminate the FBC
Merger Agreement. The average price per share of Susquehanna Common Stock before
closing will be determined by adding the price at which Susquehanna Common Stock
is reported to have closed by The Nasdaq Stock Market over the period of ten
business days ending the fifth day preceding the date set for the FBC Closing,
and dividing such total by ten. The last reported sale price of Susquehanna
Common Stock on The Nasdaq Stock Market on November 1, 1996 was $29.00 per
share. Consummation of the FBC Merger is conditioned upon, among other things,
the approval of the FBC Merger Agreement by the requisite vote of FBC's
shareholders.
Voting, Revocation and Solicitation of Proxies
The presence, in person or by proxy, of at least 151,801 of the total
number of shares of the FBC Common Stock outstanding on the FBC Record Date,
November 7, 1996, will be required to constitute a quorum at the FBC Meeting.
Shareholders who execute proxies retain the right to revoke them at any time.
Unless so revoked, the shares represented by such proxies will be voted at the
FBC Meeting and all adjournments thereof. Proxies may be revoked by written
notice to the Secretary of FBC, the filing of a later proxy prior to a vote
being taken on a particular proposal at the FBC Meeting or by attendance at the
FBC Meeting and voting in person however, attendance alone will not revoke a
Proxy. A written notice revoking a previously executed proxy should be sent to
Farmers Banc Corp., 114 North Main Street, Mullica Hill, New Jersey 08062 --
Attention: Secretary.
Proxies solicited by the FBC Board of Directors will be voted in accordance
with the directions given therein. Where no instructions are indicated, proxies
will be voted in favor of each of the other proposals set forth in this Proxy
Statement/Prospectus for consideration at the FBC Meeting. The proxy confers
discretionary authority on the persons named therein to vote with respect to
matters incident to the conduct of the FBC Meeting. If any other business is
presented at the FBC Meeting, proxies will be voted by those named therein in
their best judgment. Proxies marked as abstentions will not be counted as votes
cast. In addition, shares held in street name which have been designated by
brokers on proxy cards as not voted will not be counted as votes cast. Proxies
marked as abstentions or as broker no-votes, however, will be treated as shares
present for purposes of determining whether a quorum is present.
-32-
<PAGE>
The cost of soliciting proxies will be borne by FBC. FBC will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of
FBC Common Stock. In addition to solicitations by mail, Directors, officers and
regular employees of FBC may solicit proxies personally or by telegraph or
telephone without additional compensation.
Voting Securities and Security Ownership
Holders of record of FBC Common Stock as of the close of business on the
FBC Record Date are entitled to one vote for each share then held. As of that
date, there were 303,600 shares of FBC Common Stock issued and outstanding and
there were approximately 245 shareholders of record.
The following table sets forth information as of the FBC Record Date: (i)
with respect to any person who was believed by FBC to be the beneficial owner of
more than five percent of the outstanding FBC Common Stock; and (ii) as to FBC
Common Stock beneficially owned by each Director of FBC, each executive officer
of FBC and all Directors and executive officers of FBC as a group.
<TABLE>
<CAPTION>
Amount of FBC Percent of Shares
Common Stock of FBC Common
Position Beneficially Stock
Name With FBC Owned (1) Outstanding
---- -------- ------- -----------------
<S> <C> <C> <C>
Warren H. Carr 5% Shareholder 16,919 5.57%
William H. White (7) 5% Shareholder 16,368 5.39%
Jane M. Callahan/
Thomas C. Holtzhauser (2) 5% Shareholder 16,221 5.34%
Joseph H. Doble (5) President and 9,500 3.13%
Director
Edward G. Wozniak Director 1,200 0.40%
Heinz A. Hoefers (6) Director 8,377 2.76%
J. Olin Shelmire (3) Director 6,113 2.01%
Santo John Maccherone (4) Director 3,987 1.31%
Allen C. Eastlack (8) Director 8,859 2.92%
Richard M. Stuart (9) Executive 851 .28%
Vice President
All Directors and executive
officers as a group (8 persons) 55,255 18.20%
</TABLE>
(1) The information in this table is based on information furnished by the
respective shareholders. Shares are deemed to be beneficially owned by a
person if he or she directly or indirectly has or shares the power to vote
or dispose of the shares, whether or not he or she has any economic
interest in such shares. Unless otherwise indicated, the named beneficial
owner has sole voting and dispositive power with respect to the shares.
(2) Includes 14,358 shares registered "Thomas E. Holtzhauser, Trust FBO
Jane M. Callahan/Thomas C. Holtzhauser, TRUW", 749 shares registered to
Thomas C. Holtzhauser, 764 shares registered to Jane M. Callahan, 100
shares registered to Joseph T. Callahan, Jane M. Callahan Guardian and 250
shares registered to Molly E. Callahan, Jane Callahan Guardian. Jane M.
Callahan and Thomas C. Holtzhauser are sister and brother.
-33-
<PAGE>
(3) Includes 3,883 shares jointly owned with Elaine M. Shelmire and 291 shares
owned by Mr. Shelmire's immediate family.
(4) Includes 1,980 shares registered in name of "John M. Maccherone" who is
deceased, Santo John Maccherone, Executor.
(5) Includes 8,000 shares owned by a member of Mr. Doble's immediate family.
(6) Includes 3,720 shares owned by a member of Mr. Huefer's immediate family.
(7) Includes 6,444 shares owned by a member of Mr. White's immediate family.
(8) Includes 890 shares owned by members of Mr. Eastlack's immediate family.
(9) Includes 706 shares owned by members of Mr. Stuart's immediate family.
Other Matters
The FBC Board of Directors is not aware of any business to come before the
FBC Meeting other than those matters described in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the FBC Meeting, it is intended that proxies in the accompanying form will be
voted in respect thereof in accordance with the judgment of the person or
persons voting the proxies.
Auditors of FBC
The auditors of FBC are the members of the firm Petroni and Associates
located at 21 West High Street, Glassboro, New Jersey 08028. Representatives of
this firm are expected to be available at the FBC Meeting to make a statement
and to be available to respond to appropriate questions.
-34-
<PAGE>
APPROVAL OF THE AI MERGER
The following description of the AI Merger is not intended to be a complete
description of all material facts regarding the AI Merger and is qualified in
all respects by reference to the AI Merger Agreement and the fairness opinions
attached hereto as Appendices C , E and F. AI shareholders are urged to read
carefully the AI Merger Agreement and the fairness opinions. For a summary
description of the AI Merger, see "SUMMARY - The AI Merger."
Background of the AI Merger
During the period from January 1995 to March 1996, the AI Board of
Directors held discussions regarding the capital needs of AI and ENB and the
various alternatives available to them, including an equity offering or the
possibility of a merger or acquisition transaction with another bank or bank
holding company. As a result of these discussions, AI developed and adopted a
strategic plan which subsequently evolved into a capital plan involving the
possibility of an equity offering. Management of AI then consulted with a number
of financial advisors, including JMS regarding a possible equity offering. In
March 1996, AI received an unsolicited proposal from a thrift holding company to
acquire all of the outstanding stock of AI for cash (the "Original Proposal").
Following receipt of the Original Proposal, the AI Board of Directors met to
consider the proposal and to formulate an appropriate response. The AI Board of
Directors discussed the Original Proposal and determined that, while it favored
further exploration of the Original Proposal, the AI Board of Directors believed
that the value of AI and ENB exceeded the purchase price offered. A special
committee of the AI Board of Directors (the "Committee"), was then appointed and
authorized by the AI Board of Directors to pursue the Original Proposal.
In March and April 1996, members of the Committee met with representatives
of the potential acquiror, which subsequently submitted a revised proposal to
acquire the outstanding stock of AI for cash at a higher price per share than
that set forth in the Original Proposal (the "Revised Proposal"). Upon receipt
of the Revised Proposal, the AI Board of Directors met again and discussed the
increase in the purchase price offered. The AI Board of Directors elected to
continue discussions with this potential acquiror, but determined that AI would
not enter into a transaction with such potential acquiror unless the purchase
price were based upon AI's book value as of a date shortly prior to the closing
of the transaction. The terms were conveyed to the potential acquiror in early
May in a letter from the Chairman of AI. In response, the potential acquiror
rejected AI's proposal, but agreed to pay a price per share in excess of that
contained in the Revised Proposal (the "Modified Revised Proposal").
On May 15, 1996, the AI Board of Directors met again to consider the
Modified Revised Proposal. The AI Board of Directors discussed various issues
regarding the Modified Revised Proposal, including the increased purchase price,
the potential acquiror's request to conduct a due diligence investigation of AI
and ENB, the timing of a definitive agreement and related matters. The AI Board
of Directors voted to continue discussions with the potential acquiror and to
request that the parties enter into a confidentiality and standstill agreement
prior to any due diligence investigation. The AI Board of Directors also decided
to obtain the assistance of a financial advisor in assessing the reasonableness
of the purchase price set forth in the Modified Revised Proposal and the
advisability of entering into a transaction of this nature on these terms.
Following the May 15, 1996 meeting, the management of AI negotiated and
entered into a confidentiality agreement with the potential acquiror, which then
conducted its due diligence investigation of AI and ENB. In early June 1996,
counsel for the potential acquiror submitted a draft acquisition agreement to
AI's counsel for review and comment. Also in June 1996, AI requested that
Berwind assist it in assessing the reasonableness of the Modified Revised
Proposal. Berwind advised AI of the possibility that other financial
institutions might be interested in a transaction with AI, and that one or more
of these financial institutions might be willing to exchange shares of its stock
for the outstanding common stock of AI in a tax-free reorganization. AI's
executive officers requested that Berwind arrange meetings between AI management
and representatives of certain potential acquirors. In addition, because Berwind
would be entitled to a transaction fee if AI entered into a merger transaction
with a potential acquiror identified by Berwind, AI engaged both JMS and Berwind
to render financial advisory services to AI in connection with a possible
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acquisition transaction. Berwind and JMS each agreed, in connection with
their engagement, to render an opinion as to the fairness of the
consideration to be received by AI's shareholders in any acquisition
transaction entered into by AI.
Throughout the second half of June 1996, Berwind provided AI with the
requested information and arranged meetings between AI management and
representatives of two financial institutions. As a result, AI received
proposals from these two financial institutions (one of which was Susquehanna),
each of which proposed to acquire AI in a stock-for-stock, tax-free
reorganization. On June 28, 1996, Susquehanna submitted a letter outlining its
interest in a possible transaction which provided for the issuance of shares of
Susquehanna Common Stock in exchange for all of the issued and outstanding AI
Common Stock, with the exchange ratio based upon the market price of Susquehanna
Common Stock prior to closing of the transaction. Berwind and JMS each prepared
an analysis of the three proposals received by AI, including the Modified
Revised Proposal and the Susquehanna proposal, for a meeting of the AI Board of
Directors on June 28, 1996.
At the June 28 meeting, the AI Board of Directors, with the assistance of
Berwind and JMS, reviewed AI's and certain comparable companies' recent results
of operations and trading statistics, potential strategic acquirors of AI,
recent financial institution acquisitions, selected valuations of AI and each of
the potential acquirors and projected returns. The AI Board of Directors
determined that the Susquehanna proposal was the most attractive and would be in
the best interests of AI and its shareholders, ENB's employees and customers and
the communities served by ENB. The AI Board of Directors authorized the
Committee and Berwind to continue to discuss with Susquehanna the terms of its
proposed transaction and to negotiate a definitive acquisition agreement,
subject to AI Board of Directors approval.
At various meetings and in conversations held during the first half of July
between and among representatives of AI, Berwind and Susquehanna, the parties
discussed, among other things, specific provisions and mechanics of the
Susquehanna proposal and negotiated the terms of the AI Merger Agreement.
The AI Board of Directors met again on July 16, 1996 to discuss the draft
AI Merger Agreement, copies of which were distributed to the AI Board of
Directors in advance of the meeting. In evaluating the proposed AI Merger and
the consideration to be received by AI's shareholders, the AI Board of Directors
considered several factors. See "Reasons for the AI Merger and recommendation of
the Board of Directors of AI." At the July 16 meeting, the oral opinions of JMS
and Berwind, as more fully described under the heading "Opinions of Financial
Advisors," were provided. These oral opinions were to the effect that the AI
Merger Consideration to be received by AI's shareholders was fair to the
Company's shareholders from a financial point of view as of July 16, 1996 and on
July 18, 1996 a written opinion was issued. See "The AI Merger --Opinions of
Financial Advisors."
The AI Board of Directors approved the AI Merger Agreement on July 16,
1996, with such changes thereto as the management of AI could negotiate with
representatives of Susquehanna based on the AI Board of Directors's discussion
at the July 16 meeting, and recommended that the shareholders vote for the
approval of the AI Merger Agreement. The AI Merger Agreement was executed by the
parties on July 18, 1996 and later that day press releases announcing the
transaction were issued by AI and Susquehanna.
Reasons for the AI Merger and Recommendation of the Board of Directors of AI
In evaluating the AI Merger Agreement, the AI Board of Directors considered
a variety of factors, including: (i) the consideration being offered to AI's
shareholders in relation to the market value, book value, tangible book value,
earnings per share and projected earnings per share of AI; (ii) the historical
results of operations, current financial condition and future prospects of
Susquehanna and AI; and (iii) the presentations by JMS and Berwind, AI's
financial advisors, as to the fairness of the AI Merger Consideration, from a
financial point of view, to AI's shareholders. In this regard, the AI Board of
Directors has received from Berwind and JMS written opinions dated July 17 and
July 18, 1996, respectively, and updated as of the date of the Proxy
Statement/Prospectus that, as of such dates, the AI Merger Consideration is fair
to AI's shareholders from a financial point of view. (The updated opinions are
attached as Appendix E and F hereto; for a summary of the presentations of
Berwind and JMS, see "Opinions of Financial Advisors" below.) Other factors
considered by the AI Board of Directors included: (A) the competitive
environment for financial
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institutions generally; (B) the compatibility of the respective business
management philosophies of AI and Susquehanna; (C) the ability of Susquehanna to
provide comprehensive financial services to the markets currently served by ENB;
(D) the projected social, legal and economic effects of the AI Merger upon AI,
its shareholders and other corporate constituencies, including employees,
suppliers and customers in the communities in which it does business; (E) the
financial terms of other recent business combinations in the local financial
services industry; (F) the fact that the consideration to be received in the AI
Merger by AI's shareholders reflects a premium over the values at which AI
Common Stock has traded in the market; and (G) the fact that Susquehanna, as a
larger financial institution company, has the financial resources to serve the
lending and deposit needs of the local communities served by AI. The AI Board of
Directors determined, in light of the above factors and such other factors as it
considered appropriate, that the terms of the AI Merger are fair to, and in the
best interests of, AI and its shareholders.
THE BOARD OF DIRECTORS OF AI BELIEVES THAT THE AI MERGER IS IN THE BEST
INTERESTS OF AI'S SHAREHOLDERS AND RECOMMENDS THAT AI'S SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE AI MERGER AGREEMENT.
Vote Required
The affirmative vote of holders of sixty-six and two-thirds percent
(66 2/3%) of the outstanding shares of AI Common Stock entitled to vote at the
AI Meeting is required to approve the AI Merger Agreement. AI's directors and
executive officers are expected to vote substantially all of the 281,217 shares
held by them, representing 36.44% of the AI Common Stock outstanding at the
Record Date and entitled to vote at the AI Meeting, "FOR" approval of the AI
Merger Agreement.
Opinions of Financial Advisors
Berwind
-------
AI retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the AI Merger. Berwind rendered its opinion
to the AI Board of Directors that, based upon and subject to the various
considerations set forth therein, as of July 17, 1996 (the "Berwind AI July
Opinion"), and as of the date of this Proxy Statement/Prospectus (the "Berwind
AI Proxy Opinion"), the consideration to be received in the AI Merger is fair,
from a financial point of view, to the holders of AI Common Stock.
The full text of the Berwind AI Proxy Opinion, which sets forth the
assumptions made, matters considered and limitations of the review undertaken,
is attached as Appendix E to this Proxy Statement/Prospectus, is incorporated
herein by reference, and should be read in its entirety in connection with this
Proxy Statement/Prospectus. The summary of the opinion of Berwind set forth
herein is qualified in its entirety by reference to the full text of such
opinion attached as Appendix E to this Proxy Statement/Prospectus.
Berwind was selected to act as AI's financial advisor in connection with
the AI Merger based upon its qualifications, expertise and experience. Berwind
has knowledge of, and experience with, New Jersey and surrounding banking
markets as well as banking organizations operating in those markets and was
selected by AI because of its knowledge of, experience with, and reputation in
the financial services industry. Berwind, as part of its investment banking
business, is engaged regularly in the valuation of assets, securities and
companies in connection with various types of asset and security transactions,
including mergers, acquisitions, private placements, and valuations for various
other purposes and in the determination of adequate consideration in such
transactions.
On July 16, 1996, the AI Board of Directors approved the AI Merger
Agreement. Prior to such approval, Berwind delivered the Berwind AI July Opinion
to the AI Board of Directors stating that, as of such date, the consideration to
be received in the AI Merger was fair to the shareholders of AI from a financial
point of view. Berwind reached the same opinion as of the date of the Berwind AI
Proxy Opinion. The full text of the Berwind AI Proxy Opinion which sets forth
assumptions made, matters considered and limits on the review undertaken is
attached as
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Appendix E to this Proxy Statement/Prospectus. No limitations were imposed by
the AI Board of Directors upon Berwind with respect to the investigations made
or procedures followed by Berwind in rendering the Berwind AI July Opinion or
the Berwind AI Proxy Opinion.
In rendering the Berwind AI Proxy Opinion, Berwind: (i) reviewed the
historical financial performances, current financial positions and general
prospects of AI and Susquehanna; (ii) reviewed the AI Merger Agreement; (iii)
reviewed and analyzed the stock market performance of AI and Susquehanna; (iv)
studied and analyzed the consolidated financial and operating data of AI and
Susquehanna; (v) considered the terms and conditions of the proposed AI Merger
as compared with the terms and conditions of comparable bank mergers and
acquisitions; (vi) met and/or communicated with certain members of AI's and
Susquehanna's senior management to discuss their respective operations,
historical financial statements, and future prospects; (vii) reviewed this Proxy
Statement/Prospectus; and (viii) conducted such other financial analyses,
studies and investigations as Berwind deemed appropriate.
In delivering the Berwind AI July Opinion and the Berwind AI Proxy Opinion,
Berwind assumed that in the course of obtaining the necessary regulatory and
governmental approvals for the AI Merger, no restriction will be imposed on
Susquehanna that would have a material adverse effect on the contemplated
benefits of the AI Merger. Berwind also assumed that there would not occur any
change in applicable law or regulation that would cause a material adverse
change in the prospects or operations of Susquehanna after the AI Merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to AI's financial
forecasts reviewed by Berwind in rendering its opinion, Berwind assumed that
such financial forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of AI as to the
future financial performance of AI. Berwind did not make an independent
evaluation or appraisal of the assets (including loans) or liabilities of AI or
Susquehanna nor was it furnished with any such appraisal. Berwind also did not
independently verify and has relied on and assumed that all allowances for loan
and lease losses set forth in the balance sheets of AI and Susquehanna were
adequate and complied fully with applicable law, regulatory policy and sound
banking practice as of the date of such financial statements.
The following is a summary of selected analyses prepared by Berwind and
presented to the AI Board of Directors in connection with the Berwind AI July
Opinion and analyzed by Berwind in connection with the Berwind AI July Opinion
and the Berwind AI Proxy Opinion. In connection with delivering the Berwind AI
Proxy Opinion, Berwind updated certain analyses described above to reflect
current market conditions and events occurring since the date of the Berwind AI
July Opinion. Such reviews and updates led Berwind to conclude that it was not
necessary to change the conclusions it had reached in connection with rendering
the Berwind AI July Opinion.
Comparable Companies and Comparable Acquisition Transaction Analyses
Berwind compared selected financial and operating data for AI with
those of a peer group of selected banks and bank holding companies with assets
between $100 million and $350 million, as of the most recent financial period
publicly available, located in New Jersey. Financial data and operating ratios
compared in the analysis of the AI peer group included but was not limited to:
return on average assets, return on average equity, shareholders' equity to
assets ratio and certain asset quality ratios.
Berwind also compared selected financial, operating and stock market
data for Susquehanna with those of a peer group of selected commercial banks
with assets between $2 billion and $6 billion, as of the most recent period
publicly available, located in Delaware, Maryland, New Jersey and Pennsylvania.
Financial, operating and stock market data, ratios and multiples compared in the
analysis of the Susquehanna peer group included but were not limited to: return
on average assets, return on average equity, shareholders' equity to asset
ratios, certain asset ratios, price to book value, price to tangible book value,
price to earnings (latest twelve months) and dividend yield.
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Berwind also compared the multiples of book value, tangible book value
and latest twelve months' earnings inherent to the AI Merger with the multiples
paid in recent acquisitions of banks and bank holding companies that Berwind
deemed comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced during the twelve month period
ended as of the date of its fairness opinion, in which the selling institution's
assets were between $100 million and $350 million as of the most recent period
publicly available prior to announcement of the transaction. No company or
transaction, however, used in this analysis is identical to AI, Susquehanna or
the AI Merger. Accordingly, an analysis of the result of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that would affect the public trading values of the
companies or company to which they are being compared.
Discounted Dividend Analyses
Using discounted dividend analyses, Berwind estimated the present value
of the future dividend streams that AI could produce over a five year period
under various earnings growth assumptions. Berwind also estimated the terminal
value for AI's Common Stock after the five year period by applying a range of
earnings multiples to AI's terminal year earnings. The range of multiples used
reflected a variety of scenarios regarding the growth and profitability
prospects of AI. The dividend streams and terminal values were then discounted
to present value using discount rates, reflecting different assumptions
regarding the rates of return required by holders or prospective buyers of AI
Common Stock.
Pro Forma Contribution Analysis
Berwind analyzed the changes in the amount of earnings, book value and
dividends represented by one share of AI Common Stock prior to the AI Merger and
the number of shares of Susquehanna Common Stock after the AI Merger resulting
from the AI Exchange Ratio. The analysis considered, among other things, the
changes that the AI Merger would cause to AI's earnings per share, book value
per share, tangible book value per share and indicated dividends. In reviewing
the pro forma combined earnings, equity and assets of Susquehanna based on the
AI Merger, Berwind analyzed the contribution that AI would have made to the
combined company's earnings, equity and assets as of and for the period ended
September 30, 1996. Berwind also reviewed the percentage ownership that AI
shareholders would hold in the combined company.
In connection with rendering the Berwind AI July Opinion and the
Berwind AI Proxy Opinion, Berwind performed a variety of financial analyses.
Although the evaluation of the fairness, from a financial point of view, of the
consideration to be paid in the AI Merger was to some extent a subjective one
based on the experience and judgment of Berwind and not merely the result of
mathematical analysis of financial data, Berwind principally relied on the
previously discussed financial valuation methodologies in its determinations.
Berwind believes its analyses must be considered as a whole and that selecting
portions of such analyses and factors considered by Berwind without considering
all such analyses and factors could create an incomplete view of the process
underlying Berwind's opinion. In its analysis, Berwind made numerous assumptions
with respect to business, market, monetary and economic conditions, industry
performance and other matters, many of which are beyond AI's and Susquehanna's
control. Any estimates contained in Berwind's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates.
In reaching its opinion as to fairness, none of the analyses performed
by Berwind was assigned a greater or lesser weighting by Berwind than any other
analysis. As a result of its consideration of the aggregate of all factors
present and analyses performed, Berwind reached the conclusion, and opined, that
the consideration to be received in the AI Merger as set forth in the AI Merger
Agreement, is fair from a financial point of view to AI and its shareholders.
The Berwind AI Proxy Opinion was based solely upon the information
available to it and the economic, market and other circumstances as they existed
as of the date the Berwind AI Proxy Opinion was delivered;
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events occurring after the date of the Berwind AI Proxy Opinion could materially
affect the assumptions used in preparing the Berwind AI Proxy Opinion. Berwind
has not undertaken to reaffirm and revise the Berwind AI Proxy Opinion or
otherwise comment upon any events occurring after the date thereof.
Pursuant to the terms of the engagement letter dated July 13, 1996, AI
has agreed to pay Berwind a fee equal to 1% of the total value of the AI Merger
transaction (approximately $210,000) for acting as financial advisor in
connection with the AI Merger, including delivering the Berwind AI July Opinion
and the Berwind AI Proxy Opinion. To date, AI has paid Berwind $25,000 and has
agreed to pay the remainder upon the consummation of the AI Merger. AI will also
reimburse Berwind for its reasonable out-of-pocket expenses. Whether or not the
AI Merger is consummated, AI has also agreed to indemnify Berwind and certain
related persons against certain liabilities relating to or arising out of its
engagement.
The full text of the Berwind AI Proxy Opinion dated as of the date of
this Proxy Statement/Prospectus, which sets forth assumptions made and matters
considered, is attached hereto as Appendix E. AI's shareholders are urged to
read the Berwind AI Proxy Opinion in its entirety. The Berwind AI Proxy Opinion
is directed only to the consideration to be received by AI's shareholders in the
AI Merger and does not constitute a recommendation to any holder of AI Common
Stock as to how such holder should vote at the AI Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE BERWIND AI PROXY OPINION AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION,
WHICH IS SET FORTH IN APPENDIX E TO THIS PROXY STATEMENT/PROSPECTUS.
JMS
---
AI has retained JMS to render a fairness opinion in connection with the AI
Merger. JMS has rendered opinions that, based upon and subject to the various
considerations set forth therein, as of July 18, 1996, and as of the date of
this Proxy Statement/Prospectus, the AI Merger is fair, from a financial point
of view, to the holders of AI's securities.
The full text of JMS' opinion updated as of the date of this Proxy
Statement/Prospectus, which sets forth the assumptions made, matters considered
and limitations of the review undertaken, is attached as Appendix F to this
Proxy Statement/Prospectus, is incorporated herein by reference, and should be
read in its entirety in connection with this Proxy Statement/Prospectus. The
summary of the opinion of JMS set forth herein is qualified in its entirety by
reference to the full text of such opinion attached as Appendix F to this Proxy
Statement/Prospectus. JMS' opinion is directed to the Board of Directors of AI
and addresses only the AI Exchange Ratio.
JMS was selected to render an opinion based upon its qualifications,
expertise and experience. JMS has knowledge of, and experience with,
Pennsylvania and New Jersey banking markets and banking organizations operating
in those markets and was selected by AI because of its knowledge of, experience
with, and reputation in the financial services industry.
In the ordinary course of business, JMS makes a market in Susquehanna
common stock and, accordingly, may actively trade securities of Susquehanna for
its own account and for the accounts of its customers. At any time and from time
to time JMS may hold a short or long position in such securities.
JMS did not participate in the negotiations with respect to the pricing and
other terms of the AI Merger, and the decision with respect to the AI Exchange
Ratio was determined by the Board in the process of its negotiations with
Susquehanna. On July 16, 1996, the Board of Directors of AI approved and on July
18, 1996, AI and ENB executed the AI Merger Agreement. JMS delivered a written
opinion (the "Preliminary Opinion") to the Board stating that, as of July 18,
1996, the consideration to be received by holders of AI's securities is fair
from a financial point of view. JMS reached the same opinion as of the date of
this Proxy Statement/Prospectus. The full text of the opinion of JMS dated as of
the date of this Proxy Statement/Prospectus, which sets forth assumptions made,
matters considered and limits on the review undertaken (the "Proxy Opinion"), is
attached as Appendix F to this Proxy Statement/Prospectus.
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No limitations were imposed by the Board of Directors of AI upon JMS with
respect to the investigations made or procedures followed by JMS in rendering
the Preliminary Opinion or the Proxy Opinion.
In rendering its Proxy Opinion, JMS: (i) reviewed the historical financial
performances, current financial positions and general prospects of AI and
Susquehanna, (ii) reviewed the AI Merger Agreement, (iii) reviewed the Proxy
Statement/Prospectus, (iv) reviewed and analyzed the stock market performance of
AI and Susquehanna, (v) studied and analyzed the consolidated financial and
operating data of AI and Susquehanna, (vi) considered the terms and conditions
of the proposed AI Merger between AI and Susquehanna as compared with the terms
and conditions of comparable bank AI Mergers and acquisitions, (vii) met with
certain members of Susquehanna's senior management to discuss their operations,
historical financial statements, and future prospects, and (viii) conducted such
other financial analyses, studies and investigations as were deemed appropriate.
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 opinion. With respect to AI's financial
forecasts reviewed by JMS in rendering its opinion, JMS assumed that such
financial forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of AI as to the
future financial performance of AI and Susquehanna. JMS did not make an
independent evaluation or appraisal of the assets (including loans) or
liabilities of AI or Susquehanna 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 AI and
Susquehanna were adequate and complied fully with applicable law, regulatory
policy and sound banking practice as of the date of such financial statements.
In connection with rendering its Preliminary Opinion and Proxy Opinion, JMS
performed a variety of financial analyses. Although the evaluation of the
fairness, from a financial point of view, of the AI Exchange Ratio to be paid in
the AI Merger was to some extent a subjective one based on the experience and
judgment of JMS and not merely the result of mathematical analysis of financial
data, JMS principally relied on the financial valuation methodologies summarized
below in its determinations. JMS believes its analyses must be considered as a
whole and that selecting portions of such analyses and factors considered by JMS
without considering all such analyses and factors could create an incomplete
view of the process underlying JMS' opinion. In its analysis, JMS made numerous
assumptions with respect to business, market, monetary and economic conditions,
industry performance and other matters, many of which are beyond AI's and
Susquehanna's control. Any estimates contained in JMS' analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
The following is a summary of selected analyses prepared by JMS and
analyzed by JMS in connection with the Preliminary and Proxy Opinions.
Comparable Company Analysis.
JMS compared selected financial and operating data for AI with those of
a peer group of selected banks and bank holding companies with assets between
$100 million and $300 million as of the most recent financial period publicly
available and for the past five fiscal reporting periods, located in Maryland,
New Jersey and Pennsylvania.
Financial, operating and stock market data, ratios and multiples
compared in the analysis of the AI peer group included but were not limited to:
return on average assets, return on average equity, shareholders equity to asset
ratios, certain asset quality ratios, net interest margins, efficiency ratios,
price to book value, price to tangible book value, price to earnings (latest
twelve months) and dividend yield.
In addition, JMS also compared selected financial and operating data
for Susquehanna with those of a peer group of selected banks and bank holding
companies with assets between $1.7 billion and $10 billion as of the most recent
financial period publicly available and for the past five fiscal reporting
periods, located in Maryland, New Jersey and Pennsylvania.
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Financial, operating and stock market data, ratios and multiples
compared in the analysis of the Susquehanna peer group included but were not
limited to: return on average assets, return on average equity, shareholders
equity to asset ratios, certain asset quality ratios, net interest margins,
efficiency ratios, price to book value, price to tangible book value, price to
earnings (latest twelve months) and dividend yield.
Analysis of Selected Merger and Acquisition Transactions.
JMS analyzed certain financial aspects of selected mergers and
acquisitions of banks and bank holding companies with assets between $100
million and $300 million which were announced after June 1, 1995, and compared
the multiples of book value, tangible book value and latest twelve months'
earnings for the AI Merger with the multiples paid in the subject transactions.
JMS examined valuation multiples from three classifications of the data. The
first classification was the valuation multiples resulting from all transactions
meeting the previously described parameters ("National"), the second
classification considered the same parameters except it only considered those
transactions announced in Maryland, New Jersey and Pennsylvania ("Regional") and
the third classification reviewed transactions where the sellers had equity as a
percentage of assets of less than 8.0%, a return on average equity of greater
than 10.0% and nonperforming assets as a percentage of assets less than 2.0%
("Performance"). However, no company or transaction used in any of the analyses
is identical to AI and Susquehanna. Accordingly, an analysis of the results of
the foregoing is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating characteristics
of the companies and other factors that would affect the public trading values
of the companies or company to which they are being compared.
Discounted Dividend Analyses.
Using discounted dividend analyses, JMS estimated the present value of
the future dividend streams that AI could produce on a stand alone basis over a
five year period under different assumptions, if AI performed in accordance with
various earnings growth forecasts. JMS also estimated the terminal value for AI
Common Stock after the five year period by applying a range of earnings
multiples from 10 to 14 times AI's terminal year earnings. The range of
multiples used reflected a variety of scenarios regarding the growth and
profitability prospects of AI. The dividend streams and terminal values were
then discounted to present value using discount rates ranging from 12% to 17%,
reflecting different assumptions regarding the rates of return required by
holders or prospective buyers of AI Common Stock.
Pro Forma Merger Analysis.
JMS analyzed, based on information provided by AI and Susquehanna,
certain pro forma effects resulting from the AI Merger based on the proposed AI
Exchange Ratio and additionally considered the potential financial impact of
Susquehanna's proposed acquisition of Farmers Banc Corp. The analysis examined
the impact on earnings (including management's estimate of transaction related
savings) to Susquehanna and the impact to tangible book value per share to
Susquehanna for the most recent financial reporting period available.
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 reaches the conclusion, and opines, that the AI Exchange Ratio,
as set forth in the AI Merger Agreement is fair, from a financial point of view,
to holders of AI's securities.
In connection with delivering its Proxy Opinion, JMS updated certain of
its analyses and reviewed the assumptions on which such analyses were based and
the factors considered therewith.
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 securities transactions, including mergers, acquisitions,
private placements, and valuation for various other purposes and in the
determination of adequate consideration in such transactions.
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JMS' Proxy Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing its Proxy Opinion. JMS has not undertaken to
reaffirm and revise its Proxy Opinion or otherwise comment upon any events
occurring after the date hereof.
In delivering its Preliminary Opinion and Proxy Opinion, JMS assumed
that in the course of obtaining the necessary regulatory and governmental
approvals for the AI Merger, no restrictions will be imposed on AI or
Susquehanna that would have a material adverse effect on the contemplated
benefits of the AI Merger. JMS also assumed that there would not occur any
change in applicable law or regulation that would cause a material adverse
change in the prospects or operations of Susquehanna after the AI Merger.
Pursuant to the terms of the engagement letter dated July 16, 1996, AI
paid JMS a retainer of $25,000 and an additional $25,000 upon the issuance of
its Preliminary Opinion in connection with the AI Merger. In addition, AI has
also agreed to pay JMS $25,000 upon the consummation of the AI Merger and to
reimburse JMS for its reasonable out-of-pocket expenses. Whether or not the AI
Merger is consummated, AI has agreed to indemnify JMS and certain related
persons against certain liabilities relating to or arising out of its
engagement.
The full text of the Proxy Opinion of JMS as of the date of this Proxy
Statement/Prospectus, which sets forth assumptions made and matters considered,
is attached hereto as Appendix F to this Proxy Statement/Prospectus. AI's
shareholders are urged to read the Proxy Opinion in its entirety. JMS' Proxy
Opinion is directed only to the consideration to be received by AI shareholders
in the AI Merger and does not constitute a recommendation to any holder of AI's
securities as to how such security holder should vote at the Special Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF JMS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION, WHICH
IS SET FORTH AS APPENDIX F TO THIS PROXY STATEMENT/PROSPECTUS.
No Dissenters' Rights for AI
The New Jersey Business Corporation Act, as amended ("NJBCA"), provides
that shareholders of a New Jersey corporation which is a party to a merger will
not have dissenters' rights if the shareholders will receive securities, in
exchange for those held by such shareholder, which either are listed on a
national securities exchange or held of record by not less than 1,000 holders.
Susquehanna Common Stock is held by more than 4,000 persons. Susquehanna Common
Stock is designated as a national market system security on The Nasdaq Stock
Market.
Terms of the AI Merger
The description of the AI Merger Agreement set forth below does not purport
to be complete and is qualified in its entirety by reference to the AI Merger
Agreement, a copy of which is attached as Appendix C to this Proxy
Statement/Prospectus and incorporated by reference herein. Shareholders are
urged to read carefully the AI Merger Agreement.
Effect of the AI Merger
Pursuant to the AI Merger Agreement, SBI Merger Sub will merge with and
into AI, with AI as the surviving entity, and becoming a direct wholly-owned
subsidiary of Susquehanna. ENB, a national bank, will become a second-tier
subsidiary of Susquehanna. The name of the AI Surviving Corporation will be
"Susquehanna Bancshares East, Inc."
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Exchange Ratio
Pursuant to the AI Merger Agreement, the outstanding shares of AI
Common Stock will be exchanged for shares of Susquehanna Common Stock according
to the AI Exchange Ratio set forth in the AI Merger Agreement. This number may
be adjusted subject to conditions set forth in the AI Merger Agreement.
The number of shares of Susquehanna Common Stock to be issued to
holders of AI Common Stock will be as set forth in the AI Exchange Ratio based
upon the average price per share of Susquehanna Common Stock over a ten day
trading period ending two days prior to the closing of the AI Merger. In
general, 771,750 shares of Susquehanna Common Stock will be exchanged for the AI
Common Stock; however, if the average closing price over such period is less
than $25.00, AI will have the right to terminate the AI Merger Agreement, and if
the average closing price over such period is greater than $31.00, Susquehanna
will have the right to terminate the AI Merger Agreement. Additionally, both AI
and Susquehanna will have the right to terminate the AI Merger Agreement if the
AI Merger is not consummated by March 31, 1997; if the AI Merger Agreement is
extended by mutual agreement of the parties, then AI's shareholders will receive
an additional 5,000 shares of Susquehanna Common Stock.
As of the AI Merger Effective Date, each share of AI Common Stock held
by Susquehanna (other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) and all shares of AI Common Stock
owned by AI as treasury stock will be canceled, and no exchange or payment will
be made with respect thereto.
The shares of common stock of SBI Merger Sub and ENB issued and
outstanding immediately prior to the AI Merger Effective Date shall remain
outstanding and unchanged after the AI Merger, and shall thereafter constitute
all of the issued and outstanding shares of the capital stock of the AI
Surviving Corporation and ENB, respectively. At such time, all of the capital
stock of ENB will be owned by the AI Surviving Corporation and all of the shares
of the AI Surviving Corporation will be owned by Susquehanna.
If prior to the AI Merger Effective Date, the outstanding shares of
Susquehanna Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities through a
reclassification, stock dividend, stock split or reverse stock split, or other
similar change, appropriate adjustment will be made to the AI Exchange Ratio.
Fractional Shares
No fractional shares of Susquehanna Common Stock will be issued.
Susquehanna will furnish to any holder of AI Common Stock otherwise entitled to
a fractional share a check for an amount of cash equal to such fraction of a
share of Susquehanna Common Stock multiplied by the average closing price per
share as determined in accordance with the AI Merger Agreement.
Representations and Warranties
The representations and warranties of Susquehanna, SBI Merger Sub, AI
and ENB are set forth in Article III of the AI Merger Agreement. The
representations and warranties relate, among other things, to representations as
to corporate existence and authority and the ability of each party to carry out
the transactions as described in the AI Merger Agreement. AI and ENB have made
additional representations as to the non-existence of any contract which would
be breached by the AI Merger; the accuracy and completeness of financial
statements and filings with federal or state regulatory agencies, including
state and federal tax filings; the absence of any material contracts and certain
other contracts not otherwise disclosed; the absence of litigation not otherwise
disclosed; the absence of regulatory actions not otherwise disclosed; the
absence of undisclosed liabilities; labor and employee benefits matters; the
adequacy of its allowances for possible loan losses; the condition of its
tangible assets; assurances as to its loan portfolio, on an adjusted basis; its
compliance with applicable state and federal laws on matters material to its
operations; and environmental matters. Susquehanna has made additional
representations as to the ownership by Susquehanna of all of the issued and
outstanding shares of its material subsidiaries; the accuracy and completeness
of
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published financial statements, filings with the Commission and other federal or
state regulatory agencies, and all employee benefit plans; the non-existence of
any contract which would be breached by the AI Merger Agreement; the
truthfulness and completeness of all filings made by Susquehanna with the
Commission in connection with the AI Merger Agreement and the transactions
contemplated by it except for information relating to AI or ENB; the good
standing and adequate capitalization of SBI Merger Sub; its compliance with
applicable state and federal laws on matters material to its operations; the
absence of regulatory actions; the absence of litigation not otherwise
disclosed; the absence of undisclosed liabilities; and environmental matters. On
the AI Merger Effective Date, Susquehanna, AI and ENB must each present to the
other certificates evidencing the continued accuracy of the representations and
warranties.
Covenants
The AI Merger Agreement also contains certain affirmative and negative
covenants of all of the parties. AI has agreed that: (i) it shall direct and use
its best efforts to cause its officers, Directors, employees, agents and
representatives not to initiate, solicit or encourage inquiries regarding the
making of any merger proposal or any proposal to purchase any significant
portion of the assets or equity securities of AI or ENB and, subject to the
fiduciary obligations of its Directors, it will not engage in any negotiations
or discussions or provide any confidential information in connection with any
such proposal; (ii) it will cooperate with Susquehanna in the preparation of
this Proxy Statement/Prospectus and the filing thereof as part of Susquehanna's
Registration Statement on Form S-4; (iii) it will take all required action to
call the AI Meeting; (iv) subject to the fiduciary duties of the AI Board of
Directors and the receipt of updated fairness opinions as of the date of this
Proxy Statement/Prospectus, it will use its best efforts to obtain approval of
the AI Merger Agreement; and (v) it will furnish to Susquehanna a list of all
persons known to be affiliates of AI within the meaning of Rule 145 under the
Securities Act and will use its best efforts to cause any such person to deliver
a written agreement providing that such person will not sell, pledge, transfer
or otherwise dispose of the shares of Susquehanna Common Stock received pursuant
to the AI Merger except in compliance with the Securities Act and the rules and
regulations thereunder and after such time as financial results covering at
least 30 days of post-merger combined operations have been published.
During the period prior to the effectiveness of the AI Merger, AI and
ENB are required to provide Susquehanna and its representatives with reasonable
access to their respective books, records, employees, properties and such other
information as Susquehanna may reasonably request and to provide Susquehanna
with copies of their respective financial statements periodically.
Susquehanna is required to provide AI and ENB with copies of all of its
filings with the Commission pursuant to the Exchange Act, together with
applications filed with regulatory authorities and certain other information.
Conduct of Business Pending the AI Merger
AI, ENB, Susquehanna and SBI Merger Sub have all agreed to cooperate
with each other in completing the transactions described in the AI Merger
Agreement and to refrain from taking or making any commitment to take any
actions that would cause any of the representations or warranties of each party
as set forth in the AI Merger Agreement not to be true or correct in all
material respects.
Pursuant to the AI Merger Agreement, AI and ENB have each agreed to
carry on their business in the usual, regular and ordinary course of business,
consistent with past practices and to maintain and preserve intact their
respective business organizations, assets, leases, properties, advantageous
business relationships and other items and to use their reasonable efforts to
retain the services of their officers and key employees and to refrain from
taking any action which, to their knowledge, could materially delay or adversely
affect AI or ENB in general or their ability to obtain any approvals, consents
or waivers of any governmental authorities necessary for the consummation of the
AI Merger.
In addition, during the period pending the AI Merger, AI and ENB have
each agreed to refrain from doing any of the following, other than in the
ordinary course of business or with the prior written consent of
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Susquehanna: (i) making any loan or advance or incurring or guaranteeing any
indebtedness; (ii) adjusting, splitting, combining or reclassifying any capital
stock; (iii) making any distribution or dividend; (iv) redeeming, purchasing or
otherwise acquiring any shares of its capital stock or any securities
convertible into shares of its capital stock or granting any stock appreciation
rights; (v) selling or issuing any shares of its capital stock or any right to
acquire any shares of its capital stock; (vi) other than in the ordinary course
of business consistent with past practice and pursuant to policies, if any,
currently in effect, selling, transferring, mortgaging, encumbering or otherwise
disposing of any of its properties, leasehold interests or assets or canceling,
releasing or assigning any indebtedness, contracts or agreements in force as of
the date of the AI Merger Agreement; (vii) increasing in any manner the
compensation or fringe benefits of any of its employees in excess of 4 %, on an
aggregated basis, in any 12 month period; (viii) paying any pension or
retirement allowance not required by law or an existing plan or agreement or
becoming party to, amending or committing itself to any pension, retirement,
profit-sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any employee or Director; (ix) voluntarily accelerating
the vesting of any stock options or other benefit; (x) amending its charter or
certificate of incorporation, as the case may be, or its bylaws except as
expressly contemplated by the AI Merger Agreement or as required by law and, in
each case, as concurred in by its counsel; (xi) except as previously disclosed
to Susquehanna or required by changes in generally accepted accounting
principles, law or regulation and concurred in by its independent auditors,
changing its method of accounting from that in effect as of December 31, 1995;
or (xii) permitting or allowing its direct or indirect ownership of the capital
stock of any subsidiary existing as of the date of the AI Merger Agreement to be
less than 100% of its total capital stock.
Susquehanna has also agreed that it will not knowingly take any action
or knowingly cause its material subsidiaries to take any action which would
materially adversely affect or delay its ability to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
transactions described in the AI Merger Agreement or that is reasonably likely
to have a material adverse effect on Susquehanna, on a consolidated basis.
Conditions Precedent
In addition to shareholder approval by AI shareholders, the AI Merger
is contingent upon the satisfaction of a number of conditions, including, among
others: (i) all required approvals, consents, or waivers, including without
limitation, approval by the Federal Reserve Board and the New Jersey Department
of Banking shall have been obtained and shall remain in full force and effect,
except those approvals for which failure to obtain would not individually or in
the aggregate have a material adverse effect on Susquehanna, AI or ENB and all
applicable statutory waiting periods shall have expired; (ii) the absence of any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the AI Merger and the transactions
described in the AI Merger Agreement, and the absence of any litigation or
proceeding pending against any of the parties or their subsidiaries by any
governmental agency seeking to prevent consummation of the transactions
described in the AI Merger Agreement; (iii) no enactment, promulgation or
enforcement of any statute, rule, regulation, order, injunction or decree by any
governmental authority which prohibits, restricts or makes illegal consummation
of the AI Merger; (iv) all litigation which would have a material adverse effect
on AI's consolidated operations, shall have been concluded on terms satisfactory
to Susquehanna, AI and ENB; (v) the shares of Susquehanna Common Stock to be
issued in the AI Merger shall have been authorized to be listed on The Nasdaq
Stock Market; (vi) a ruling from the Internal Revenue Service, or an opinion of
counsel to Susquehanna, shall have been received with respect to certain tax
matters; (vii) AI shall have received an updated opinion from each of Berwind
and JMS, dated as of the date of this Proxy Statement/Prospectus, to the effect
that the AI Merger Consideration is fair to AI's shareholders from a financial
point of view; (viii) the AI Merger shall meet the requirements for pooling of
interests accounting treatment as evidenced by a letter from Coopers & Lybrand
L.L.P., independent accountants to Susquehanna; (ix) Susquehanna shall have
received a letter from the independent accountants to AI concerning the results
of the performance of certain agreed-upon procedures involving the financial
affairs and condition or AI; and (x) there shall not have occurred any change in
the financial condition, properties, assets, business or results of operation of
AI or ENB, on the one hand, or Susquehanna, on the other hand, which has had or
might reasonably be expected to result in a material adverse effect on the party
sustaining such change.
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Waiver; Amendment
Prior to the AI Merger Effective Date, any provision of the AI Merger
Agreement may be: (i) waived by the party benefitted by the provision; or (ii)
amended or modified at any time (including the structure of the transaction) by
an agreement in writing between the parties approved by their respective Boards
of Directors, except that no amendment or waiver may be made that would change
the form or the amount of the AI Merger Consideration or otherwise have the
effect of prejudicing the AI shareholders' interest in the AI Merger
Consideration following the AI Meeting.
Closing; Effective Date; Termination
The AI Merger Agreement provides that the AI Closing will occur on such
date, following three business days notice to AI, as shall be agreed upon by all
parties, which date shall not be later than the 22nd business day after: (i) the
last approval of required governmental authorities is granted and any related
waiting periods expire; (ii) the lifting, discharge or dismissal of any stay of
any such governmental approval or of any injunction against the transactions
described in the AI Merger Agreement; and (iii) all shareholder approvals
required by the parties have been received. Immediately following the AI
Closing, and provided the AI Merger Agreement has not been terminated or
abandoned in accordance with the terms thereof, AI and SBI Merger Sub will cause
a certificate of merger to be properly prepared and completed and filed with the
Secretary of State of New Jersey. The AI Merger, and the transactions described
in the AI Merger Agreement , will become effective at 12:01 a.m. on the day
following the day on which the certificate of merger has been duly filed with
and accepted by the Secretary of State of New Jersey. The presentation of the
certificate for acceptance and filing is subject to the rights of the
Susquehanna Board of Directors and the AI Board of Directors to terminate the AI
Merger Agreement under certain circumstances.
The AI Merger Agreement provides that, whether before or after its
approval by the shareholders of AI, it may be terminated and the transactions
contemplated in the AI Merger Agreement abandoned at any time prior to the AI
Merger Effective Date: (i) by mutual consent of Susquehanna and AI, if the Board
of Directors of each so determines by majority vote of the members of the entire
Board; (ii) by AI in the event (a) of a material breach by Susquehanna of any
representation, warranty, covenant or agreement contained in the AI Merger
Agreement which is not cured or not curable within 30 days after written notice
of such breach is given to Susquehanna by AI, or (b) by written notice to
Susquehanna that any condition precedent to AI's obligations as set forth in the
AI Merger Agreement, Article V, has not been met or waived by AI at such time as
such condition can no longer be satisfied, or (c) the AI Board of Directors
fails to make, withdraws or modifies or changes its favorable recommendation to
the shareholders or (d) the AI Board of Directors recommends to the shareholders
of AI that an Acquisition Proposal (as defined in the AI Merger Agreement) is
likely to be more favorable, from a financial point of view, to the shareholders
of AI than the AI Merger; (iii) by Susquehanna in the event (a) of a material
breach by AI or ENB of any representation, warranty, covenant or agreement
contained in the AI Merger Agreement which is not cured or not curable within 30
days after written notice of such breach is given to AI by Susquehanna, or (b)
that any condition precedent to Susquehanna's obligations as set forth in
Article V of the AI Merger Agreement has not been met or waived by Susquehanna
at such time as such condition can no longer be satisfied; (iv) by AI, by giving
written notice of such election to Susquehanna within two business days
following a determination that the average closing price per share of
Susquehanna Common Stock before closing is less than $25.00 per share at the
time such calculation is required to be made pursuant to the AI Merger
Agreement; (v) by Susquehanna, if Susquehanna chooses to give written notice of
such election within two business days following a determination that the
average closing price per share of Susquehanna Common Stock before closing is
greater than $31.00 per share at the time such calculation is required to be
made pursuant to the AI Merger Agreement; or (vi) by Susquehanna or AI if the AI
Merger is not consummated by March 31, 1997, unless the failure to so consummate
by such time is due to the breach of any representation, warranty or covenant
contained in the AI Merger Agreement by the party seeking to terminate;
provided, however, that such date may be extended by the written agreement of
the parties.
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Expenses
AI and Susquehanna have agreed to bear all expenses incurred by them in
connection with the AI Merger Agreement and the transactions described therein,
except Susquehanna has agreed to pay the government filing and other fees
(excluding income taxes) in connection with the consummation of such
transactions; provided, however, so long as Susquehanna shall not have breached
its obligations under the AI Merger Agreement, if the AI Merger Agreement is
terminated by AI because the AI Board of Directors recommends to the
shareholders of AI that an Acquisition Proposal is likely to be more favorable,
from a financial point of view, than the proposed AI Merger, or if the AI Board
of Directors fails to make, withdraws or modifies or changes its favorable
recommendation to AI's shareholders to approve the transactions described in the
AI Merger Agreement other than because of a material adverse change in
Susquehanna, then AI shall pay Susquehanna a fee of $500,000.
Exchange of Stock Certificates
At the AI Merger Effective Date, without any further action on the part
of holders of shares of AI Common Stock, each share of AI Common Stock that is
issued and outstanding as of the AI Merger Effective Date (other than shares
held directly or indirectly by Susquehanna, except for shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted) shall
automatically become and be converted into the right to receive shares of
Susquehanna Common Stock determined in conformity with the AI Exchange Ratio. As
of the AI Merger Effective Date any shares held directly or indirectly by
Susquehanna except in a fiduciary capacity or in satisfaction of a debt
previously contracted shall be canceled and retired and cease to exist and no
exchange or payment shall be made with respect thereto.
Within five business days after the AI Merger Effective Date,
Susquehanna shall cause to be sent to each person holding shares of AI Common
Stock transmittal materials and instructions for surrendering their certificates
for AI Common Stock in exchange for a certificate for the number of whole shares
of Susquehanna Common Stock to which such person is entitled along with a cash
payment equal to the value of any fractional share of Susquehanna Common Stock
to which the shareholder is entitled. If the record date of any dividend on
Susquehanna Common Stock occurs after the AI Merger Effective Date but prior to
the exchange of certificates, each former shareholder of AI shall be entitled to
receive, upon exchange of the stock certificates, an amount equal to all such
dividends paid with respect to the number of whole shares of Susquehanna Common
Stock received upon exchange of the certificates of AI Common Stock (without
interest) less any taxes which may have been imposed or paid thereon.
After the AI Merger Effective Date, there shall not be any more
transfers on the stock transfer books of AI of shares of AI Common Stock. To the
extent permitted by law, in the event that any certificates representing shares
of AI Common Stock have not been surrendered for exchange on or before the
second anniversary of the AI Merger Effective Date, Susquehanna may, at any time
thereafter, with or without notice to the holders of record of any such shares,
sell for the accounts of any and all such holders the shares of Susquehanna
Common Stock which such holders are entitled to receive. Any such sale may be a
public or private sale as Susquehanna shall determine. The net proceeds of any
such sale shall be held for holders of record of any unsurrendered certificates
to be paid to them upon surrender of such certificates for exchange. Such
holders will not be entitled to receive any interest on such net sale proceeds.
If outstanding certificates for shares of AI Common Stock are not surrendered
prior to the date on which such certificates would otherwise escheat to or
become the property of any governmental unit or agency, the unclaimed items
shall, to the extent permitted by law, become the property of Susquehanna, free
and clear of all claims or interest of any person previously entitled to such
items.
Regulatory Approvals of AI
Because the AI Merger involves the acquisition of a bank holding company
registered under the Bank Holding Company Act of 1956, as amended ("Holding
Company Act"), it is subject to the approval of the Federal Reserve Board under
the Holding Company Act. An application for approval of the acquisition of AI
will be submitted by Susquehanna to the Federal Reserve Bank of Philadelphia,
acting on delegated authority from the Federal Reserve
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Board, in November 1996. In reviewing the application, the Federal Reserve Board
considers the financial and managerial resources of Susquehanna and AI, the
effect of the transaction on competition in the markets served by Susquehanna
and AI, the convenience and needs of the public and, among other things,
Susquehanna's and AI's record of performance in helping to meet local credit
needs. There is no reason to believe that the application will not be approved
in the ordinary course.
The approval of the New Jersey Department of Banking under the New Jersey
Banking Act of 1948, as amended ("New Jersey Banking Act"), must also be
obtained before the AI Merger may be consummated. The New Jersey Banking Act
requires the New Jersey Department of Banking to consider factors similar to
those examined by the Federal Reserve Board. An application will be submitted to
the New Jersey Department of Banking in November 1996. There is no reason to
believe that the application will not be approved in the ordinary course.
The AI Merger cannot proceed in the absence of the requisite regulatory
approvals. Management of Susquehanna has no reason to believe that the required
approvals will not be obtained. To date, however, none of the required approvals
have been obtained in respect of the AI Merger, and there can be no assurance
that all such regulatory approvals will be obtained, and, if the AI Merger is
approved, there can be no assurance as to the date of any such approval. There
can also be no assurance that any such approvals will not contain a condition or
requirement which causes such approvals to fail to satisfy the conditions set
forth in the AI Merger Agreement. There can likewise be no assurance that the
U.S. Department of Justice or a state Attorney General will not challenge the AI
Merger or, if such challenge is made, as to the result thereof.
Interest of Certain Persons in the AI Merger
Certain members of AI's management and the AI Board may be deemed to have
interests in the AI Merger in addition to their interests, if any, as
shareholders of AI generally.
Employee Benefit Plans
Subsequent to the AI Merger, Susquehanna may, but is not obligated to
employ any or all individuals serving as officers or employees of AI or ENB
immediately prior to the AI Merger. Prior to accepting employment with
Susquehanna, however, any officer or employee who has an employment contract
with AI and/or ENB, will be required to cancel such contract without accepting
any of the severance or other benefits that may be payable thereunder as a
result of the AI Merger.
Each person who is employed by AI or ENB prior to the AI Merger
Effective Date and who remains an employee following the AI Merger Effective
Date will be entitled, as an employee of Susquehanna or a subsidiary of
Susquehanna, to participate in whatever employee benefit, stock option, bonus,
incentive or other fringe benefit plans or programs which are generally
available to employees of Susquehanna or its subsidiaries, if such employee is
eligible or selected for participation therein and is not otherwise
participating in a similar plan which continues to be maintained subsequent to
the AI Merger Effective Date. Each continued employee who becomes eligible for
participation in any Susquehanna plan will participate on the same basis as
similarly situated employees of Susquehanna or its subsidiaries and will receive
credit for past service with AI or ENB for purposes of eligibility and vesting,
but not benefit accrual, under Susquehanna's plans.
AI and ENB have agreed to take all action necessary to cease the
participation or accrual of benefits as of the AI Merger Effective Date by each
participant in any employee benefit plans of AI or ENB and to terminate such
plans, other than 401(k) plans unless otherwise instructed by Susquehanna. Upon
receipt of an IRS favorable plan determination letter confirming the tax
qualified status of the ENB 401(k) Profit Sharing Plan and the subsequent
termination of the plan, Susquehanna will allow each participant to either roll-
over his or her account balance to Susquehanna's 401(k) plan or receive a
distribution of his or her closing account balance. AI and ENB have further
agreed that, if the fair market value of the assets of any pension plan of AI or
ENB does not equal or exceed the present
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value of its benefits liabilities as of the date of its termination, AI or ENB
will make such additional contributions as are necessary to permit its
termination.
Management and Operations Following the AI Merger
Under the terms of the AI Merger Agreement, following the AI Merger, the AI
Board of Directors, as the Board of Directors of the corporation surviving the
AI Merger, will consist of persons appointed exclusively by Susquehanna but will
include one or more members of the AI Board of Directors, each of whom will
serve until his or her successor is elected and has qualified.
Accounting Treatment of the AI Merger
The AI Merger is intended to be treated as a pooling of interests for
accounting purposes in accordance with generally accepted accounting principles
and under the accounting rules of the Commission. As a condition to the
consummation of the AI Merger, Susquehanna is to receive a letter from its
independent certified public accountants, Coopers & Lybrand L.L.P., that the AI
Merger will be treated as a pooling of interests. In order to preserve the
intended accounting treatment of the AI Merger as a pooling of interests, the AI
Merger Agreement also requires as a condition to the obligations of Susquehanna
and SBI Merger Sub under the AI Merger Agreement that each person deemed to be
an "affiliate" of AI enter into an agreement not to sell shares of Susquehanna
Common Stock acquired in the AI Merger until financial results covering at least
30 days of post-AI Merger combined operations have been published.
Income Tax Consequences of the AI Merger
The following is a general discussion of the anticipated federal income tax
consequences of the AI Merger. Susquehanna and AI believe that for federal
income tax purposes: (i) the AI Merger will constitute a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and AI and Susquehanna will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by AI or Susquehanna by reason of the AI Merger; (iii) except for
cash received in lieu of fractional shares, no income, gain or loss generally
will be recognized by AI shareholders on the exchange of their shares of AI
Common Stock for shares of Susquehanna Common Stock; (iv) the basis of the
Susquehanna Common Stock to be received by the AI shareholders generally will
be, in each instance, the same as the basis of the AI Common Stock surrendered
in exchange therefor; (v) the holding period of the Susquehanna Common Stock to
be received by the shareholders of AI generally will include the period during
which the AI Common Stock surrendered in exchange therefor has been held,
provided that the AI Common Stock surrendered is held as a capital asset on the
date of the exchange pursuant to the AI Merger; and (vi) the payment of cash to
the AI shareholders in lieu of their fractional share interests of Susquehanna
Common Stock generally will be treated as having been received as a distribution
in full payment in exchange for the fractional share interest of Susquehanna
Common Stock which such shareholders would otherwise be entitled to receive and
will qualify as capital gain or loss.
The obligations of the parties to consummate the AI Merger are conditioned
upon receipt of a ruling from the Internal Revenue Service or an opinion of
counsel substantially to the effect that the federal income tax consequences of
the AI Merger are as summarized above. Unlike a ruling from the Internal Revenue
Service, an opinion of counsel would have no binding effect on the Internal
Revenue Service. Such ruling or opinion would not deal with all of the tax
considerations that may be relevant to particular AI shareholders, such as
shareholders who are dealers in securities, foreign persons, tax-exempt entities
or the impact of the alternative minimum tax. Such ruling or opinion would not
address any state, local or foreign tax considerations, any federal estate,
gift, employment, excise or other non-income tax considerations.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE AI MERGER, WITHOUT CONSIDERATION OF THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH AI SHAREHOLDER'S SITUATION.
EACH AI SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX ADVISORS AS
TO PARTICULAR FACTS AND
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CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH SHAREHOLDER AND NOT COMMON TO
SHAREHOLDERS AS A WHOLE AND ALSO AS TO ANY ESTATE, GIFT, STATE, LOCAL OR FOREIGN
TAX CONSEQUENCES ARISING OUT OF THE AI MERGER AND/OR ANY SALE OF SUSQUEHANNA
COMMON STOCK RECEIVED IN THE AI MERGER.
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APPROVAL OF THE FBC MERGER
The following description of the FBC Merger is not intended to be a
complete description of all material facts regarding the FBC Merger and is
qualified in all respects by reference to the FBC Merger Agreement and the
Fairness Opinion attached hereto as Appendices D and G. FBC shareholders
are urged to read carefully the FBC Merger Agreement and the Fairness
Opinion. For a summary description of the FBC Merger, see "SUMMARY -- The
FBC Merger."
Background of the FBC Merger
In the Winter of 1995/1996, the FBC Board of Directors concluded,
among other things, that increasing competition and costs and minimal
liquidity of FBC's Common Stock, as well as other factors, precluded FBC
from maximizing its shareholders' return through a strategy of internal
growth. The FBC Board of Directors therefore considered the relative
merits of maintaining the independence of FBC and of merging FBC with a
larger financial institution. The FBC Board also considered the
desirability of increasing the liquidity of the stock held by FBC's
shareholders by exchanging it for stock of a larger banking organization
that would be listed on the National Securities Exchange in a tax-free
transaction and/or exchanging the shares of FBC's Common Stock in an all-
cash FBC Merger in a taxable transaction. The FBC Board's primary
considerations in selecting an acquiror were to provide a fair financial
return to FBC's shareholders. As described below, FBC eventually selected
Susquehanna as its FBC Merger partner because of the superior consideration
offered.
In January 1996, FBC also retained Berwind to review strategic
alternatives, discuss its potential value and possibly seek an acquiror
which would provide a fair financial return to FBC's shareholders. FBC
selected Berwind because of its familiarity with the Philadelphia/South
Jersey banking market and because of Berwind's experience in evaluating
financial strategies and fundamental transactions for banking institutions.
In March 1996, the FBC Board instructed Berwind to explore courses of
action (including the sale of FBC) which would be in the best interests of
FBC's shareholders in connection with, among other considerations,
maximizing the value of the investment of FBC's shareholders. Berwind
presented to FBC's Board of Directors certain information Berwind had
assembled regarding potential FBC Merger partners, including Susquehanna.
In March 1996, Berwind assembled packages for potential FBC Merger
partners containing extensive information about FBC. Berwind contacted
twenty-two parties on a confidential and preliminary basis and, subject to
each potential FBC Merger partner executing a confidentiality agreement,
provided them with information about FBC. Twelve potential merger partners
executed confidentiality agreements with FBC, and during March and April
1996, Berwind met with and/or spoke to each of these potential FBC Merger
partners to discuss the potential acquisition of FBC. Certain of the
potential FBC Merger partners met with FBC management and/or requested
additional information on FBC.
On May 7, 1996, Berwind presented information regarding ten potential
acquirors to the Board. This information included expressions of interest
from ten potential acquirors, summary financial information concerning the
potential acquirors, their stock trading prices and volumes over the past
five years, certain pro forma financial information, the recent earnings
releases of the potential acquirors, and certain additional information.
The information also contained a comparison of the terms of the various
expressions of interest. Based upon the information presented, the FBC
Board requested that Berwind contact four of the parties which had
expressed an interest in FBC. During May, 1996, these four parties were
asked to revise their expressions of interest. Two potential FBC Merger
partners conducted a due diligence review of FBC. On June 12, 1996,
Berwind obtained a revised expression of interest from Susquehanna.
On June 24, Berwind presented the revised expressions of interest to
the FBC Board. Based on the fact that the consideration offered by
Susquehanna was in excess of that offered by any of the other potential
acquirors, the FBC
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Board of Directors determined that Susquehanna's offer was preferable, and
after discussion and upon motion duly made, the FBC Board agreed to enter
into negotiations for a definitive FBC Merger Agreement with Susquehanna.
Such negotiations were conducted by FBC and Susquehanna and their
representatives during the ensuing days.
At a Special Meeting of the FBC Board of Directors on July 15, 1996,
the FBC Merger Agreement was presented to the FBC Board of Directors.
Berwind also presented a form of its written fairness opinion stating that
the FBC Merger was fair to the shareholders of FBC from a financial point
of view. Berwind's opinion is more fully described in the section below
entitled "THE FBC MERGER -- Opinion of Financial Advisor." Believing it
desirable and in the best interests of FBC and its shareholders to merge
with and into Susquehanna in accordance with the terms of the FBC Merger
Agreement, the FBC Board of Directors, adopted by a majority vote of the
Directors present, the resolutions necessary to approve the FBC Merger with
Susquehanna. The FBC Merger Agreement was signed on July 18, 1996, and
both FBC and Susquehanna issued a joint press release the following day.
For the reasons set forth below in the section immediately following
this section of the Proxy Statement, the FBC Board of Directors has
concluded that the FBC Merger is in the best interests of FBC's
shareholders
Reasons for the FBC Merger and Recommendation of the FBC Board of
Directors
The FBC Board of Directors believes that the FBC Merger is in the best
interests of, and is fair to, the shareholders of FBC and recommends that
the shareholders vote FOR the approval and adoption of the FBC Merger
Agreement. For a description of the interests of certain directors and
certain officers of FBC in the FBC Merger which may present them with
certain potential conflicts of interest, see "THE FBC MERGER -- Interests
of Certain Persons in the FBC Merger."
The FBC Board of Directors believes that its shareholders will benefit
from the FBC Merger through their ownership of a more liquid stock, traded
on the Nasdaq National Market, of a banking company with more diversified
banking operations and substantially greater assets than FBC. The FBC
Board of Directors also believes that the FBC Merger with Susquehanna will
improve the overall operations of its former offices and strengthen its
competitive positions in its respective service areas. Susquehanna and FBC
anticipate that significant cost savings can be achieved through
centralization of functions and economies of scale, and that, after giving
effect to cost savings and revenue enhancements possible in connection with
the FBC Merger, the FBC Merger will be immediately accretive to earnings
per share for the combined institution. See "PRO FORMA COMBINED FINANCIAL
INFORMATION." As a part of Susquehanna, the former offices of FBC will
have the support of Susquehanna's greater resources and products, and
broader access to markets for capital and lendable funds.
In arriving at its recommendation, the members of the FBC Board of
Directors considered, among other things, the recent and historical market
prices of the Common Stock, the net book value of the Common Stock, the FBC
Board of Directors' knowledge of the business, operations, properties,
assets and earnings of FBC, as well as their assessment of the earnings
potential, and future value of FBC and the prices and premiums paid in
recent acquisitions of other companies in comparable businesses. Among the
factors considered in negotiating the financial terms of the FBC Merger
were the respective market prices, dividends and marketability of FBC
Common Stock on the one hand and Susquehanna Common Stock on the other
hand, the respective earnings, book value, statements of condition and
prospects of FBC and Susquehanna, and the values of Susquehanna and FBC
separately and as a combined enterprise. The FBC Board of Directors also
considered the tax-free nature of the FBC Merger to the shareholders of
FBC. Furthermore, the Board of Directors placed special importance on the
favorable opinion of Berwind as to the fairness, from a financial point of
view, of the consideration to be paid to the shareholders of FBC in the FBC
Merger. The FBC Board of Directors felt that the proposed FBC Merger,
including the stock considerations to be received by the shareholders of
FBC, was in the best interests of the shareholders of FBC.
The FBC Merger Agreement provides that subject to FBC's and the
members of the FBC Board of Directors' fiduciary duties as determined by
counsel for FBC, FBC agreed that it will not, directly or indirectly
through others, solicit any other person with respect to the purchase of
FBC's or any of its subsidiaries' business, assets or capital stock,
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or engage in or continue discussions with any other person or firm
concerning the purchase of such business, assets or stock, unless and until
the FBC Merger Agreement is terminated in accordance with its terms.
The FBC Board of Directors did not attach relative weights to the
factors they considered in reaching their decision but did place particular
emphasis upon the receipt of the opinion of Berwind and, considering all
factors discussed above, determined that the FBC Merger is in the best
interests of, and is fair to, all FBC shareholders.
THE FBC BOARD OF DIRECTORS BELIEVES THAT THE FBC MERGER IS IN THE BEST
INTEREST OF FBC'S SHAREHOLDERS AND RECOMMENDS THAT FBC'S SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE FBC MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
Vote Required
The affirmative vote of seventy percent (70%) of the [ ] outstanding
shares of FBC Common Stock entitled to vote at the FBC Meeting is required
to approve the FBC Merger Agreement and the transactions contemplated
thereby. Directors and executive officers are expected to vote
substantially all of the 55,255 shares held by them, representing 18.20% of
the FBC Common Stock outstanding at the FBC Record Date and entitled to
vote at the FBC Meeting, "FOR" approval of the FBC Merger Agreement and the
transactions contemplated thereby.
Opinion of Financial Advisor
FBC retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the FBC Merger. Berwind rendered its
opinion to the FBC Board of Directors that, based upon and subject to the
various considerations set forth therein, as of July 18, 1996 (the "Berwind
FBC July Opinion") and as of the date of this Proxy Statement/Prospectus
(the "Berwind FBC Proxy Opinion"), the consideration to be received in the
FBC Merger is fair, from a financial point of view, to the holders of FBC
Common Stock.
The full text of the Berwind FBC Proxy Opinion, which sets forth the
assumptions made, matters considered and limitations of the review
undertaken, is attached as Appendix G to this Proxy Statement/Prospectus,
is incorporated herein by reference, and should be read in its entirety in
connection with this Proxy Statement/Prospectus. The summary of the
opinion of Berwind set forth herein is qualified in its entirety by
reference to the full text of such opinion attached as Appendix G to this
Proxy Statement/Prospectus.
Berwind was selected to act as FBC's financial advisor in connection
with the FBC Merger based upon its qualifications, expertise and
experience. Berwind has knowledge of, and experience with, New Jersey and
surrounding banking markets as well as banking organizations operating in
those markets and was selected by FBC because of its knowledge of,
experience with, and reputation in the financial services industry.
Berwind, as part of its investment banking business, is engaged regularly
in the valuation of assets, securities and companies in connection with
various types of asset and security transactions, including mergers,
acquisitions, private placements, and valuations for various other purposes
and in the determination of adequate consideration in such transactions.
On July 18, 1996, the FBC Board of Directors executed the FBC Merger
Agreement. Prior to such approval, Berwind delivered the Berwind FBC July
Opinion to the FBC Board of Directors stating that, as of such date, the
consideration to be received in the FBC Merger was fair to the shareholders
of FBC from a financial point of view. Berwind reached the same opinion as
of the date of the Berwind FBC Proxy Opinion. The full text of the Berwind
FBC Proxy Opinion which sets forth assumptions made, matters considered and
limits on the review undertaken is attached as Appendix G to this Proxy
Statement/Prospectus. No limitations were imposed by the FBC Board of
Directors upon Berwind with respect to the investigations made or
procedures followed by Berwind in rendering the Berwind FBC July Opinion or
the Berwind FBC Proxy Opinion.
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In rendering the Berwind FBC Proxy Opinion, Berwind: (i) reviewed the
historical financial performances, current financial positions and general
prospects of FBC and Susquehanna; (ii) reviewed the FBC Merger Agreement;
(iii) reviewed and analyzed the stock market performance of FBC and
Susquehanna; (iv) studied and analyzed the consolidated financial and
operating data of FBC and Susquehanna; (v) considered the terms and
conditions of the proposed FBC Merger as compared with the terms and
conditions of comparable bank mergers and acquisitions; (vi) met and/or
communicated with certain members of FBC's and Susquehanna's senior
management to discuss their respective operations, historical financial
statements, and future prospects; (vii) reviewed this Proxy
Statement/Prospectus, and (viii) conducted such other financial analyses,
studies and investigations as Berwind deemed appropriate.
In delivering the Berwind FBC July Opinion and the Berwind FBC Proxy
Opinion, Berwind assumed that in the course of obtaining the necessary
regulatory and governmental approvals for the FBC Merger, no restriction
will be imposed on Susquehanna that would have a material adverse effect on
the contemplated benefits of the FBC Merger. Berwind also assumed that
there would not occur any change in applicable law or regulation that would
cause a material adverse change in the prospects or operations of
Susquehanna after the FBC Merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to FBC's
financial forecasts reviewed by Berwind in rendering its opinion, Berwind
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of FBC as to the future financial performance of FBC. Berwind
did not make an independent evaluation or appraisal of the assets
(including loans) or liabilities of FBC or Susquehanna nor was it furnished
with any such appraisal. Berwind also did not independently verify and has
relied on and assumed that all allowances for loan and lease losses set
forth in the balance sheets of FBC and Susquehanna were adequate and
complied fully with applicable law, regulatory policy and sound banking
practice as of the date of such financial statements.
The following is a summary of selected analyses prepared by Berwind
and presented to the FBC Board of Directors in connection with the Berwind
FBC July Opinion and analyzed by Berwind in connection with the Berwind FBC
July Opinion and the Berwind FBC Proxy Opinion. In connection with
delivering the Berwind FBC Proxy Opinion, Berwind updated certain analyses
described above to reflect current market conditions and events occurring
since the date of the Berwind FBC July Opinion. Such reviews and updates
led Berwind to conclude that it was not necessary to change the conclusions
it had reached in connection with rendering the Berwind FBC July Opinion.
Comparable Companies and Comparable Acquisition Transactions
Analyses
Berwind compared selected financial and operating data for FBC
with those of a peer group of selected banks with assets between $50
million and $110 million, as of the most recent financial period publicly
available, located in New Jersey. Financial data and operating ratios
compared in the analysis of the FBC peer group included but was not limited
to: return on average assets, return on average equity, shareholders'
equity to assets ratio and certain asset quality ratios.
Berwind also compared selected financial, operating and stock
market data for Susquehanna with those of a peer group of selected
commercial banks with assets between $2 billion and $6 billion, as of the
most recent period publicly available, located in Delaware, Maryland, New
Jersey and Pennsylvania. Financial, operating and stock market data,
ratios and multiples compared in the analysis of the Susquehanna peer group
included but were not limited to: return on average assets, return on
average equity, shareholders' equity to asset ratios, certain asset quality
ratios, price to book value, price to tangible book value, price to
earnings (latest twelve months) and dividend yield.
Berwind also compared the multiples of book value, tangible book
value and latest twelve months' earnings inherent to the FBC Merger with
the multiples paid in recent acquisitions of banks and bank holding
companies that Berwind deemed comparable. The transactions deemed
comparable by Berwind included both interstate and intrastate acquisitions
announced during the twelve month period ended as of the date of its
fairness opinions, in which
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the selling institution's assets were between $70 million and $105 million
as of the most recent period publicly available prior to the announcement
of the transaction. No company or transaction, however, used in this
analysis is identical to FBC, Susquehanna or the FBC Merger. Accordingly,
an analysis of the result of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that would affect the public trading values of the companies or company to
which they are being compared.
Discounted Dividend Analyses
Using discounted dividend analyses, Berwind estimated the present
value of the future dividend streams that FBC could produce over a five
year period under various earnings growth assumptions. Berwind also
estimated the terminal value for FBC Common Stock after the five year
period by applying a range of earnings multiples to FBC's terminal year
earnings. The range of multiples used reflected a variety of scenarios
regarding the growth and profitability prospects of FBC. The dividend
streams and terminal values were then discounted to present value using
discount rates, reflecting different assumptions regarding the rates of
return required by holders or prospective buyers of FBC Common Stock.
Pro Forma Contribution Analysis
Berwind analyzed the changes in the amount of earnings, book
value and dividends represented by one share of FBC Common Stock prior to
the FBC Merger and 2.281 shares of Susquehanna Common Stock after the FBC
Merger. The analysis considered, among other things, the changes that the
FBC Merger would cause to FBC's earnings per share, book value per share,
tangible book value per share and indicated dividends. In reviewing the pro
forma combined earnings, equity and assets of Susquehanna based on the FBC
Merger, Berwind analyzed the contribution that FBC would have made to the
combined company's earnings, equity and assets as of and for the period
ended [ ] September 30, 1996. Berwind also reviewed the percentage
ownership that FBC shareholders would hold in the combined company.
In connection with rendering the Berwind FBC July Opinion and
the Berwind FBC Proxy Opinion, Berwind performed a variety of financial
analyses. Although the evaluation of the fairness, from a financial point
of view, of the consideration to be paid in the FBC Merger was to some
extent a subjective one based on the experience and judgment of Berwind and
not merely the result of mathematical analysis of financial data, Berwind
principally relied on the previously discussed financial valuation
methodologies in its determinations. Berwind believes its analyses must be
considered as a whole and that selecting portions of such analyses and
factors considered by Berwind without considering all such analyses and
factors could create an incomplete view of the process underlying Berwind's
opinion. In its analysis, Berwind made numerous assumptions with respect to
business, market, monetary and economic conditions, industry performance
and other matters, many of which are beyond FBC's and Susquehanna's
control. Any estimates contained in Berwind's analyses are not necessarily
indicative of future results or values, which may be significantly more or
less favorable than such estimates.
In reaching its opinion as to fairness, none of the analyses
performed by Berwind was assigned a greater or lesser weighting by Berwind
than any other analysis. As a result of its consideration of the aggregate
of all factors present and analyses performed, Berwind reached the
conclusion, and opined, that the consideration to be received in the FBC
Merger as set forth in the FBC Merger Agreement, is fair from a financial
point of view to FBC and its shareholders.
The Berwind FBC Proxy Opinion was based solely upon the
information available to it and the economic, market and other
circumstances as they existed as of the date the Berwind FBC Proxy Opinion
was delivered; events occurring after the date of the Berwind FBC Proxy
Opinion could materially affect the assumptions used in preparing the
Berwind FBC Proxy Opinion. Berwind has not undertaken to reaffirm and
revise the Berwind FBC Proxy Opinion or otherwise comment upon any events
occurring after the date thereof.
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Pursuant to the terms of the engagement letter dated January 10,
1996, FBC has paid Berwind $32,500 for acting as financial advisor in
connection with the FBC Merger including delivering the Berwind FBC July
Opinion and the Berwind FBC Proxy Opinion. In addition, FBC has also
agreed to pay Berwind approximately $156,000 upon the consummation of the
FBC Merger and to reimburse Berwind for its reasonable out-of-pocket
expenses. Whether or not the FBC Merger is consummated, FBC has also
agreed to indemnify Berwind and certain related persons against certain
liabilities relating to or arising out of its engagement.
The full text of the Berwind FBC Proxy Opinion dated as of the
date of this Proxy Statement/Prospectus, which sets forth assumptions made
and matters considered, is attached hereto as Appendix G. FBC's
shareholders are urged to read the Berwind FBC Proxy Opinion in its
entirety. The Berwind FBC Proxy Opinion is directed only to the
consideration to be received by FBC's shareholders in the FBC Merger and
does not constitute a recommendation to any holder of FBC Common Stock as
to how such holder should vote at the FBC Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE BERWIND FBC PROXY
OPINION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THAT OPINION, WHICH IS SET FORTH IN APPENDIX G TO THIS PROXY
STATEMENT/PROSPECTUS.
No Dissenters' Rights for FBC
The NJBCA provides that shareholders of a New Jersey corporation which
is a party to a merger will not have dissenters' rights if the shareholders
will receive securities, in exchange for those held by such shareholder,
which either are listed on a national securities exchange or held of record
by not less than 1,000 holders. Susquehanna Common Stock is held by more
than 4,000 persons. Susquehanna Common Stock is designated as a national
market system security on The Nasdaq Stock Market.
Terms of the FBC Merger
The description of the FBC Merger Agreement set forth below does not
purport to be complete and is qualified in its entirety by reference to the
FBC Merger Agreement, a copy of which is attached as Appendix D to this FBC
Proxy Statement/Prospectus and incorporated by reference herein.
Shareholders are urged to read carefully the FBC Merger Agreement.
Effect of the FBC Merger
Pursuant to the FBC Merger Agreement, SBI Merger Sub II will
merge with and into FBC, and the FBC Surviving Corporation will become a
direct wholly owned subsidiary of Susquehanna. FNB, a national bank, will
become a second-tier subsidiary of Susquehanna. The name of the FBC
Surviving Corporation will be "Susquehanna Bancshares East II, Inc."
Exchange Ratio
Pursuant to the FBC Merger Agreement, the outstanding shares of
FBC Common Stock will be exchanged for the outstanding common stock of
Susquehanna Common Stock according to the FBC Exchange Ratio set forth in
the FBC Merger Agreement.
Holders of FBC Common Stock will receive 2.281 shares of
Susquehanna Common Stock for each share of FBC Common Stock; however, if
the average closing price of Susquehanna Common Stock over such period is
less than $25.00, FBC will have the right to terminate the FBC Merger
Agreement, and if the average closing price over such period is greater
than $31.00, then Susquehanna will have the right to terminate the FBC
Merger Agreement.
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As of the FBC Merger Effective Time, each share of FBC Common
Stock held by Susquehanna (other than shares held in a fiduciary capacity
or in satisfaction of a debt previously contracted) shall be canceled, and
no exchange or payment shall be made with respect thereto.
Within five business days after the FBC Merger Effective Time,
Susquehanna shall cause to be sent to each person who immediately prior to
the FBC Merger Effective Time was a holder of record of FBC Common Stock
transmittal materials and instructions for surrendering certificates for
FBC Common Stock in exchange for the number of whole shares of Susquehanna
Common Stock to which such person is entitled pursuant to the FBC Exchange
Ratio.
If prior to the FBC Merger Effective Time, the outstanding shares
of Susquehanna Common Stock shall have been increased, decreased, change
into or exchanged for a different number or kind of shares or securities
through a reclassification, stock dividend, stock split or reverse stock
split, or other similar change, appropriate adjustment will be made to the
FBC Exchange Ratio.
Fractional Shares
No fractional shares of Susquehanna Common Stock will be issued.
Susquehanna will furnish to any holder of FBC Common Stock otherwise
entitled to a fractional share a check for an amount of cash equal to the
fraction of a share of Susquehanna Common Stock represented by the
certificates so surrendered multiplied by the average price per share as
determined in accordance with the FBC Merger Agreement.
Representations and Warranties
The representations and warranties of Susquehanna, SBI Merger Sub
II, FBC and FNB are set forth in Article III of the FBC Merger Agreement.
The representations and warranties relate, among other things, to
representations as to corporate existence and authority and the ability of
each party to carry out the transactions as contemplated by the FBC Merger
Agreement. FBC and FNB have made additional representations as to the non-
existence of any contract which would be breached by the FBC Merger; the
accuracy and completeness of its financial statements and filings with
federal or state regulatory agencies, including state and federal tax
filings; the absence of any material contracts and certain other contracts;
the absence of litigation not otherwise disclosed; the absence of
regulatory actions; the absence of undisclosed liabilities; labor and
employee benefits matters; the adequacy of its allowances for possible loan
losses; the condition of its tangible assets; assurances as to its loan
portfolio, on an adjusted basis; its compliance with applicable state and
federal laws on matters material to its operations; and environmental
matters. Susquehanna has made additional representations as to the
ownership by Susquehanna of all of the issued and outstanding shares of its
bank subsidiaries; the accuracy and completeness of published financial
statements, filings with the Commission and other federal or state
regulatory agencies, and all employee benefit plans; the non-existence of
any contract which would be breached by the FBC Merger Agreement; the
truthfulness and completeness of all filings made by Susquehanna with the
Commission in connection with the FBC Merger Agreement and the transactions
contemplated by it except for information relating to FBC or FNB; the good
standing and adequate capitalization of SBI Merger Sub II; its compliance
with applicable state and federal laws on matters material to its
operations; the absence of regulatory actions; the absence of litigation
not otherwise disclosed; the absence of undisclosed liabilities; and
environmental matters. On the FBC Merger Effective Date, Susquehanna, FBC
and FNB must each present to the other certificates evidencing the
continued accuracy of the representations and warranties.
Covenants
The FBC Merger Agreement also contains certain affirmative and
negative covenants of all of the parties. FBC has agreed that: (i) it
shall direct and use its best efforts to cause its officers, Directors,
employees, agents and representatives not to, initiate, solicit or
encourage inquiries regarding the making of any merger proposal or any
proposal to purchase any significant portion of the assets or equity
securities of FBC or FNB and, subject to the fiduciary obligations of its
Directors, it will not engage in any negotiations or discussions or provide
any confidential information in connection with any such proposal; (ii) it
will cooperate with Susquehanna in the preparation of this Proxy
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Statement/Prospectus and the filing thereof as part of Susquehanna's
Registration Statement on Form S-4; (iii) it will take all required action
to call the FBC Meeting; (iv) subject to the fiduciary duties of the FBC
Board of Directors and the receipt of an updated fairness opinion as of the
date of this Proxy Statement/Prospectus, it will use its best efforts to
obtain approval of the FBC Merger Agreement; and (v) it will furnish to
Susquehanna a list of all persons known to be affiliates of FBC within the
meaning of Rule 145 under the Securities Act and will use its best efforts
to cause any such person to deliver a written agreement providing that such
person will not sell, pledge, transfer or otherwise dispose of the shares
of Susquehanna Common Stock received pursuant to the FBC Merger except in
compliance with the Securities Act and the rules and regulations thereunder
and after such time as financial results covering at least 30 days of post-
merger combined operations have been published.
During the period prior to the effectiveness of the FBC Merger,
FBC and FNB are required to provide Susquehanna and its representatives
with reasonable access to their respective books, records, employees,
properties and such other information as Susquehanna may reasonably request
and to provide Susquehanna with copies of their respective financial
statements periodically.
Susquehanna is required to provide FBC and FNB with copies of all
of its filings with the Commission pursuant to the Exchange Act, together
with applications filed with regulatory authorities and certain other
information.
Conduct of Business Pending the FBC Merger
FBC, FNB, Susquehanna and SBI Merger Sub II have all agreed to
cooperate with each other in completing the transactions contemplated by
the FBC Merger Agreement and to refrain from taking or making any
commitment to take any actions that are inconsistent or prohibited by any
provision of the FBC Merger Agreement or would cause any of the
representations or warranties of each party as set forth in the FBC Merger
Agreement not to be true or correct in all material respects.
Pursuant to the FBC Merger Agreement, FBC and FNB have each
agreed to carry on their business in the usual, regular and ordinary course
of business, consistent with past practices and to maintain and preserve
intact their respective business organizations, assets, leases, properties,
advantageous business relationships and other items and to use their
reasonable efforts to retain the services of their officers and key
employees and to refrain from taking any action which, to their knowledge,
could materially delay or adversely affect FBC or FNB in general or their
ability to obtain any approvals, consents or waivers of any governmental
authorities necessary for the consummation of the FBC Merger.
In addition, during the period pending the FBC Merger, FBC and
FNB have each agreed to refrain from doing any of the following, other than
in the ordinary course of business or with the prior written consent of
Susquehanna: (i) making any loan or advance or incurring or guaranteeing
any indebtedness; (ii) adjusting, splitting, combining or reclassifying any
capital stock; (iii) making any distribution or dividend other than the
regular semiannual dividend or special dividend referred to in the FBC
Merger Agreement; (iv) redeeming, purchasing or otherwise acquiring any
shares of its capital stock or any securities convertible into shares of
its capital stock or granting any stock appreciation rights; (v) selling or
issuing any shares of its capital stock or any right to acquire any shares
of its capital stock; (vi) other than pursuant to established policies,
selling, transferring, mortgaging, encumbering or otherwise disposing of
any of its properties, leasehold interests or assets or canceling,
releasing or assigning any indebtedness, contracts or agreements in force
as of the date of the FBC Merger Agreement; (vii) increasing in any manner
the compensation or fringe benefits of any of its employees in excess of
4%, on an aggregated basis, in any 12 month period; (viii) paying any
pension or retirement allowance not required by law or an existing plan or
agreement or becoming party to, amending or committing itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement
or employment agreement; (ix) voluntarily accelerating the vesting of any
stock options or other benefit; (x) amending its charter or certificate of
incorporation, as the case may be, or its bylaws except as expressly
contemplated by the FBC Merger Agreement or as required by law and, in each
case, as concurred in by its counsel; (xi) except as previously disclosed
to Susquehanna or required by changes in generally accepted accounting
principles, law or regulation and concurred in by its independent auditors,
changing its method of accounting from that in effect as of
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December 31, 1995; or (xii) permitting or allowing its direct or indirect
ownership of the capital stock of any subsidiary existing as of the date of
the FBC Merger Agreement to be less than 100% of their respective total
capital stock.
Susquehanna has also agreed that it will not knowingly take any
action or knowingly cause its bank subsidiaries to take any action that is
reasonably likely to have a material adverse effect on Susquehanna on a
consolidated basis.
Conditions Precedent
In addition to shareholder approval by FBC shareholders, the FBC
Merger is contingent upon the satisfaction of a number of conditions,
including, among others: (i) all required approvals, consents, or waivers,
including without limitation, approval by the Federal Reserve Board and the
New Jersey Department of Banking, except those approvals for which failure
to obtain would not individually or in the aggregate have a material
adverse effect on Susquehanna, FBC or FNB and all applicable statutory
waiting periods shall have expired; (ii) the absence of any order, decree
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of the FBC Merger, and the transactions
described in the FBC Merger Agreement, and the absence of any litigation or
proceeding pending against any of the parties or their subsidiaries by any
governmental agency seeking to prevent consummation of the transactions
described in the FBC Merger Agreement; (iii) no enactment, promulgation or
enforcement of any statute, rule, regulation, order, injunction or decree
by any governmental authority which prohibits, restricts or makes illegal
consummation of the FBC Merger; (iv) all litigation which would have a
material adverse effect on FBC's consolidated operations, shall have been
concluded on terms satisfactory to Susquehanna, FBC and FNB; (v) the shares
of Susquehanna Common Stock to be issued in the FBC Merger shall have been
authorized to be listed on The Nasdaq Stock Market; (vi) a ruling from the
Internal Revenue Service, or an opinion of counsel to Susquehanna, shall
have been received with respect to certain tax matters; (vii) the FBC
Merger shall meet the requirements for pooling of interests accounting
treatment as evidenced by a letter from Coopers & Lybrand L.L.P.,
independent accountants to Susquehanna; (viii) Susquehanna shall have
received a letter from the independent accountants to FBC concerning the
results of the performance of certain agreed-upon procedures involving the
financial affairs and condition or FBC; and (ix) there shall not have
occurred any change in the financial condition, properties, assets,
business or results of operation of FBC or FNB, on the one hand, or
Susquehanna, on the other hand, which has had or might reasonably be
expected to result in a material adverse effect on the party sustaining
such change.
Waiver; Amendment
Prior to the FBC Merger Effective Time, any provision of the FBC
Merger Agreement may be: (i) waived by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure
of the transaction) by agreement in writing between the parties approved by
their respective Boards of Directors, except that no amendment or waiver
may be made that would change the form or amount of the FBC Merger
Consideration or otherwise have the effect of prejudicing the FBC
shareholders' interest in the FBC Merger Consideration following the FBC
Meeting.
Closing; Effective Date; Termination.
The FBC Merger Agreement provides that the FBC Closing will occur
following three business days' notice to FBC, as shall be agreed upon by
all parties, which date shall not be later than the 22nd business day
after: (i) the last approval of required governmental authorities is
granted and any related waiting periods expire; (ii) the lifting, discharge
or dismissal of any stay of any governmental approval or of any injunction
against the transactions described in the FBC Merger Agreement; and (iii)
all shareholder approvals required by the parties have been received. The
FBC Merger, and the transactions described by the FBC Merger Agreement,
will become effective on the FBC Merger Effective Date. The presentation
of the certificate for acceptance and filing is subject to the rights of
the Susquehanna Board of Directors and FBC to terminate the FBC Merger
Agreement under certain circumstances.
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The FBC Merger Agreement provides that, whether before or after
its approval by the shareholders of FBC, it may be terminated and the
transactions contemplated in the FBC Merger Agreement abandoned at any time
prior to the FBC Merger Effective Date: (i) by mutual consent of
Susquehanna and FBC, if the Board of Directors of each so determines by
majority vote of the members of the entire Board; (ii) by FBC in the event
of (a) a material breach by Susquehanna of any representation, warranty,
covenant or agreement contained in the FBC Merger Agreement which is not
cured or not curable within 30 days after written notice of such breach is
given to Susquehanna by FBC, or (b) by written notice to Susquehanna that
any condition precedent to FBC's obligations as set forth in the FBC Merger
Agreement, Article V, has not been met or waived by FBC at such time as
such condition can no longer be satisfied, (c) the FBC Board of Directors
fails to make, withdraws or modifies or changes its favorable
recommendation to shareholders, or (d) the FBC Board of Directors
recommends to the shareholders of FBC that an Acquisition Proposal (as
defined in the FBC Merger Agreement) is likely to be more favorable, from a
financial point of view, to the shareholders of FBC than the FBC Merger;
(iii) by Susquehanna in the event (a) of a material breach by FBC or FNB of
any representation, warranty, covenant or agreement contained in the FBC
Merger Agreement which is not cured or not curable within 30 days after
written notice of such breach is given to FBC, or (b) that any condition
precedent to Susquehanna's obligations as set forth in Article V of the FBC
Merger Agreement has not been met or waived by Susquehanna at such time as
such condition can no longer be satisfied; (iv) by FBC by giving written
notice of such election to Susquehanna within one business day following a
determination that the average closing price per share of the Susquehanna
Common Stock before closing is less than $25.00 per share at the time such
calculation is required to be made pursuant to the FBC Merger Agreement;
and (v) by Susquehanna if Susquehanna chooses to give written notice within
one business day following a determination that the average closing price
per share of the Susquehanna Common Stock before closing is greater than
$31.00 per share; or (vi) by Susquehanna or FBC if the FBC Merger is not
consummated by March 31, 1997 unless the failure to so consummate by such
time is due to the breach of any representation, warranty or covenant
contained in the FBC Merger Agreement by the party seeking to terminate;
provided, however, that such date may be extended by the written agreement
of the parties.
Expenses
FBC and Susquehanna have agreed to bear all expenses incurred by
them in connection with the FBC Merger Agreement and the transactions
contemplated thereby, except Susquehanna has agreed to pay the government
filing and other fees (excluding income taxes) in connection with the
consummation of such transactions; provided, however, so long as
Susquehanna shall not have breached its obligations under the FBC Merger
Agreement, if the FBC Merger Agreement is terminated by FBC because the FBC
Board recommends to the shareholders of FBC that a merger, consolidation or
other similar transaction is likely to be more favorable than the proposed
merger with Susquehanna, from a financial point of view, or if the FBC
Board of Directors fails to make, withdraws or modifies or changes a
favorable recommendation to FBC's shareholders to approve the transactions
with Susquehanna, then FBC shall pay Susquehanna $500,000.
Exchange of Stock Certificates
At the FBC Merger Effective Date, without any further action on
the part of holders of shares of FBC Common Stock, each share of FBC Common
Stock that is issued and outstanding as of the FBC Merger Effective Date
(other than shares held directly or indirectly by Susquehanna, except for
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall automatically become and be converted into the right to
receive shares of Susquehanna Common Stock determined in conformity with
the FBC Exchange Ratio. As of the FBC Merger Effective Date any shares
held directly or indirectly by Susquehanna except in a fiduciary capacity
or in satisfaction of a debt previously contracted shall be canceled and
retired and cease to exist and no exchange or payment shall be made with
respect thereto.
Within five business days after the FBC Merger Effective Date,
Susquehanna shall cause to be sent to each person holding shares of FBC
Common Stock transmittal materials and instructions for surrendering their
certificates of FBC Common Stock in exchange for a certificate for the
number of whole shares of Susquehanna Common Stock to which such person is
entitled along with a cash payment equal to the value of any fractional
share
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of Susquehanna Common Stock to which the shareholder is entitled. If the
record date for any dividends with respect to the Susquehanna Common Stock
occurs after the FBC Merger Effective Date but prior to the exchange of
certificates, each former shareholder of FBC shall be entitled to receive,
upon exchange of the stock certificates, an amount equal to all such
dividends paid with respect to the number of whole shares of Susquehanna
Common Stock received upon exchange of the certificates of FBC Common Stock
(without interest) less any taxes which may have been imposed or paid
thereon.
After the FBC Merger Effective Date, there shall not be any more
transfers on the stock transfer books of FBC of shares of FBC Common Stock.
To the extent permitted by law, in the event that any certificates
representing shares of FBC Common Stock have not been surrendered for
exchange on or before the second anniversary of the FBC Merger Effective
Date, Susquehanna may, at any time thereafter, with or without notice to
the holders of record of any such shares, sell for the accounts of any and
all such holders the shares of Susquehanna Common Stock to which such
holders are entitled to receive. Any such sale may be a public or private
sale as Susquehanna shall determine. The net proceeds of any such sale
shall be held for holders of record of any unsurrendered shares to be paid
to them upon surrender of such shares for exchange. Such holders will not
be entitled to receive any interest on such net sale proceeds. If
outstanding certificates for shares of FBC Common Stock are not surrendered
prior to the date on which such certificates would otherwise escheat to or
become the property of any governmental unit or agency, the unclaimed items
shall, to the extent permitted by law, become the property of Susquehanna,
free and clear of all claims or interest of any person previously entitled
to such items.
Regulatory Approvals of FBC
Because the FBC Merger involves the acquisition of a bank holding
company registered under the Holding Company Act, it is subject to the
approval of the Federal Reserve Board under the Holding Company Act. An
application for approval of the acquisition of FBC [ ] will be submitted by
Susquehanna to the Federal Reserve Bank of Philadelphia, acting on
delegated authority from the Federal Reserve Board, [ ] in November [ ]
1996. In reviewing the application, the Federal Reserve Board considers the
financial and managerial resources of Susquehanna and FBC, the effect of
the transaction on competition in the markets served by Susquehanna and
FBC, the convenience and needs of the public and, among other things,
Susquehanna's and FBC's record of performance in helping to meet local
credit needs. There is no reason to believe that the application will not
be approved in the ordinary course.
The approval of the New Jersey Department of Banking under the New
Jersey Banking Act must also be obtained before the FBC Merger may be
consummated. The New Jersey Banking Act requires the New Jersey Department
of Banking to consider factors similar to those examined by the Federal
Reserve Board. An application [ ] will be submitted to the New Jersey
Department of Banking [ ] in November [ ] 1996. There is no reason to
believe that the application will not be approved in the ordinary
course.
The FBC Merger cannot proceed in the absence of the requisite
regulatory approvals. Management of Susquehanna has no reason to believe
that the required approvals will not be obtained. To date, however, none
of the required approvals have been obtained in respect of the FBC Merger,
and there can be no assurance that all such regulatory approvals will be
obtained, and, if the FBC Merger is approved, there can be no assurance as
to the date of any such approval. There can also be no assurance that any
such approvals will not contain a condition or requirement which causes
such approvals to fail to satisfy the conditions set forth in the FBC
Merger Agreement. There can likewise be no assurance that the U.S.
Department of Justice or a state Attorney General will not challenge the
FBC Merger or, if such challenge is made, as to the result thereof.
Interest of Certain Persons in the FBC Merger
Certain members of FBC's management and the FBC Board of Directors may
be deemed to have interests in the FBC Merger in addition to their
interests, if any, as shareholders of FBC generally.
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In the Spring of this year, the Board of Directors of FBC approved
Employment Agreements for Messrs. Doble and Stuart and a Severance
Agreement for Joan H. Hoglen, Assistant Vice President of FNB.
Mr. Doble's employment agreement ("Doble Employment Agreement")
provides that he will be employed by FBC and FNB as President and Chief
Executive Officer for a term of two years. Under the terms of the Doble
Employment Agreement, Mr. Doble's base salary shall not be less than
$130,000 per year subject to upward adjustment by the FBC Board of
Directors. The Doble Employment Agreement provides that Mr. Doble will
participate in any benefit or compensation programs in effect which are
generally made available from time to time to executive officers of FBC and
provides for all other fringe benefits as in effect from time to time which
are generally available to FBC's salaried officers including, without
limitation, medical and hospitalization coverage, life insurance coverage
and disability coverage.
The Doble Employment Agreement allows Mr. Doble to terminate his
employment with FBC upon (i) a change in control of FBC (as defined in the
Doble Employment Agreement) and within three years of such change in
control without Mr. Doble's consent, among other things, the nature and
scope of his authority with FBC or a surviving or acquiring person are
materially reduced to a level below that which he enjoyed from the date the
Doble Employment Agreement was executed, or (ii) a merger, consolidation,
reorganization, sale of all or substantially all of the assets or similar
event of FBC. If Mr. Doble terminates his employment because of a change
in control or merger, he will be entitled to a lump sum severance payment
equal to 150% of his average base salary in effect during the 24 months
immediately preceding such termination (provided that such payment does not
constitute a "parachute payment" under Section 280G of the Internal Revenue
Code of 1986 as amended). The Doble Employment Agreement contains a non-
competition covenant for Mr. Doble should his employment with FBC be
terminated under certain circumstances.
The employment agreement for Mr. Stuart ("Stuart Employment
Agreement") is substantially similar to that of Mr. Doble except that: Mr.
Stuart will serve as Executive Vice President and Cashier of FBC and FNB;
the term of the Stuart Employment Agreement is three years; and Mr.
Stuart's "base salary" under the Stuart Employment Agreement is $82,000 per
year. Furthermore, if Mr. Stuart terminates his employment because of a
change in control or merger, he would be entitled to a lump sum severance
payment equal to 75% of his average annual base salary in effect during the
24 months immediately preceding such termination.
Ms. Hoglen's severance agreement with FBC which has a three year term
provides that if she terminates her employment with FBC because of a change
in control or merger during the term, she will be entitled to a lump sum
severance payment equal to 50% of her average annual base salary in effect
during the 24 month period immediately preceding such termination.
The proposed merger with Susquehanna would be a triggering event under
each of the aforementioned agreements with Messrs. Doble and Stuart and Ms.
Hoglen.
Continued Employment
Susquehanna has agreed that each of Joseph H. Doble, Richard M.
Stuart and Joan Hoglen shall have the option to continue employment for at
least one year substantially on the same terms and conditions as their
employment at the FBC Merger Effective Date. The failure of any one of
these individuals to continue employment with Susquehanna will not be
grounds for termination of the FBC Merger Agreement.
Employee Benefit Plans
Subsequent to the FBC Merger, Susquehanna may, but is not
obligated, other than with respect to Messrs. Doble and Stuart and Ms.
Hoglen, to employ any or all individuals serving as officers or employees
of FBC or FNB immediately prior to the FBC Merger. Prior to accepting
employment with Susquehanna, however, any officer or employee who has an
employment contract with FBC and/or FNB, will be required to cancel such
contract without accepting any of the severance or other benefits that may
be payable thereunder as a result of the FBC Merger.
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Each person who is employed by FBC or FNB prior to the FBC Merger
Effective Date and who remains an employee following the FBC Merger
Effective Date shall be entitled, as an employee of Susquehanna or a
subsidiary of Susquehanna, to participate in whatever employee benefit,
stock option, bonus, incentive or other fringe benefit plans which are
generally available for employees of Susquehanna or its subsidiaries, if
such employee is eligible or selected for participation therein and is not
otherwise participating in a similar plan which continues to be maintained
subsequent to the FBC Merger Effective Date. Each continued employee who
becomes eligible for participation in any Susquehanna plan will participate
on the same basis as similarly situated employees of Susquehanna or its
subsidiaries and will receive credit for past service with FBC or FNB for
purposes of eligibility and vesting, but not benefit accrual, under
Susquehanna's plans.
FBC and FNB have agreed to take all action necessary to cease the
participation or accrual of benefits as of the FBC Merger Effective Date by
each participant in any employee benefit plans of FBC or FNB and to
terminate such plans, other than 401(k) plans unless otherwise instructed
by Susquehanna. Upon receipt of an Internal Revenue Service favorable plan
determination letter confirming the tax qualified status of the FBC Money
Purchase Plan (as described in the FBC Merger Agreement) and the subsequent
termination of the plan, Susquehanna will allow each participant to either
roll-over his or her account balance to Susquehanna's 401(k) plan or
receive a distribution of his or her closing account balance. FBC and FNB
have further agreed that, if the fair market value of the assets of any
pension plan of FBC does not equal or exceed the present value of its
benefits liabilities as of the date of its termination, FBC or FNB will
make such additional contributions as are necessary to permit its
termination.
Management and Operations Following the FBC Merger
Under the terms of the FBC Merger Agreement, following the FBC Merger,
the FBC Board of Directors, as the Board of Directors of the corporation
surviving the FBC Merger, will consist of persons appointed exclusively by
Susquehanna but will include one or more members of the FBC Board of
Directors, each of whom will serve until his or her successor is elected
and has qualified.
Accounting Treatment of the FBC Merger
The FBC Merger is intended to be treated as a pooling of interests for
accounting purposes. In accordance with generally accepted accounting
principles and under the accounting rules of the Commission. As a
condition to the consummation of the FBC Merger, Susquehanna is to receive
a letter from its independent certified public accountants, Coopers &
Lybrand L.L.P., that the FBC Merger will be treated as a pooling of
interests. In order to preserve the intended accounting treatment of the
FBC Merger as a pooling of interests, the FBC Merger Agreement also
requires as a condition to the obligations of Susquehanna and SBI Merger
Sub II under the FBC Merger Agreement that each person deemed to be an
"affiliate" of FBC, to the extent reasonably attainable, enter into an
agreement not to sell shares of Susquehanna Common Stock acquired in the
FBC Merger until financial results covering at least 30 days of post-FBC
Merger combined operations have been published.
Income Tax Consequences of the FBC Merger
The following is a general discussion of the anticipated federal
income tax consequences of the FBC Merger. Susquehanna and FBC believe that
for federal income tax purposes: (i) the FBC Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, and FBC
and Susquehanna will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be
recognized by FBC or Susquehanna by reason of the FBC Merger; (iii) except
for cash received in lieu of fractional shares, no income, gain or loss
generally will be recognized by FBC shareholders on the exchange of their
shares of FBC Common Stock for shares of Susquehanna Common Stock; (iv) the
basis of the Susquehanna Common Stock to be received by the FBC
shareholders generally will be, in each instance, the same as the basis of
the FBC Common Stock surrendered in exchange therefor; (v) the holding
period of the Susquehanna Common Stock to be received by the shareholders
of FBC generally will include the period during which the FBC Common Stock
surrendered in exchange therefor has been held, provided that the FBC
Common Stock surrendered is held as a capital asset on the date of the
exchange pursuant to the FBC Merger;
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and (vi) the payment of cash to the FBC shareholders in lieu of their
fractional share interests of Susquehanna Common Stock generally will be
treated as having been received as a distribution in full payment in
exchange for the fractional share interest of Susquehanna Common Stock
which such shareholders would otherwise be entitled to receive and will
qualify as capital gain or loss.
The obligations of the parties to consummate the FBC Merger are
conditioned upon receipt of a ruling from the Internal Revenue Service or
an opinion of counsel substantially to the effect that the federal income
tax consequences of the FBC Merger are as summarized above. Unlike a
ruling from the Internal Revenue Service, an opinion of counsel would have
no binding effect on the Internal Revenue Service. Such ruling or opinion
would not deal with all of the tax considerations that may be relevant to
particular FBC shareholders, such as FBC shareholders who are dealers in
securities, foreign persons, tax-exempt entities or the impact of the
alternative minimum tax. Such ruling or opinion would not address, any
state, local or foreign tax considerations, any federal estate, gift,
employment, excise or other non-income tax considerations.
THE FOREGOING CONSTITUTES ONLY A GENERAL DESCRIPTION OF THE FEDERAL
INCOME TAX CONSEQUENCES OF THE FBC MERGER, WITHOUT CONSIDERATION OF THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FBC SHAREHOLDER'S SITUATION.
EACH FBC SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX ADVISORS
AS TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH
SHAREHOLDER AND NOT COMMON TO SHAREHOLDERS AS A WHOLE AND ALSO AS TO ANY
ESTATE, GIFT, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE
FBC MERGER AND/OR ANY SALE OF SUSQUEHANNA COMMON STOCK RECEIVED IN THE FBC
MERGER.
RESALE RESTRICTIONS
The shares of Susquehanna Common Stock issuable in connection with the
AI Merger and the FBC Merger have been registered under the Securities Act,
but such registration does not cover resales by shareholders of AI or FBC
who may be deemed to control, be controlled by or be under common control
with AI, FBC or Susquehanna at the time of or after the AI Merger or the
FBC Merger and who therefore may be deemed "affiliates" of AI, FBC or
Susquehanna as that term is used in Rule 145 under the Securities Act.
Such affiliates may not sell their shares of Susquehanna Common Stock
acquired in connection with the AI Merger or the FBC Merger, as applicable,
except pursuant to: (i) an effective registration statement under the
Securities Act covering such shares of Susquehanna Common Stock; (ii) the
conditions contemplated by paragraph (d) of Rule 145; or (iii) another
applicable exemption from the registration requirements of the Securities
Act. Rule 145, as currently in effect, imposes restrictions on the manner
in which such affiliates may make resales and also on the quantities of
resales which such affiliates, and others with whom they act in concert,
may make within any three-month period. The management of AI and FBC will
notify those persons whom they believe may be such affiliates. Susquehanna
is under no obligation to register any shares acquired by affiliates of AI
or FBC in connection with the Mergers.
The AI Merger Agreement and the FBC Merger Agreement require as a
condition to the AI Merger and the FBC Merger, respectively, that each such
affiliate of AI or FBC enter into an agreement not to sell shares of
Susquehanna Common Stock acquired in the mergers except in accordance with
the requirements of the Securities Act and the regulations thereunder.
DESCRIPTION OF SUSQUEHANNA AND ITS CAPITAL STOCK
Information Concerning Susquehanna
Susquehanna is a Pennsylvania business corporation, registered as a
bank holding company with its headquarters in Lancaster County,
Pennsylvania. As a bank holding company, Susquehanna engages in general
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commercial and retail banking and bank-related business through commercial
banks, federal savings banks, and other subsidiaries.
Susquehanna was organized on March 1, 1982 under the laws of the
Commonwealth of Pennsylvania for the purpose of acquiring Farmers First
Bank, Lititz, Pennsylvania and such other banks and bank-related entities
as permitted by law, desirable and consistent with its corporate purposes.
Susquehanna's sole activity consists of owning and supervising its five (5)
commercial banks, its three (3) savings banks, its two (2) leasing
companies and its credit life insurance company. These subsidiaries are
engaged in providing banking, savings and loan and bank-related services in
central and south central Pennsylvania, principally in Franklin, Lancaster,
Northumberland, Snyder, York and Lycoming Counties, and in northwestern and
central Maryland, principally in Allegheny and Washington Counties, and the
City of Baltimore and its surrounding area. The day-to-day management of
Susquehanna's subsidiaries is conducted by each subsidiary's officers,
subject to review by their respective Board of Directors, thereby
permitting each company to retain substantial autonomy to better serve its
market in day-to-day operations. Susquehanna's subsidiary commercial
banks and federal savings banks currently operate over 100 depository
offices in Pennsylvania and Maryland. As of December 31, 1995, Susquehanna
had consolidated total assets in excess of 3.0 billion dollars.
Several years ago Susquehanna developed, and has been implementing, a
plan to expand beyond Pennsylvania's borders, initially by establishing a
position in the banking markets of northwestern and central Maryland,
extending from Pennsylvania into Baltimore and western Maryland. In
pursuit of this program, Susquehanna has acquired strong financial
institutions in contiguous markets. Consistent with this strategy of
geographic diversification, Susquehanna has determined to move into areas
within the State of New Jersey which offer economic and demographic markets
similar to those in which it operates in Pennsylvania and Maryland. In
accordance with this plan, Susquehanna proposes to acquire AI and FBC.
Through these acquisitions, Susquehanna will establish a substantial
position in an area of New Jersey which it believes to be economically
stable, which it expects to continue to prosper, and which will support
Susquehanna's community banking philosophy. Management of Susquehanna
believes that to the extent management of a bank demonstrates its
commitment to the community through personal and dedicated service, the
community will, in turn, support such a bank. This formula of synergism
between depository institution and customer has been the predicate to
Susquehanna's successful community banking philosophy over the past fifteen
(15) years.
General
Susquehanna is authorized to issue 32,000,000 shares of Susquehanna
Common Stock, par value $2.00 per share, and 5,000,000 shares of preferred
stock, without par value ("Susquehanna Preferred Stock").
As of June 30, 1996, Susquehanna had outstanding 13,172,881 shares of
Susquehanna Common Stock. No shares of Susquehanna Preferred Stock are
currently outstanding.
Common Stock
Dividends
Holders of Susquehanna Common Stock are entitled to receive such
dividends as may be declared by the Susquehanna Board of Directors out of
funds legally available therefor. Since Susquehanna is a holding company,
the funds required by Susquehanna to enable it to pay dividends are derived
predominantly from the dividends paid to Susquehanna by its subsidiaries.
Susquehanna's ability to pay dividends, therefore, is dependent upon the
earnings, financial condition and ability to pay dividends of Susquehanna's
subsidiaries, principally its commercial bank and savings bank
subsidiaries. Payment of dividends by the banking subsidiaries is subject
to a number of regulatory restrictions. See "REGULATIONS AFFECTING
DIVIDENDS." Each of Susquehanna's commercial bank and savings bank
subsidiaries is presently permitted to pay dividends without prior approval
under such regulatory requirements; at December 31, 1995, an aggregate of
$26,052,000 was available for the payment of dividends to Susquehanna.
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Liquidation
In the event of liquidation, dissolution or winding up of
Susquehanna, holders of Susquehanna Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Susquehanna Preferred Stock, if any, then
outstanding.
Voting
Holders of Susquehanna Common Stock are entitled to one vote for
each share held by them at all meetings of the shareholders and are not
entitled to cumulate their votes for the election of Directors.
No Preemptive Rights
Holders of Susquehanna Common Stock do not have any preemptive
rights.
Transfer Agent and Registrar
Farmers First Bank, a subsidiary of Susquehanna, is the transfer
agent and registrar for Susquehanna Common Stock.
Preferred Stock
The Susquehanna Board of Directors has authority, without further vote
or action by the shareholders, to issue the Susquehanna Preferred Stock in
one or more series and to fix and determine the relative rights and
preferences of each such series.
Pennsylvania Anti-Takeover Law Provisions
Susquehanna is subject to various statutory "anti-takeover provisions"
of the Pennsylvania Business Corporation Law of 1988, as amended (the
"BCL"), including Subchapters 25E, F, G and H of the BCL.
Subchapter 25E (relating to control transactions) provides that if any
person or group acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such person or
group the fair value of their shares, including a proportionate amount of
any control premium.
Subchapter 25F (relating to business combinations) delays for five
years and imposes conditions upon "business combinations" between an
"interested shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions utilizing a
corporation's assets for purchase price amortization or refinancing
purposes. An "interested shareholder" is defined generally as the
beneficial owner of at least 20% of a corporation's voting shares.
Subchapter 25G (relating to control-share acquisitions) prevents a
person who has acquired 20% or more of the voting power of a covered
corporation from voting such shares unless the "disinterested" shareholders
approve such voting rights. Failure to obtain such approval exposes the
owner to the risk of a forced sale of the shares to the issuer. If
shareholder approval is obtained, the corporation is also subject to
Subchapters 25I and J of the BCL. Subchapter 25I provides for a minimum
severance payment to certain employees terminated within two years of the
approval. Subchapter 25J prohibits the abrogation of certain labor
contracts prior to their stated date of expiration.
Subchapter 25H (relating to disgorgement) applies in the event that:
(i) any person or group publicly discloses that the person or group may
acquire control of the corporation; or (ii) a person or group acquires (or
publicly discloses an offer or intent to acquire) 20% or more of the voting
power of the corporation and, in either case, sells shares within 18 months
thereafter. Any profits from sales of equity securities of the corporation
by the person or group during the
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18-month period belong to the corporation if the securities that were sold
were acquired during the 18-month period or within 24 months prior thereto.
Subchapters 25E, F, G and H contain a wide variety of transactional
and status exemptions, exclusions and safe harbors. The foregoing
descriptions are qualified in their entirety by reference to the statutory
provisions which are filed as Exhibit 4.1 to the Registration Statement and
incorporated herein by reference.
In addition, the BCL permits an amendment of the corporation's
articles or other corporate action, if approved by shareholders generally,
to provide mandatory special treatment for specified groups of
nonconsenting shareholders of the same class by providing, for example,
that shares of common stock held only by designated shareholders of record,
and no other shares of common stock, shall be cashed out at a price
determined by the corporation, subject to applicable dissenters' rights.
The BCL also provides that Directors may, in discharging their duties,
consider the interests of a number of different constituencies, including
shareholders, employees, suppliers, customers, creditors and the
communities in which the corporation is located. Directors are not
required to consider the interests of shareholders to a greater degree than
other constituencies' interests. The BCL expressly provides that Directors
do not violate their fiduciary duties solely by relying on poison pills or
the anti-takeover provisions of the BCL.
Provisions in Susquehanna's Articles of Incorporation and Bylaws
Certain provisions of Susquehanna's articles of incorporation
("Susquehanna Articles") and bylaws ("Susquehanna Bylaws") may have the
effect of making more difficult non-negotiated tender or exchange offers or
other attempts to take over or acquire Susquehanna's business. These
provisions may discourage some potential acquirors from attempting such a
transaction on terms which some shareholders might favor.
Currently, Susquehanna has approximately 5,000,000 shares of
authorized but unissued shares of Susquehanna Preferred Stock and
18,806,672 shares of authorized but unissued shares of Susquehanna Common
Stock. Following the AI Merger and the FBC Merger, Susquehanna would have
approximately 17,342,302 shares of authorized but unissued shares of
Susquehanna Common Stock. As a general matter, the existence of unissued
and unreserved shares of capital stock provides a Board of Directors with
the ability to cause the issuance of shares of capital stock under
circumstances that might prevent or render more difficult or costly the
completion of a takeover. In addition, the rights and preferences of
Susquehanna Preferred Stock as may be established by the Susquehanna Board
of Directors could have the effect of impeding a takeover of Susquehanna.
The Susquehanna Bylaws provide that the number of Directors shall be
fixed by the Susquehanna Board of Directors, and that the Directors shall
be divided into three classes as nearly equal as possible, with each class
serving for staggered three year terms. Directors may be removed, with or
without cause, by the vote of the holders of 75% of the outstanding shares
of Susquehanna stock entitled to vote for Directors generally.
The Susquehanna Bylaws establish advance notice procedures with regard
to the nomination, other than by management, of candidates for election as
Directors. Susquehanna shareholders may act only at a shareholders'
meeting or by unanimous written consent.
The Susquehanna Board of Directors is authorized to amend the
Susquehanna Bylaws, subject to the right of the shareholders to change such
action by vote of 75% of the outstanding Susquehanna shares entitled to
vote.
Article 10 of the Susquehanna Articles authorizes the Susquehanna
Board of Directors to use defensive measures to oppose acquisition
transactions that it determines are not in the best interests of
Susquehanna, and permits the Susquehanna Board of Directors to consider a
broad range of factors in deciding whether to oppose an acquisition
transaction, including effects on employees, depositors, customers and the
communities served by Susquehanna. Article 10 may not be amended without
the vote of 75% of the outstanding Susquehanna shares entitled to vote.
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Article 11 of the Susquehanna Articles, in general, prohibits
Susquehanna from engaging in a broad range of business combinations with
any person or group having beneficial ownership of 20% or more of the
Susquehanna shares entitled to vote generally for the election of Directors
unless such business combination: (i) was approved by the Board of
Directors prior to the time such person or group acquired more than 10% of
Susquehanna's voting shares; (ii) is approved by 75% of Susquehanna's
voting shares where the transaction satisfies specified fair price criteria
and the 20% shareholder has complied with specified procedural
requirements; or (iii) is approved by 85% of Susquehanna's voting shares.
In addition, where no 20% shareholder is involved, Article 11 requires a
merger or consolidation of Susquehanna or a significant sale or disposition
of securities or assets of Susquehanna or its subsidiaries to be approved
by 66 2/3% of the outstanding Susquehanna shares entitled to vote on such
matter. Article 11 may only be amended by a vote of 85% of Susquehanna's
voting shares (75% if the amendment is approved by 85% of a Board
consisting only of "Continuing Directors" as such term is defined in
Article 11).
Article 14 of the Susquehanna Articles limits the voting rights of any
person or group acquiring more than 10% of Susquehanna's outstanding voting
shares. The voting rights limitations of Article 14, when taken together
with the provisions of Article 11, render it extremely unlikely that a
person or group subject to its provisions will be able to determine the
outcome of a vote on any transaction covered by Article 11. Shares held by
such person or group in excess of 10% of any class or series of Susquehanna
stock are entitled to only 1/10 of a vote per share, and all shares held by
such person or group may not cast more than 35% of the total number of
votes which all holders of a class or series of Susquehanna shares are
entitled to cast with respect to a particular matter. These provisions
limiting voting rights may not be waived or rendered inapplicable by the
Susquehanna Board of Directors. Because the voting rights limitations are
imposed on persons or groups owning more than 10% of the outstanding
Susquehanna voting shares (rather than the owners of more than 10% of the
outstanding voting power), the Susquehanna Board of Directors could issue
shares of Susquehanna Preferred Stock with enhanced voting rights that
would permit a person to exercise more than 10% of the voting power while
owning 10% or less of the outstanding voting shares. These voting rights
limitations do not apply to a person or group that consummates a tender
offer which was an offer to acquire all outstanding Susquehanna Common
Stock and which tender offer complied with specified procedural and fair
price requirements. Article 14 may only be amended by vote of 85% of the
votes entitled to be cast by all outstanding Susquehanna voting shares
(two-thirds if the amendment is first approved by two-thirds of a Board
consisting only of "Continuing Directors" as such term is defined in
Article 14).
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COMPARISON OF SHAREHOLDER RIGHTS
Introduction
Upon the consummation of the AI Merger, holders of AI Common Stock,
whose rights presently are governed by the NJBCA and AI's certificate of
incorporation (the "AI Certificate") and bylaws (the "AI Bylaws") will
become shareholders of Susquehanna, a Pennsylvania business corporation.
Accordingly, their rights will be governed by the BCL and Susquehanna
Articles and Susquehanna Bylaws. Certain differences arise from changes in
the governing law, as well as from differences between such articles,
certificate and bylaws. Similarly, upon the consummation of the FBC
Merger, holders of FBC Common Stock, whose rights presently are governed by
the NJBCA and FBC's certificate of incorporation (the "FBC Certificate")
and bylaws (the "FBC Bylaws") will become shareholders of Susquehanna, and
their rights also will be governed by the Susquehanna Articles and the
Susquehanna Bylaws. The following discussion is not intended to be a
complete statement of all differences affecting the rights of shareholders,
but summarizes material differences and is qualified in its entirety by
reference to applicable New Jersey and Pennsylvania corporate laws and the
articles or certificates of incorporation and bylaws of Susquehanna, AI and
FBC. See "INCORPORATION OF DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION."
Dividends
Under New Jersey and Pennsylvania law, a corporation is generally
permitted to pay dividends unless, after giving effect thereto, the
corporation would be unable to pay its debts as they become due in the
usual course of business or the total assets of the corporation would be
less than the sum of its total liabilities. Pennsylvania law includes with
the sum of total liabilities the amount that would be needed upon
dissolution to satisfy the preferential rights of shareholders whose
preferential rights on dissolution are superior to those receiving the
dividends; New Jersey law does not include this additional, restricting
factor.
As holding companies, the ability of AI, FBC and Susquehanna to pay
dividends is largely dependent upon receipt of dividends from their
respective subsidiary depository institutions. Payment of dividends by
these subsidiaries is subject to a number of regulatory restrictions. For
a summary of these regulatory considerations, see "REGULATIONS AFFECTING
DIVIDENDS."
Classified Board of Directors
Both the NJBCA and the BCL permit a corporation's board of directors
to be divided into various classes serving staggered terms of office. The
Susquehanna Bylaws provide that its Board is divided into three classes of
Directors as nearly equal in number as possible. At each annual meeting of
shareholders, one class of Directors is elected for a three-year term.
The AI Certificate provides that its entire Board of Directors is
elected at each annual meeting of AI shareholders to serve a term expiring
at the next annual meeting.
The FBC Certificate provides that its Board is divided into three
classes of Directors, elected in a manner similar to the procedure
contained in the Susquehanna Bylaws.
Number of Directors
The Susquehanna Bylaws establish the minimum number of Directors at
five and provide that the number of Directors constituting the entire Board
shall be determined by resolution of the Board of Directors. A majority of
the Susquehanna Board of Directors may increase the number of Directors
between meetings of the shareholders up to a maximum of two additional
Directors in any calendar year. Currently, the Susquehanna Board consists
of 14 Directors.
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The AI Certificate establishes the minimum and maximum number of
Directors at five and twenty-five, respectively. The exact number of
Directors is determined by majority vote of the entire AI Board. Currently
the AI Board consists of 14 Directors.
The FBC Certificate and Bylaws also establishes the minimum and
maximum number of Directors at five and twenty-five, respectively, all of
whom must be shareholders of FBC. The exact number of Directors is
determined by majority vote of the entire Board or by resolution of
shareholders at any annual or special meeting. Currently the FBC Board
consists of 7 Directors.
Nomination of Directors
Under the Susquehanna Bylaws, a shareholder may not nominate a
candidate for Director unless the shareholder provides the secretary of
Susquehanna with a notice containing specified information regarding the
nominee and the shareholder making the nomination. The Susquehanna Bylaws
require such notice to be given by a shareholder not less than 14 days nor
more than 50 days prior to a meeting or within seven days of notice of the
meeting if Susquehanna provides less than 21 days notice of the meeting.
The AI Certificate does not contain specific provisions controlling
the nomination of Directors.
The FBC Bylaws require shareholders to submit nominations for
directors to be elected at an annual meeting not later than the thirtieth
day immediately preceding the date of the meeting. Except for nominations
of the Board, the nomination must be in a writing delivered to the
secretary of FBC and disclose certain specific information with respect to
the nominee and the shareholder making the nomination, among other
matters.
No Cumulative Voting
The Susquehanna Articles state that shareholders do not have the right
to cumulate their votes for the election of Directors.
The AI Certificate provides that in the election of Directors, every
shareholder shall have the right to cumulative voting of such shares. This
means that each AI shareholder may vote the number of shares owned by such
shareholder for as many persons as there are Directors to be elected or to
cumulate such votes by giving one candidate as many votes as the number of
Directors to be elected multiplied by the number of shares, or by
distributing such votes on the same principle among any number of
Directors.
FBC shareholders do not have the right to cumulate their votes for the
election of Directors.
Removal of Directors
Except where the holders of preferred stock have the right to elect
one or more Susquehanna Directors voting separately as a class, Susquehanna
Directors may be removed with cause or without cause by vote of 75% of all
outstanding Susquehanna shares entitled to vote generally for the election
of Susquehanna Directors voting as one class.
Except where the holders of preferred stock have the right to elect
one or more AI Directors voting separately as a class, AI Directors may be
removed for cause, or without cause, by vote of the AI shareholders, except
that if less than all AI Directors serving on the AI Board of Directors are
to be removed, then no one AI Director may be so removed if the votes cast
against removal would be sufficient to elect him/her if then voted
cumulatively at an election of the entire AI Board of Directors.
The FBC Directors may be removed for cause, or without cause, by vote
of the FBC shareholders.
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Filling Vacancies on the Board of Directors
In the case of Susquehanna, AI and FBC, vacancies and newly created
Directorships may be filled by the vote of a majority of the Directors in
office. Any such Susquehanna Director so chosen serves until the next
annual shareholders' meeting, at which time a successor is elected to a
term of office consistent with maintaining three classes of Susquehanna
Directors as equal in size as possible. Any such AI Director so chosen
shall hold office for a term expiring at the next annual meeting of AI.
Any such FBC Director so chosen will complete the term associated with a
vacancy which is being filled, or, in the case of a newly created
Directorship, until the next (annual or special) meeting of FBC
shareholders.
Call of Special Shareholders' Meeting
Special meetings of Susquehanna shareholders may be called by the
president, the Susquehanna Board of Directors or upon the written request
of the holders of not less than one-fifth of the Susquehanna shares
entitled to vote at the meeting. Such request must state a proper purpose
for the meeting.
Special meetings of AI shareholders may be called by the president or
the AI Board of Directors and shall be called at the written request to the
president by the holders of not less than 25% of all votes entitled to be
cast at the meeting.
Special meetings of FBC shareholders may be called by the FBC Chairman
of the Board, the president or at the request of three or more members of
the FBC Board of Directors or upon the request of holders of not less than
25% of all votes entitled to be cast at the meeting.
The NJBCA allows holders of not less than 20% of all votes entitled to
vote at a shareholders' meeting to call a special meeting under certain
circumstances.
Notice of Shareholders' Meetings
Susquehanna shareholders must generally be given at least five days'
written notice of an annual meeting of shareholders. If a meeting is being
called to consider certain fundamental transactions (such as an amendment
to the articles of incorporation or a merger, consolidation or
dissolution), the BCL requires ten days' prior written notice. Susquehanna
shareholders must be given ten days' prior written notice of a special
shareholders' meeting; 20 days' prior written notice is required if the
special meeting was called by or at the request of a Susquehanna
shareholder.
AI shareholders must be given not less than ten days' nor more than 60
days' written notice prior to any meeting of shareholders.
FBC shareholders must be given not less than ten day's or more than 60
days' written notice prior to any meeting of shareholders.
Quorum Requirements and Adjournment of Meetings
A majority of the outstanding Susquehanna shares entitled to vote,
present in person or represented by proxy, constitutes a quorum at all
meetings of shareholders. If a quorum is not present or represented at a
meeting, the shareholders entitled to vote at the meeting have the power to
adjourn the meeting, and at any adjourned meeting at which a quorum is
present or represented any business may be transacted which might have been
transacted at the meeting as originally noticed. Where a meeting is called
for the purpose of electing Susquehanna Directors, a majority of the shares
present or represented by proxy may adjourn the meeting for one or more
periods of up to 15 days' duration. Those shareholders present or
represented at the meeting following the original meeting called for the
election of Susquehanna Directors which was adjourned for lack of a quorum,
although less than a quorum, shall nevertheless constitute a quorum for the
purpose of electing Susquehanna Directors.
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A majority of the shares of outstanding AI Common Stock entitled to
vote, represented in person or by proxy, constitutes a quorum at a meeting
of shareholders. If less than a quorum is present at a meeting, a majority
of the shares represented may adjourn the meeting from time to time without
further notice, and at such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have
been transacted at the meeting as originally called.
A majority of the shares of outstanding FBC Common Stock entitled to
vote, represented in person or by proxy, constitutes a quorum at a meeting
of shareholders. If less than a quorum is present at a meeting, a majority
of the shares represented may adjourn the meeting from time to time without
further notice, and at such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have
been transacted at the meet ing as originally called.
Shareholder Proposals; New Business at a Meeting
Except for the Director nomination procedures described above, the
Susquehanna Articles and Bylaws do not require advance notice of business
that shareholders wish to raise at an annual shareholders' meeting. The
Susquehanna Bylaws, however, limit the business to be transacted at a
special shareholders' meeting to the matters specified in the notice of
meeting.
Under the AI Bylaws, written notice of the purpose or purposes of a
special meeting must be given to the AI shareholders. Under the NJBCA,
only business consistent with such stated purpose may be conducted.
Under the NJBCA, FBC shareholders are entitled to written notice of
the purpose of meetings of shareholders. Only business consistent with such
stated purpose may be conducted.
Action Without Meeting
Susquehanna shareholders may take action without a meeting by
unanimous written consent.
AI shareholders may only take action at a shareholders' meeting; they
may not act by written consent.
FBC shareholders may take action without a meeting by unanimous
written consent.
Dissenters' Rights
Under the BCL, which governs the rights of Susquehanna shareholders,
shareholders are generally entitled to dissent from, and demand payment of
the fair value of their shares in connection with, a plan of merger,
consolidation, share exchange, asset transfer or division. If a
corporation's shares are held of record by more than 2,000 shareholders or
are listed on a national securities exchange, the BCL generally does not
provide dissenters' rights so long as the consideration received by
shareholders pursuant to the plan consists solely of shares of the
acquiring, surviving or new corporation (and money in lieu of fractional
shares). The BCL provides dissenters' rights where a charter amendment or
other corporate action providing for mandatory special treatment for a
specified group of holders of a class or series of stock is adopted without
a class vote of the affected group. Subchapter 25E of the BCL, which
applies to Susquehanna, also provides shareholders of a publicly traded
Pennsylvania corporation remedies similar to dissenters' rights where a
person or group acquires 20% or more of the voting power of the
corporation.
Under the NJBCA, which governs the rights of AI and FBC shareholders,
shareholders are generally entitled to dissent from, and demand payment of
the fair value of their shares in connection with, a plan of merger or
consolidation, or a sale, lease, exchange or other disposition of all or
substantially all of the assets of the corporation. Shareholders do not
have the right to dissent with respect to shares: (i) of a class or series
which is listed on a national exchange or held of record by more than 1,000
holders; or (ii) for which the shareholder will receive either cash or
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securities which, upon consummation of the merger or consolidation, will
either be listed on a national securities exchange or held of record by not
less than 1,000 holders or a combination of cash and such securities.
Preemptive Rights
Susquehanna shareholders do not have preemptive rights.
Under the AI Certificate, AI shareholders generally have the
preemptive right to acquire, in proportion to their holdings, before any
other disposition by AI of such securities: (i) unissued or treasury
shares; (ii) securities convertible into such shares; or (iii) securities
carrying a right to subscribe to or acquire such shares.
FBC shareholders do not have preemptive rights.
Limitations on Directors' Liability
The BCL permits the shareholders of a Pennsylvania corporation to
adopt a bylaw provision relieving a director (but not an officer) of
personal liability for monetary damages in certain circumstances. The
Susquehanna Bylaws do not contain such a provision.
The NJBCA provides that the certificate of incorporation of a New
Jersey corporation may expressly relieve directors from personal liability
to the corporation or its shareholders for damages resulting from a breach
of duty by such director except in cases involving breach of the duty of
loyalty or in situations involving bad faith or knowing violation of law or
resulting in receipt by the director of improper personal benefit. The AI
Certificate contains a provision allowing such relief to its Directors.
The FBC Certificate does not contain such a provision.
Indemnification
The BCL and the NJBCA provide that a business corporation may
indemnify directors, officers and other agents against liabilities they may
incur as such provided that the particular person acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the
best interests of the corporation, and, with respect to any criminal
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of actions against a director, officer or other
agent by or in the right of the corporation, the power to indemnify extends
only to expenses (not judgments and amounts paid in settlement) and such
power generally does not exist if the person otherwise entitled to
indemnification shall have been adjudged to be liable to the corporation
unless it is judicially determined that, despite the adjudication of
liability but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnification for specified expenses.
Under the BCL and the NJBCA, the corporation is required to indemnify
directors, officers or other agent against expenses they may incur in
defending actions against them in such capacities if they are successful on
the merits or otherwise in the defense of such actions. Under the BCL and
the NJBCA, a corporation may pay the expenses of a director, officer or
other agent incurred in defending an action or proceeding in advance of the
final disposition thereof upon receipt of an undertaking from such person
to repay the amounts advanced unless it is ultimately determined that such
person is entitled to indemnification from the corporation. The
Susquehanna Bylaws, the AI Bylaws and the FBC Bylaws provide
indemnification of Directors, officers and other agents and advancement of
expenses to the extent otherwise permitted by law. The Susquehanna Bylaws
condition any indemnification or advancement of expenses upon a
determination, made in accordance with the procedures specified in the BCL,
by Susquehanna's Directors or shareholders that indemnification or
advancement of expenses is proper because the Director or officer met the
standard of conduct set forth in the BCL.
The BCL grants a corporation broad authority to indemnify its
Directors, officers and other agents for liabilities and expenses incurred
in such capacity, except in circumstances where the act or failure to act
giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness. Pursuant to the
authority of the BCL, Susquehanna has entered into employment agreements
with certain principal officers which also provide for indemnification in
connection with the performance of their offices. As permitted by the BCL
and the
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Susquehanna Articles, Susquehanna maintains on behalf of its Directors and
officers insurance protection against certain liabilities arising out of
their service in such capabilities.
State Anti-Takeover Law Provisions
AI, FBC and Susquehanna are subject to various statutory "anti-
takeover" provisions of the NJBCA and the BCL, respectively. The BCL
"anti-takeover" provisions applicable to Susquehanna have been summarized
above. See "DESCRIPTION OF SUSQUEHANNA CAPITAL STOCK -- Pennsylvania Anti-
Takeover Law Provisions." The following description of certain of these
provisions is qualified in its entirety by reference to such summary and to
the statutory provisions which are filed as Exhibit 4.1 to this
Registration Statement and incorporated herein by reference.
The BCL's anti-takeover provisions are more comprehensive and
protective of the interests of the shareholders, employees, directors and
other management of a Pennsylvania corporation than the NJBCA. Unlike the
BCL, the NJBCA contains a single prophylactic, known as the "Shareholders
Protection Act," which generally follows the provisions of the BCL's
business combination statute (Subchapter 25F of the BCL). Pursuant to the
Shareholders Protection Act and Subchapter 25F of the BCL, a covered
corporation is prohibited from engaging in specified business combination
transactions with an interested shareholder (defined in general as any
beneficial owner of at least 10% of the outstanding voting stock of a New
Jersey corporation and at least 20% of the outstanding voting stock of a
Pennsylvania corporation) during the five-year period following the date
such person became an interested shareholder, unless the business
combination or share acquisition is approved by the corporation's board of
directors prior to the date such person became an interested shareholder.
Under New Jersey's Shareholders Protection Act, the prohibition
against a business combination involving an interested shareholder is
absolute during the five-year period; Subchapter 25F of the BCL, however,
would allow the business combination to proceed if it were approved by
unanimous vote of the holders of all outstanding common stock or, if the
interested shareholder owns at least 80% of the Pennsylvania corporation's
voting shares, the business combination is approved by a majority of the
holders of the Pennsylvania corporation's voting shares (not including
shares held by the interested shareholder) and the interested shareholder
complies with specified procedural and minimum fair price criteria.
After the expiration of the five-year period, a business combination
may be effected under the Shareholders Protection Act if: (i) the
transaction is approved by two-thirds of the voting stock of the New Jersey
corporation (not including shares held by the interested shareholder); or
(ii) the interested shareholder complies with specified procedural and
minimum fair price criteria. Under Subchapter 25F of the BCL, after the
five-year period, a business combination may be effected if: (i) the
transaction is approved by a majority of the holders of the Pennsylvania
corporation's voting shares (not including shares held by the interested
shareholder); or (ii) the transaction is approved by a majority of the
holders of the Pennsylvania corporation's voting shares (including shares
held by the interested shareholder) and the interested shareholder complies
with specified procedural and minimum fair price criteria.
Susquehanna is also subject to another somewhat similar Pennsylvania
law provision (BCL Section 2538) which requires transactions with an
interested shareholder to be approved by a majority of the corporation's
directors who are unaffiliated with such shareholder. As described below,
both AI and Susquehanna have charter provisions which restrict business
combinations with significant shareholders.
The BCL contains a number of additional "anti-takeover" provisions not
found in the NJBCA. Subchapter 25G of the BCL prevents a person who has
acquired 20% or more of the voting power of a covered corporation from
voting such shares unless the "disinterested" shareholders allow otherwise.
As described below, Article 10 of the Susquehanna Articles limits the
voting rights of persons acquiring more than 10% of Susquehanna's
outstanding voting shares. Subchapter 25H of the BCL requires persons who
acquire 20% of the voting power of a corporation or who announce that they
may acquire control of the corporation and then sell shares within 18
months thereafter to disgorge to the corporation profits made from such
transactions. The BCL permits, subject to dissenters' rights, an amendment
of the
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corporation's articles or other corporate action to provide mandatory
special treatment for specified groups of nonconsenting shareholders.
Both BCL and the NJBCA provide that directors may, in discharging
their duties, consider the interests of a number of different
constituencies, including shareholders, employees, suppliers, customers,
creditors and the communities in which the corporation is located.
However, the BCL states that directors are not required to consider the
interests of shareholders to a greater degree than other constituencies'
interests. Additionally, the BCL expressly provides that Directors do not
violate their fiduciary duties solely by relying on poison pills or the
anti-takeover provisions of the BCL. As described below, Susquehanna has a
charter provision which permits Directors to consider a broad number of
factors in evaluating any potential acquisition transaction.
Anti-Takeover Provisions in the Susquehanna Articles and AI and FBC
Certificates; Approval of Certain Transactions
Article 10 of the Susquehanna Articles permits, but does not require,
the Susquehanna Board of Directors to consider a variety of factors in
evaluating whether to oppose, recommend or remain neutral with respect to
an acquisition transaction. These factors include: (i) the adequacy of
the consideration being offered in relation to the current market price of
Susquehanna's securities as well as in relation to other measures of
Susquehanna's value; (ii) the economic or social effects that the
transaction might have on the employees, depositors and customers of
Susquehanna or its subsidiaries and the communities they serve; (iii) the
reputations and business practices of the offeror and its management and
affiliates; and (iv) antitrust or other legal difficulties that might be
created by the transaction. In the event that the Susquehanna Board of
Directors determines that an acquisition transaction should be opposed,
Article 10 authorizes Susquehanna's Board to take any legal action to
oppose such transaction. As noted above, the BCL specifically permits
directors, in determining what is in the best interests of a corporation,
to consider the effects of a particular action on a broad range of
constituencies that might be affected by such action.
The Susquehanna Articles also contain a "business combination" anti-
takeover provision. Article 11, in general, prohibits Susquehanna from
engaging in a broad range of business combinations with any person or group
having beneficial ownership of 20% or more of the Susquehanna shares
entitled to vote generally for the election of Directors unless such
business combination: (i) was approved by the Susquehanna Board of
Directors prior to the time such person or group acquired 10% of
Susquehanna's voting shares; (ii) is approved by 75% of Susquehanna's
voting shares where the transaction satisfies specified fair price criteria
and the 20% shareholder has complied with specified procedural
requirements; or (iii) is approved by 85% of Susquehanna's voting shares.
In addition, Article 11 requires that, regardless of whether a 20%
shareholder is involved, the following transactions must be approved by 66
2/3% of the outstanding Susquehanna shares entitled to vote on such matter:
(i) a merger or consolidation of Susquehanna with or into another
corporation; (ii) a disposition of a Susquehanna subsidiary by means of a
merger or consolidation; (iii) any merger or consolidation of a Susquehanna
subsidiary in connection with which Susquehanna issues shares in excess of
15% of its shares outstanding prior to the transaction; (iv) any sale,
lease, exchange, transfer or other disposition of all or substantially all
of Susquehanna's assets; or (v) any sale, lease, exchange, transfer or
other disposition of all or substantially all of the assets or stock of a
subsidiary accounting for more than 20% of Susquehanna's consolidated
assets.
The Susquehanna Articles also contain a provision which limits the
voting rights of any person or group acquiring more than 10% of
Susquehanna's outstanding voting shares. These limitations render it
extremely unlikely that a person or group subject to its provisions will be
able to determine the outcome of any transaction subject to Article 11.
Shares held by such person or group in excess of 10% of any class or series
of Susquehanna stock are entitled to only 1/10 of a vote per share, and all
shares held by such person or group may not cast more than 35% of the total
number of votes which all holders of a class or series of Susquehanna
shares are entitled to cast with respect to a particular matter. These
provisions limiting voting rights may not be waived or rendered
inapplicable by the Susquehanna Board of Directors. These voting rights
limitations do not apply to a person or group that consummates
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a tender offer which was an offer to acquire all outstanding Susquehanna
Common Stock and which tender offer complied with specified procedural and
fair price requirements.
In contrast to the array of anti-takeover provisions in the
Susquehanna Articles, the AI Certificate contains only two anti-takeover
provisions. Article Ninth of the AI Certificate sets forth restrictions
applicable to a business combination (defined to include: (i) a merger or
consolidation; (ii) a sale, transfer or exchange of substantial assets;
(iii) the issuance or transfer of securities; (iv) the adoption of a plan
or proposal for liquidation; or (v) a reclassification of securities)
involving an interested shareholder (generally defined as a person holding
in excess of 10% of the voting stock of AI)) unless the business
combination has been approved by two-thirds of the then-outstanding voting
stock of AI. The requirement for a two-thirds approving vote is not
applicable, and only such vote as is required by law is necessary, if the
business combination has been approved by a majority of Continuing
Directors (defined as persons independent of the interested shareholder who
were elected prior to the time the interested shareholder became an
interested shareholder) and the interested shareholder complies with
specified procedural and minimum fair price criteria. This provision of
the AI Certificate is generally similar to Article 11 of the Susquehanna
Articles.
The AI Certificate also requires the affirmative vote of the holders
of 66-2/3% or more of the outstanding shares of AI capital stock in
connection with the approval of: (i) any merger or consolidation of AI;
(ii) any sale, transfer or exchange of all or substantially all of AI's
assets; or (iii) the adoption of a plan of liquidation or dissolution of
AI. This provision applies to the AI Merger and also is generally similar
to Article 11 of the Susquehanna Articles.
The FBC Certificate also contains fewer anti-takeover provisions than
the Susquehanna Articles. Article 7 of the FBC Certificate is similar to
Article 10 of the Susquehanna Articles by allowing the FBC Board of
Directors to consider a number of factors in determining whether to oppose
a tender or other offer for the corporation's securities. These factors
include: (i) the adequacy of the consideration; (ii) whether a more
favorable price is obtainable; (iii) the impact of the transaction on FBC's
employees, depositors and the customers of FNB; and (iv) the reputation and
business practices of the offeror, among other factors. If the FBC Board
of Directors determines to oppose the tender or other offer, it may take a
number of actions including advising shareholders to reject the offer,
initiating litigation, acquiring its own securities, acquiring another
company to create antitrust or other regulatory problems, or obtaining a
more favorable offer from another source.
The only other anti-takeover provision in the FBC Certificate is
similar to Article 11 of the Susquehanna Articles and prohibits any merger,
consolidation, liquidation or dissolution of FBC, or any sale or other
disposition of all or substantially all of its assets unless approved by
the affirmative vote of the holders of at least 70% of the outstanding FBC
Common Stock. This provision is applicable to the FBC Merger.
Amendment of Certificates of Incorporation and Articles of Incorporation
The Susquehanna Articles generally may be amended by the shareholders
by the affirmative vote of a majority of the votes cast by all shareholders
entitled to vote thereon. The Susquehanna Articles provide, however, that
the provisions set forth in Articles 8 (relating to amendment of the
Susquehanna Bylaws), 9 (relating to shareholder action by written consent),
10 (relating to the authority to take measures to oppose certain
acquisition transactions) and 12 (relating to amendment of the Susquehanna
Articles) may not be amended, altered, changed or repealed without the vote
of 75% of the outstanding Susquehanna shares entitled to vote. Article 11
(relating to certain business combinations) may only be amended by vote of
85% of the outstanding Susquehanna shares entitled to vote (75% if the
amendment is approved by 85% of a Board consisting only of "Continuing
Directors", as such term is defined in Article 11). Article 14 (relating
to the voting rights of shares held by certain substantial shareholders)
may only be amended by vote of 85% of the outstanding Susquehanna shares
entitled to vote (two thirds if the amendment is first approved by two
thirds of a Board consisting only of "Continuing Directors", as such term
is defined in Article 14).
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The NJBCA provides in general that unless the certificate of
incorporation provides otherwise, a New Jersey corporation may amend any
provision of its certificate of incorporation upon board approval, written
notice of the amendment to shareholders, and approval by the affirmative
vote of a majority of votes cast by the holders of shares at the meeting
called for such purpose. Article Ninth of the AI Certificate, described
above, prohibits amendment to such Article unless approved by the holders
of 66-2/3% of the outstanding voting stock of AI.
Similarly, the FBC Certificate prohibits amendment to Article 11,
described above, without the approval of seventy percent (70%) or more of
the outstanding FBC Common Stock.
Amendment of Bylaws
The Susquehanna Board of Directors is authorized to amend the
Susquehanna Bylaws, subject to the right of the shareholders to change such
action by vote of 75% of the outstanding Susquehanna shares entitled to
vote (considered for this purpose as a single class) cast at a meeting of
the shareholders called for that purpose.
The AI Bylaws may be amended or changed by a majority of AI Directors,
subject to the right of the AI shareholders to change such action.
The FBC Bylaws may be amended or changed by a majority of the FBC
Directors, subject to the right of the FBC shareholders to change such
action.
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DIVIDENDS AND MARKET PRICES OF SECURITIES
Susquehanna
Susquehanna Common Stock is traded in the over-the-counter market and
quoted on The Nasdaq Stock Market under the symbol "SUSQ." On October 1,
1996, there were 13,173,024 shares outstanding and approximately 5,712
shareholders of record. Set forth below are the high and low sales prices
of Susquehanna Common Stock as reported on The Nasdaq Stock Market for the
first two quarters of calendar 1996, and the four quarters of calendar 1995
and calendar 1994. Also set forth below are the cash dividends declared
during such periods.
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ----------------------- -----------------------
Market Dividends Market Dividends Market Dividends
Price Declared Price Declared Price Declared
------------- --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ 26.00-30.00 $.29 $21.50-24.25 $.27 $23.75-28.00 $.25
2nd Quarter $ 26.75-29.50 $.29 $22.50-24.00 $.27 $23.75-25.00 $.25
3rd Quarter $ 27.25-30.625 $.29 $23.25-28.25 $.27 $23.50-24.25 $.25
4th Quarter N/A N/A $26.00-30.25 $.29 $21.25-24.75 $.27
</TABLE>
The last sale price on July 18, 1996, the last trading day before the
announcement of the AI Merger and the FBC Merger, was $27.75 per share.
AI
There is no established trading market for the AI Common Stock.
Transactions in AI Common Stock have occurred infrequently in the over-the-
counter market. On the AI Record Date, there were 771,750 shares
outstanding and approximately 311 shareholders of record. Set forth below
are the high and low bid and offer prices of AI Common Stock as reported in
the over-the-counter market for the period October 1 through November 4,
1996, the first three quarters of 1996 and the four quarters of 1995 and
1994. All amounts have been adjusted to reflect the stock dividends paid on
February 18, 1994, February 24, 1995 and February 26, 1996 as described
below.
<TABLE>
<CAPTION>
Market Price
----------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
1st Quarter $11.00-11.75 $ 7.60-9.86 $ 9.48-11.39
2nd Quarter $14.00-14.75 $ 7.96-8.91 $12.64-14.44
3rd Quarter $14.00-28.50 $ 9.74-11.76 $12.64-13.54
4th Quarter (through
November 4, 1996) $26.25-28.00 $11.16-11.40 $11.69-13.90
</TABLE>
A stock dividend of 8.14 shares for each 100 shares held was paid on
February 18, 1994 to shareholders of record on January 19, 1994. Cash was
paid to shareholders in lieu of the issuance of fractional shares. The
total cash compensation paid to shareholders in lieu of the issuance of
fractional shares was $1,900.50. The fractions totaled 181 shares and were
purchased by Frank Bartolone, a director of AI, at a price of $10.50 per
share.
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<PAGE>
A stock dividend of 5 shares held was paid on February 24, 1995 to
shareholders of record on January 25, 1995. Cash was paid to shareholders
in lieu of the issuance of fractional shares. The total cash compensation
paid to shareholders was $2,171.00. The fractions totaled 167 shares, 84 of
which were purchased by Frank Bartolone and 83 of which were purchased by
Walter Crossley at $13.00 per share. Both are directors of AI.
A stock dividend of 5 shares for each 100 shares held was paid on
February 26, 1996 to shareholders of record on February 16, 1996. Cash was
paid to shareholders in lieu of the issuance of fractional shares. The
total cash compensation paid to shareholders was $1,937.00. The fractions
totaled 149 shares which were purchased at $13.00 per share by Frank
Bartolone, a director of AI.
AI has not paid a cash dividend on its Common Stock, which has been
outstanding since January 1, 1989. Prior to the reorganization, ENB had not
paid any dividends on its Common Stock since 1982. AI has paid stock
dividends on five occasions since its formation. The Board of Directors of
AI intends to continue paying stock dividends based upon adequate earnings.
However, there can be no assurance as to future dividends in cash or in
stock.
FBC
There is no established trading market for FBC's Common Stock and
there has been only very limited trading in the FBC's Common Stock.
Management of FBC is aware of certain transfers of the Common Stock over
the past two years at per share prices ranging from $50.00 to $64.00
(adjusted for the 10% stock dividend paid in 1995 and the 3 for 1 stock
split paid in 1995). The most recent transaction of which management is
aware is the sale of an aggregate of 184 shares of FBC's Common Stock at
$64.00 per share on August 15, 1996. This price should not be considered
indicative of the current market price of FBC's Common Stock.
In 1995, FBC distributed a 10% stock dividend on its Common Stock and
paid a 3 for 1 stock split.
The Table below lists cash dividends paid for the first half of 1996,
and the two halves of 1995 and 1994 (adjusted for the aforementioned stock
dividend and stock split).
<TABLE>
<CAPTION>
1996 1995 1994
Dividends Dividends Dividends
Paid Paid Paid
--------- --------- ---------
<S> <C> <C> <C>
1st half $0.75 $0.60 $0.53
2nd half N/A $0.65 $0.68
</TABLE>
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REGULATIONS AFFECTING DIVIDENDS
Susquehanna
Susquehanna's ability to pay dividends is largely dependent upon receipt of
dividends from its commercial bank and federal savings bank subsidiaries.
Susquehanna's banking subsidiaries include three national banks, a Maryland
state-chartered bank, a Pennsylvania state-chartered bank and three federal
savings banks. Both federal and state laws impose restrictions on the ability of
these banking subsidiaries to pay dividends.
Under federal law, the approval of the Comptroller of the Currency
("Comptroller") is required for the payment of dividends in any calendar year by
a subsidiary national bank if the total of all dividends declared by such bank
in a calendar year exceeds that bank's net profits for that year combined with
its retained net profits for the preceding two calendar years. Moreover, no
dividends may be paid by a national bank if its "losses" equal or exceed its
undivided profits account, and no dividend may be paid in an amount in excess of
its "net profits then on hand." In addition, the Comptroller may find a dividend
payment that meets the criteria specified in the law to constitute an unsafe or
unsound practice.
Federal law and regulations provide that federal savings banks are not
permitted to pay dividends on capital stock if their regulatory capital would
thereby be reduced below the amount then required for the liquidation account
established for the benefit of certain depositors at the time such savings bank
converted to stock form. In addition, federal savings banks which are
subsidiaries of holding companies (as in the case of Susquehanna and its federal
savings bank subsidiaries) are required to give the Office of Thrift Supervision
(the "OTS") 30 days' prior notice of any proposed declaration of dividends to
the holding company.
Federal regulations impose additional limitations on the payment of
dividends and other capital distributions by federal savings banks. Under these
regulations, a savings bank that, immediately prior to, and on a pro forma basis
after giving effect to, a proposed capital distribution, has capital (as defined
by OTS regulation) that is equal to or greater than the amount of its fully
phased-in capital requirements (a "Tier 1 Institution") generally is permitted
without OTS approval to make capital distributions during a calendar year in an
aggregate amount equal to the greater of: (i) up to 100% of its net income to
date during the calendar year plus an amount that would reduce by one-half the
amount by which its total capital exceeded its fully phased-in risk-based
capital requirements at the beginning of the calendar year; or (ii) up to 75% of
its net income for the previous four quarters. A federal savings bank with total
capital in excess of current minimum capital requirements but not in excess of
the fully phased-in requirements (a "Tier 2 Institution") is permitted to make
capital distributions without OTS approval of up to between 25% and 75% of its
net income for the previous four quarters, less dividends already paid for such
period, depending upon the savings bank's level of risk-based capital. A federal
savings bank that fails to meet current minimum capital requirements (a "Tier 3
Institution") is prohibited from making any capital distributions without the
prior approval of the OTS. A Tier 1 Institution that has been notified by the
OTS it is in need of more than normal supervision will be treated as either a
Tier 2 or Tier 3 Institution. Susquehanna expects that each of its federal
savings bank subsidiaries will continue to meet its fully phased-in capital
requirements and to continue to be authorized to pay dividends in accordance
with the provisions of the OTS regulations discussed above as Tier 1
Institutions.
Effective December 19, 1992, federal savings banks are further prohibited
from making any capital distributions if, after making the distribution, a
federal savings bank would have: (i) a total risk-based capital ratio of less
than 8%; (ii) a Tier 1 risk-based capital ratio of less than 4%; or (iii) a
leverage ratio of less than 4%.
In addition to the foregoing, earnings of federal savings banks
appropriated to bad debt reserves and deducted for federal income tax purposes
are not available for payment of cash dividends or other distributions without
payment of taxes at the then-current tax rate on the amount of earnings removed
from the reserves for such distributions.
Under Pennsylvania law, dividends payable to Susquehanna are restricted to
the extent that each Pennsylvania state-chartered bank is required to set aside
to a surplus fund each year at least 10% of its net earnings until such surplus
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equals the amount of its capital. Furthermore, the payment of a dividend
may not be made if it results in the reduction of the surplus available to
the bank.
In accordance with the above regulatory restrictions, each of
Susquehanna's banking subsidiaries has the ability to pay dividends and
at June 30, 1996 $43,793,000 was available for the payment of dividends to
Susquehanna.
AI
AI's ability to pay dividends is largely dependent upon receipt
of dividends from ENB.
Under federal law, the approval of the Comptroller is required
for the payment of dividends in any calendar year by a subsidiary national
bank if the total of all dividends declared by such bank in a calendar year
exceeds that bank's net profits for that year combined with its retained
net profits for the preceding two calendar years. Moreover, no dividends
may be paid by a national bank if its "losses" equal or exceed its
undivided profits account, and no dividend may be paid in an amount in
excess of its "net profits then on hand." In addition, the Comptroller may
find a dividend payment that meets the criteria specified in the law to
constitute an unsafe or unsound practice.
In accordance with the regulatory restrictions described above,
as of June 30, 1996, ENB had approximately $1,848,000 available for the
payment of dividends. AI is not permitted to pay dividends prior to the AI
Merger Effective Date.
FBC
FBC's ability to pay dividends is largely dependent upon receipt
of dividends from FNB.
Under federal law, the approval of the Comptroller is required
for the payment of dividends in any calendar year by a subsidiary national
bank if the total of all dividends declared by such bank in a calendar year
exceeds that bank's net profits for that year combined with its retained
net profits for the preceding two calendar years. Moreover, no dividends
may be paid by a national bank if its "losses" equal or exceed its
undivided profits account, and no dividend may be paid in an amount in
excess of its "net profits then on hand." In addition, the Comptroller may
find a dividend payment that meets the criteria specified in the law to
constitute an unsafe or unsound practice.
In accordance with the regulatory resolutions discussed above, as
of June 30, 1996, FNB had approximately $2,029,000 available for the
payment dividends to FBC. The FBC Merger Agreement permits FBC to make
normal dividend payments to its shareholders, consistent with past
practice, prior to the FBC Merger Effective Date.
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BUSINESS OF AI
General
AI, a New Jersey business corporation, is a bank holding company
whose sole subsidiary is ENB, a national banking association formerly named
Atco National Bank. AI was organized at the direction of the Board of
Directors of ENB in August 1988 to acquire all of the capital stock of ENB
pursuant to a Plan of Reorganization adopted by the Board of Directors of
ENB and subsequently approved on December 14, 1988 by the shareholders of
ENB. Under the terms of the Plan of Reorganization, each outstanding share
of common stock and preferred stock of ENB was converted into shares of the
Common Stock of AI, and ENB became a wholly-owned subsidiary of AI, all
effective as of December 31, 1988.
AI acts as a holding company and does not directly engage in any
substantial business activities. AI functions primarily as a holder of all
of ENB's capital stock. As a bank holding company subject to the
jurisdiction of the Federal Reserve Board, AI has the legal capacity to
acquire or form additional subsidiaries, including other banks and
companies engaged in nonbanking activities which the Federal Reserve Board
has found to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. Holding companies may also
directly engage in such related nonbanking activities. The types of
nonbanking activities which are currently permissible are subject to change
by the Federal Reserve Board. Although AI has no present plans to engage in
such activities, it may choose to do so in the future. At September 30,
1996, AI had 314 shareholders of record.
Lending Activities
ENB, established in 1925, is a national banking association under
the supervision of the Comptroller. ENB's headquarters is located at 2155
Atco Avenue, Atco, New Jersey 08004.
ENB conducts a general commercial banking business embracing
substantially all of the traditional lending and deposit functions of a
local commercial bank in New Jersey. ENB's services include accepting time,
demand and savings deposits, including interest-bearing accounts, regular
savings accounts, money fund accounts, money market certificates, fixed
rate certificates of deposit and club accounts. ENB's services also include
making secured commercial and consumer loans, financing commercial
transactions and making construction and mortgage loans. Additional
services include providing residential mortgage loans, home equity lines of
credit, revolving credit loans, small business loans and financing on new
car and truck loans.
ENB also offers travelers checks and safe deposit facilities. In
addition to regular business hours, ENB offers 24 hour, 7 days a week
automated banking services through its MAC system membership. ENB does not
provide trust or agency facilities, as do some of its competitors, nor does
it currently transact any international business.
In addition to its main office and operations center, ENB has
four full-service branch offices. One is located in Atco, New Jersey, the
second branch office is located in Evesham Township, New Jersey, the third
is located in Cherry Hill, New Jersey and the fourth is located in
Moorestown, New Jersey.
ENB has an additional office under construction, in Audubon, New
Jersey. This office is expected to open in the fall of 1996. ENB has also
applied for regulatory approval to open a branch office in Cinnaminson, New
Jersey. Additional sites are being explored for more branch offices.
ENB has one subsidiary, AT Corp., a Delaware corporation, which
is a passive investment company whose sole activity is to manage the
majority of ENB's investments.
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Regulation
AI. AI is registered as a bank holding company under the Holding
--
Company Act, and is therefore subject to regulation by the Federal Reserve
Board. AI is required to file periodic reports of its operations with, and
is subject to inspection by, the Federal Reserve Board.
Under the policy of the Federal Reserve Board with respect to
bank holding company operations, a bank holding company is deemed to serve
as a source of financial strength to its subsidiary depository institutions
and to commit resources to support such institutions in circumstances where
it might not do so absent such policy. Under the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is
required to guarantee that any "undercapitalized" (as such term is defined
in the statute) insured depository institution subsidiary will comply with
the terms of any capital restoration plan filed by such subsidiary with its
appropriate federal banking agency.
AI, as an "affiliate" of ENB within the meaning of the Federal
Reserve Act, is subject to certain restrictions under the Holding Company
Act regarding extensions of credit to it by ENB, investments in the stock
or other securities of AI by ENB and the use of stock or other securities
of AI as collateral for loans by ENB to any borrower. Further, under the
Holding Company Act and Federal Reserve Board regulations, a bank holding
company and its subsidiaries are prohibited from engaging in certain
arrangements in connection with any extension of credit. These provisions
generally provide that a bank may not extend credit, lease or sell property
or furnish any service or fix or vary the consideration for any of the
foregoing to a customer on the condition or requirement that the customer
provide some additional credit, property or service to the bank, the bank's
holding company or any other subsidiary of the bank's holding company, or
on the condition or requirement that the customer not obtain other credit,
property or services from a competitor of the bank, the bank's holding
company or any other subsidiary of the bank's holding company.
ENB. The earnings of ENB are affected by the policies of
---
regulatory authorities, including the Comptroller, the Federal Reserve
Board and the FDIC. An important function of the Federal Reserve System is
to regulate the money supply and interest rates. Among the instruments used
to implement those objectives are open market operations in United States
government securities, changes in reserve requirements against member bank
deposits, and limitations on interest rates that member banks may pay on
time and savings deposits. These instruments are used in varying
combinations to influence overall growth and distribution of bank loans,
investments, and deposits, and their use may also affect rates charged on
loans or paid for deposits.
ENB is a member of the Federal Reserve System and, therefore, the
policies and regulations of the Federal Reserve Board have had and will
continue to have a significant effect on its deposits, loans, and
investment growth, as well as the rate of interest earned and paid, and are
expected to affect ENB's operations in the future. The effect of such
policies and regulations upon the future business and earnings of ENB
cannot be predicted. The Federal Reserve System also regulates the
activities of AI.
FDICIA requires prompt corrective action against undercapitalized
institutions and has established five capital categories. These are well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Well capitalized
institutions significantly exceed the required minimum level for each
capital measure (currently, risk-based and leverage). Adequately
capitalized includes depository institutions that meet the required minimum
level for each capital measure. Undercapitalized represents depository
institutions that fail to meet the required minimum level for any relevant
capital measure. Significantly undercapitalized describes depository
institutions that are significantly below the capital minimum requirements.
Currently ENB and AI are considered well capitalized.
Under the Community Reinvestment Act, as amended ("CRA"), as
implemented by regulations of the Comptroller, a bank has a continuing and
affirmative obligation, consistent with its safe and sound operation, to
help meet the credit needs of its entire community, including low and
moderate income neighborhoods. The CRA does not establish requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the
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types of products and services that it believes are best suited to its
particular community, consistent with the CRA. The CRA requires the
Comptroller to assess an institution's record of meeting the credit needs
of its community and to take such record into account in its evaluation of
certain applications by such institution. The CRA requires public
disclosure of an institution's CRA rating and requires that the Comptroller
provide a written evaluation of an institution's CRA performance utilizing
a four-tiered description rating system. An institution's CRA rating is
considered in determining whether to grant charters, branches and other
deposit facilities, relocations, mergers, consolidations and acquisitions.
A less than satisfactory performance may be the basis for denying an
application. In 1995 ENB received a satisfactory rating.
Competition
ENB's principal market is in Camden County, a portion of southern
Burlington County and northern Atlantic County, New Jersey. In this area
ENB competes primarily with other banks, savings and loan associations,
mutual savings banks and credit unions, as well as brokerage firms and
insurance companies. ENB also competes with mortgage bankers, finance
companies and leasing companies in certain aspects of its lending business.
Many of its competitors have significantly greater financial resources than
ENB and larger branch networks. Some of these competitors also have
advantages as a result of the different regulations under which they
operate and other factors, including size and convenience of location.
The business of ENB is not dependent upon any single customer and
the loss of any single or any few customers would not have a material
adverse impact upon ENB.
Employees
At September 30, 1996, ENB had 75 full-time and 23 part-time
employees. ENB believes that its relations with its employees are good. AI
presently has no employees.
Certain Relationships and Related Party Transactions
During 1995 and 1996 to date, AI did not extend any credit to,
nor did it have any transactions with, any of its Directors, executive
officers or holders of at least 5% of AI's outstanding shares of Common
Stock or any members of the immediate families of the foregoing persons.
Since January 1, 1996, the maximum amount of credit extended by ENB to AI's
and ENB's Directors, executive officers and holders of at least 5% of AI's
outstanding shares of Common Stock, as a group, was approximately
$4,790,698 on June 30, 1996, which amount was equal to approximately 47% of
ENB's equity capital accounts as of that date.
All extensions of credit to Directors, executive officers and
major shareholders of AI, and their associates, by ENB have been, and are
expected to be, banking transactions in the ordinary course of business on
substantially the same terms, including interest rates and collateral for
loans, as those prevailing at the time for comparable transactions with
unaffiliated parties, and not involving more than the normal risk of
collect ability or presenting other unfavorable features. There were no
defaults under the terms of any extension of credit from ENB to any
Director, executive officer or major shareholder.
During 1995 and 1996 to date, ENB paid approximately $69,000 and
$27,000, respectively, for legal services to law firms in which several of
its Directors are associated, which practice ENB anticipates will continue
in the future.
Litigation
In September 1991, the Comptroller completed an examination of
ENB. As a result of the examination, the Comptroller advised the Board of
Directors of ENB of its concerns regarding the overall condition of ENB and
requested that the Board of Directors of ENB agree to develop and institute
certain remedial programs to respond to
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<PAGE>
the Comptroller's concerns. To memorialize the agreement, ENB entered into
a commitment letter in which the Board of Directors of ENB agreed, among
other things, to take steps to develop a strategic plan, review management
and staffing, improve loan administration and develop a capital plan.
Management has responded to all of the Comptroller's concerns, and in their
opinion, have met all mandates of the commitment letter. Effective
February 23, 1994, the Comptroller concluded ENB had achieved substantial
compliance with the commitment letter. As a result, the Comptroller
removed ENB from its special supervision program and terminated the
commitment letter.
Gerald Pliner was a member of ENB's Board of Directors from 1977
to June 1987, and is the direct owner of approximately 2.3% of the
outstanding Common Stock. His two sisters collectively own approximately
2.1% of the outstanding Common Stock. A pension trust in which Mr. Pliner
and his two sisters are beneficiaries owns approximately 21.2% of the
outstanding Common Stock. Mr. Pliner disclaims beneficial ownership of the
shares owned by his sisters, and the shares owned by such pension trust not
attributable to his account. See "Security Ownership of Certain Beneficial
Owners and Management."
As a result of Mr. Pliner's having entered into a plea agreement
with the United States Attorney's Office for the District of New Jersey,
relating to certain alleged occurrences between 1980 and 1982 involving Mr.
Pliner's activities in his capacity as a Director of ENB, on December 27,
1987, the Comptroller issued an order of removal, prohibiting Mr. Pliner
from participating in any manner in the conduct of the affairs of ENB. This
prohibition remains in effect as of the date hereof and includes barring
Mr. Pliner from voting his shares in AI without the prior written approval
of the appropriate regulatory agency.
The nature of ENB's business generates a certain amount of
litigation involving matters arising in the ordinary course of business. At
the present time no material proceedings are pending or are known to be
threatened or contemplated against ENB by government authorities. There is
no litigation or material proceedings by government authorities or others
pending, or known to be threatened or contemplated, against AI.
Properties
AI does not own any real property. ENB owns the following
properties which are used by ENB in its day-to-day operations:
Main office: 2155 Atco Avenue, Atco, Waterford Township, Camden County,
New Jersey
Branch Office: 249 White Horse Pike, Atco, Waterford Township, Camden
County, New Jersey
Operations Center: 368 White Horse Pike, Atco, Waterford Township, Camden
County, New Jersey
All of the properties owned by ENB are free and clear of
encumbrances. ENB is in the process of purchasing property in Cinnaminson,
New Jersey at which it expects to open and operate a branch office.
The main office and branch offices of ENB are used only for the
purpose of banking offices. Approximately half of the operations center
houses ENB's data processing center, customer records and records retention
personnel. The remaining half is leased to businesses who have no
connection with ENB except as customers.
ENB may hold title to properties as a result of foreclosure
actions to collect past due loans.
ENB leases space in Marlton, Evesham Township, Burlington County,
New Jersey, at Route 73 and Marlton Parkway, in the Sagemore Complex. This
location serves as an additional branch office of ENB and the Executive
Offices of AI. The Cherry Hill office at 901 N. Kings Highway and the
Moorestown office at 501 S. Lenola Road are leased and the office under
construction in Audubon, New Jersey is under a lease agreement.
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BUSINESS OF FBC
General
FBC, a one bank holding company, was formed in 1985 and became
the parent company of FNB effective in 1986. Other than FNB, FBC has no
material subsidiaries. FNB is a nationally-chartered banking institution
organized under the banking laws of the United States of America which
commenced operations in 1903.
FNB provides its banking services through its main office located
at 114 North Main Street, Mullica Hill, New Jersey and its one branch
office located at Route 322, Richwood, New Jersey.
FNB is an independent community bank which seeks to provide
personal attention and professional financial assistance to its customers.
FNB is a locally managed and locally oriented financial institution
established to serve the needs of small and medium size businesses and
retail customers residing in the communities served by FNB. FNB's business
philosophy includes offering direct access to its President and other
officers; providing friendly, informed and courteous service; local and
timely decision making; flexible and reasonable operating procedures and
consistent credit policies. FNB solicits small and medium size businesses
located primarily within FNB's primary market area that borrow in the
$50,000 to $1,000,000 range.
FNB conducts a general commercial banking business embracing
substantially all of the traditional deposit and lending functions of a
local commercial bank in New Jersey. These functions include primarily
receiving demand, time and savings deposits of individuals, firms,
municipalities and corporations and making commercial and consumer loans,
including automobile loans, personal lines of credit, home equity and other
real estate loans. FNB's deposits are insured by the FDIC to the maximum
extent permitted by law. FNB is a member of the Federal Reserve System.
FNB also offers travelers checks, safe deposit, and collection
and mortgage origination facilities. In addition to the regular business
hours, FNB also offers 24 hour, 7 day a week automated banking services
through its MAC system membership. FNB does not provide trust or agency
facilities, as do some of its competitors, nor does it currently transact
any foreign or international business.
FNB has a relatively stable deposit base and no material amount
of deposits is obtained from a single depositor. At June 30, 1996, Public
Funds (Municipal Deposits, etc.) as a group of depositors, represented
6.34% of total deposits. FNB has not experienced any significant seasonal
fluctuations in the amount of its deposits.
Regulation
FBC. FBC is registered as a "bank holding company" under the
---
Holding Company Act, and is therefore subject to regulation by the Federal
Reserve Board.
Under the Holding Company Act, FBC is required to secure the
prior approval of the FRB before it can merge or consolidate with any other
bank holding company or acquire all or substantially all of the assets of
any bank that is not already majority owned by it, if after such
acquisition, it would directly or indirectly own or control more than five
percent of the voting stock of such bank.
FBC is prohibited under the Holding Company Act from engaging in,
or acquiring direct or indirect control of more than 5% of the voting
shares of any company engaged in, nonbanking activities unless the Federal
Reserve Board, by order or regulation, has found such activities to be so
closely related to banking or managing or controlling banks as to be a
proper incident thereto. In making such a determination, the Federal
Reserve Board considers whether the performance of these activities by a
bank holding company can reasonably be expected to produce benefits to the
public which outweigh the possible adverse effects. The Federal Reserve
Board has by regulation determined that certain activities are closely
related to banking within the meaning of the Holding Company Act. These
activities
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include, among others, operating a mortgage, finance, credit card or
factoring company; performing certain data processing operations; providing
investment and financial advice; acting as an insurance agent for certain
types of credit-related insurance; leasing personal property on a full
payout, non-operating basis; and certain stock brokerage and investment
advisory services.
Under the policy of the Federal Reserve Board with respect to
bank holding company operations, a bank holding company is deemed to serve
as a source of financial strength to its subsidiary depository institutions
and to commit resources to support such institutions in circumstances where
it might not do so absent such policy. Under the FDICIA, a bank holding
company is required to guarantee that any "undercapitalized" (as such term
is defined in the statute) insured depository institution subsidiary will
comply with the terms of any capital restoration plan filed by such
subsidiary with its appropriate federal banking agency to the lesser of (i)
an amount equal to 5% of the institution's total assets at the time the
institution became undercapitalized, or (ii) the amount which is necessary
(or would have been necessary) to bring the institution into compliance
with all capital standards as of the time the institution failed to comply
with such capital restoration plan.
In addition, under the Holding Company Act, FBC is required to
file periodic reports of its operations with, and is subject to examination
by, the Federal Reserve Board.
FBC, as an affiliate of FNB, within the meaning of the Federal
Reserve Act, is subject to certain restrictions under the Holding Company
Act regarding extensions of credit to it by FNB, investments in the stock
or other securities of FBC by FNB, and the use of stock or other securities
of FBC as collateral for loans by FNB to any borrower. Further, under the
Holding Company Act and the Federal Reserve Board regulations, a bank
holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or
provision of credit of any property or services. These so-called "anti-tie-
in provisions" generally provide that a bank may not extend credit, lease
or sell property or furnish any service or fix or vary the consideration
for any of the foregoing to a customer on the condition or requirement that
the customer provide some additional credit, property or service to the
bank, to the bank's holding company or to any other subsidiary of the
bank's holding company on the condition or requirement that the customer
not obtain other credit, property or services from a competitor of the
bank, the bank's holding company or any subsidiary of the bank's holding
company.
FNB. FNB, as a nationally-chartered commercial bank, is subject
---
to the National Bank Act, as amended. FNB is subject to the supervision of,
and to regular examination by, the Comptroller and is required to furnish
periodic reports to the Comptroller. FNB as a member of the Federal Reserve
System, is also subject to regulation by the Federal Reserve Board. The
approval of the Comptroller is necessary for the establishment of any
additional branch offices by any national bank subject to applicable state
law restrictions. Under the present New Jersey Law, FNB may operate offices
at any location in New Jersey, approved by the Comptroller. See "Recent
Legislation."
The aspects of the lending and deposits business of FNB which is
regulated by the above mentioned agencies include, among others, personal
lending and mortgage lending. The operations of FNB are also subject to
numerous Federal, state and local laws and regulations which set forth
specific restrictions and procedural requirements with respect to the
extension of credit, credit practices, the disclosure of credit terms and
discrimination in credit transactions.
FNB, as an institution the deposits of which are insured by the
Bank Insurance Fund ("BIF") of the FDIC, is subject to an insurance
assessment imposed by the FDIC. The insurance assessment paid by BIF-
insured institutions is determined under a risk-based assessment system.
Under this system, banks pay a semi-annual assessment at a rate which is
based upon the assessment risk classification assigned to the bank by the
FDIC. In determining the assessment risk classification, the FDIC assigns
each bank to one of the three capital groups and within each capital group
to one of the three supervisory subgroups. Depending upon the assessment
risk classification assigned to the bank, the semi-annual assessments paid
by the banks range from 0.00% (minimum semi-annual premium of $1,000.00) of
an institution's average assessment base for the banks assigned to the
highest capital group and highest supervisory subgroup to 0.31% for banks
assigned to the lowest capital group and lowest supervisory subgroup. Banks
are notified
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of the assessment risk classification by the first day of the month
preceding each semi-annual period. FNB's current assessment rate is 0.00%
(minimum semi-annual premium of $1,000.00).
Under the CRA, as implemented by Comptroller regulations, a bank
has a continuing and affirmative obligation consistent with its safe and
sound operation to help meet the credit needs of its entire community,
including low and moderate-income neighborhoods. CRA does not establish
specific lending requirements or programs for financial institutions nor
does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with CRA. CRA requires the Comptroller to assess an
institution's record of meeting the credit needs of its community and to
take such record into account in its evaluation of certain applications by
such institution. The CRA requires public disclosure of an institution's
CRA rating and requires that the Comptroller provide a written evaluation
of an institution's CRA performance utilizing a four-tiered description
rating system. An institution's CRA rating is considered in determining
whether to grant charters, branches and other deposit facilities,
relocations, mergers, consolidations and acquisitions. Performing less than
satisfactory may be the basis for denying an application. In 1995 FNB
received a satisfactory rating.
Federal Reserve System. FNB is a member of the Federal Reserve
----------------------
System. The Federal Reserve Board requires FDIC-insured financial
institutions to maintain reserves against their transaction accounts and
non-personal time deposits. The amounts and percentages of the reserve
requirements are subject to adjustment by the Federal Reserve Board.
As a consequence of the extensive regulation of commercial
banking activities in the United States, FNB's business is particularly
susceptible to being affected by Federal and state legislation and
regulations which may have the effect of increasing the costs of doing
business.
Effect of Governmental Policy
One of the most significant factors affecting FNB's earnings is
the difference between the interest rates paid by FNB on its deposits and
its other borrowings and the interest rates earned by FNB on loans to its
customers and securities owned by FNB. The yields of its assets and the
rates paid on its liabilities are sensitive to changes in prevailing rates
of interest. Thus, the earnings and growth of FNB will be influenced by
general economic conditions, the monetary and fiscal policies of the
Federal government, and the policies of regulatory agencies, particularly
the Federal Reserve Board, which implements national monetary policy. An
important function of the Federal Reserve System is to regulate the money
supply and credit conditions in order to mitigate recessionary and
inflationary pressures. Among the techniques used to implement these
objectives are open market operations in U.S. Government securities and
changes in reserve requirements of banks and in the discount rate on bank
borrowings. These techniques influence overall growth and distribution of
credit, bank loans, investments and deposits, and may also effect interest
rates charged on loans or paid on deposits. The nature and impact of any
future changes in monetary policies cannot be predicted.
From time to time, legislation has been enacted which has the
effect of increasing the cost of doing business, limiting or expanding
permissible activities, or affecting the competitive balance between banks
and other financial institutions. Legislative proposals which could affect
FBC and the banking business in general have been proposed and may be
introduced before the United States Congress and other governmental bodies.
These proposals may alter FBC's structure, regulation, disclosure, and
reporting requirements. In addition, various banking regulatory agencies
frequently propose rules and regulations to implement and enforce existing
legislation. It cannot be predicted whether or in what form any such
legislation or regulations will be enacted or the extent to which the
business of FRB would be affected thereby.
Recent Legislation
On September 29, 1994, the President signed into law the "Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994" (the
"Interstate Act"). Among other things, the Interstate Act permits bank
holding companies to acquire banks in any state one year after enactment.
Beginning June 1, 1997, a bank may merge with a bank in
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another state so long as both states have not opted out of interstate
branching between the date of enactment of the Interstate Act and May 31,
1997. States may enact laws opting out of interstate branching before June
1, 1997, subject to certain conditions. States may also enact laws
permitting interstate merger transactions before June 1, 1997 and host
states may impose conditions on a branch resulting from an interstate
merger transaction that occurs before Federal law and does not apply or
require performance after May 31, 1997. Interstate acquisitions and
mergers would both be subject, in general, to certain concentration limits
and state entry rules relating to the age of the bank.
Under the Interstate Act, the Federal Deposit Insurance Act is
amended to permit the responsible Federal regulatory agency to approve the
acquisition of a branch of an insured bank by any out-of-state bank or bank
holding company without the acquisition of the entire bank or the
establishment of a "de novo" branch only if the law of the state in which
the branch is located permits out-of-state banks to acquire a branch of a
bank without acquiring the bank or permits out-of-state banks to establish
"de novo" branches.
New Jersey recently passed legislation opting-in early to
interstate bank mergers and allowing out-of-state banks and bank holding
companies to branch in New Jersey by the acquisition of a branch without
the acquisition of the entire bank.
The foregoing necessarily is a summary and general description of
certain provisions of each of the Insurance Act and the Interstate Act does
not purport to be complete. Many of the provisions of each will be
implemented through the adoption of regulations by the various Federal
banking agencies. Moreover, many of the significant provisions of the
legislation have not yet become effective. As of the date hereof, FBC is
continuing to study the legislation and regulations relating to the
legislation but cannot yet assess its impact on FBC.
Competition
FNB currently provides retail and commercial banking services,
through its two offices in Gloucester County in Southern New Jersey.
As of June 30, 1996, FNB (exclusive of holding company assets and
liabilities) had total assets of $85,399,000, total deposits of $74,718,000
and total stockholders' equity of $10,236,000.
FNB competes with other banking and financial institutions in its
two primary market communities, including financial institutions with
resources substantially greater than its own. Commercial banks, savings
banks, savings and loan associations, credit unions and money market funds
actively compete for savings and time deposits and for many types of loans.
Such institutions, as well as consumer finance and insurance companies, may
be considered competitors of FNB with respect to one or more of the
services it renders.
In commercial transactions, FNB's legal lending limit to a single
borrower (approximately $1.5 million, as of June 30, 1996) enables it to
compete effectively for the business of smaller businesses. However, this
legal lending limit is considerably lower than that of various competing
institutions and thus may act as a constraint of FNB's effectiveness in
competing for financings in excess of these limits.
In consumer transactions, FNB believes that it is able to compete
on a substantially equal basis with larger financial institutions because
it offers personalized services and competitive interest rates on savings
and time accounts with low minimum deposit requirements.
In order to compete, FNB has placed an emphasis on superior
service and has relied on the flexibility which its size and independent
status permits. FNB believes that an independent community bank, operated
by responsive and experienced employees who are dedicated to personal
service, offers an attractive and viable alternative to larger competing
institutions. FNB stresses its continued independence in an environment of
increasing concentration of bank ownership and, in this regard, its
willingness to service customers with loan requirements which may not be
large enough to generate a high level of service from the larger
competitors of FNB.
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Employees
At June 30, 1996, FNB had approximately 35 employees (30 on a
full-time equivalent basis). FNB believes that its employee relations are
good.
Certain Relationships and Related Party Transactions
FNB has had, and expects in the future to have, banking
transactions in the ordinary course of business with many of its Directors,
Executive Officers and principal stockholders (and their associates) on
substantially the same terms as those prevailing for comparable
transactions with others. All loans by FNB to such persons (i) were made in
the ordinary course of business, (ii) were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and (iii) did not
involve more than the normal risk of collectibility or present other
unfavorable features. The aggregate amount of such extensions of credit to
any individual (and such individuals' associates) has not at any time
exceeded the lesser of 10% of FNB's equity capital or $5 million, and the
aggregate amount of all such extensions of credit has at no time exceeded
20% of FNB's equity capital.
Litigation
FBC is a party in the ordinary course of business to litigation
involving collection matters, contract claims and other miscellaneous
causes of action arising from its business. However, in the opinion of
management, there are no proceedings pending which, if determined adversely
to FBC, would have a material adverse effect on FBC's net worth, liquidity,
operating results or financial condition.
Properties
The main banking office of FNB is located at 114 North Main
Street, Mullica Hill, Gloucester County, New Jersey. The property is a one-
story masonry and frame construction building containing approximately
3,800 square feet of space. FNB owns this property unencumbered.
FNB owns unencumbered a parcel of real estate located at Route
322, Richwood, Gloucester County, New Jersey, on which it operates its
branch facility. The building on this property is a one-story masonry
structure containing approximately 2,400 square feet.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF AI
The following discussion and analysis summarizes the significant
changes in results of operations presented in the unaudited consolidated
statements of income of AI for the periods ended June 30, 1996 and June 30,
1995 and presents the financial condition of AI and ENB at June 30, 1996.
This should be read in conjunction with the unaudited consolidated
financial statements and related notes included in Appendix A.
Liquidity and Capital Resources of AI
Liquidity involves AI's and ENB's ability to meet both present
and future cash needs. The degree of liquidity in ENB's assets should be
sufficient to meet the cash flow requirements of customers requesting
credit and depositors withdrawing funds. A bank's liquidity stems from
deposit growth, scheduled loan payments, and the bank's ability to raise
funds in financial markets such as the Federal Funds Market, the Federal
Reserve Discount Window and from AI's activities in the equity markets. In
November 1995 ENB became a stockholder in the Federal Home Loan Bank of New
York. This provides ENB with several additional methods of funding loans
and investments at attractive rates. In addition, liquidity comes from
ENB's cash position, short term investments and investment securities
available for sale and, of course, current earnings.
ENB's liquid assets, consisting of cash, federal funds sold,
investments maturing within one year, interest and noninterest bearing
balances due from banks (including the Federal Reserve Bank of
Philadelphia) were $21,949,000 at June 30, 1996, $12,065,000 at December
31, 1995 and $15,424,000 at December 31, 1994. Liquid assets represented
10.70%, 7.65% and 13.0% of total assets at June 30, 1996, December 31, 1995
and 1994, respectively.
Management believes that liquidity is being maintained at
adequate levels, particularly in light of the Bank's large amount of core
deposits. Additionally, during 1995, ENB increased its portfolio of
securities available for sale to $50,087,000 and this portfolio has been
increased to $70,282,000 at June 30, 1996. These securities serve as a
potential additional source of liquidity and include securities that
management may employ as part of its asset/liability management strategy
and may be sold in response to changes in interest rates or other factors.
All commercial banks are required to calculate risk based capital
ratios to determine if they have adequate capital. At June 30, 1996, ENB
was in excess of the minimum requirements of 8.00% for risk based capital,
4.00% for Tier 1 capital and 4.00% for the leverage ratio. ENB had total
risk based capital of 10.55%, Tier 1 capital ratio of 9.34% and leverage
ratio of 5.36% at June 30, 1996.
Sources of Funds of AI
The effect of liabilities on liquidity is much more difficult to
quantify. Liquidity is enhanced by a stable core deposit base and the
ability of ENB to renew maturing deposits. The ability to attract deposits
and borrow funds depends in large measure on continued interest rate
competitiveness, profitability, capitalization and overall financial
condition of ENB. The following table sets forth information regarding the
average amount of and the average rate paid on certain deposit categories
for the periods indicated.
<TABLE>
<CAPTION>
Six months ended June 30, Year ended December 31,
------------------------------ ---------------------------------------------
(Dollars in thousands)
1996 1995 1995 1994 1993
-------- -------- --------- -------- --------
Average Average Average Average Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
-------- -------- --------- -------- -------- -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Savings deposits $ 21,242 3.16% $ 25,088 3.32% $ 23,490 3.27% $ 34,612 3.27% $27,776 3.33%
Other interest-bearing
demand deposits 48,141 3.72% 24,797 3.40% 31,088 3.82% 20,223 2.53% 18,645 2.31%
Time deposits 76,222 5.35% 48,499 5.27% 52,591 5.43% 25,958 4.25% 24,046 4.50%
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Total $145,605 4.50% $ 98,384 4.30% $107,169 4.47% $ 80,793 3.40% $70,467 3.46%
-------- ----- -------- ----- -------- ----- -------- ----- ------- -----
</TABLE>
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Deposits in ENB as of the dates indicated, were represented by various
types of accounts described below.
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, 1996 December 31, 1995
------------- -----------------
Percentage Percentage
Amount of Deposits Amount of Deposits
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Type of Account
Checking accounts $ 22,134 11.81% $ 19,812 13.59%
Statement savings and passbook 21,602 11.52% 21,155 14.51%
Money fund accounts 66,386 35.41% 46,355 31.79%
----------------------------------- -----------------------------------
Total checking and savings 110,122 58.74% 87,322 59.89%
Certificates of deposit:
- -----------------------
Original maturities under 1 year 67,913 36.23% 49,011 33.61%
Original maturities 12 to 60 months 1,697 0.90% 3,425 2.34%
IRA and Keogh accounts 6,636 3.54% 5,536 3.80%
----------------------------------- -----------------------------------
Total certificates 76,246 40.67% 57,972 39.75%
Accrued interest payable 1,099 0.59% 521 0.36%
----------------------------------- -----------------------------------
Total $187,467 100.00% $145,815 100.00%
----------------------------------- -----------------------------------
</TABLE>
The following table summarizes ENB certificates of deposit of $100,000 or
more by time remaining until maturity as of the periods indicated. ENB had
savings accounts of $100,000 or more of $2,152,000 at June 30, 1996 and
$2,081,000 at December 31, 1995.
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1996 December 31, 1995
----------------- ---------------------
Maturity Period
- ---------------
<S> <C> <C>
Three months or less $ 7,118 $1,835
Over three through six months 4,202 2,957
Over six through twelve months 6,598 3,462
Over twelve months 101 241
----------------- ---------------------
Total $18,019 $8,495
----------------- ---------------------
</TABLE>
As indicated in the above table, jumbo certificates of deposit are not a
significant source of funds to ENB as they represent only 9.67% of total
deposits at June 30, 1996 compared with 5.85% at the end of 1995.
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Borrowings of AI
AI's total borrowings increased to $5,000,000 at June 30, 1996
from $126,000 at June 30, 1995. AI had no borrowings at December 31, 1995
and 1994, respectively. ENB borrows from the Federal Home Loan Bank of New
York, correspondent banks and the Federal Reserve Bank of Philadelphia.
Certain information relating to short-term borrowings from these various
sources is as follows:
<TABLE>
<CAPTION>
Six months
(Dollars in thousands) ended June 30, Year Ended December 31,
-------------- -----------------------
1996 1995 1995 1994 1993
------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C>
End of period outstanding $ 5,000 $126 $ 0 $ 0 $ 0
Maximum outstanding at any
month-end 10,100 126 5,172 2,720 0
Average amounts outstanding 5,746 161 500 433 575
Interest expense 156 5 30 19 15
Weighted average rate during period (1) 5.43% 6.21% 6.00% 4.39% 2.61%
Weighted average rate at period-end 5.60% 6.13% 0.00% 0.00% 0.00%
</TABLE>
(1) Amounts for the six month periods are annualized
AI had the following commitments at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1996 1995
<S> <C> <C>
------------- --------------
Undisbursed construction loans $ 3,641 $ 4,348
Available home equity loans 3,248 2,997
Loan originations 1,783 3,184
Commercial lines of credit 16,087 14,787
------------- --------------
Total $24,759 $25,316
</TABLE>
These commitments are covered by present liquidity and cash flow from monthly
loan repayments, growth anticipated in deposits and, from temporary borrowed
funds.
-94-
<PAGE>
Interest Rate Sensitivity of AI
A positive gap in a short-term category (under one year), during periods of
rising rates, should add to net interest income, and in periods of falling
interest rates, net interest income will be reduced. When the short-term gap is
negative, rising interest rates should cause a reduction in net interest income,
and falling rates should lead to an increase in net interest income. The
following table indicates interest rate sensitivity of AI at June 30, 1996:
AS OF JUNE 30, 1996 (Dollars in thousands)
<TABLE>
<CAPTION>
1 - 90 91 - 180 181 - 365 1 year
days days days or more TOTAL
-------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Short-term investments $ 8,334 $ 8,334
Investment securities 27,764 2,228 3,461 37,079 70,532
Loans and leases, net of unearned income* 41,756 4,686 3,235 65,510 115,187
-------------------------------------------------------
Total $ 77,854 $ 6,914 $ 6,696 $102,589 $194,053
LIABILITIES
Deposits:
Interest-bearing demand $ 66,386 $ 66,386
Savings 21,602 21,602
Time 17,769 17,665 18,884 3,909 58,227
Time in denominations of $100 or more 7,118 4,202 6,598 101 18,019
Short-term borrowings 5,000 5,000
-------------------------------------------------------
Total $117,875 $ 21,867 $ 25,482 $ 4,010 $169,234
INTEREST SENSITIVITY GAP:
Periodic $(40,021) $ (14,953) $ (18,786) $ 98,579 $ 24,819
Cumulative $ (54,974) $ (73,760) $ 24,819
CUMULATIVE GAP AS A PERCENTAGE OF
EARNING ASSETS (20.5)% (28.1)% (37.7)% 12.8%
</TABLE>
*Does not include nonaccruing loans and leases.
The above table indicates that AI has a negative gap in the immediately
adjustable, one to 90 days, 91 to 180 days and 181 to 365 days categories and a
positive gap in the over one year time period. Management regularly monitors the
maturity structure of ENB's assets and liabilities in order to measure its level
of interest rate risk and plan for future volatility. Management will continue
to emphasize the maintenance of adequate liquidity levels utilizing a balanced
relationship between earning assets and interest paying liabilities, including
supplementary borrowings, reflecting maturity and rate sensitivity. ENB will
offer, from time to time, competitive deposit instruments to aid in the matching
of rates and terms with asset maturities and rates.
Financial Condition of AI
Management believes that the financial condition of AI has improved over
the past year. Nonperforming assets have been reduced. ENB continues to be well
capitalized. Loan demand has continued strong but very rate competitive. The
local economy continues to improve at a modest pace. Deposit rates increased
substantially in 1995 which put pressure on net interest margin in 1995.
Interest margins have improved on an absolute basis as a result of asset and
deposit growth from the branch expansion into Cherry Hill. However, rates paid
have been higher recently in order to attract deposits which has resulted and
will continue to result in reducing the interest spread.
-95-
<PAGE>
Asset quality improved since the end of 1995 with classified loans at 1.43%
of total loans at the end of the first six months of 1996 compared with 2.01% at
December 31, 1995. The following table shows nonperforming assets decreased
$619,000 from $1,554,000 at December 31, 1995 to $935,000 on June 30, 1996.
Risk Assets of AI
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31, June 30,
1996 1995 1995
-----------------------------------------
<S> <C> <C> <C>
Nonperforming assets:
Nonaccrual loans and leases $ 567 $1,090 $1,320
Restructured accrual loans --- --- ---
Other real estate owned 368 464 38
-----------------------------------------
Total nonperforming assets $ 935 $1,554 $1,358
As a percent of period-end
loans and leases and other
real estate owned 0.81% 1.61% 1.59%
Loans and leases contractually
past due 90 days and still
accruing $ 75 $ 148 $ 210
</TABLE>
Overall capital adequacy remained stable during the six months. Based upon
the risk based capital requirements of risk based capital of 8.00%, Tier I
capital of 4.00% and leverage ratio of 4.00%, ENB was in excess of all of these
minimum requirements. At June 30, 1996, ENB had total risk based capital ratio
of 10.55%, Tier I capital of 9.34% and a leverage ratio of 5.36%. Currently, AI
and ENB are considered well-capitalized.
Investment Activities of AI
ENB has been expanding its branch system and has leveraged its capital and
increased its investments and loans to provide additional income in order to
offset start-up costs of new branches. A large portion of the increase has been
invested in SBA loans and pools and Farmers Home loans both of which the
principal is guaranteed. The following table indicates the composition of the
investment portfolio as of the indicated dates:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1996 December 31, 1995
---------------- ------------------
AMORTIZED MARKET AMORTIZED MARKET
HELD TO MATURITY COST VALUE COST VALUE
---------------- ----- ----- ------ ------
<S> <C> <C> <C> <C>
Debt securities issued by foreign
governments $ 250 $ 250 $ 250 $ 250
------- ------- ------- -------
TOTALS $ 250 $ 250 $ 250 $ 250
AMORTIZED MARKET AMORTIZED MARKET
AVAILABLE FOR SALE COST VALUE COST VALUE
---------------- ----- ----- ------ ------
U.S. Treasury Securities $ 9,526 $ 9,574 $10,343 $10,547
U.S. Agency Securities 8,301 8,227 10,298 10,527
Obligations of States &
Political subdivisions 6,981 7,032 7,009 7,153
Corporate debt securities 4,329 4,338 4,835 4,988
Mortgage-backed securities 14,519 14,324 3,992 4,008
SBA Pools 25,176 24,985 12,149 12,212
Equity securities 1,790 1,802 640 652
------ ------ ------- ------
TOTALS $70,622 $70,282 $49,266 $50,087
</TABLE>
-96-
<PAGE>
Rate/Volume Analysis of AI
<TABLE>
<CAPTION>
Six Months Ended June 30,* Year Ended December 31, Year Ended December 31,
------------------------- ----------------------- -----------------------
1996 compared to 1995 1995 compared to 1994 1994 compared to 1993
(Dollars in thousands) Increase(decrease) due to: Increase(decrease) due to: Increase(decrease) due to:
Volume Rate NET Volume Rate NET Volume Rate NET
------------------------------ ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans and leases $1,359 $ (75) $1,284 $1,570 $ 316 $1,886 $ 668 $ (306) $ 362
Investment securities 937 32 969 557 275 832 407 (24) 383
Short-term investments (46) (22) (68) 32 34 66 (73) 56 (17)
------------------------------ ---------------------------- ---------------------------
Total interest income 2,250 (65) 2,185 2,159 625 2,784 1,002 (274) 728
Interest Expense:
Interest-bearing demand 464 102 506 347 330 677 38 42 80
Savings accounts (62) (18) (80) (363) 0 (363) 224 (17) 207
Time deposits 710 (37) 673 1,372 381 1,753 84 (61) 23
Short-term borrowings 152 (1) 151 3 8 11 (4) 8 4
------------------------------ ---------------------------- ---------------------------
Total interest expense 1,264 46 1,310 1,359 719 2,078 342 (28) 314
Net interest income $ 986 $(111) $ 875 $ 800 $ (94) $ 706 $ 660 $ (246) $ 414
</TABLE>
* Tax equivalent
Results of Operations for the Six Months ended June 30, 1996 and 1995
Net Interest Income of AI
The majority of AI's income is generated from loans and investments
or interest income. Deposits and borrowed funds which create interest
expense are employed to make loans and fund investments. Table 1 (See page
101) presents average balances, taxable equivalent interest income and
expenses and yields earned or paid on these assets and liabilities. In
order to present taxable equivalent income, tax-exempt interest has been
adjusted using a marginal tax rate of 35% to equate the yield to that of
taxable rates. Net interest income as a percentage of the sum of net
interest income and noninterest income was 97% and 90% for the second
quarters ended June 30, 1996 and 1995, respectively, and was 96% and 92%
for the six months ended June 30, 1996 and 1995, respectively. This
indicates that net income is more dependent on interest rate related assets
and liabilities than fee income.
Interest income increased $2,178,000 or 44% from $4,944,000 in the
first half of 1995 to $7,122,000 in the first six months of 1996. Interest
income increased in all categories except federal funds sold as funds were
invested in higher yielding loans and investment securities.
Interest income increased $1,174,000 from $2,611,000 in the second
quarter of 1995 to $3,785,000 in the second quarter of 1996 or 45%. This
increase was a result of an increase in interest and fees on loans of
$611,000 (31%), a decrease in interest on federal funds sold of $6,000, an
increase in interest on deposits with other bank's of $2,000, an increase
in interest on taxable securities of $560,000 (104%), and an increase in
interest on tax-exempt securities of $7,000. The decrease in interest on
Federal funds sold was the result of increased use of funds for loans and
investments. Increases in investments and loans were from increased
deposits from the branch expansion program and borrowed funds.
-97-
<PAGE>
Interest expense increased $1,310,000 or 62% from $2,119,000 in the first
six months of 1995 to $3,429,000 in the first six months of 1996. Interest
expense increased at a higher rate than interest income as new deposits were
concentrated in higher cost money manager accounts and certificates of deposit
reflecting competitive conditions.
Interest expense on deposits increased $537,000 from $1,152,000 in the
second quarter of 1995 to $1,689,000 in the second quarter of 1996 or 47%.
Interest expense on borrowed funds increased $85,000 during the second quarter
of 1996 from none during the same period in 1995. The increase in interest on
deposits in 1996 relates to growth in money manager accounts and certificates of
deposit which have paid slightly higher rates than savings instruments and
similar certificates offered locally. Net interest income increased $486,000 or
33% which is approximately 40% of the improvement in interest income which was
offset by the higher cost of funds.
As a result of the increased interest income and expense, net interest
income improved $868,000 or 31% from $2,825,000 in the first six months of 1995
to $3,693,000 in the first six months of 1996.
Provision for Loan Losses of AI
The provision for possible loan losses decreased $17,000 from $60,000 in
the first half of 1995 to $43,000 in the first six months of 1996. This combined
with the increase in net interest income produced an improvement in net interest
margin of $875,000 or 32%.
The provision for loan losses increased $43,000 from the second quarter
of 1995 as no provision was required in the second quarter of 1995. Although
growth in the portfolio has been largely in SBA loans, the majority of which is
guaranteed, normal loan growth in traditional products has begun to accelerate.
In addition, ENB experienced net recoveries in 1995 which is not expected under
normal conditions. Management continues to review ENB's loan portfolio and
analyze the allowance for possible loan losses on a quarterly basis and believes
that the allowance is adequate.
The allowance for possible loan losses increased $73,000 from $1,283,000
at December 31, 1995 to $1,356,000 at June 30, 1996 after recoveries of $60,000,
a provision of $43,000 and charge offs of $30,000 for the first six months. The
allowance for loan losses was 1.17% of gross loans at June 30, 1996 compared
with 1.31% of gross loans at December 31, 1995. ENB's mix of loans includes a
substantial amount of guaranteed SBA loans. In addition, the portfolio includes
a large percentage of construction loans to individuals for which permanent
financing has been provided by others. The following table shows an analysis of
the allowance and calculations based on period-end loans and leases net of the
allowance.
Allowance for Loan and Lease Losses of AI
<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - Beginning of period $ 1,253 $ 1,215 $ 1,283 $ 1,152
Additions charged to operating expense 43 --- 43 60
----------------------------------------------------------------
1,296 1,215 1,326 1,212
Charge-offs --- (8) (30) (10)
Recoveries 60 33 60 38
----------------------------------------------------------------
Net charge-offs 60 25 30 28
Balance - End of period $ 1,356 $ 1,240 $ 1,356 $ 1,240
Net charge-offs as a percent of average
loans and leases (annualized) (0.22)% (0.12)% (0.06)% (0.07)%
Allowance as a percent of period-end
loans and leases 1.17% 1.45% 1.17% 1.45%
Average loans and leases $109,971 $81,194 $106,303 77,189
</TABLE>
-98-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Period-end loans and leases $115,754 $85,596 $115,754 $85,596
</TABLE>
Noninterest Income of AI
Noninterest income decreased $119,000 or 28% from $432,000 in the first
six months of 1995 to $313,000 in the first six months of 1996. This was the
result of a reduction in securities gains of $109,000 from $111,000 in the first
half of 1995 to $2,000 in the first six months of 1996 and a decrease in other
income of $22,000 in 1996.
Noninterest operating income decreased $168,000 or 57% from $297,000 in
the second quarter of 1995 to $129,000 in the second quarter of 1996. Of this
decrease, $4,000 represented a decrease in service charges, commissions and
fees, $147,000 represented a decrease in gains from the sale of securities, and
$17,000 represented a decrease in other income.
Noninterest Expense of AI
Noninterest expense increased $381,000 or 15% from $2,550,000 in the
first six months of 1995 to $2,931,000 in the first six months of 1996. The
increase in this category was made up of increases in salaries and benefits of
$181,000, occupancy expense of $123,000, furniture and equipment expense of
$90,000 and other expense of $172,000. These increases were partially offset by
decreases in professional fees of $72,000 and FDIC Assessment of $113,000. The
increase in salaries and benefits reflected staffing for the Cherry Hill office
which opened in July of 1995 as well as normal increases in wages and benefits
for the remaining staff. Increases in occupancy and furniture and equipment also
reflected added costs for the Cherry Hill office as well as higher than normal
winter snow removal costs and maintenance of both buildings and equipment. Other
operating expenses showing large increases were advertising expenses of $34,000,
FRB processing of $14,000, advisory services of $25,000, office supplies of
$15,000, EDP supplies of $23,000, postage of $12,000, travel & entertainment of
$9,000 and telephone of $10,000. All of these items were impacted by the Bank's
growth.
Noninterest operating expense increased $156,000 from $1,294,000 in the
second quarter of 1995 to $1,450,000 in the second quarter of 1996 or 12%.
Salaries and benefits increased $71,000 from $617,000 in the second quarter of
1995 to $688,000 in the second quarter of 1996 or 12% which was due to an
increase in staff for the new Cherry Hill office and normal salary increases for
existing personnel which averaged approximately 4% over the past year. Occupancy
expense increased $60,000 to $182,000 in the second quarter of 1996 from
$122,000 in the second quarter of 1995 due to costs of Cherry Hill and increased
maintenance costs. Furniture & equipment expense increased $47,000 from $85,000
in the second quarter of 1995 to $132,000 in 1996 as a result of depreciation on
new furniture and equipment for Cherry Hill and Marlton together with increased
maintenance of older equipment in operations and the branches. Professional fees
decreased $37,000 as a result of fewer loan collection efforts. FDIC assessment
decreased $56,000 as a result of the insurance fund becoming fully restored.
Other expense increased $71,000 from $318,000 in the second quarter of 1995 to
$389,000 in the second quarter of 1996. The major components of the increase in
other expense were $17,000 in provision for other real estate losses for erosion
of appraised values, $8,000 in advertising and public relations, $8,000 in
advisory fees for network and consulting projects, $11,000 in stationery and
supplies representing increased paper costs and volume, $8,000 in processing
costs at correspondents, $7,000 in dues, memberships and subscriptions
reflecting costs that increase with asset size, and $7,000 in postage costs as
well as small increases in many other categories, many of which increase with
growth in assets.
Income Tax Provision of AI
AI's provision for Federal and State income taxes for the six months and
the quarter ended June 30, 1996 is approximately 27% of income before taxes
which is lower than the statutory rate primarily as a result of tax exempt
income.
Net Income
-99-
<PAGE>
Income before income taxes increased $385,000 from $647,000 in the first
six months of 1995 to $1,032,000 in the first six months of 1996 or an
improvement of 60%. Income taxes increased $105,000 or 59% to $283,000 in the
first six months of 1996. Net income improved $280,000 (60%) to $749,000 in the
first six months of 1996.
Earnings per share increased $0.36 from $0.61 per share in the first six
months of 1995 to $0.97 per share in the first half of 1996.
With the improved net interest margin, and decreased noninterest income and
also increases in noninterest operating expense, income before income taxes
increased $119,000 or 26% from $462,000 in the second quarter of 1995 to
$581,000 in the second quarter of 1996.
Net income for the second quarter of 1996 was $422,000 compared with
$330,000 for the second quarter of 1995. Expressed on a per share basis, AI
earned $0.55 per share in the second quarter of 1996 compared with earnings of
$0.43 per share in the second quarter of 1995.
-100-
<PAGE>
Atcorp, Inc. and Subsidiaries
TABLE 1 - DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL - TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
For the Six Month Period Ended For the Six Month Period Ended
(Dollars in thousands) June 30, 1996 June 30, 1995
Average Average
Balance Interest Rate (%) Balance Interest Rate (%)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Short-term investments $ 2,261 $ 50 4.42% $ 4,187 $ 118 5.64%
Investment securities
Taxable 58,023 1,949 6.72% 31,556 1,035 6.56%
Tax-advantaged 7,032 258 7.35% 5,704 203 7.12%
----------------------------------------------------------------------------
Total investment securities 65,055 2,207 6.79% 37,260 1,238 6.65%
Loans and leases, (net):
Taxable 105,725 4,937 9.34% 75,955 3,619 9.53%
Tax-advantaged 578 28 9.58% 1,234 62 9.97%
----------------------------------------------------------------------------
Total loans and leases 106,303 4,965 9.34% 77,189 3,681 9.54%
----------------------------------------------------------------------------
Total interest-earning assets 173,619 $7,222 8.32% 118,636 5,037 8.49%
Allowance for loan and lease losses (1,284) (1,200 )
Other non-earning assets 10,605 7,634
-------------- -----------
Total assets $182,940 $125,070
LIABILITIES
Deposits:
Interest-bearing demand $ 48,141 $ 896 3.72% $ 24,797 $ 421 3.40%
Savings 21,242 336 3.16% 25,088 416 3.32%
Time 76,222 2,041 5.35% 48,499 1,277 5.27%
Short-term borrowings 5,746 156 5.43% 161 5 6.21%
----------------------------------------------------------------------------
Total interest-bearing liabilities 151,351 3,429 4.41% 98,545 2,119 4.30%
Demand deposits 20,628 16,883
Other liabilities 604 769
-------------- -----------
Total liabilities 172,583 116,197
Stockholders' equity 10,357 8,873
-------------- -----------
Total liabilities and equity $182,940 $125,070
Net interest income/yield on
average earning assets $3,793 4.37% $2,918 4.92%
--------- -------- -------- ----------
</TABLE>
For purposes of calculating loan yields, the average loan volume includes non-
accrual loans. For purposes of calculating yields on non-taxable interest
income, the taxable equivalent adjustment is made to equate non-taxable interest
on the same basis as taxable interest. The marginal tax rate is 35%.
-101-
<PAGE>
Atcorp, Inc. and Subsidiaries
TABLE 2 - STATEMENTS OF CHANGES IN INCOME AND EXPENSES - TAX EQUIVALENT BASIS
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 compared
to June 30, 1995
(Dollars in thousands) Average Volumes Income/Expense
--------------------------------------------------------------------
ASSETS $ % $ %
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans and leases $29,114 37.72% $1,284 34.88%
Investments 27,795 74.60% 969 78.27%
Short-term investments (1,926) (46.00)% (68) (57.63)%
====================================================================
Total $54,983 46.35% $2,185 43.38%
====================================================================
LIABILITIES
Interest-bearing demand $23,344 94.14% $ 475 112.82%
Savings (3,846) (15.33)% (80) (19.23)%
Time 27,723 57.16% 764 52.70%
Short-term borrowings 5,585 n/a 151 n/a
====================================================================
Total $52,806 52.75% $1,310 61.62%
====================================================================
Net interest income $ 875 30.97%
Provision for loan and lease losses (17) (28.33)%
----------------------------
Net interest income after provision for loan and
lease losses 892 32.26%
Investment security gains/losses (109) (98.20)%
Other operating income (10) (3.11)%
----------------------------
Income before operating expenses 773 24.18%
Salaries and employee benefits 181 14.73%
Net occupancy and equipment 213 51.32%
Other operating expense (13) (1.43)%
----------------------------
Total operating expenses 381 14.94%
Income before income taxes 392 60.59%
Provision for income taxes 112 62.92%
----------------------------
Net income $ 280 59.70%
============================
</TABLE>
-102-
<PAGE>
Effects of Inflation/Changing Prices on AI
Management is aware of the impact of inflation on interest rates and the
impact it can have on performance. The ability of AI and ENB to cope with
inflation can only be determined by analysis and monitoring of its asset and
liability position, particularly the mix of interest rate sensitive assets and
liabilities in order to reduce the effects of inflation on performance. The
asset and liability structure of a bank is significantly different from that of
industrial corporations in that virtually all assets and liabilities are
monetary in nature, meaning that they have been, or will be, converted to a
fixed number of dollars regardless of price changes. Monetary items would
include cash, loans and deposits. Nonmonetary items are those assets and
liabilities that do not gain or lose purchasing power solely as a result of
price level changes. Nonmonetary items for ENB consist primarily of premises and
equipment.
Inflation can have a more direct impact on certain categories of operating
expenses such as salaries and wages, employee benefits and supplies. These
expenses fluctuate more in line with changes in general price levels and are
very closely monitored by management for both the effects on inflation and
increases relating to such items as staffing levels, supply usage and occupancy
costs.
Accounting Standards Issued But Not Effective on AI
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" in June 1996. This
statement which is required to be adopted in 1997 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. The adoption of this statement in 1997 is not
expected to have a material effect on the financial statements.
The following analysis by the management of AI summarizes the significant
changes in the results of operations presented in the consolidated statements of
income for the years ended December 31, 1995, 1994 and 1993, and presents an
analysis of the financial condition of AI and ENB at December 31, 1995. The
statistical and related information presented on the various tables as well as
the financial statements and accompanying notes (See "Appendix A") should be
read in conjunction with this analysis.
Liquidity and Capital Resources of AI
Liquidity involves AI's and ENB's ability to meet both present and future
cash needs. The degree of liquidity in ENB's assets should be sufficient to meet
the cash flow requirements of customers requesting credit and depositors
withdrawing funds. A bank's liquidity stems from deposit growth, scheduled loan
payments, and the bank's ability to raise funds in financial markets such as the
Federal Funds Market, the Federal Reserve Discount Window and in the equity
markets. In November 1995 ENB became a stockholder in the Federal Home Loan Bank
of New York. This provides ENB with several additional methods of funding loans
and investments at attractive rates. In addition, liquidity derives from ENB's
cash position, short term investments, investment securities available for sale
and current earnings.
ENB's liquid assets, consisting of cash, Federal Funds sold, investments
maturing within one year, interest and noninterest bearing balances due from
banks (including the Federal Reserve Bank of Philadelphia), decreased to
$12,065,000 in 1995 from $15,424,000 in 1994. Liquid assets represented 7.65%
and 13.0% of total assets at December 31, 1995 and 1994, respectively.
Management believes that liquidity is being maintained at adequate levels,
particularly in light of ENB's large amount of core deposits. Additionally,
during 1995, ENB increased its portfolio of securities available for sale to
$50,087,000. These securities serve as a potential additional source of
liquidity and include securities that management may employ as part of its
asset/liability management strategy and may be sold in response to changes in
interest rates or other factors.
-103-
<PAGE>
During 1989, the Federal Reserve Board, which regulates AI, and the OCC,
which regulates ENB's activities, adopted issued new capital guidelines. The
adoption of these guidelines, in conjunction with the Basel Capital Accord,
places United States financial institutions on the same guidelines as those of
financial institutions throughout the rest of the world.
The guidelines attempt to more closely measure capital adequacy by taking
into consideration the differences in risk associated with types of assets as
well as exposure to off-balance sheet commitments. The guidelines were phased in
through December 31, 1992 and call for a minimum Tier I capital percentage of
4.0% of risk based assets and a total capital minimum standard of 8.0% of risk
based assets. Tier I capital includes common stockholders' equity, non-
cumulative preferred stock and minority interests less goodwill. Total capital
includes Tier I capital plus cumulative preferred stock, hybrid debt-capital
securities, qualified subordinated debt and the allowance for loan losses to
1.25% of risk-based assets.
At December 31, 1995, ENB's Tier I capital ratio was 10.04% and its total
capital to risk-based assets ratio was 11.29%, well within the new capital
guidelines. The regulators also established guidelines of a minimum of 4.0% for
the leverage ratio which is the ratio of equity capital to total assets. At
December 31, 1995 ENB's leverage ratio was 6.37% and the Corporation's leverage
ratio was 7.36%. In addition, guidelines were established by the regulators to
define the requirements of being well-capitalized. To be considered well-
capitalized the regulators require total capital plus the admissible allowance
for loan losses divided by total risk adjusted assets to be in excess of 10%,
Tier I capital (stockholders' equity) divided by total adjusted risk based
assets of 6% and a leverage ratio of stockholders' equity divided by average
total assets in excess of 5%. Currently ENB and AI are considered well-
capitalized.
Sources of Funds of AI
The effect of liabilities on liquidity is much more difficult to
quantify. Liquidity is enhanced by a stable core deposit base and the ability of
ENB to renew maturing deposits. The ability to attract deposits and borrow funds
depends in large measure on continued interest rate competitiveness,
profitability, capitalization and overall financial condition of ENB. As
indicated in Table 13, jumbo certificates of deposit are not a significant
source of funds to ENB as they represented only 5.85% of total deposits in 1995
compared with 9.65% in 1994.
Borrowings of AI
AI had no borrowings at December 31, 1995 and 1994, respectively. ENB
borrows from the Federal Home Loan Bank of New York, correspondent banks and the
Federal Reserve Bank of Philadelphia. Certain information relating to short term
borrowings from these various sources is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
End of period outstanding $ 0 $ 0 $ 0
Maximum outstanding at any month-end 5,172 2,720 0
Approximate average month-end amounts
outstanding 500 433 575
Interest expense 30 19 15
Approximate weighted average rate during
period (calculated based on average
month-end amounts) 6.00% 4.39% 2.61%
Weighted average at period-end 0.00% 0.00% 0.00%
</TABLE>
-104-
<PAGE>
Interest Rate Sensitivity
The impact of changes in interest rates on net interest income depends on
the magnitude of the movement in rates, the relative volumes of ENB's assets and
liabilities that reprice within a given period of time and the relationships
among rates. The interest sensitivity portion of asset/liability management
provides for managing the extent to which maturing rate sensitive assets and
maturing rate sensitive liabilities are matched. If maturing rate- sensitive
assets exceed maturing rate-sensitive liabilities, the financial institution is
said to be asset sensitive or have a positive gap. In this case, interest rate
changes will be reflected more rapidly in asset yields than in liability rates
and, in a period of rising interest rates, net interest income will increase.
Conversely, in a declining rate environment, net interest income would decrease.
If the financial institution is liability sensitive, it is considered to have a
negative gap. In this case, the above described interest rate movement would
have the opposite impact.
Table 4 presents ENB's interest rate sensitivity position at December 31,
1995. ENB has a negative gap in the immediately adjustable, one to 90 days, 91
to 180 days and 181 to 365 days categories and positive gaps in the remaining
time periods. The cumulative gap for the one to five year period is a negative
$27,261,000 at December 31, 1995, compared with a negative cumulative gap of
$2,076,000 at December 31, 1994. Management regularly monitors the maturity
structure of ENB's assets and liabilities in order to measure its level of
interest rate risk and plan for future volatility.
Management will continue to emphasize the maintenance of adequate liquidity
levels utilizing a balanced relationship between earning assets and interest
paying liabilities reflecting maturity and rate sensitivity. ENB will offer,
from time to time, competitive deposit instruments to aid in the matching of
rates and terms with asset maturities and rates.
Financial Condition of AI
Management believes that the financial condition of AI has improved over
the past year. ENB continues to be well capitalized. Loan demand has continued
strong but very rate competitive. The local economy continues to improve at a
modest pace. Deposit rates increased substantially in 1995 which put pressure on
net interest margin. Interest margins have improved on an absolute basis as a
result of asset and deposit growth from the branch expansion into Cherry Hill
and competitive rates. However, rates paid have been higher recently in order to
attract deposits which has resulted and will continue to result in reducing the
interest spread.
Risk Assets of AI
Table 7 presents an analysis of the loan portfolio for 1995 and 1994. At
December 31, 1995, about 48% of the portfolio was secured by real estate
(primarily first mortgage residential and construction loans); at December 31,
1994, the percentage was 49%. Commercial loans represented 28% of the portfolio
in 1995 and 25% in 1994. The balance of the portfolio was in consumer loans, of
which $4,538,000 represented home equity lines of credit in 1995 versus about
$5,305,000 in 1994. In addition, consumer loans increased approximately
$4,351,000 related to automobile loans, fixed rate equity/second mortgage loans,
and municipal vehicle lease loans which management emphasized during 1994 and
1995 in order to diversify its portfolio and take advantage of generally better
yields for these credits.
ENB has continued to decrease the percentage of non-performing assets since
1991 as shown in Table 9; although at December 31, 1995, non-performing assets
represented 1.08% of total assets, an increase of 0.03% from the year earlier
level of 1.05%. Total non-performing assets were 1.74% of total loans at
December 31, 1995 versus 1.73% at December 31, 1994.
Management believes that it is operating in compliance with sound loan
approval policies and considers the quality of its loan portfolio to be
satisfactory and the level of non-performing loans to be within the normal range
for a bank of its size.
-105-
<PAGE>
Investment Activities of AI
ENB has been expanding its branch system and has leveraged its
capital and increased its investments and loans to provide additional
income in order to offset start-up costs of new branches and increased
deposit rates. Tables 5 and 6 indicate the composition of the investment
portfolio as of December 31, 1995 and 1994.
Rate/Volume Analysis of AI
Table 3 details the changes in net interest income from December 31,
1993 to December 31, 1994, and from December 31, 1994 to December 31, 1995.
Results of Operations for the Three Years Ended December 31, 1995
Interest Income of AI
AI derives the majority of its revenues from ENB, its banking
subsidiary, and from ENB's subsidiary, AT Corp, a Delaware corporation
which maintains a large portion of ENB's investment portfolio. ENB
concentrates on traditional banking functions of deposit gathering and
lending to businesses and individuals within the community. In addition, it
provides various fee generating services such as mortgage origination and
construction lending as well as traditional service charges and fees for
retail services including deposit accounts and safe deposit rentals.
The loan portfolio increased from $71,460,000 at December 31, 1994,
by $26,136,000 to $97,596,000 at December 31, 1995. As shown in Table 7
the increases in 1995 were $9,528,000 in commercial loans, $3,254,000 in
real estate construction and $4,351,000 in consumer loans. In addition
increases of $7,536,000 in real estate mortgage and $1,467,000 in loans
held for sale were experienced after decreases in 1994.
Interest and fees on loans increased $1,886,000 (30%) to $8,094,000
in 1995 from $6,208,000 in 1994, which had increased $362,000 (6%) from
$5,846,000 in 1993. As shown in Table 3, "Rate-Volume Analysis," the
increase in 1995 was due to increases in volume in lending and increases in
interest rates. Table 1 shows the composition of earning assets and
indicates that the average yield on loans increased to 9.67% in 1995 from
9.22% in 1994, an increase of 45 basis points, which reflects the generally
higher interest rate environment in which ENB operated during the majority
of 1995 until the Federal Reserve Board lowered rates in the third and
fourth quarters. Interest income of $69,000 was not recognized in 1995 and
$102,000 was not recognized in 1994 due to the nonaccrual status of certain
loans.
Interest on Federal Funds sold increased $51,000 (44%) to $167,000 in
1995 from $116,000 in 1994 and decreased $17,000 (13%) in 1994 from
$133,000 in 1993. Table 3 shows that the increase in 1995 was due to the
combined effect of increases in income of $18,000 due to volume and an
increase in income of $33,000 due to an increase in interest rates. Table
1 shows that the average yield on these funds increased by 1.22% from 4.66%
in 1994 to 5.88% in 1995.
Interest on investment securities-taxable increased $613,000 (40%) to
$2,163,000 in 1995 from $1,550,000 in 1994 and increased $299,000 (24%) in
1994 from $1,251,000 in 1993. As indicated in Table 3, the increase in
income was due to an increase in volume of $370,000 and an increase in
yield or rates of $243,000. The average yield on taxable investments
increased by 0.82% from 5.69% in 1994 to 6.51% in 1995, as shown on Table
1. An analysis of the portfolio is shown in Table 5, "Analysis of
Investment Securities," and the maturity distribution of AI's investments
is shown in Table 6, "Maturity Distribution of Investment Portfolio at
December 31, 1995." AI's policy is to concentrate investment maturities in
the one to ten year range. As shown in Table 6, 75% of the portfolio
matures within ten years, within which 13% of the portfolio matures during
one year and 35% matures in the one to five year category. Many of the
securities in the five to ten year range have average life expectancy of
-106-
<PAGE>
less than five years due to their cash flow characteristics. Management
continues to invest in securities which are guaranteed by the U.S.
Government or its agencies or in investment grade securities.
Interest on tax-exempt securities increased to $307,000 in 1995 from
$88,000 in 1994 and average balances increased from $2,334,000 to
$6,306,000. In addition, the yield on these investments improved 1.1% from
3.77% to 4.87%. The majority of these securities are issued by
municipalities in New Jersey.
Interest Expense of AI
Interest expense on deposits increased $2,067,000 (75%) to $4,814,000
in 1995 from $2,747,000 in 1994 and increased $310,000 (13%) in 1994 from
$2,437,000 in 1993. The increase in 1995 was due to the combined effect of
increases in volume of $1,356,000 and increases in interest rates of
$711,000, as indicated in Table 3. The average rate paid on deposits and
borrowed funds increased 1.09% from 3.41% in 1994 to 4.50% in 1995, as
shown in Table 1 which details each deposit category. This increase
reflects the generally higher interest rate environment in which ENB
operated during the majority of 1995 until rates started to ease in the
fall.
ENB experienced an increase in average interest bearing liabilities
of $26,443,000 to $107,669,000 in 1995 from $81,226,000 in 1994.
As a result of the changing deposit mix and higher interest rates,
interest income before the provision for loan losses increased $706,000
(14%) to $5,909,000 in 1995 from $5,203,000 in 1994 and increased $414,000
(9%) in 1994 from $4,789,000 in 1993. The increase from volume was
partially reduced by the increase in deposit rates as shown in Table 3.
The net average interest margin dropped 55 basis points from 5.22% in 1994
to 4.67% in 1995 as shown in Table 1.
Provision for Loan Losses of AI
The provision for possible loan losses decreased $45,000 to $115,000
in 1995 from $160,000 in 1994 and increased $85,000 in 1994 from $75,000 in
1993. The lower provision in 1995 was a result of higher recoveries. Loans
charged off during 1995 were $144,000 compared with $308,000 in 1994, a
decrease of $164,000. In addition, ENB received recoveries on loans of
$160,000 in 1995 as compared to $65,000 in 1994.
Allowance for Loan and Lease Losses of AI
The balance in the allowance for loan losses increased to $1,283,000
in 1995, representing 1.31% of total loans held for investment, from
$1,152,000 in 1994, which represented 1.61% of total loans at December 31,
1994. Management believes, based on its review of the current quality of
the loan portfolio and its historical experience, that the allowance for
losses is adequate to cover future loan losses. Adequacy of the allowance
for losses is reviewed quarterly.
Noninterest Income of AI
Noninterest operating income decreased $19,000 (2%) to $809,000 in
1995 from $828,000 in 1994 and decreased $82,000 (9%) in 1994 from $910,000
in 1993. The decrease in 1995 was due largely to a decrease in service
charges of $150,000, gains on the sale of mortgage loans of $85,000 and a
decrease in gains on the sale of other real estate owned of $30,000. These
decreases were partially offset by an increase in gains on the sale of
investment securities available for sale of $81,000 and an increase in
other income of $165,000. The increase in other income included proceeds
from an insurance settlement arising from a loss on a property held as
collateral for a letter of credit and funds received in settlement of
guarantees on loans that recovered costs incurred over and above the
amounts charged off in previous years.
Noninterest Expense of AI
-107-
<PAGE>
Noninterest operating expense increased $563,000 (12%) to $5,189,000
in 1995 from $4,626,000 in 1994 and increased $354,000 (8%) in 1994 from
$4,272,000 in 1993. The increase in 1995 was due to increases in salaries
and benefits of $365,000 (16%), occupancy costs of $68,000 (14%), furniture
and equipment costs of $58,000 (18%) and all other expenses of $215,000
(21%). These increases reflect the costs of opening the Cherry Hill office
and increased staff in loan and support areas to handle the increased
business volume, as ENB increased $39,377,000 or 33% in overall size.
Partially offsetting the increased costs were decreases in professional
fees of $56,000 (15%) and the FDIC assessment of $87,000 (42%). During
1995, ENB recovered $66,000 and in 1994, $16,000 of legal fees and other
expenses related to collection efforts of loans charged-off in years prior
to 1993. These recoveries are reflected as reductions of professional fees
and other miscellaneous expenses. Professional fees were reduced as
litigation for the collection of loans has been reduced. The FDIC
assessment was reduced by rebate and reduction of the assessment as the
Bank Insurance Fund was restored to regulatory levels.
Income Tax Provision of AI
Income before taxes increased $169,000 to $1,414,000 in 1995 compared
with 1994 income of $1,245,000, and decreased $107,000 in 1994 from
$1,352,000 in 1993.
The Financial Accounting Standards Board issued Statement No. 109,
"Accounting for Income Taxes," in December 1991, which AI adopted in 1993.
The Statement required either retroactive application or cumulative catch-
up to reflect the use of the liability method of accounting for income
taxes prescribed by SFAS No. 109 versus the deferral method under APB
Opinion No. 11. AI adopted the statement during the first quarter of 1993
and chose not to restate prior periods. AI determined that the cumulative
effect of this change in accounting principle through January 1, 1993 was
an increase in the deferred income tax asset of approximately $100,000.
This resulted in an increase in earnings of $100,000 as of the beginning of
the year ended December 31, 1993.
Effects of Inflation/Changing Prices on AI
Management is aware of the impact of inflation on interest rates and
the impact it can have on performance. The ability of ENB to cope with
inflation can only be determined by analysis and monitoring of its asset
and liability position, particularly the mix of interest rate sensitive
assets and liabilities in order to reduce the effects of inflation on
performance. The asset and liability structure of a bank is significantly
different from that of industrial corporations in that virtually all assets
and liabilities are monetary in nature, meaning that they have been, or
will be, converted to a fixed number of dollars regardless of price
changes. Monetary items would include cash, loans and deposits.
Nonmonetary items are those assets and liabilities that do not gain or lose
purchasing power solely as a result of price level changes. Nonmonetary
items for ENB consist primarily of premises and equipment.
Inflation can have a more direct impact on certain categories of
operating expenses such as salaries and wages, employee benefits and
supplies. These expenses fluctuate more in line with changes in general
price levels and are very closely monitored by management for both the
effects on inflation and increases relating to such items as staffing
levels, supply usage and occupancy costs.
Accounting Standards Issued But Not Effective on AI
The Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights," in May 1995 and No. 123, "Accounting for Stock-Based
Compensation," in October 1995. Statement No. 122, which is required to be
adopted in 1996, mandates that mortgage banking enterprises recognize as
separate assets rights to service mortgage loans for others. The adoption
of this statement in 1996 will not have an effect on the financial
statements since ENB does not sell loans and retain servicing rights.
Statement No. 123 is also required to be adopted in 1996 and requires
that financial statements include certain disclosures about stock-based
employee compensation arrangements. The adoption of this statement in 1996
will not have an effect on the financial statements since ENB has not used
stock-based compensation as a compensation vehicle.
-108-
<PAGE>
In the event that ENB uses stock-based compensation, the pro forma effect
will be disclosed in the footnotes to the financial statements in
accordance with the statement.
-109-
<PAGE>
Atcorp, Inc. and Subsidiaries
SUMMARY OF AVERAGE BALANCES, TABLE 1
INCOME/EXPENSE AND AVERAGE RATES
(In thousands except percentages)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
------------------------------------------------------------------------------------------
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------------------------------------------------------------------------------------
INTEREST EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits in other banks $ 550 $ 4.00% $206 $7 3.40% $338 $7 2.07%
Investments (2)
Taxable 2,163 6.51% 27,256 1,550 5.69% 21,590 1,251 5.79%
33,224
Nontaxable (1) 6,306 307 4.87% 2,334 88 3.77% 151 4 2.65%
Federal funds 2,842 167 5.88% 2,489 116 4.66% 4,508 133 2.95%
Loans, net (3) 83,665 8,094 9.67% 67,315 6,208 9.22% 60,259 5,846 9.70%
-----------------------------------------------------------------------------------------
Total interest earning assets $126,587 $10,753 8.49% $ 99,600 $7,969 8.00% $86,846 $7,241 8.34%
NONINTEREST EARNING 8,361 6,908 7,548
---------- ---------- ---------
Total Assets $134,948 $106,508 $94,394
INTEREST-BEARING LIABILITIES
NOW, Super NOW and MMA 31,088 1,188 3.82% 20,223 511 2.53% 18,645 431 2.31%
Savings accounts 23,490 769 3.27% 34,612 1,132 3.27% 27,776 925 3.33%
Time deposits 52,591 2,857 5.43% 25,958 1,104 4.25% 24,046 1,081 4.50%
Federal funds purchased and borrowed funds 500 30 6.00% 433 19 4.39% 575 15 2.61%
------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities $107,669 $ 4,844 4.50% $ 81,226 $2,766 3.41% $71,042 $2,452 3.45%
NONINTEREST-BEARING 18,227 17,120 15,895
SHAREHOLDERS' EQUITY 9,052 8,162 7,457
----------- ---------- ---------
Total Liabilities and Shareholders'
Equity $134,948 $106,508 $94,394
=========== ========== =========
NET INTEREST INCOME/NET INTEREST
MARGIN $ 5,909 4.67% $5,203 5.22% $4,789 5.51%
========= ======== ========
</TABLE>
(1) The indicated interest and average yields are not presented on a tax-
equivalent basis.
(2) Investments include those held for sale.
(3) Nonaccruing loans have been included in the calculation of average
balances.
-110-
<PAGE>
Atcorp, Inc. and Subsidiaries
NET INTEREST INCOME TABLE 2
(In thousands except percentages)
<TABLE>
<CAPTION>
% %
1995 Change 1994 Change 1993
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME $10,753 34.94% $7,969 10.05% $7,241
INTEREST EXPENSE 4,844 75.13% 2,766 12.81% 2,452
--------------------------------------------------------------
NET INTEREST INCOME $ 5,909 13.57% $5,203 8.64% $4,789
==============================================================
</TABLE>
RATE-VOLUME ANALYSIS TABLE 3
(In thousands except percentages)
<TABLE>
<CAPTION>
1995 compared to 1994 1994 compared to 1993
Increase (decrease) due to: Increase (decrease) due to:
VOLUME RATE NET VOLUME RATE NET
(1) (1) (1) (1)
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits
in other banks $ 14 $ 1 $15 $ 2 $( 2) $0
Investments-
Table (2) 370 243 613 326 (27) 299
Nontaxable 187 32 219 81 3 84
Federal funds sold 18 33 51 (75) 58 (17)
Loans, net 1,570 316 1,886 668 (306) 362
--------------------------------- ---------------------------------
Total Interest Income 2,159 625 2,784 1,002 (274) 728
INTEREST EXPENSE
NOW, Super NOW and MMA 347 330 677 38 42 80
Savings accounts (363) 0 (363) 224 (17) 207
Time deposits 1,372 381 1,753 84 (61) 23
Federal funds purchased and
borrowed funds 3 8 11 (4) 8 4
--------------------------------- ---------------------------------
Total Interest Expense 1,359 719 2,078 342 (28) 314
--------------------------------- ---------------------------------
NET INTEREST INCOME $800 $(94) $ 706 $660 $(246) $ 414
================================= =================================
</TABLE>
(1) Changes in interest income/expense not specifically attributable to rate or
volume have been allocated in proportion to the amounts attributable to rate
and volume.
(2) The indicated interest income changes are not presented on a tax equivalent
basis.
-111-
<PAGE>
Atcorp, Inc. and Subsidiaries
INTEREST RATE SENSITIVITY TABLE 4
(In thousands except percentages)
<TABLE>
<CAPTION>
REPRICING PERIOD
BALANCE FIXED
Balance at Immediately 1 TO 90 91 TO 180 181 TO 365 1 TO 5 BEYOND
12/31/95 Adjustable DAYS DAYS DAYS YEARS 5 YEARS
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
LOANS
Commercial, Industrial, and Agricultural $ 27,759 $ 110 $ 2,822 $ 1,907 $ 3,910 $ 8,010 $11,000
Real Estate 45,912 1,725 8,023 5,943 3,557 21,271 5,393
Installment Loans to Individuals 22,458 0 4,585 70 235 11,663 5,905
-----------------------------------------------------------------------------------------
Total Loans (3) 96,129 1,835 15,430 7,920 7,702 40,944 22,298
INVESTMENT SECURITIES (1) 48,891 0 300 500 5,501 17,190 25,400
FEDERAL FUNDS SOLD 775 775 0 0 0 0 0
INTEREST BEARING DEPOSITS
IN OTHER BANKS 124 124 0 0 0 0 0
-----------------------------------------------------------------------------------------
Total $145,919 $ 2,734 $ 15,730 $ 8,420 $ 13,203 $ 58,134 $47,698
=========================================================================================
SAVINGS/TIME DEPOSITS (2) $125,482 $ 8,116 $ 70,356 $ 8,650 $ 32,997 $ 5,363 $0
-----------------------------------------------------------------------------------------
Total Interest-bearing Liabilities $125,482 $ 8,116 $ 70,356 $ 8,650 $ 32,997 $ 5,363 $0
=========================================================================================
INTEREST RATE SENSITIVITY $(5,382) $(54,626) $ ( 230) $(19,794) $ 52,771 $47,698
CUMULATIVE GAP $(5,382) $(60,008) $(60,238) $(80,032) $(27,261) $20,437
</TABLE>
(1) Investment securities include those held for sale and exclude Federal
Reserve Bank stock and Federal Home Loan Bank stock.
(2) Money market deposits are immediately adjustable. NOW and Savings accounts
are included in the 1 to 90 days category as these accounts can only be
repriced every 30 days.
(3) Excludes loans held for sale.
-112-
<PAGE>
Atcorp, Inc. and Subsidiaries
ANALYSIS OF INVESTMENT SECURITIES TABLE 5
(In thousands except percentages)
<TABLE>
<CAPTION>
Book Value as of December 31,
1995 1994 1993
------------- -------------- ------------
<S> <C> <C> <C>
U.S. TREASURY SECURITIES (1) $10,343 $16,077 $21,720
U.S. GOVERNMENT AGENCIES 22,447 5,500 ---
DEBT SECURITIES ISSUED BY
FOREIGN GOVERNMENTS 250 250 250
CORPORATE BONDS 4,835 5,702 2,938
MUNICIPAL SECURITIES 7,009 4,331 907
CMO'S 3,992 2,509 2,010
FEDERAL RESERVE BANK STOCK 224 198 155
OTHER SECURITIES 416 15 15
------------- -------------- ------------
Total $49,516 $34,582 $27,995
============= ============== ============
</TABLE>
(1) Investments include those held for sale.
-113-
<PAGE>
Atcorp, Inc. and Subsidiaries
MATURITY DISTRIBUTION OF INVESTMENT TABLE 6
PORTFOLIO AT DECEMBER 31, 1995
(In thousands except percentages)
<TABLE>
<CAPTION>
After After
One year Five years
Within Within Within After
One year Five years 10 years 10 years Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY SECURITIES (1)
Book Value $5,012 $4,325 $1,006 -- $10,343
Weighted average yield 5.77% 6.04% 7.17% -- 6.02%
U.S. GOVERNMENT AGENCIES
Book Value -- $7,429 $6,964 $8,054 $22,447
Weighted average yield -- 7.18% 7.69% 7.81% 7.57%
DEBT SECURITIES ISSUED BY
FOREIGN GOV'TS
Book Value $250 -- -- -- $250
Weighted average yield 6.75% -- -- -- 6.75%
CORPORATE SECURITIES
Book Value -- $2,078 $1,719 $1,038 $4,835
Weighted average yield -- 5.84% 7.53% 6.03% 6.48%
MUNICIPAL SECURITIES
Book Value 1,039 $3,359 $2,091 $520 $7,009
Weighted average yield 4.20% 4.76% 4.98% 5.39% 4.79%
CMO'S
Book Value -- -- $1,463 $2,529 $3,992
Weighted average yield -- -- 5.77% 7.19% 6.67%
OTHER SECURITIES (2)
Book Value -- -- -- $15 $15
Weighted average yield -- -- -- 0.00% 0.00%
------------------------------------------------------------------------------------
Total Book Value $6,301 $17,191 $13,243 $12,156 $48,891
====================================================================================
Weighted average yield 5.55% 6.26% 6.99% 7.43% 6.67%
</TABLE>
(1) Investments include those held for sale.
(2) Does not include Federal Reserve Bank stock and Federal Home Loan Bank
stock.
-114-
<PAGE>
Atcorp, Inc. and Subsidiaries
ANALYSIS OF LOAN PORTFOLIO TABLE 7
(In thousands except percentages)
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL, FINANCIAL, AND
AGRICULTURAL $27,759 $18,231 $14,528 $13,172 $16,836
REAL ESTATE-CONSTRUCTION 9,628 6,374 4,480 2,816 2,346
REAL ESTATE-MORTGAGE 36,284 28,748 31,998 33,640 37,237
INSTALLMENT LOANS TO INDIVIDUALS 22,458 18,107 14,085 8,887 10,016
-----------------------------------------------------------------
TOTAL LOANS HELD FOR INVESTMENT 96,129 71,460 65,091 58,515 66,435
LOANS HELD FOR SALE 1,467 0 2,582 -- --
-----------------------------------------------------------------
Total Loans 97,596 71,460 67,673 58,515 66,435
Reserve for Loan Loss 1,283 1,152 1,235 1,058 1,037
-----------------------------------------------------------------
Net Loans $96,313 $70,308 $66,438 $57,457 $65,398
=================================================================
</TABLE>
MATURITIES AND INTEREST RATE TERMS OF LOANS TABLE 8
(In thousands except percentages)
Stated maturities (or earlier call dates) of loans as of December 31, 1995 are
summarized in the table below.
<TABLE>
<CAPTION>
After
one year
Within but within After
one year five years five years Total
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
LOANS:
Real estate-construction $ 7,168 $ 2,460 $0 $ 9,628
Commercial, financial, and 27,759
agricultural 8,749 8,010 11,000
------------ -------------- -------------- ------------
Total $15,917 $10,470 $11,000 $37,387
============ ============== ============== ============
</TABLE>
The following table shows for the above loans the amounts which have
predetermined interest rates and the amounts which have variable interest rates
at December 31, 1995:
<TABLE>
<CAPTION>
After
one year
Within but within After
one year five years five years Total
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Loans with predetermined rates $ 9,350 $ 4,222 $10,809 $24,381
Loans with variable rates 6,567 6,248 191 13,006
------------ -------------- -------------- ------------
Total $15,917 $10,470 $11,000 $37,387
============ ============== ============== ============
</TABLE>
The above classification of loans is based on the period in which the loans
mature (or earlier call dates) and does not necessarily correspond to the
repricing period.
-115-
<PAGE>
Atcorp, Inc. and Subsidiaries
NON-PERFORMING ASSETS TABLE 9
(In thousands except percentages)
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS: (1) (2)
Real estate $ 531 $ 193 $98 $150 $322
Commercial and industrial 559 547 764 567 650
Installment loans to individuals 0 249 0 113 5
------------ ------------ ------------ ------------ ------------
Total 1,090 989 862 830 977
============ ============ ============ ============ ============
OVERDUE LOANS:
Loans past due 90 days 148 210 312 407 767
renegotiate loans 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total non-performing and past due
90 days loans 1,238 1,199 1,174 1,237 1,744
OTHER REAL ESTATE (3) 464 39 892 887 757
------------ ------------ ------------ ------------ ------------
Total non-performing assets and past
due 90 days loans $1,702 $1,238 $2,066 $2,124 $2,501
============ ============ ============ ============ ============
TOTAL NON-PERFORMING ASSETS
AND PAST DUE 90 DAYS LOANS AS 1.08% 1.05% 1.96% 2.34% 2.75%
A PERCENTAGE OF TOTAL ASSETS (4)
TOTAL NON-PERFORMING ASSETS
AND PAST DUE 90 DAYS LOANS AS A 1.74% 1.73% 3.17% 3.63% 3.76%
PERCENTAGE OF LOANS
</TABLE>
(1) Unsecured loans are placed in nonaccruing status when 90 days past due.
Interest continues to accrue on delinquent secured loans until the total
principal and interest due is equal to management's estimate of the value of the
collateral held.
2) Income of approximately $69,000, $102,000, $42,000, $68,000 and $52,000 was
not recognized as interest income due to the nonaccrual status of loans during
1995, 1994, 1993, 1992 and 1991, respectively.
3) Other Real Estate balances are shown net of the Allowance for ORE of
$13,000 at 12/31/95, $12,000 at 12/31/94, $137,000 at 12/31/93, $6,000 at
12/31/92, and $31,000 at 12/31/91.
(4) At December 31, 1995, 1994, 1993, 1992 and 1991, the Bank maintained
$2,573,000, $3,337,000, $2,184,000, $1,167,000, and $915,000, respectively of
loans, considered by Management to be potential problem loans.
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<PAGE>
Atcorp, Inc. and Subsidiaries
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES TABLE 10
(In thousands except ratios)
<TABLE>
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 1,152 $1,235 $ 1,058 $1,037 $ 650
CHARGEOFFS-
Commercial, financial and agricultural 46 170 1 213 267
Real Estate 28 97 10 0 10
Installment loans to individuals 70 41 49 55 86
------------ ------------ ------------ ------------ ------------
Total Chargeoffs 144 308 60 268 363
RECOVERIES-
Commercial, financial, and agricultural 29 35 144 37 15
Real Estate 120 15 16 -- --
Installment loans to individuals 11 15 2 36 75
------------ ------------ ------------ ------------ ------------
Total Recoveries 160 65 162 73 90
Net Chargeoffs (16) 243 (102) 195 273
PROVISIONS FOR POSSIBLE LOAN LOSSES 115 160 75 216 660
------------ ------------ ------------ ------------ ------------
BALANCE AT END OF YEAR $ 1,283 $1,152 $ 1,235 $1,058 $1,037
============ ============ ============ ============ ============
RATIO OF NET CHARGEOFFS TO NET AVERAGE
LOANS OUTSTANDING DURING PERIOD (0.02)% 0.36% (0.17)% 0.32% 0.39%
RATIO OF RESERVE BALANCE TO TOTAL LOANS 1.31% 1.61% 1.82% 1.81% 1.56%
</TABLE>
The allowance for loan losses is established through charges to earnings
in the form of a provision for loan losses. The amount charged to earnings is
based on several factors which include, but are not limited to, the following:
-A continuing review of past-due, nonaccrual, and renegotiated loans, and
overall portfolio quality;
-Regular examinations of the loan portfolio by bank regulatory agencies
and review by independent public accountants in connection with the audit
of the financial statements taken as a whole;
-Analytical review of charge-off experience by specific category of loans
and the total loan portfolio;
-Management's judgment with respect to economic conditions and the impact
of such conditions on the existing portfolio.
The adequacy of the allowance for loan losses is determined in accordance
with the foregoing factors on a quarterly basis. In the opinion of management,
the balance in the allowance for loan losses at December 31, 1995 is adequate
to cover future losses.
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<PAGE>
Atcorp, Inc. and Subsidiaries
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES TABLE 11
(In thousands except percentages)
The following table shows the allocation of the allowance for loan losses by
major loan category and the percentage of the loans in each category to total
loans at year end:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992 December 31, 1991
Amount % Amount % Amount % Amount % Amount %
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial, and
Agricultural $480 28.87% $321 25.51% $236 22.32% $306 22.51% $374 25.34%
Real Estate-Construction 0 10.02% 76 8.92% 38 6.88% 21 4.81% 25 3.53%
Real Estate-Mortgage 591 37.75% 496 40.23% 449 49.16% 484 57.49% 388 56.05%
Installment Loans to Individuals 135 23.36% 252 25.34% 249 21.64% 247 15.19% 250 15.08%
Unallocated 77 -- 7 -- 263 -- -- -- -- --
---------------------------------------------------------------------------------------------------
Total $1,283 100.00% $1,152 100.00% $1,235 100.00% $1,058 100.00% $1,037 100.00%
===================================================================================================
</TABLE>
DEPOSITS TABLE 12
(In thousands except rates)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1995 December 31, 1994 December 31, 1993
-----------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST-BEARING
DEMAND DEPOSITS $ 17,142 -- -- $16,313 -- -- $14,223 -- --
INTEREST-BEARING
DEMAND DEPOSITS 31,088 1,188 3.82% 20,223 511 2.53% 18,645 431 2.31%
SAVINGS DEPOSITS 23,490 769 3.27% 34,612 1,132 3.27% 27,776 925 3.33%
TIME DEPOSITS 52,591 2,857 5.43% 25,958 1,104 4.25% 24,046 1,081 4.50%
-----------------------------------------------------------------------------------------------
Total $124,311 $ 4,814 3.87% $97,106 $2,747 2.83% $84,690 $ 2,437 2.88%
===============================================================================================
</TABLE>
-118-
<PAGE>
Atcorp, Inc. and Subsidiaries
MATURITIES OF CERTIFICATES OF DEPOSIT TABLE 13
OF $100,000 OR MORE
(In thousands)
<TABLE>
<CAPTION>
December 31, 1995
-------------------
<S> <C>
Three months or less $1,835
Over three months through six months 2,957
Over six months through twelve months 3,462
Over twelve months 241
--------
Total $8,495
========
</TABLE>
RETURN ON EQUITY AND ASSETS TABLE 14
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994 1993
--------------------------------
<S> <C> <C> <C>
RETURN ON AVERAGE ASSETS 0.78% 0.80% 1.06%
RETURN ON AVERAGE EQUITY 11.64% 10.50% 13.45%
AVERAGE EQUITY TO
AVERAGE ASSETS 6.71% 7.66% 7.90%
DIVIDEND PAYOUT 0 0 0
</TABLE>
-119-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF FBC
The following pages of this report present management's discussion
and analysis of the consolidated financial condition and results of
operations of FBC, and its wholly-owned subsidiary, FNB.
RESULTS OF OPERATIONS
Summary of June 1996 Compared to June 1995
FBC' net income for the six months ended June 30, 1996 was $683
thousand compared to $703 thousand for the same period of 1995. Earnings
per common share were $2.25 in 1996 compared to $2.32 in 1995. The return
on average assets declined from 1.76% for the first six months of 1995 to
1.63% for the first six months of 1996, while the return on average equity
declined from 15.27% to 13.49% for the respective periods.
Summary of 1995 Compared to 1994
FBC's net income for the year ended December 31, 1995 was $1.181
million 3.3% above the $1.142 million earned in 1994. Earnings per common
share were $3.89 in 1995 compared to $3.76 in 1994. The return on average
assets was 1.46% in 1995 compared to 1.46% in 1994, while the return on
equity was 12.35% compared to 13.12% in 1994.
Net Interest Income - Taxable Equivalent Basis
The major source of operating revenues is net interest income which
rose to a level of $3.85 million in 1995, $34 thousand or 0.9% above the
$3.816 million attained in 1994. The net interest margin, on a tax
equivalent basis, for 1995 fell to 4.94% from the 5.07% attained during
1994. For the six months ended June 30, 1996, the net interest margin, tax
adjusted, was 5.08% compared to 5.25% for the same period in 1995.
Net interest income is the income which remains after deducting from
total income generated by earning assets the interest expense attributable
to the acquisition of the funds required to support earning assets. Income
from earning assets includes income from loans, income from investment
securities and income from short-term investments. The amount of interest
income is dependent upon many factors including the volume of earning
assets, the general level of interest rates, the dynamics of the change in
interest rates, and levels of nonperforming loans. The cost of funds varies
with the amount of funds necessary to support earning assets, the rates
paid to attract and hold deposits, rates paid on borrowed funds, and the
levels of non-interest-bearing demand deposits and equity capital.
Table 1 presents average balances, taxable equivalent interest income
and expenses and yields earned or paid on these assets and liabilities of
FBC. For purposes of calculating taxable equivalent interest income, tax-
exempt interest has been adjusted using a marginal tax rate of 35% in order
to equate the yield to that of taxable interest rates. Net interest income
as a percentage of net interest income and other income was 94%, 95% and
92% for the twelve months ended December 31, 1995, 1994 and 1993,
respectively. Net interest income as a percentage of net interest income
and other income was 92% for both the six months ended June 30, 1996 and
1995.
Table 2 illustrates that the growth in interest income in 1995 over
1994 was attributed to both volume and rate. The average growth in
interest-earning assets was $2.6 million in 1995 over 1994. As illustrated
in Table 1, the tax equivalent yield on earning assets for 1995 rose to
8.00% from 7.55% in 1994. This increase in 1995 can be attributed to the
7.2% increase in loan volumes as yields rose from 8.77% in 1994 to 9.06% in
1995. The investment yields rose from a 6.92% average return in 1994 to
7.09% in 1995.
-120-
<PAGE>
Table 2 also illustrates that the growth in interest expense in 1995
over 1994 was attributed to both volume and rate. The comparison of the
change in the volume of interest-bearing liabilities reveals a $1.5 million
increase in interest-bearing deposits. The average funding costs rose in
1995 to 3.87% from 3.11% in 1994. The rise in interest rates that took
place in late 1994 contributed significantly to the increased rates paid on
certificates of deposit as demonstrated by the 4.52% rate in 1995, an
increase of 91 basis points over 1994.
A positive influence on the ability of FBC to maintain a net interest
margin of approximately 5% has been the ability of FBC to maintain non
interest-bearing demand deposits at a level of approximately 12% of total
liabilities and equity as well as its ability to retain earnings. Variances
to occur in the net interest margin as an exact repricing of assets and
liabilities is not possible. A further explanation of the impact of asset
and liability repricing is found in the Asset/Liability Management section
of this discussion.
Provision and Allowance for Loan Losses
FBC's provision for loan losses is based upon management's quarterly
loan portfolio review. The purpose of the review is to assess loan quality,
identify impaired loans, analyze delinquencies, ascertain loan growth,
evaluate potential charge-offs and recoveries, and assess general economic
conditions in the markets its affiliates serve.
All loans are reviewed by loan officers and by management. In
addition to economic conditions, loan portfolio diversification,
delinquency and historic loss experience, consideration is also given to
examinations performed by the regulatory authorities.
To determine the allowance and corresponding provision, the amount
required for specific allocation is first determined. For all types of
loans, this amount is based upon specific borrower data determined by
reviewing individual non-performing, delinquent, or potentially troubled
credits. In addition, a general allocation is also determined using the
same criteria applied to the total portfolio.
The unallocated portion of the allowance is the amount which, when
added to these allocated amounts, brings the total to the amount deemed
adequate by management at that time. This unallocated portion is available
to absorb losses sustained anywhere within the loan portfolio. Table 10
presents this allocation.
The loan portfolio represents loans made primarily within FBC's
southern New Jersey market area.
Determining the level of the allowance for possible loan losses at
any given period is difficult, particularly during deteriorating or
uncertain economic periods. The review of the loan portfolio is a
continuing event in light of a changing economy and the dynamics of the
banking and regulatory environment. In management's opinion, the allowance
for loan losses is adequate at December 31, 1995 despite a $275 thousand
increase in non-performing loans. The increase in non-performing loans is
comprised of loans which were adequately secured, and in the opinion of
management, did not require an additional provision for losses. As
illustrated in Table 3, the provision for loan losses was $55 thousand for
1995 compared to $100 thousand in 1994. Net charge-offs, as seen in Table
3, were $37 thousand compared with $63 thousand in 1994. As a result, the
allowance for loan losses at December 31, 1995, was 1.17% of period-end
loans, or $431 thousand compared with 1.12% or $413 thousand at December
31, 1994. The allowance for loan losses as a percentage of non-performing
loans decreased from 44% at December 31, 1994 to 36% at December 31,
1995.
At June 30, 1996, the allowance for loan losses was 1.17% of period-
end loans. The allowance as a percentage of non-performing loans increased
to 49% at June 30, 1996, as the allowance grew to $476 thousand and non-
performing loans dropped to $965 thousand.
Should the economic climate no longer continue to improve or begin to
deteriorate, borrowers may experience difficulty, and the level of non-
performing loans and assets, charge-offs and delinquencies could rise and
require further increases in the provision.
-121-
<PAGE>
In addition, regulatory authorities, as an integral part of their
examinations, periodically review the allowance for possible loan losses.
They may require additions to allowances based upon their judgments about
information available to them at the time of examination.
Interest income received on non-performing loans in 1995 and 1994 was
$15 thousand and $15 thousand, respectively. Interest income which would
have been recorded on these loans under the original terms was $91 thousand
and $52 thousand, respectively.
Table 3 is an analysis of the provision levels as well as the
activity in the allowance for loan losses for the past five years as well
as the first six months of 1996 and 1995. Table 4 reflects the five-year
history of non-performing assets and loans contractually past due 90 days
and still accruing. The total non-performing assets at December 31, 1995
and 1994, of $1.416 million and $1.024 million, respectively, includes $202
thousand and $85 thousand in other real estate acquired through foreclosure
for both years. At June 30, 1996, total non-performing assets were $1.186
million compared to $917 thousand at June 30, 1995. These amounts include
other real estate acquired through foreclosure of $221 thousand and $197
thousand, respectively.
Real estate acquired through foreclosure is carried at the lower of
the recorded amount of the loan for which the foreclosed property served as
collateral or the fair market value of the property as determined by a
current appraisal less estimated costs to sell (fair value). Prior to
foreclosure, the recorded amount of the loan is written-down, if necessary,
to fair value by charging the allowance for loan losses. Subsequent to
foreclosure, gains or losses on the sale of real estate acquired through
foreclosure are recorded in operating income and any losses determined as a
result of periodic valuations are charged to other operating expense.
Loans with principal and/or interest delinquent 90 days or more which
are still accruing interest were $587 thousand at December 31, 1995 up from
$441 thousand at December 31, 1994. Although the economy is continuing to
improve, softness in certain areas of the economy may adversely affect
certain borrowers and may cause additional loans to become past due beyond
89 days or be placed on non-accrual status because of uncertainty of
receiving full payment of either principal or interest on these loans.
Other Income
Non-interest income, recorded as other income, consists of service
charges on deposit accounts, commissions, fees received for travelers'
check sales and money orders, net gains and losses on security
transactions, net gains on sales of other real estate owned and other
miscellaneous income, such as safe deposit box rents. Other income as a
percentage of net interest income and other income was 6%, 5%, and 8% for
1995, 1994 and 1993, respectively.
Non-interest income increased $46 thousand or 22.8%, in 1995 compared
with 1994. Service charges on deposit accounts were down $13 thousand.
Offsetting this decrease was an investment security loss of $53 thousand in
1994 compared to no securities gains or losses in 1995.
Other Expenses
Non-interest expenses are categorized into five main groupings:
employee-related expenses, which include salaries, fringe benefits, and
employment taxes; occupancy expenses, which include depreciation, rents,
maintenance, utilities, and insurance; equipment expenses, which include
depreciation, rents and maintenance; Federal Deposit Insurance
Corporation's insurance premiums on deposits; and other expenses (detailed
in Table 5) incurred in operating FBC' business.
The salary and employee benefits expenses rose by $80 thousand or
6.8% from 1994 to 1995; occupancy and equipment expenses were constant
while other operating expenses decreased $8 thousand. Offsetting these
increases was a decline in FDIC insurance premiums of $72 thousand due to a
reassessment of the insurance rate in 1995.
-122-
<PAGE>
Income Taxes
FBC's effective tax rate for 1995 was 24.49% compared to 24.99% in
1994. As tax-advantaged loans and securities continue to mature, and the
opportunities for investment in additional tax-advantaged enterprises
become less attractive due to certain provisions of the Tax Reform Act of
1986, an upward trend of effective tax rates may occur in the years ahead.
In February 1992, the Financial Accounting Standards Board issued
SFAS 109. This statement establishes financial accounting and reporting
standards for the effects of income taxes that result from an enterprises's
activities during the current and preceding years. It requires an asset and
liability approach for financial accounting and reporting for income taxes.
Under SFAS 109, FBC recognizes deferred tax liabilities for taxable
temporary differences (the difference between financial and tax bases), and
deferred tax assets for deductible temporary differences. Management
believes the deferred tax assets recognized at December 31, 1995, will be
realized in future tax returns. While the ultimate realization of deferred
tax assets is dependent on future taxable income, taxable income in prior
carryback years and future reversals of existing taxable temporary
differences are sufficient to offset the future reversals of deductible
temporary differences without implementing any tax strategies or assuming
future taxable income.
FINANCIAL CONDITION
Investment Securities
FBC follows SFAS 115 "Accounting for Certain Investments in Debt and
Equity Securities." This accounting pronouncement requires the segregation
of investment securities into three categories, each having a distinct
accounting treatment.
Securities identified as "held-to-maturity" continue to be carried at
their amortized cost and except for limited circumstances, may not be sold
prior to maturity. Securities identified as "available-for-sale" must be
reported at their market or "fair" value and the difference between that
value and their amortized cost recorded in the equity section, net of
taxes. Through the operation of this accounting procedure, the downward
movement of interest rates between December 31, 1994, and December 31,
1995, has caused the total equity of FBC to be impacted positively by $364
thousand as the "unrealized gains or losses for available-for-sale
securities," changed from a negative $188 thousand to a positive $177
thousand. Securities identified as "trading account securities" are marked-
to-market with the change recorded in the income statement.
Presently, FBC does not engage in trading activity, but does engage
in active portfolio management which requires the majority of its security
portfolios be identified as "available-for-sale." While SFAS 115 requires
segregation into "held-to-maturity" and "available-for-sale" categories
(see Table 6), it does not change FBC's policy concerning the purchase of
only high quality securities. Strategies employed address liquidity,
capital adequacy and net interest margin considerations which then
determine the assignment of purchases into these two categories. Table 7
illustrates the maturities of these security portfolios and the weighted
average yields based upon amortized costs. Yields are shown on a tax
equivalent basis assuming a 35% federal income tax rate. At December 31,
1995, FBC held no securities of one issuer, other than U. S. Government
obligations, where the aggregate book value exceeded ten percent of
stockholders' equity.
Loans
Table 8 presents the loans outstanding, by type of loan, for the past
five years. New loans for 1995 approximated the principal reductions of
loans receivable at December 31, 1994. Construction and real estate
mortgage loans were $24 million compared to $23.7 million at December 31,
1995 and 1994, respectively. As noted in Footnote 13, FBC's loan portfolio
contains no significant concentrations other than geographic.
-123-
<PAGE>
FBC has historically reported a significant amount of loans secured
by real estate, as depicted in Table 8. Many of these loans have real
estate taken as collateral for additional security for business or personal
purposes not related to the acquisition of the real estate pledged. Open-
end home equity loans amounted to $3.8 million at year-end and an
additional $3.1 million was lent against junior liens on residential
properties. Senior liens on 1 - 4 family residential properties totaled $10
million and much of the $6 million in loans secured by non-farm, non-
residential properties represented collateralization of operating lines, or
term loans that finance equipment, inventory or receivables. Loans secured
by farmland totaled $504 thousand and no loans are secured by multi-family
residential properties at December 31, 1995.
Table 9 represents the maturity of commercial, financial, and
agricultural loans as well as real estate construction loans. These loans
with maturities after 1996 consist of $2.1 million with fixed rate pricing
and no loans with variable rate pricing.
Deposits
FBC's deposit base is consumer-oriented, consisting of time deposits,
primarily certificates of deposit of various terms, interest-bearing demand
accounts, savings accounts, and demand deposits. The average amounts of
deposits by type are summarized in Table 11. FBC does not rely upon time
deposits of $100 thousand or more as a principal source of funds. Table 12
presents a breakdown of maturities of time deposits of $100 thousand or
more as of December 31, 1995.
Asset/Liability Management
Liquidity and interest rate sensitivity are related but distinctly
different from one another. The maintenance of adequate liquidity -- the
ability to meet the cash requirements of its customers and other financial
commitments -- is a fundamental aspect of FBC's asset/liability management
strategy. FBC's policy of diversifying its funding sources -- purchased
funds, repurchase agreements, and deposit accounts -- allows it to avoid
undue concentration in any single financial market and also to avoid heavy
funding requirements within short periods of time.
However, liquidity is not entirely dependent on increasing FBC's
liability balances. Liquidity can also be generated from maturing or
readily marketable assets. The carrying value of investment securities
maturing within one year amounted to $5.3 million at December 31, 1995.
These maturing investments represent 13.7% of total investment securities.
Short-term investments amounted to $3.8 million and represent additional
sources of liquidity.
Closely related to the management of liquidity is the management of
rate sensitivity which focuses on maintaining stability in the net interest
margin, an important factor in earnings growth. Interest rate sensitivity is the
matching or mismatching of the maturity and rate structure of the interest-
bearing assets and liabilities. It is the objective of management to control the
difference in the timing of the rate changes for these assets and liabilities to
preserve a satisfactory net interest margin. In doing so, FBC endeavors to
maximize earnings in an environment of changing interest rates. However, there
is a lag in maintaining the desired matching because the repricing of products
does occur at varying time intervals.
FBC employs a variety of methods to monitor interest rate
sensitivity. By dividing the assets and liabilities into three groups --
fixed rate, floating rate and those which reprice only at management's
discretion -- strategies are developed which are designed to minimize
exposure to interest rate fluctuations. Management also utilizes gap
analysis to evaluate rate sensitivity at a given point in time.
Tables 13 and 14 illustrate FBC's estimated interest rate sensitivity
and periodic and cumulative gap positions as calculated at December 31,
1995 and June 30, 1996. An institution with more assets repricing than
liabilities over a given time frame is considered asset sensitive, and one
with more liabilities repricing than assets is considered liability
sensitive. An asset sensitive institution will generally benefit from
rising rates, and a liability sensitive institution will generally benefit
from declining rates. While FBC has had and will into the foreseeable
future experience a negative
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<PAGE>
gap position (liability sensitive), the impact of a rapid rise in interest
rates should not have a significant effect on the net interest margin of
FBC, which has consistently remained at or near the 5.0% level.
Capital Adequacy
Risk-based capital ratios, based upon guidelines adopted by bank
regulators in 1989, focus upon credit risk. Assets and certain off-balance
sheet items are segmented into one of four broad risk categories and
weighted according to the relative percentage of credit risk assigned by
the regulatory authorities. Off-balance sheet instruments are converted
into a balance sheet credit equivalent before being assigned to one of the
four risk-weighed categories. To supplement the risk-based capital ratios,
the regulators issued a minimum leverage ratio guideline (Tier 1 capital as
a percentage of average assets less excludable intangibles).
Capital elements are segmented into two tiers. Tier 1 capital
represents shareholders' equity reduced by excludable intangibles, while
total capital represents Tier 1 capital plus certain allowable long-term
debt and the portion of the allowance for loan losses equal to 1.25% of
risk-adjusted assets.
The maintenance of a strong capital base at both the parent company
level as well as at each bank affiliate is an important aspect of FBC's
philosophy. Table 15 illustrates these capital ratios for FBC on a
consolidated basis. FBC has leverage and risk-weighted ratios well in
excess of regulatory minimums and each entity is considered "well
capitalized" under regulatory guidelines.
Summary of 1994 Compared to 1993
Net income for 1994 was $1.142 million compared to the $1.146 million
earned in 1993, a $4 thousand or 0.3% decrease. On a per share basis, net
income was $3.76 in 1994 and $3.77 in 1993. The return on average assets
was 1.45% for 1994 compared to 1.52% for 1993, while the return on average
equity was 13.12% in 1994 compared with 14.33% in 1993.
Items which have affected the annual operating results and
comparisons between 1994 and 1993 were the following pre-tax items: a $230
thousand increase in net interest income; the higher provision for credit
losses of $25 thousand in 1994; a $50 thousand increase in losses on
security transactions in 1994, ; a $69 thousand decrease in trading account
gains for 1994; a $67 thousand increase in salaries and employee benefits
in 1994.
-125-
<PAGE>
Farmers Banc Corp. and Subsidiaries
TABLE 1 - DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential - Tax Equivalent Basis
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS Average Balance Interest Rate Average Balance Interest Rate Average Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments $4,926 $294 5.97% $6,658 $264 3.97% $7,906 $232 2.93%
Investment securities:
Taxable 26,472 1,784 6.74 24,730 1,605 6.49 21,223 1,483 6.99
Tax-advantaged 7,637 634 8.30 7,580 632 8.33 6,924 600 8.67
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities 34,109 2,418 7.09 32,310 2,237 6.92 28,147 2,083 7.40
Loans (net of unearned income):
Taxable 36,895 3,396 9.20 34,698 3,104 8.95 33,981 3,131 9.21
Tax-advantaged 1,962 125 6.35 1,622 80 4.96 1,587 71 4.46
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans 38,857 3,521 9.06 36,320 3,184 8.77 35,568 3,202 9.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 77,892 6,232 8.00% 75,288 5,685 7.55% 71,621 5,517 7.70%
====================================================================================================================================
Allowance for loan losses (439) (394) (395)
All other non-earning assets 4,284 4,130 3,931
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $81,737 $79,024 $75,157
====================================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Deposits:
Interest-bearing demand $19,851 $559 2.82% $22,237 $529 2.38% $22,672 $575 2.53%
Savings 3,299 87 2.64 3,303 92 2.79 3,037 91 3.00
Time 38,439 1,736 4.52 34,528 1,248 3.61 32,014 1,280 4.00
Short-term borrowings 0 0 0.00 0 0 0.00 0 0 0.00
Long-term debt 0 0 0.00 0 0 0.00 0 0 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 61,589 $2,382 3.87% 60,068 $1,869 3.11% 57,723 $1,946 3.37%
- ------------------------------------------------------------------------------------------------------------------------------------
Demand deposits 9,848 9,583 8,736
Other liabilities 734 667 698
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 72,171 70,318 67,157
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 9,566 8,706 8,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities & equity $81,737 $79,024 $75,157
====================================================================================================================================
Net interest income/yield
on average earning assets $3,850 4.94% $3,816 5.07% $3,571 4.99%
====================================================================================================================================
</TABLE>
For purposes of calculating loan yields, the average loan volume includes
nonaccrual loans. For purposes of calculating yields on tax-advantaged interest
income, the taxable equivalent is made to equate tax-advantaged interest on the
same basis as taxable interest. The marginal tax rate is 35%.
-126-
<PAGE>
Farmers Banc Corp. and Subsidiaries
TABLE 1 - DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential - Tax Equivalent Basis
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands Six Months Ended June 30, 1996 Six Months Ended June 30, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS Average Balance Interest Rate Average Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-term investments $ 3,476 $ 93 5.38% $ 3,438 $ 104 6.10%
Investment securities:
Taxable 29,693 961 6.51 25,752 850 6.66
Tax-advantaged 8,078 329 8.19 7,626 318 8.41
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 37,771 1,290 6.87 33,378 1,168 7.06
Loans (net of unearned income):
Taxable 37,902 1,832 9.72 37,458 1,775 9.56
Tax-advantaged 1,328 42 6.41 2,212 72 6.59
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans 39,230 1,874 9.61 39,670 1,847 9.39
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 80,477 3,257 8.14% 76,486 3,119 8.22%
===================================================================================================================================
Allowance for loan losses (455) (447)
All other non-earning assets 4,468 4,212
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $84,490 $80,251
===================================================================================================================================
LIABILITIES & STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
Deposits:
Interest-bearing demand $18,652 $237 2.56% $20,146 $286 2.86%
Savings 3,306 41 2.49 3,341 45 2.74
Time 40,921 944 4.64 37,356 798 4.31
Short-term borrowings 0 0 0.00 0 0 0.00
Long-term debt 0 0 0.00 0 0 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 62,879 $1,222 1.94% 60,843 $1,129 3.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 10,607 9,436
Other liabilities 826 689
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 74,312 70,968
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 10,178 9,283
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities & equity $84,490 $80,251
===================================================================================================================================
Net interest income/yield on average earning assets $2,035 5.08% $1,990 5.25%
===================================================================================================================================
</TABLE>
For purposes of calculating loan yields, the average loan volume includes
nonaccrual loans. For purposes of calculating yields on tax-advantaged interest
income, the taxable equivalent is made to equate tax-advantaged interest on the
same basis as taxable interest. The marginal tax rate is 35%.
-127-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
TABLE 2 - CHANGES IN NET INTEREST INCOME - TAX EQUIVALENT BASIS
----------------------------------------------------------------------------------------------------------
1995 Versus 1994 1994 Versus 1993
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
----------------------------------------------------------------------------------------------------------
Average Average Average Average
(Dollars in thousands) Volume Rate Total Volume Rate Total
------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Other short-term investments ($81) $111 $30 ($41) $73 $32
Investment securities:
Taxable 116 63 179 233 (111) 122
Tax-advantaged 5 (3) 2 55 (24) 32
------------------------------------------------------------------------------------------------------------
Total investment securities 121 60 181 288 (135) 154
Loans (net of unearned income):
Taxable 200 92 292 65 (92) (27)
Tax-advantaged 19 25 44 2 8 10
------------------------------------------------------------------------------------------------------------
Total loans 219 117 336 67 (84) (17)
------------------------------------------------------------------------------------------------------------
Total interest-earning assets $259 $288 $547 $315 ($146) $168
============================================================================================================
INTEREST EXPENSE
Deposits:
Interest-bearing demand ($61) $91 $30 ($11) ($35) ($46)
Savings 0 (5) (5) 7 (6) 1
Time 152 336 488 96 (129) (32)
Short-term borrowings 0 0 0 0 0 0
Long-term debt 0 0 0 0 0 0
------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $92 $421 $513 $93 ($170) ($77)
============================================================================================================
Net interest margin $168 ($133) $34 $222 $23 $245
============================================================================================================
</TABLE>
Change which are in part to volume and in part to rate are allocated in
proportion to their relationship to the amounts of changes attributed directly
to volume and rate.
-128-
<PAGE>
Farmers Banc Corp. and Subsidiaries
TABLE 3 - PROVISION AND ALLOWANCE FOR LOAN AND LEASE LOSSES
<TABLE>
<CAPTION>
Six Months Ended June 30 Years ended December 31
---------------------------- ----------------------------------------------------------
(in thousands) 1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan and $431 $413 $413 $376 $418 $334 $223
lease losses, January 1
Additions to provision for
loan and lease losses
charged to operations 30 30 55 100 75 93 143
Loans and leases charged
off during the year:
Commercial, financial,
agricultural and
leases 0 0 26 15 35 31 20
Real estate - mortgage 0 0 0 0 29 0 0
Consumer 26 41 51 71 59 31 22
- ------------------------------------------------------------------------------------------------------------------------------
Total charge-offs 26 41 77 86 123 62 42
- ------------------------------------------------------------------------------------------------------------------------------
Recoveries of loans and
leases previously charged-off:
Commercial, financial,
agricultural and
leases 0 0 0 14 0 47 0
Real estate - mortgage 0 35 35 0 0 0 0
Consumer 41 3 5 9 6 6 10
- ------------------------------------------------------------------------------------------------------------------------------
Total recoveries 41 38 40 23 6 53 10
- ------------------------------------------------------------------------------------------------------------------------------
Net charge-offs (15) 3 37 63 117 9 32
- ------------------------------------------------------------------------------------------------------------------------------
Allowance for loan and
lease losses, December 31 $476 $440 $431 $413 $376 $418 $334
==============================================================================================================================
Average loans and leases
outstanding $39,227 $39,644 $38,857 $36,320 $35,568 $34,811 $30,543
Period end loans and leases 40,624 39,140 36,849 36,866 32,695 33,665 31,506
Net charge-offs as a percentage
of average loans and leases (0.08%) 0.02% 0.10% 0.17% 0.33% 0.03% 0.10%
Allowance as a percentage
of period-end loans and
leases 1.17 1.12 1.17 1.12 1.15 1.24 1.06
</TABLE>
-129-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 4 - NON-PERFORMING ASSETS At June 30 At December 31
--------------- -------------------------------------------
(in thousands) 1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Loans contractually past due 90 days and still accruing $231 $173 $587 $441 $719 $700 $209
--------------- -------------------------------------------
Non-performing assets:
Nonaccrual loans:
Commercial, financial, agricultural and leases $437 $35 $300 $212 $189 $189 $407
Real estate - mortgage 442 666 780 529 186 160 48
Consumer 86 19 134 198 192 12 35
Restructured loans -- -- -- -- -- -- --
Other real estate owned 221 197 202 85 96 173 --
--------------- -------------------------------------------
Total non-performing assets $1,186 $ 917 $1,416 $1,024 $663 $534 $490
=============== ===========================================
Total non-performing assets as a percentage of period-end
loans and leases and other real estate owned 2.90% 2.33% 3.82% 2.77% 2.02% 1.58% 1.56%
</TABLE>
-130-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 5 - Analysis of Other Expenses
- ---------------------------------------------------------------------------
(In thousands)
- ---------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Advertising, marketing and public relations $ 22 $ 18 $ 17
Communications 18 18 13
Directors' fees 47 43 40
Examinations 34 35 33
FDIC assessment 82 154 143
Legal and professional 102 64 60
Outside services 144 146 147
Postage 58 53 51
Stationery & supplies 53 39 42
All other 162 161 171
- ---------------------------------------------------------------------------
$722 $731 $717
===========================================================================
</TABLE>
-131-
<PAGE>
Farmers Banc. Corp. and Subsidiaries
TABLE 6 - Carrying Value of Investment Securities
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31 June 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
Available- Held-to- Available- Held-to- Available- Held-to- Available- Held-to-
(Dollars in thousands) for-Sale Maturity for-Sale Maturity for-Sale Maturity for-Sale Maturity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 3,009 $ 2,243 $ 3,373 $ 3,632 $3,473 $ 4,251 $ 4,044 $ 1,875
U.S. Government agencies 3,867 1,536 1,053 849 292 473 1,713 550
State and municipal 3,479 4,616 3,841 5,641 9,834 7,106
Other securities 1,605 101 1,751 67 800 592 1,581 619
Mortgage-backed securities 6,242 8,651 8,138 10,346 2,530 11,154 2,683 8,603
Equity securities 1,529 68 68 68
- ---------------------------------------------------------------------------------------------------------------------
Total investment securities $19,731 $17,147 $18,222 $20,535 $7,163 $26,304 $10,021 $18,821
=====================================================================================================================
</TABLE>
-132-
<PAGE>
Farmers Banc Corp. and Subsidiaries
TABLE 7 - INVESTMENT SECURITIES
December 31, 1995, and the weighted average yields of such securities. Those
securities that do not have a single maturity date are shown in total. Yields
are shown on a tax equivalent basis, assuming a 35% federal income tax rate.
<TABLE>
<CAPTION>
(In thousands) After 5
After 1 Years
Year but
Within but Within Within After
1 Year 5 Years 10 Years 10 Years Total
------- ---------- --------- -------- --------
AVAILABLE-FOR-SALE
- ------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury
Fair value............ $1,111 $ 2,058 $ 204 $ 0 $ 3,373
Amortized cost........ 1,101 2,059 192 0 3,352
Yield................. 5.4% 5.5% 6.5% 0.0% 5.5%
U.S. Government agencies
Fair value............ $ 0 $ 1,053 $ 0 $ 0 $ 1,053
Amortized cost........ 0 1,053 0 0 1,053
Yield................. 0.0% 6.6% 0.0% 0.0% 6.6%
State and municipal
Fair value............ $ 610 $ 2,033 $1,198 $ 0 $ 3,841
Amortized cost........ 602 1,972 1,154 0 3,728
Yield................. 6.0% 5.3% 5.2% 0.0% 5.4%
Mortgage-backed securities
Fair value............ $ 299 $ 3,027 $1,276 $3,535 $ 8,138
Amortized cost........ 300 3,010 1,271 3,487 8,068
Yield................. 5.3% 6.6% 7.5% 7.2% 6.9%
Corporate debt securities
Fair value............ $ 305 $ 1,134 $ 312 $ 0 $ 1,751
Amortized cost........ 302 1,102 281 0 1,685
Yield................. 7.5% 6.8% 8.6% 0.0% 6.4%
Equity securities
Fair value............ $ 68
Amortized cost........ 68
Yield................. 6.0%
HELD-TO-MATURITY
U.S. Treasury
Fair value............ $2,099 $ 1,563 $ 0 $ 0 $ 3,662
Amortized cost........ 2,099 1,533 0 0 3,632
Yield................. 5.8% 5.6% 0.0% 0.0% 5.7%
U.S. Government agencies
Fair value............ $ 904 $ 3,070 $3,244 $4,026 $11,244
Amortized cost........ 903 3,101 3,285 3,906 11,195
Yield................. 6.8% 6.1% 7.0% 8.3% 7.2%
State and municipal
Fair value........... $ 0 $ 1,850 $3,512 $ 441 $ 5,803
Amortized cost....... 0 1,842 3,376 423 5,641
Yield................ 0.0% 5.3% 5.4% 5.3% 5.4%
Mortgage-backed securities
Fair value........... $ 0 $ 0 $ 19 $ 48 $ 67
Amortized cost....... 0 0 19 48 67
Yield................ 0.0% 0.0% 6.4% 6.9% 6.8%
Total Securities
Fair value........... $5,328 $15,788 $9,765 $8,050 $38,931
Amortized cost....... 5,307 15,672 9,578 7,864 38,421
Yield................ 6.0% 6.0% 6.3% 7.7% 6.4%
</TABLE>
-133-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
TABLE 8 - Loan Portfolio
- -------------------------------------------------------------------------------------------------------------
At December 31
------------------------------------------------------
At June 30, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of Loans to of Loans to of Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial &
Agricultural $ 8,623 21.2% $ 6,383 17.3% $ 6,171 16.7%
Real Estate - Construction 652 1.6% 662 1.8% 1,533 4.2%
Real Estate - Mortgage 23,675 58.3% 23,372 63.4% 22,205 60.2%
Consumer 7,674 18.9% 6,432 17.5% 6,957 18.9%
- -------------------------------------------------------------------------------------------------------------
Total $40,624 100.0% $36,849 100.0% $36,866 100.0%
=============================================================================================================
<CAPTION>
At December 31
----------------------------------------------------------------------------------
1993 1992 1991
----------------------------------------------------------------------------------
Percentage Percentage Percentage
of Loans to of Loans to of Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial &
Agricultural $ 5,489 16.8% $ 5,294 15.7% $ 5,756 18.3%
Real Estate - Construction 901 2.8% 1,082 3.2% 1,611 5.1%
Real Estate - Mortgage 21,501 65.8% 21,986 65.3% 18,701 59.4%
Consumer 4,804 14.6% 5,303 15.8% 5,438 17.2%
- -------------------------------------------------------------------------------------------------------------
Total $32,695 100.0% $33,665 100.0% $31,506 100.0%
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
TABLE 9 - Loan Maturity and Interest Sensitivity
- -------------------------------------------------------------------------------------------
At December 31, 1995
- -------------------------------------------------------------------------------------------
In thousands
- -------------------------------------------------------------------------------------------
Under One One to Five Over Five
Maturity Year Years Years Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, Financial &
Agricultural $4,816 $1,538 $443 $6,797
Real Estate-Construction 524 54 84 662
- -------------------------------------------------------------------------------------------
Total $5,340 $1,592 $527 $7,459
===========================================================================================
Rate sensitivity of loans with
maturities greater than 1 year:
Variable rate $0
Fixed rate 2,119
- -------------------------------------------------------------------------------------------
$2,119
===========================================================================================
</TABLE>
-134-
<PAGE>
Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 10 - Allocation of Allowance for Loan Losses
- ----------------------------------------------------------------------------------------------
At December 31
- ----------------------------------------------------------------------------------------------
In thousands 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 75 $ 66 $ 71 $95 $54
Real Estate - Construction 5 11 7 8 12
Real Estate - Mortgage 281 250 217 265 215
Consumer 60 73 57 40 41
Unused Commitments -- -- -- -- --
Unallocated 10 12 25 11 12
- ----------------------------------------------------------------------------------------------
Total $431 $413 $376 $418 $334
==============================================================================================
</TABLE>
-135-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
TABLE 11 - Average Deposit Balances
- ------------------------------------------------------------------
In thousands
- ------------------------------------------------------------------
Years ended December 31 1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits $9,848 $9,583 $8,736
Interest-bearing demand deposits 19,851 22,237 22,672
Savings deposits 3,299 3,303 3,037
Time deposits 38,439 34,528 32,014
- ------------------------------------------------------------------
Total $71,437 $69,651 $66,459
==================================================================
TABLE 12 - Deposit Maturity
- ------------------------------------------------------------------
Maturity of time deposits of $100 or more at
December 31, 1995
- ------------------------------------------------------------------
In thousands
- ------------------------------------------------------------------
Three months or less $1,106
Over three months through six months 510
Over six months through twelve months 806
Over twelve months 1,256
- ------------------------------------------------------------------
Total $3,678
==================================================================
</TABLE>
-136-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
Table 13 - Interest Rate Sensitivity
- ----------------------------------------------------------------------------------------------------------
At December 31, 1995 1 - 90 90 - 180 180 - 365 1 year
In thousands days days days or more Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Short-term investments $3,845 $500 $ 4,345
Investments 2,917 1,911 2,751 31,178 38,757
Loans, net of unearned income* 11,189 1,699 1,699 21,048 35,635
- ----------------------------------------------------------------------------------------------------------
Total 17,951 3,610 4,950 52,226 79,565
==========================================================================================================
Liabilities
Interest-bearing demand 21,011 $21,011
Savings 3,234 3,234
Time 6,135 3,188 5,824 19,677 34,824
Time in denominations of $100 or more 1,106 510 806 1,256 3,678
- ----------------------------------------------------------------------------------------------------------
Total 31,486 3,698 6,630 20,933 62,747
==========================================================================================================
Interest Sensitivity Gap
Periodic ($13,535) ($88) ($1,680) $31,293
Cumulative (13,623) (15,303) 16,818
Cumulative gap as a percentage of earning assets -17.1% -17.2% -19.3% 20.1%
</TABLE>
* Does not include non-accrual loans
-137-
<PAGE>
Farmers Banc Corp. and Subsidiaries
<TABLE>
<CAPTION>
Table 14 - Interest Rate Sensitivity
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
At June 30, 1996 1 - 90 90 - 180 180 - 365 1 year
In thousands days days days or more Total
- -------------------------------------------------------------------------------------
Assets
Short-term investments $ 4,359 $ 500 $ 4,859
Investments 2,498 2,302 2,950 29,128 36,878
Loans, net of unearned income* 10,890 3,241 3,958 21,570 39,659
- -------------------------------------------------------------------------------------
Total $17,747 $6,043 $6,908 $50,698 $81,396
=====================================================================================
Liabilities
Interest-bearing demand $17,865 $17,865
Savings 2,918 2,918
Time 3,791 5,014 6,627 20,831 36,263
Time in denominations of $100 1,344 3,218 1,394 748 6,704
or more
- ------------------------------------------------------------------------------------
Total $25,918 $8,232 $8,021 $21,579 $63,750
=====================================================================================
Interest Sensitivity Gap
Periodic ($8,171) ($2,189) ($1,113) $29,119
Cumulative (10,360) (11,473) 17,646
Cumulative gap as a percentage
of earning assets -10.0% -12.7% -14.1% 21.7%
</TABLE>
* Does not include non-accrual loans
<TABLE>
<CAPTION>
Table 15 - Capital Adequacy Actual
- -------------------------------------------------------------------------------
Required December 31, 1995 June 30, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier I Ratio 4.00% 22.20% 21.79%
Total Capital Ratio 8.00% 23.17% 22.80%
Leverage Ratio 4.00% 11.78% 12.29%
</TABLE>
-138-
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following tables set forth certain pro forma combined
condensed financial information of Susquehanna giving effect to the AI
Merger and the FBC Merger as of January 1, 1995 separately and combined,
accounted for as a pooling of interests.
The information in the following tables is not necessarily
indicative of the results that would have been achieved had such
transactions been consummated on such dates and should not be construed as
representative of future operations. Such information is subject to the
assumptions set forth in the notes to these Unaudited Pro Forma Financial
Statements and to the Susquehanna Pro Forma Schedules appearing elsewhere
herein. The information presented should be read in conjunction with such
notes, with the Susquehanna Pro Forma Schedules and with the historical
financial statements, including the notes thereto, of Susquehanna, AI and
FBC incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus.
Pro Forma Combined Condensed Balance Sheet
as of June 30, 1996
The following unaudited pro forma combined condensed balance
sheet combines the historical consolidated balance sheets of Susquehanna,
AI and FBC as of June 30, 1996 assuming the AI Merger and the FBC Merger
were effective on such date and were accounted for as a pooling of
interests. For more information regarding the adjustments made for such
transactions, see the Footnotes to Pro Forma Combined Condensed Balance
Sheet on page 145 of this Proxy Statement/Prospectus.
-139-
<PAGE>
Pro Forma Combined Condensed Balance Sheet
As of June 30, 1996
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
Susquehanna AI FBC
----------------------------- ------------------------------
As Reported As Reported Pro Forma As Reported Pro Forma
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash & due from banks $94,253 $4,662 $2,608
Other short-term investments 67,010 8,334 3,400
Investment securities 605,361 70,532 36,878
Loans, net of unearned income 2,130,353 115,754 40,624
Less: Allowance for loan losses 32,004 1,356 476
--------- ------- ----- ------ -----
Net loans 2,098,349 114,398 40,148
Premises & Equipment, net 37,470 2,983 944
Other Assets 108,752 3,304 1,421
--------- ------- ----- ------ -----
TOTAL ASSETS $3,011,195 $204,213 $ 0 $85,399 $ 0
========= ======= ===== ====== =====
LIABILITIES
Deposits $2,516,633 $186,368 $74,718
Short-term borrowings 48,584 0 0
Long-term debt 126,658 5,000 0
Other liabilities 36,317 2,393 445
--------- ------- ----- ------ -----
TOTAL LIABILITIES 2,728,192 193,761 75,163
EQUITY
Common stock 26,386 3,902 (3,902) [A] 253 (253) [C]
1,544 [B] 1,386 [D]
Surplus 78,349 3,804 (3,804) [A] 1,650 (1650) [C]
6,117 [B] 517 [D]
Retained earnings 180,936 3,015 8,410
Unrealized gains and losses
for available-for-sale
securities, net of tax (2,513) (224) (77)
Less: Treasury stock at cost 155 (45) 45 [A]
--------- ------- ----- ------ -----
TOTAL EQUITY 283,003 10,452 0 10,236 0
--------- ------- ----- ------ -----
TOTAL LIABILITIES
& EQUITY $3,011,195 $204,213 $ 0 $85,399 $ 0
========= ======= ==== ====== =====
<CAPTION>
Pro Forma Combined
--------------------------------------------------------------
Susquehanna,
Susquehanna and AI Susquehanna and FBC AI and FBC
------------------ ------------------- ----------
<S> <C> <C> <C>
ASSETS
Cash & due from banks $98,915 $96,861 $101,523
Other short-term investments 75,344 70,410 78,744
Investment securities 675,893 642,239 712,771
Loans, net of unearned income 2,246,107 2,170,977 2,286,731
Less: Allowance for loan losses 33,360 32,480 33,836
--------- --------- ---------
Net loans 2,212,747 2,138,497 2,252,895
Premises & Equipment, net 40,453 38,414 41,397
Other Assets 112,056 110,173 113,477
--------- --------- ---------
TOTAL ASSETS $3,215,408 $3,096,594 $3,300,807
========= ========= =========
LIABILITIES
Deposits $2,703,001 $2,591,351 $2,777,719
Short-term borrowings 48,584 48,584 48,584
Long-term debt 131,658 126,658 131,658
Other liabilities 38,710 36,762 39,155
--------- --------- ---------
TOTAL LIABILITIES 2,921,953 2,803,355 2,997,116
EQUITY
Common stock 27,930 27,772 29,316
Surplus 84,466 78,866 84,983
Retained earnings 183,951 189,346 192,361
Unrealized gains and losses
for available-for-sale
securities, net of tax (2,737) (2,590) (2,814)
Less: Treasury stock at cost 155 155 155
--------- --------- ---------
TOTAL EQUITY 293,455 293,239 303,691
--------- --------- ---------
TOTAL LIABILITIES
& EQUITY $3,215,408 $3,096,594 $3,300,807
========= ========= =========
</TABLE>
Notes to Pro Forma Combined Condensed Statement of Income for the six months
ended June 30, 1996
For a detailed explanation of the adjustments made for such transactions see the
Footnotes to Pro Forma Combined Condensed Balance Sheets on Page 145.
-140-
<PAGE>
Pro Forma Combined Condensed Statement
of Income for the Six Months Ended June 30, 1996
The following unaudited pro forma combined condensed statement of
income combines the historical consolidated income statements of Susquehanna
(giving effect to the acquisition of Fairfax as though it had occurred on
January 1, 1996), AI and FBC for the six months ended June 30, 1996 on the
assumption that the AI Merger and the FBC Merger had been effective at January
1, 1996, both individually and combined.
Pro Forma Combined Condensed Statement of Income
Six months Ended June 30, 1996
Unaudited
(In thousands except per share data)
<TABLE>
<CAPTION>
Susquehanna
Susquehanna Fairfax Historical AI
------------------------ ----------------------------
As Reported As Reported Pro Forma Restated As Reported Pro Forma
----------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income $114,021 $3,205 $ (193) [1] $117,033 $7,122
Interest expense 51,270 1,834 60 [2] 53,164 3,429
------ ----- -- ------ ----- ---------
Net interest income 62,751 1,371 (253) 63,869 3,693 0
Provision for loan and lease losses 2,379 502 2,881 43
------ ----- ----- ------ ----- ---------
Net interest income after provision for
loan and lease losses 60,372 869 (253) 60,988 3,650 0
Other income 10,711 488 11,199 313
Other expense:
Salaries and benefits 24,708 615 (9) [3] 25,314 1,410
Occupancy and equipment 5,765 94 5,859 628
Other 16,256 (118) 119 [4] 16,257 893
------ ----- --- ------ ----- ---------
Income before income taxes 24,354 766 (363) 24,757 1,032 0
Applicable taxes 7,999 365 (97) [5] 8,267 283
----- --- ---- ----- --- --------
Net income from operations $ 16,355 $ 401 ($266) $ 16,490 $ 749 $ 0
====== ===== ==== ====== ===== ========
Earnings per share $1.24 $1.25 $0.97
Average shares outstanding 13,149 1 [6] 13,150 772 (772) [7]
772 [8]
</TABLE>
<TABLE>
<CAPTION>
FBC Pro Forma Combined
-------------------------- --------------------------------------------
Susquehanna
As Reported Pro Forma Susquehanna/AI Susquehanna/FBC AI/FBC
----------- ---------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Interest income $3,080 $124,155 $120,113 $127,235
Interest expense 1,222 56,593 54,386 57,815
----- ------ ------ ------ ------
Net interest income 1,858 0 67,562 65,727 69,420
Provision for loan and lease losses 30 2,924 2,911 2,954
----- ------ ------ ------ -----
Net interest income after provision for
loan and lease losses 1,828 0 64,638 62,816 66,466
Other income 161 11,512 11,360 11,673
Other expense:
Salaries and benefits 661 26,724 25,975 27,385
Occupancy and equipment 107 6,487 5,966 6,594
Other 346 17,150 16,603 17,496
----- ------ ------ ------ ------
Income before income taxes 875 0 25,789 25,632 26,664
Applicable taxes 192 8,550 8,459 8,742
----- ------ ------ ------ -----
Net income from operations $ 683 $ 0 $ 17,239 $ 17,173 $ 17,922
===== ====== ====== ====== ======
Earnings per share $2.25 $1.24 $1.24 $1.23
Average shares outstanding 304 (304) [9] 13,922 13,843 14,615
693 [10]
</TABLE>
Notes to Pro Forma Combined Condensed Statement of Income for the six months
ended June 30, 1996
For a detailed explanation of the adjustments made for such transactions see the
Footnotes to Pro Forma Combined Condensed Statements of Income on Page 145.
-141-
<PAGE>
Pro Forma Combined Condensed Statement
of Income for the Year Ended December 31, 1995
The following unaudited pro forma combined condensed statement of income
includes the historical consolidated income statement of Susquehanna for the
year ended December 31, 1995 restated to include the historical operations of
both Fairfax and Reisterstown as if those mergers had occurred effective January
1, 1995. This Statement also includes AI for the fiscal year ended December 31,
1995 and FBC for the fiscal year ended December 31, 1995 on the assumption that
the AI Merger and the FBC Merger had been effective at January 1, 1995, both
individually and combined.
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statement of Income
Year Ended December 31, 1995
Unaudited
(In thousands except per share data)
SUSQUEHANNA AI FBC
----------------------------------------- ------------------------ --------------------------
Combined Historical
As Reported Adjustments Restated As Reported Pro Forma As Reported Pro Forma
----------- ----------- -------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $189,827 $43,233 $233,060 $10,753 $5,970
Interest expense 82,618 24,260 106,878 4,844 2,382
------------------------- --------------------------------------- --------------------------
Net interest income 107,209 18,973 126,182 5,909 0 3,588 0
Provision for loan
and lease losses 4,994 45 5,039 115 55
------------------------- --------------------------------------- --------------------------
Net interest income
after provision for
loan and lease losses 102,215 18,928 121,143 5,794 0 3,533 0
Other income 16,080 3,211 19,291 809 247
Other expense:
Salaries and benefits 42,235 6,018 48,253 2,578 1,257
Occupancy and equipment 9,755 1,225 10,980 948 237
Other 28,921 8,712 37,633 1,663 722
------------------------- ------------ ------------------------ --------------------------
Income before income taxes 37,384 6,184 43,568 1,414 0 1,564 0
Applicable taxes 11,367 2,508 13,875 360 383
------------------------- ------------ ------------------------ --------------------------
Net income from
operations $26,017 $3,676 $29,693 $1,054 $0 $1,181 $0
========================= ============ ======================== ==========================
Earnings per share $2.23 $2.25 $1.37 $3.89
Average shares outstanding 11,674 1,495[1] 13,169 772 (772)[2] 304 (304)[4]
772[3] 693[5]
<CAPTION>
Pro Forma Combined
---------------------------------------------
Susquehanna/
Susquehanna/AI Susquehanna/FBC AI/FBC
-------------- --------------- -----------
<S> <C> <C> <C>
Interest income $243,813 $239,030 $249,783
Interest expense 111,722 109,260 114,104
--------------------------------------------
Net interest income 132,091 129,770 135,679
Provision for loan
and lease losses 5,154 5,094 5,209
-------------------------------------------
Net interest income
after provision for
loan and lease losses 126,937 124,676 130,470
Other income 20,100 19,538 20,347
Other expense:
Salaries and benefits 50,831 49,510 52,088
Occupancy and equipment 11,928 11,217 12,165
Other 39,296 38,355 40,018
-------------------------------------------
Income before income taxes 44,982 45,132 46,546
Applicable taxes 14,235 14,258 14,618
-------------------------------------------
Net income from
operations $30,747 $30,874 $31,928
===========================================
Earnings per share $2.21 $2.23 $2.18
Average shares outstanding 13,941 13,862 14,634
</TABLE>
Notes to Pro Forma Combined Condensed Statement of Income for the year ended
December 31, 1995
For a detailed explanation of the adjustments made for such transactions, see
the Pro Forma Combined Adjustments in Appendix H of this Proxy
Statement/Prospectus. Also see the Footnotes to Pro Forma Combined Condensed
Statements of Income on Page 145.
-142-
<PAGE>
Pro Forma Combined Condensed Statements
of Income for the Years Ended
December 31, 1994 and 1993
The following unaudited pro forma combined condensed statements of
income combine the historical consolidated income statements of Susquehanna for
the years ended December 31, 1994 and 1993 and of AI and FBC for the fiscal
years ended December 31, 1994 and 1993 on the assumption that the Mergers had
been effective as of January 1, 1994 and 1993, respectively. Such income
statements do not give effect to any other transactions.
Pro Forma Combined Condensed Statement of Income
For the year ended December 31, 1994
Unaudited
(In thousands except per share data)
<TABLE>
<CAPTION>
SUSQUEHANNA AI FBC Pro Forma Combined
---------------- ---------------- --------------------------------------------
As As Pro As Pro Susquehanna/
Reported Reported Forma Reported Forma Susquehanna/AI Susquehanna/FBC AI/FBC
-------- -------- ------ -------- ------ -------------- --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $150,633 $7,969 $5,435 $158,602 $156,068 $164,037
Interest expense 56,488 2,766 1,869 59,254 58,357 61,123
----------------------------- ---------------- --------------------------------------------
Net interest income 94,145 5,203 0 3,566 0 99,348 97,711 102,914
Provision for loan and
lease losses 3,987 160 100 4,147 4,087 4,247
----------------------------- ---------------- --------------------------------------------
Net interest income after
provision for loan and leases
losses 90,158 5,043 0 3,466 0 95,201 93,624 98,667
Other income 15,098 828 201 15,926 15,299 16,127
Other expense:
Salaries and benefits 36,227 2,213 1,177 38,440 37,404 39,617
Occupancy and equipment 8,774 822 236 9,596 9,010 9,832
Other 27,709 1,591 731 29,300 28,440 30,031
----------------------------- ---------------- --------------------------------------------
Income before income taxes 32,546 1,245 0 1,523 0 33,791 34,069 35,314
Applicable taxes 9,718 388 381 10,106 10,099 10,487
----------------------------- ---------------- --------------------------------------------
Net income from operations $22,828 $857 $0 $1,142 $0 $23,685 $23,970 $24,827
============================= ================ ============================================
Earnings per share 1.96 1.11 3.76 1.91 1.94 1.90
Average shares outstanding 11,634 772 (772) [2] 304 (304) [4] 12,406 12,327 13,099
772 [3] 693 [5]
</TABLE>
See Footnotes to Pro Forma Combined Condensed Statements of Income on
Page 145.
-143-
<PAGE>
Pro Forma Combined Condensed Statement of Income
For the Year Ended December 31, 1993
<TABLE>
<CAPTION>
Pro Forma Combined Condensed Statement of Income
For the year ended December 31, 1993
Unaudited
(In thousands except per share data)
SUSQUEHANNA AI FBC
------------------------- ------------------------
As Reported As Reported Pro Forma As Reported Pro Forma
----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Interest income $143,020 $7,241 $5,282
Interest expense 55,993 2,452 1,946
------------------------------------------ ------------------------
Net interest income 87,027 4,789 0 3,336 0
Provision for loan and lease losses 5,130 75 75
------------------------------------------ ------------------------
Net interest income after provision
for loan and leases losses 81,897 4,714 0 3,261 0
Other income 15,816 910 308
Other expense:
Salaries and benefits 33,770 2,018 1,110
Occupancy and equipment 8,604 783 223
Other 23,630 1,471 717
------------------------------------------ ------------------------
Income before income taxes 31,709 1,352 0 1,519 0
Applicable taxes 9,527 449 373
------------------------------------------ ------------------------
Net income from
operations 22,182 903 0 1,146 0
========================================== ========================
Earnings per share 1.96 1.17 3.77
Average shares outstanding 11,331 772 (772) [2] 304 (304) [4]
772 [3] 693 [5]
<CAPTION>
Pro Forma Combined
----------------------------------------
Susquehanna/ Susquehanna/ Susquehanna/
AI FBC AI/FBC
--- --- ------
<S> <C> <C> <C>
Interest income $150,261 $148,302 $155,543
Interest expense 58,445 57,939 60,391
----------------------------------------
Net interest income 91,816 90,363 95,152
Provision for loan and lease losses 5,205 5,205 5,280
----------------------------------------
Net interest income after provision
for loan and leases losses 86,611 85,158 89,872
Other income 16,726 16,124 17,034
Other expense:
Salaries and benefits 35,788 34,880 36,898
Occupancy and equipment 9,387 8,827 9,610
Other 25,101 24,347 25,818
----------------------------------------
Income before income taxes 33,061 33,228 34,580
Applicable taxes 9,976 9,900 10,349
----------------------------------------
Net income from
operations $23,085 $23,328 $24,231
========================================
Earnings per share 1.91 1.94 1.89
Average shares outstanding 12,103 12,024 12,796
</TABLE>
See Footnotes to Pro Forma Combined Condensed Statements of Income on Page 145.
-144-
<PAGE>
FOOTNOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEETS
[A] To eliminate the common stock and treasury stock of AI.
[B] To reflect the issuance of one share of Susquehanna common stock for each
outstanding share of AI.
[C] To eliminate the common stock of FBC.
[D] To reflect the issuance of 2.281 shares of Susquehanna common stock for
each outstanding share of FBC.
FOOTNOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
PRO FORMA ADJUSTMENTS TO SUSQUEHANNA FOR 1996
[1] To record amortization of premium ($5/month) on mortgage-backed securities
and to reduce interest income ($188) for equity offering proceeds held
during January 1996 for purchase of Fairfax on February 1, 1996.
[2] To record interest expense ($139) for January 1996 regarding the senior
debt issued to acquire Fairfax on February 1, 1996, the amortization of
deposit premium ($66/month), and the amortization of long-term debt premium
($13/month).
[3] To record amortization of employee-related purchase accounting adjustments
($9/month).
[4] To record purchase accounting amortization of goodwill ($119/month).
[5] To record the tax effect of pro forma adjustments.
[6] To record adjustment to average shares outstanding to reflect a January 1,
1996 effective date for the issuance of 195,000 Susquehanna common shares
issued in conjunction with the Fairfax acquisition.
[7] To eliminate all the outstanding shares of AI.
[8] To reflect the issuance of one share of Susquehanna for each share of AI.
[9] To eliminate all the outstanding shares of FBC.
[10] To reflect the issuance of 2.281 shares of Susquehanna for each share of
FBC.
PRO FORMA ADJUSTMENTS TO SUSQUEHANNA FOR 1995, 1994 and 1993
FAIRFAX
[1] To record amortization of premium ($55) on mortgage-backed securities.
[2] To record interest expense in 1995 on senior debt issued to purchase
Fairfax in 1996 ($1,663), the amortization of deposit premium ($784), and
the amortization of long-term debt premium ($156).
[3] To record amortization of employee-related purchase accounting adjustments
($100).
[4] To record purchase accounting amortization of goodwill ($1,429).
[5] To record the tax effect of pro forma adjustments.
REISTERSTOWN
[1] To record the reduction in interest income for debt offering proceeds held
from February 1995 to April 1995 for purchase of Reisterstown on April 21,
1995.
[2] To record interest expense in January and February 1995 regarding the
subordinated debt issued in February 1995 to acquire Reisterstown on
April 21, 1995.
[3] To record amortization of fair value purchase accounting.
[4] To record the tax effect of pro forma adjustments.
SUSQUEHANNA, AI, FBC
[1] To reflect the average effect from issuance of 1,495,000 Susquehanna common
shares to acquire Fairfax.
[2] To eliminate all the outstanding shares of AI.
[3] To reflect the issuance of one share of Susquehanna for each share of AI.
[4] To eliminate all the outstanding shares of FBC.
[5] To reflect the issuance of 2.281 shares of Susquehanna for each share of
FBC.
-145-
<PAGE>
ADJOURNMENT OF THE AI MEETING
Approval of the AI Merger Agreement requires the affirmative vote
of the holders of sixty-six and two-thirds percent (66 2/3%) of the
outstanding shares of AI's Common Stock entitled to vote at the AI Meeting.
If there is an insufficient number of votes cast in person or by proxy at
the AI Meeting to approve the AI Merger Agreement, the AI Board of
Directors intends to adjourn the AI Meeting to a later date to permit
further solicitation of votes in favor of the AI Merger Agreement. The
affirmative vote of a majority of the shares represented and voting at the
AI Meeting is required in order to approve any such adjournment. The place
and date to which the AI Meeting would be adjourned would be announced at
the AI Meeting. Under AI's bylaws it shall not be necessary to give any
notice of the time and place of the adjourned meeting other than the
announcement at the AI Meeting.
The AI Board of Directors recommends that shareholders vote "FOR"
the proposal to adjourn the AI Meeting if necessary to permit further
solicitation of proxies to approve the AI Merger Agreement.
ADJOURNMENT OF THE FBC MEETING
Approval of the FBC Merger Agreement and the transactions
contemplated thereby requires the affirmative vote of seventy percent (70%)
of all votes entitled to be cast. If there is an insufficient number of
votes cast in person or by proxy at the FBC Meeting to approve the FBC
Merger Agreement and the transactions contemplated thereby, the FBC Board
of Directors intends to adjourn the FBC Meeting to a later date for the
solicitation of additional votes in favor of the FBC Merger Agreement. The
affirmative vote of a majority of the shares represented and voting at the
FBC Meeting is required in order to approve any such adjournment. The
place and date to which the FBC Meeting would be adjourned would be
announced at the FBC Meeting. Under the NJBCA it shall not be necessary to
give any notice of the time and place of the adjourned meeting other than
the announcement at the FBC Meeting.
The FBC Board of Directors recommends that shareholders vote
"FOR" the proposal to adjourn the FBC Meeting if necessary to permit
further solicitation of proxies to approve the FBC Merger Agreement and the
transactions contemplated thereby.
INDEPENDENT ACCOUNTANTS
Susquehanna has engaged Coopers & Lybrand L.L.P., independent
accountants, to audit its financial statements for the year ended December
31, 1995. Susquehanna expects to engage Coopers & Lybrand L.L.P. as its
independent accountants for the year ending December 31, 1996.
AI has engaged Arthur Andersen LLP, independent public
accountants, to audit its consolidated financial statements for the year
ended December 31, 1996.
FBC has engaged Petroni and Associates, independent accountants
to audit its consolidated financial statements for the year ended
December 31, 1996.
EXPERTS
Susquehanna
-----------
The consolidated balance sheets of Susquehanna as of December 31,
1995 and 1994 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1995, and the consolidated statements of
financial condition of Reisterstown Holdings, Inc. and subsidiaries as of
September 30, 1994 and 1993, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended
September 30, 1994 and 1993, incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given upon
the authority of that firm as experts in accounting and auditing.
Additionally, the
-146-
<PAGE>
consolidated statements of financial condition of Fairfax Financial Corporation
and subsidiaries as of September 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the years
in the three year period ended September 30, 1995 and the consolidated
statements of financial condition of Atlanfed Bancorp, Inc. and subsidiaries as
of March 31, 1995 and 1994, and the related consolidated statements of income,
stockholder's equity, and cash flows for each of the years in the two-year
period ended March 31, 1995, have been incorporated by reference in this Proxy
Statement/Prospectus in reliance on the report of KPMG Peat Marwick LLP,
certified public independent accountants, incorporated by reference herein, and
upon the authority of that firm as experts in accounting and auditing.
AI
- --
The consolidated statements of financial condition of AI as of December 31,
1995 and 1994 and the related consolidated statements of income, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1995, appearing as Appendix A in this Proxy Statement/Prospectus,
have been included herein in reliance on the report of Arthur Andersen LLP,
independent public accountants, given upon the authority of that firm as experts
in accounting and auditing.
FBC
- ---
The consolidated statements of financial condition of FBC as of December 31,
1995 and 1994 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended appearing as
Appendix B to this Proxy Statement/Prospectus, have been included herein in
reliance on the report of Petroni and Associates, independent accountants to
FBC, given upon the authority of that firm as experts in accounting and
auditing.
LEGAL OPINIONS
The legality of the Susquehanna Common Stock to be issued in connection with
the AI Merger and the FBC Merger is being passed upon by Morgan, Lewis & Bockius
LLP, Harrisburg, Pennsylvania, counsel to Susquehanna. Certain legal matters
relating to AI will be passed upon at the AI Merger Effective Date by Ballard
Spahr Andrews & Ingersoll, Philadelphia, PA, special counsel to AI. Certain
legal matters relating to FBC will be passed upon by Blank Rome Comisky and
McCauley, Philadelphia, PA, and Cherry Hill, NJ, special counsel to FBC.
-147-
<PAGE>
APPENDIX A
ATCORP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
INDEX TO CONSOLIDATED AI FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of June 30, 1996 and 1995 (unaudited)................................................ A-2
Consolidated Statements of Income as of June 30, 1996 and 1995 (unaudited).......................................... A-3
Consolidated Statements of Cash Flows as of June 30, 1996 and 1995 (unaudited)...................................... A-4
Notes to Consolidated Financial Statements (unaudited) for June 30, 1996 and 1995................................... A-5
Independent Auditors' Report........................................................................................ A-6
Consolidated Balance Sheets as of December 31, 1995 and 1994........................................................ A-7
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993.............................. A-8
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993................ A-9
Consolidated Statements of Cash Flows or the years ended December 31, 1995, 1994 and 1993...........................A-10
Notes to Consolidated Financial Statements for the years ended December 31, 1995, 1994 and 1993.....................A-11
</TABLE>
A-1
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
ASSETS 1996 1995
----------- ----------
<S> <C> <C>
CASH AND DUE FROM BANKS $4,662 $4,865
FEDERAL FUNDS SOLD 6,920 775
INTEREST-BEARING DEPOSITS WITH OTHER BANKS 1,414 124
INVESTMENT SECURITIES
Held to maturity (market value of
$250 in 1996 and $250 in 1995) 250 250
Available for sale (cost of $70,622 in
1996 and $49,266 in 1995) 70,282 50,087
--------- ---------
70,532 50,337
LOANS HELD FOR SALE 470 1,467
LOANS 115,284 96,129
Less-- Allowance for loan losses (1,356) (1,283)
--------- ---------
Net loans 113,928 94,846
BANK PREMISES & EQUIPMENT, NET 2,983 2,950
ACCRUED INTEREST RECEIVABLE 2,125 1,610
OTHER ASSETS 1,179 801
--------- ---------
TOTAL ASSETS $204,213 $157,775
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS
Demand $ 22,134 $ 19,812
Interest-bearing demand 66,386 46,355
Savings 21,602 21,155
Certificates of deposit over $100,000 18,019 8,495
Other time deposits 58,227 49,477
--------- ---------
TOTAL DEPOSITS 186,368 145,294
Advances from FHLB 5,000 --
Accrued Interest Payable 1,099 521
Other Liabilities 1,294 1,492
--------- ---------
Total Liabilities 193,761 147,307
SHAREHOLDERS' EQUITY
Preferred stock, $5 par value per share;
1,000,000 shares authorized, none -- --
issued and outstanding
Common stock, $5 par value per share;
2,000,000 shares authorized, 780,266 issued
and 771,750 outstanding in 1996 and 1995 3,902 3,902
ADDITIONAL PAID-IN CAPITAL 3,804 3,804
RETAINED EARNINGS 3,015 2,265
NET UNREALIZED HOLDING GAIN
(LOSS) ON SECURITIES (224) 542
TREASURY STOCK, at cost (8,516 shares) (45) (45)
--------- ---------
Total shareholders' equity 10,452 10,468
--------- ---------
Total liabilities and shareholders' equity $204,213 $ 157,775
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
A-2
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
------ ------
INTEREST INCOME
<S> <C> <C>
Interest and fees on loans $4,955 $3,659
Interest on federal funds sold 30 111
Interest on interest-bearing deposits 20 7
Interest on investment 1,949 1,035
securities-taxable
Interest on investment securities-tax exempt 168 132
------ ------
Total interest income 7,122 4,944
INTEREST EXPENSE
Interest on deposits 3,026 2,114
Interest on other borrowed funds 156 5
------ ------
Total interest expense 3,429 2,119
Net interest income 3,693 2,825
PROVISION FOR LOAN LOSSES 43 60
------ ------
Net interest income after provision for loan
losses 3,650 2,765
NONINTEREST OPERATING INCOME
Service charges, commissions and fees 219 207
Securities gains (losses) 2 111
Other income 92 114
------ ------
Total noninterest operating income 313 432
NONINTEREST OPERATING EXPENSE
Salaries and employee benefits 1,410 1,229
Occupancy expense 372 249
Furniture and equipment expense 256 166
Professional fees 117 189
F.D.I.C. assessment 1 114
Other expense 775 603
------ ------
Total noninterest operating expense 2,931 2,550
Income before income taxes 1,032 647
INCOME TAXES 283 178
------ ------
NET INCOME $ 749 $ 469
====== ======
EARNINGS PER SHARE $ 0.97 $ 0.61
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
A-3
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
-------- --------
(in thousands)
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income ........................................... $749 $469
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization .................. 234 185
Provision for loan losses ...................... 43 60
Provision for ORE losses ....................... 17 --
Provision for deferred taxes ................... 22 127
Gain on sale of securities ..................... (2) (111)
Gain on sale of SBA loans ...................... (15) --
Increase in accrued interest receivable ........ (515) (104)
(Increase) decrease in other assets ............ (101) 65
Decrease in other liabilities .................. (198) (293)
Increase in interest payable ................... 578 162
-------- --------
Total adjustments .............................. 63 91
-------- --------
Net cash provided by operating activities ......... 812 560
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
(Increase) decrease in deposits with other banks .. (1,290) 56
Purchases of investment securities ................ (27,718) (20,140)
Proceeds from sales of securities available for
sale ............................................. 4,185 18,401
Proceeds from maturities of investments ........... 2,180 836
Purchases of premises and equipment, net .......... (267) (435)
Net increase in loans ............................. (19,125) (15,198)
Proceeds from sale of SBA loans ................... 1,012 --
Proceeds from sales of other real estate owned .... 79 --
-------- --------
Net cash used in investing activities ................ (40,944) (16,480)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings and
demand deposit accounts ....................... 22,800 (227)
Net increase in time deposits .................. 18,274 14,986
Advances from Federal Home Loan Bank ........... 5,000 --
-------- --------
Net cash provided by financing activities ............ 46,074 14,759
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ... 5,942 (1,161)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF PERIOD ...... 5,640 9,474
-------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD ............ $11,582 $8,313
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
A-4
<PAGE>
NOTE A - Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the instructions to Form 10-Q and Rule 10-1 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Management, all adjustments, including normal recurring
accruals, considered necessary for a fair presentation have been included. All
adjustments made to the unaudited financial statements were of a normal
recurring nature. Operating results for the six month period ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and notes thereto included on pages A-7 to
A-26.
NOTE B - Earnings Per Share
------------------
Earnings per share are based upon the average number of shares outstanding and
are adjusted retroactively for the stock dividend of 5 shares for every 100
shares held which was paid February 26, 1996. The average number of shares
outstanding amounted to 771,750 for the six month periods ended June 30, 1996
and June 30, 1995, respectively.
NOTE C - Statement No. 115 "Accounting for Certain Investments in Debt and
-----------------------------------------------------------------
Equity Securities"
------------------
SFAS No. 115 requires that securities "available for sale" be carried at fair
value with valuation adjustments (after tax) included in a separate component of
shareholders' equity. Debt securities acquired as investments that are intended
to be "held to maturity" are stated at cost adjusted for amortization of
premiums and accretion of discounts using the level yield method. Realized
securities gains and losses are recorded as they may occur.
The amortized cost and estimated values of investment securities as of June
30, 1996 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities issued by foreign
governments 250 --- --- $ 250
------- ------- ------- -------
TOTALS $ 250 $ --- $ --- $ 250
======= ======= ======= =======
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 9,526 $ 51 $ (3) $ 9,574
U.S. Agency Securities 8,301 20 (94) 8,227
Obligations of States &
Political subdivisions 6,981 69 (18) 7,032
Corporate debt securities 4,329 50 (41) 4,338
Mortgage-backed securities 14,519 21 (216) 14,324
SBA Pools 25,176 31 (222) 24,985
Equity securities 1,790 12 --- 1,802
------- ------- ------- -------
TOTALS $70,622 $ 254 $ (594) $70,282
======= ======= ======= =======
</TABLE>
NOTE D - SUBSEQUENT EVENTS
-----------------
1. On July 16, 1996, the Board of Directors of Atcorp, Inc. resolved to pay a
total of $420,000 to certain officers of Atcorp, Inc. and Equity National
Bank as bonuses. Such amount will be accrued in 1996.
2. On July 18, 1996, with the approval of the Board of Directors, Atcorp, Inc.
entered into an Agreement and Plan of Affiliation (the Agreement) with
Susquehanna Bancshares, Inc. (Susquehanna). The agreement provides, among
other things, that Susquehanna will acquire Atcorp, Inc. and its
subsidiaries for approximately 771,750 shares of Susquehanna common stock,
or one share of Susquehanna common stock for each Atcorp, Inc. fully diluted
share. The acquisition is subject to federal and state regulatory approvals
as well as approval of the shareholders of Atcorp, Inc. and other conditions
including, among other things, the transaction qualifying for pooling-of-
interests accounting.
A-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Atcorp, Inc.:
We have audited the accompanying consolidated balance sheets of Atcorp, Inc. (a
New Jersey Corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. 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 Atcorp, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for income taxes and, effective
January 1, 1994, the Company changed its method of accounting for investments in
debt and equity securities.
Philadelphia, Pa.,
February 27, 1996
A-6
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
(in thousands)
<TABLE>
<CAPTION>
December 31
-----------
ASSETS 1995 1994
------ ---- ----
<S> <C> <C>
CASH AND DUE FROM BANKS $ 4,865 $ 3,861
FEDERAL FUNDS SOLD 775 5,613
INTEREST-BEARING DEPOSITS WITH
OTHER INSTITUTIONS 124 56
INVESTMENT SECURITIES
Held to maturity (market value of $250 in
1995 and $23,262 in 1994) 250 24,165
Available for sale (cost of $49,266 in 1995
and $10,417 in 1994) 50,087 10,281
--------- ---------
50,337 34,446
LOANS HELD FOR SALE 1,467 --
LOANS 96,129 71,460
Less-- Allowance for loan losses (1,283) (1,152)
--------- ---------
Net loans 94,846 70,308
--------- ---------
BANK PREMISES AND EQUIPMENT, net 2,950 2,224
ACCRUED INTEREST RECEIVABLE 1,610 1,102
OTHER ASSETS 801 788
--------- ---------
Total assets $ 157,775 $ 118,398
========= =========
<CAPTION>
December 31
-----------
LIABILITIES AND
SHAREHOLDERS' EQUITY 1995 1994
-------------------- ---- ----
<S> <C> <C>
DEPOSITS:
Demand $ 19,812 $ 18,264
Interest-bearing demand 46,355 22,838
Savings 21,155 28,391
Certificates of deposit - $100,000 or more 8,495 10,471
Other time deposits 49,477 28,599
-------- --------
Total deposits 145,294 108,563
ACCRUED INTEREST PAYABLE 521 246
OTHER LIABILITIES 1,492 807
-------- --------
Total liabilities 147,307 109,616
-------- --------
COMMITMENTS AND CONTINGENCIES
(Notes 10 and 14)
SHAREHOLDERS' EQUITY:
Preferred stock, $5 par value per share;
1,000,000 shares authorized, none issued
and outstanding -- --
Common stock, $5 par value per share;
2,000,000 shares authorized, 780,266 and
743,516 shares issued and 771,750 and
735,000 outstanding in 1995 and 1994,
respectively 3,902 3,718
ADDITIONAL PAID-IN CAPITAL 3,804 3,510
RETAINED EARNINGS 2,265 1,689
NET UNREALIZED HOLDING GAIN (LOSS)
ON SECURITIES 542 (90)
TREASURY STOCK, at cost (8,516 shares) (45) (45)
-------- --------
Total shareholders' equity 10,468 8,782
-------- --------
Total liabilities and
shareholders' equity $157,775 $118,398
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
A-7
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 8,094 $6,208 $5,846
Interest on federal funds sold 167 116 133
Interest on interest-bearing deposits 22 7 7
Interest on investment securities--taxable 2,163 1,550 1,251
Interest on investment securities--tax-exempt 307 88 4
------- ------ ------
Total interest income 10,753 7,969 7,241
------- ------ ------
INTEREST EXPENSE:
Interest on deposits 4,814 2,747 2,437
Interest on other borrowed funds 30 19 15
------- ------ ------
Total interest expense 4,844 2,766 2,452
------- ------ ------
Net interest income 5,909 5,203 4,789
PROVISION FOR LOAN LOSSES 115 160 75
------- ------ ------
Net interest income after provision for loan losses 5,794 5,043 4,714
------- ------ ------
NONINTEREST OPERATING INCOME:
Service charges, commissions and fees 426 576 442
Investment security gains 122 41 127
Gain on sale of real estate owned 3 33 181
(Loss) gain on sale of loans (2) 83 94
Other 260 95 66
------- ------ ------
Total noninterest operating income 809 828 910
NONINTEREST OPERATING EXPENSE:
Salaries and employee benefits 2,578 2,213 2,018
Occupancy 569 501 476
Furniture and equipment 379 321 307
Professional fees 306 362 315
FDIC assessment 121 208 195
Other 1,236 1,021 961
------- ------ ------
Total noninterest operating expense 5,189 4,626 4,272
------- ------ ------
Income before income taxes 1,414 1,245 1,352
INCOME TAXES 360 388 449
------- ------ ------
NET INCOME BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 1,054 857 903
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE -- -- 100
------- ------ ------
NET INCOME $ 1,054 $ 857 $1,003
======= ====== ======
EARNINGS PER COMMON SHARE:
Income before change in accounting principle $1.37 $1.11 $1.17
Change in accounting principle -- -- .13
------- ------ ------
Net income $1.37 $1.11 $1.30
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
A-8
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Net Unrealized
Additional Holding
Common Paid-In Retained (Loss)/Gain Treasury
Stock Capital Earnings On Securities Stock
----- ------- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993 $ 3,125 $ 2,880 $ 1,052 $ -- $ (45)
Stock dividends issued
(Note 1 and 13) 418 350 (768) -- --
Net income -- -- 1,003 -- --
----- ----- ----- ---- ----
BALANCE AT DECEMBER 31, 1993 3,543 3,230 1,287 -- (45)
----- ----- ----- ---- ----
Stock dividends issued
(Note 1 and 13) 175 280 (455) -- --
Net income -- -- 857 -- --
Net unrealized holding loss on
securities -- -- -- (90) --
----- ----- ----- ---- ----
BALANCE AT DECEMBER 31, 1994 3,718 3,510 1,689 (90) (45)
----- ----- ----- ---- ----
Stock dividends issued
(Note 1 and 13) 184 294 (478) -- --
Net income -- -- 1,054 -- --
Net unrealized holding gain on
securities -- -- -- 632 --
----- ----- ----- ---- ----
BALANCE AT DECEMBER 31, 1995 $ 3,902 $ 3,804 $ 2,265 $ 542 $ (45)
===== ===== ===== ==== ====
</TABLE>
The accompanying notes are an integral part of these statements.
A-9
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,054 $ 857 $ 1,003
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 350 240 233
Provision for loan losses 115 160 75
Provision for ORE losses 1 29 131
(Benefit) provision for deferred taxes (2) 12 (214)
Gain on sale of other real estate owned (3) (33) (181)
Gain on sale of investment securities (122) (41) (127)
Loss (gain) on sale of mortgage loans 2 (83) (94)
Decrease in accrued interest receivable (508) (343) (25)
Decrease (increase) in other assets 135 (314) 20
Increase (decrease) in other liabilities 685 (31) 427
Increase (decrease) in accrued interest payable 275 57 (3)
-------- -------- --------
Total adjustments 928 (347) 242
-------- -------- --------
Net cash provided by operating activities 1,982 510 1,245
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (38,960) (15,879) (14,331)
Proceeds from maturities of investment securities 4,320 3,715 168
Proceeds from sales of available for sale securities 19,782 5,664 5,696
(Increase) decrease in interest-bearing (68) (4) 81
Purchases of premises and equipment, net deposits (1,076) (860) (66)
Proceeds from sale of other real estate owned 107 1,365 926
Net increase in loans (26,652) (4,455) (9,840)
-------- -------- --------
Net cash used in investing activities (42,547) (10,454) (17,366)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in savings and demand deposit accounts 17,829 (2,385) 10,119
Net increase in time deposits 18,902 14,836 3,076
Net decrease in federal funds purchased -- -- (200)
-------- -------- --------
Net cash provided by financing activities 36,731 12,451 12,995
-------- -------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (3,834) 2,507 (3,126)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 9,474 6,967 10,093
-------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 5,640 $ 9,474 $ 6,967
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Transfers from loans to other real estate $ 530 $ 508 $ 878
Cash paid during the year for-
Interest $ 4,569 $ 2,709 $ 2,455
======== ======== ========
Income taxes $ 280 $ 450 $ 186
======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
A-10
<PAGE>
ATCORP, INC. AND SUBSIDIARIES
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1995, 1994 AND 1993
--------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
The accounting policies of Atcorp, Inc. and its subsidiaries conform to
generally accepted accounting principles and to generally accepted industry
practices. The more significant accounting policies are summarized below.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Atcorp, Inc. and
its subsidiary, Equity National Bank (the "Bank"), and AT Corp, the Bank's
subsidiary (collectively, the "Corporation"). All significant intercompany
transactions and account balances have been eliminated in consolidation.
Nature of Operations
- --------------------
The Company offers retail banking services through the Bank's four offices and
by mail. The primary sources of revenue are from loans to individuals and small
businesses and investment securities. Loans are originated by the Bank for many
purposes including home construction and remodeling, automobile financing,
business working capital, and commercial real estate. Other loans and pools of
loans are purchased in the secondary market. Funding for loans and investments
is provided by traditional deposit products and borrowed funds. Deposits are
usually from the customer base within the general surrounding are of the office
locations.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
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.
Investment Securities
- ---------------------
Effective January 1, 1994, the Corporation adopted the provisions of Statement
of Financial Accounting Standards No. 115 ("SFAS 115"), "Accounting for Certain
Investments in Debt and Equity Securities." This statement requires that
securities "held-to-maturity" be stated at cost adjusted for amortization of
premiums and accretion of discounts and securities "available-for-sale" be
carried at market value, with valuation adjustments (after tax) included in a
separate component of shareholders' equity.
Investment securities include primarily debt securities of the U.S. Treasury and
obligations of U.S. Government corporations and agencies. Debt securities
classified as "held-to-maturity" are acquired with the intent to maintain the
securities in the portfolio until maturity. In management's opinion, the
Corporation has the ability to hold these securities to maturity. As such,
these securities are stated at cost adjusted for amortization of premiums and
accretion of discounts using the effective
A-11
<PAGE>
interest method. Certain securities are classified as securities "available-
for-sale" and serve as a potential source of liquidity. Available-for-sale
securities are debt and equity securities that are not classified as either
trading securities or held-to-maturity securities. These securities are valued
at aggregate fair value, with unrealized holding gains and losses, net of taxes,
excluded from earnings and reported as a separate component of shareholders'
equity until realized. Security gains and losses are computed using the
specific identification method and are recorded on a trade date basis.
In December 1995, the Bank reclassified investment securities with a book value
of approximately $24,415,000 and a fair value of approximately $24,571,000 from
held to maturity to available for sale. This reclassification was allowable
under Financial Accounting Standards Board guidance which permitted institutions
to make a one-time reassessment of the appropriateness of investment security
classifications. As a result of the reclassification, the unrealized gain on
securities recorded as a component of retained earnings increased approximately
$103,000, net of tax.
Loans Held for Sale
- -------------------
At December 31, 1995, loans held for sale consisted of the following loans sold
but not yet settled:
SBA loans $ 1,265,000
Mortgage loans 202,000
-------
$ 1,467,000
= =========
These loans held for sale are carried at the lower of aggregate cost or market
value.
Loans
- -----
Interest on all loans is accrued over the term of the loans based on the amount
of principal outstanding, except on certain consumer loans on which interest is
recognized as income on a basis that approximates the interest method.
Loans are generally placed on nonaccrual status when they are past due 90 days
as to either principal or interest. However, loans that are in the process of
renewal or are well secured and in the process of collection may not be placed
on nonaccrual status, based on the judgment of management as to ultimate
collectibility. When a loan is placed on nonaccrual status, interest income is
reduced by the amount of any accrued and uncollected interest.
Loan Origination Fees and Costs
- -------------------------------
Loan origination fees and related direct loan origination costs of completed
loans are deferred and recognized over the life of the loan as an adjustment to
yield. During 1995 and 1994, the Bank amortized loan origination fees in excess
of loan origination costs of $458,000 and $263,000, respectively. At December
31, 1995 and 1994, the unamortized portion of net deferred fees and costs
amounted to $292,000 and $224,000, respectively.
Allowance for Possible Loan Losses
- ----------------------------------
The allowance for possible loan losses is maintained at a level believed by
management to be adequate to absorb potential losses in the loan portfolio.
Management's determination of the adequacy of the allowance is based on the risk
characteristics of the portfolio, past loan loss experience, local economic
conditions and other relevant factors. The allowance is increased by provisions
for possible loan losses charged against income. The provision is based on
management's estimates and actual losses may vary from the current estimates.
These estimates are reviewed periodically. Adjustments, as they become
necessary, are reported in earnings in the period in which they become known.
A-12
<PAGE>
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan," ("SFAS 114") in May 1993 and Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan--Income Recognition
and Disclosures," ("SFAS 118") in October 1994. These statements require
creditors to measure certain impaired loans based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
at the loan's observable market price or the fair value of the collateral for
collateral dependent loans, except for loans considered to be homogeneous pools
collectively evaluated for impairment and leases for which this statement does
not apply. The in-substance foreclosure rules also changed in that "in-
substance foreclosures" are classified as loans and stated at the lower of cost
or fair value, as defined. The Bank adopted SFAS No. 114 and No. 118 effective
January 1, 1995. The effect of the adoption of SFAS No. 114 and No. 118 was
immaterial.
Total impaired loans at December 31, 1995 were $4,088,000. The amount of loans
that had modifications to the original contractual terms of the loan due to the
dependency on income production and/or future collateral value was $2,573,000 at
December 31, 1995. Management expects to collect the current contractual
principal and interest on these loans with modifications. The reserve on the
remaining impaired loans of $1,505,000 at December 31, 1995, was $619,000. All
impaired loans were evaluated on the fair value of the collateral, the majority
of which is real estate.
Real Estate Acquired in Settlement of Loans
- -------------------------------------------
Real estate acquired through foreclosure is recorded at the lower of cost or
fair value, less estimated disposal costs. Subsequent costs directly related to
the completion of construction or improvement of the real estate are capitalized
to the extent realizable. Gains on sale of real estate are recognized upon
disposition of the property to the extent allowable based on accounting
requirements. Losses on such sales are charged to operations as incurred.
Carrying costs, such as maintenance, interest, and taxes, are charged to
operations as incurred.
At December 31, 1995 and 1994, the Bank maintained real estate acquired in
settlement of loans of $477,000 and $51,000, respectively, which is included in
other assets.
Bank Premises and Equipment
- ---------------------------
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-
line method over the estimated useful lives, which are as follows:
Buildings and improvements 5 to 40 years
Furniture and equipment 3 to 10 years
Leasehold improvements 3 to 10 years
When assets are retired or disposed of, the assets and related accumulated
depreciation are eliminated from the respective accounts, and any resultant gain
or loss is included in the statement of income. The cost of maintenance and
repairs is charged to operating expense as incurred and the cost of major
additions and improvements is capitalized.
Income Taxes
- ------------
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
this accounting standard, deferred tax assets or liabilities are computed based
on the difference between the financial statement and income tax bases of assets
and liabilities using the applicable enacted marginal tax rates. Deferred
income tax expenses or benefits are based on the changes in the deferred tax
asset or liability from period to period.
A-13
<PAGE>
The Corporation recorded the cumulative effect of this adoption on its financial
position at January 1, 1993, as a change in accounting principle. The
recognition of this cumulative effect resulted in an increase in earnings of
$100,000 as of the beginning of the year ended December 31, 1993. The adoption
of SFAS 109 (exclusive of the cumulative effect adjustment) did not have a
material effect on the results of operations of the Corporation.
Consolidated Statement of Cash Flows
- ------------------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
Earnings Per Share
- ------------------
Earnings per share are based on the weighted average number of common shares
outstanding during each year, adjusted retroactively for stock dividends. The
weighted average number of common shares outstanding, as adjusted for stock
dividends, amounted to 771,750 shares in 1995, 1994 and 1993, respectively (see
Note 13).
Interest Rate Risk
- ------------------
The Bank is principally engaged in the business of attracting deposits from the
general public and using these deposits, together with borrowings and other
funds, to make loans primarily secured by real estate as well as commercial and
consumer loans. The potential for interest rate risk exists as a result of the
shorter duration of the Bank's interest-sensitive liabilities compared to the
generally longer duration of interest-sensitive assets. In a rising interest
rate environment, liabilities will reprice faster than assets, thereby reducing
the market value of long-term assets and reducing net interest income. For this
reason, management regularly monitors the maturity structure of the Bank's
assets and liabilities in order to measure its level of interest rate risk and
plan for future volatility.
Recent Accounting Pronouncements
- --------------------------------
The FASB has issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS No. 123"). This statement is
effective for fiscal years beginning after December 15, 1995, and requires that
an employer's financial statements include certain disclosures about stock-based
employee compensation arrangements. The required information, if the Company
chooses to continue to apply certain allowable accounting provisions, will not
reflect any adjustments to reported net income or earnings per share.
Reclassifications
- -----------------
Certain account balances for 1994 and 1993 have been reclassified to conform
with 1995 presentation.
2. REGULATORY MATTERS:
-------------------
At periodic intervals, both the Office of the Comptroller of the Currency (OCC)
and the Federal Deposit Insurance Corporation (FDIC) examine the Bank as part of
their legally prescribed oversight of the Banking industry. Based on these
examinations, the regulators can direct that the Bank's financial statements be
adjusted in accordance with their findings. However, the extent, if any, to
which a forthcoming regulatory examination may ultimately result in adjustments
to the 1995 financial statements cannot presently be determined.
The Federal Reserve Board that regulates the Corporation and the Office of the
Comptroller of the Currency that regulates the Bank's activities have specific
guidelines for the purpose of evaluating a financial institution's capital
adequacy.
A-14
<PAGE>
Currently, the Bank must maintain a minimum Tier 1 capital percentage of 4.0% of
risk-based assets, a total minimum capital of 8.0% of risk-based assets, and a
leverage ratio of 4.0% of total assets. The Bank's ratios at December 31, 1995
were (unaudited): Tier 1 of 10.04%, total capital to risk-based assets of
11.29% and a leverage ratio of 6.37%. The Corporation's leverage ratio at
December 31, 1995, was 7.36% (unaudited).
3. RESTRICTED CASH BALANCES:
-------------------------
Aggregate cash reserves of approximately $1,584,000 and $1,166,000 were
maintained to satisfy federal regulatory requirements at December 31, 1995 and
1994, respectively.
4. INVESTMENT SECURITIES:
----------------------
The following summarizes the amortized cost and approximate market value of
investment securities at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Treasury securities and
obligations of U.S.
Government corporations
and agencies $20,641,000 $433,000 $ -- $21,074,000
Obligations of states and political
subdivisions 7,009,000 144,000 -- 7,153,000
Corporate debt securities 4,835,000 153,000 -- 4,988,000
Collateralized mortgage obligations 3,992,000 16,000 -- 4,008,000
Federal Reserve and FHLB stock 625,000 -- -- 625,000
SBA loan pools 12,149,000 63,000 -- 12,212,000
Other 15,000 12,000 -- 27,000
----------- -------- ---------- -----------
Total $49,266,000 $821,000 $ -- $50,087,000
=========== ======== ========== ===========
</TABLE>
Included in investment securities classified as held-to-maturity are debt
securities issued by foreign governments with an amortized cost of $250,000 and
a market value of $250,000 as of December 31, 1995.
A-15
<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
HELD TO MATURITY:
U.S. Treasury securities and
obligations of U.S.
Government corporations
and agencies $11,868,000 $ -- $460,000 $11,408,000
Obligations of states and political
subdivisions 4,331,000 -- 69,000 4,262,000
Debt securities issued by foreign
governments 250,000 -- -- 250,000
Corporate debt securities 5,207,000 -- 244,000 4,963,000
Collateralized mortgage obligations 2,509,000 -- 130,000 2,379,000
----------- ---------- -------- -----------
Total $24,165,000 $ -- $903,000 $23,262,000
=========== ========== ======== ===========
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
AVAILABLE FOR SALE:
U.S. Treasury securities and
obligations of U.S.
Government corporations
and agencies $ 9,709,000 $ -- $130,000 $ 9,579,000
Corporate debt securities 495,000 -- 18,000 477,000
Federal Reserve Bank stock 198,000 -- -- 198,000
Other 15,000 12,000 -- 27,000
------ ------ ---- ------
Total $10,417,000 $12,000 $148,000 $10,281,000
=========== ========== ======== ===========
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1995, by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
A-16
<PAGE>
<TABLE>
<CAPTION>
Amortized Market
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 6,301,000 $ 6,321,000
Due after one year through five years 14,762,000 14,982,000
Due after five years through ten years 10,080,000 10,541,000
Due after ten years 5,584,000 5,629,000
----------- -----------
36,727,000 37,473,000
Federal Reserve Bank stock and other 12,789,000 12,864,000
----------- -----------
$49,516,000 $50,337,000
=========== ===========
</TABLE>
Debt securities and corporate bonds at December 31, 1995, 1994 were comprised of
securities for which there is an active market. It is management's intent to
invest in securities that are guaranteed by the U. S. Government or its
agencies, or securities that are investment grade.
Proceeds from the sales of investment securities during 1995, 1994 and 1993 were
$19,782,000, $5,664,000 and $5,696,000, respectively. Gross gains of $122,000,
$41,000 and $127,000 were realized on those sales during 1995, 1994 and 1993,
respectively.
At December 31, 1995 and 1994, investment securities with a carrying value of
$1,615,000 and $5,452,000 (market value of $1,624,000 and $5,258,000,
respectively), were pledged to secure public funds and for other purposes.
5. LOANS:
------
A summary of the Bank's outstanding loans at December 31, 1995 and 1994,
follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural loans $27,759,000 $18,231,000
Real estate--construction 9,628,000 6,374,000
Real estate--mortgage loans 36,284,000 28,748,000
Consumer loans 22,458,000 18,107,000
----------- -----------
Total $96,129,000 $71,460,000
=========== ===========
</TABLE>
Nonaccrual loans amounted to $1,090,000, $989,000 and $862,000 at December 31,
1995, 1994 and 1993, respectively. Interest income of approximately $69,000,
$102,000 and $42,000 was not recognized as operating income due to the
nonaccrual status of loans during 1995, 1994 and 1993, respectively. Loans over
90 days delinquent and accruing interest amounted to $148,000, $210,000 and
$312,000 at December 31, 1995, 1994 and 1993, respectively.
The Bank has reached agreements with various borrowers that provide for a
modification to the original contract maturity due to a change in the borrower's
financial condition. At December 31, 1995 and 1994, the Bank maintained
$2,573,000 and $3,337,000, respectively, of such loans, considered by management
to be potential problem loans due to the dependency on income production and/or
future collateral value. These loans carry a market rate of interest.
A-17
<PAGE>
At December 31, 1995 and 1994, there were $4,953,000 and $3,490,000,
respectively, of loans outstanding to directors, principal shareholders and
executive officers and their affiliated interests. Management believes related-
party loans are made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than the normal risk of
collectibility.
The Bank customarily originates secured loans which remit interest only. At
December 31, 1995 and 1994, such loans amounted to $37,136,000 and $23,251,000,
respectively.
The Bank recovered $66,000, $16,000 and $94,000 in 1995, 1994 and 1993,
respectively of legal fees and other expenses related to collection efforts of
loans charged-off in years prior to 1994. These recoveries are reflected as
reductions of professional fees and other miscellaneous expenses.
6. ALLOWANCE FOR LOAN LOSSES:
--------------------------
A summary of the activity in the allowance for possible loan losses for the
years ended December 31, 1995, 1994 and 1993, follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
BALANCE, BEGINNING OF YEAR $ 1,152,000 $ 1,235,000 $ 1,058,000
Provision for loan losses 115,000 160,000 75,000
Recoveries of loans previously
charged off 160,000 65,000 162,000
Loans charged off (144,000) (308,000) (60,000)
-------- -------- -------
BALANCE, END OF YEAR $ 1,283,000 $ 1,152,000 $ 1,235,000
= ========= = ========= = =========
</TABLE>
7. BANK PREMISES AND EQUIPMENT:
---------------------------
Bank premises and equipment are comprised of the following at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land $ 139,000 $ 139,000
Buildings and improvements 1,922,000 1,361,000
Leasehold improvements 610,000 563,000
Furniture and equipment 2,409,000 1,989,000
--------- ---------
Total 5,080,000 4,052,000
Less-- Accumulated depreciation
and amortization 2,130,000 1,828,000
--------- ---------
Bank premises and equipment, net $ 2,950,000 $ 2,224,000
= ========= = =========
</TABLE>
Depreciation and amortization expense amounted to $350,000, $240,000 and
$233,000 in 1995, 1994 and 1993, respectively.
A-18
<PAGE>
During 1988, the Bank entered into a ten-year operating lease agreement for a
new corporate headquarters and branch location that began in 1989. The lease
contains an option for two additional ten-year periods. Rental expense in
connection with the lease was approximately $242,000 in 1995, 1994 and 1993,
respectively.
Future minimum lease payments as of December 31, 1995, in connection with leases
are:
<TABLE>
<S> <C>
1996 $ 361,000
1997 371,000
1998 382,000
1999 343,000
2000 102,000
2001 and thereafter 948,000
-------
Total minimum payments required $ 2,507,000
=============
</TABLE>
On January 31, 1995, the Bank entered into an agreement to sell the Cherry Hill
Branch building, property and equipment with the intent to lease back the
property for a period of fifteen years with two five-year renewal options.
Terms of the capital lease will require lease payments by the Bank of $98,000
for the first five years, $102,000 for the second five years and $108,000 for
the remaining five years.
8. INCOME TAXES:
-------------
On January 1, 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). As a result of adopting SFAS 109, the
Corporation recognized a cumulative benefit of the change in accounting
principle of $100,000 as of January 1, 1993. The benefit is included under the
caption "Cumulative Effect of Change in Accounting Principle" in the
consolidated statement of income.
The net deferred tax asset recorded by the Corporation at December 31, 1994, and
changes thereto during the year ended December 31, 1995, consisted of the
following temporary differences:
<TABLE>
<CAPTION>
Deferred
Tax
December 31 December 31 Benefit December 31
1993 1994 (Expense) 1995
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Provision for loan losses $ 247,000 $ 218,000 $ 45,000 $ 263,000
Deferred loan fees and costs, net 61,000 81,000 (33,000) 48,000
Depreciation (64,000) (66,000) (3,000) (69,000)
Rent expense 51,000 51,000 (4,000) 47,000
Accrued bonus and profit sharing 30,000 24,000 4,000 28,000
Other, net (7,000) (2,000) (7,000) (9,000)
-------- -------- -------- --------
Deferred tax asset 318,000 306,000 2,000 308,000
Valuation allowance (45,000) (45,000) -- (45,000)
-------- -------- -------- --------
Net deferred tax asset $ 273,000 $ 261,000 $ 2,000 $ 263,000
=========== =========== =========== ==========
</TABLE>
A-19
<PAGE>
The Corporation has established a valuation allowance of $45,000 against
deferred tax assets. Management believes that the remaining deferred tax assets
are realizable either through carryback availability against prior year taxable
income or the reversal of existing deferred tax liabilities.
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
-------------------------------------
Federal State Total
------------- -------- -------------
<S> <C> <C> <C>
Current taxes payable $362,000 $ -- $384,000
Deferred tax benefit (2,000) -- (24,000)
-------- -------- --------
Tax provision $360,000 $ -- $360,000
======== ======== ========
</TABLE>
A-20
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
---------------------------------------
Federal State Total
------- ----- -----
<S> <C> <C> <C>
Current taxes payable $ 376,000 $ -- $ 376,000
Deferred tax provision 12,000 -- 12,000
------ ---- ------
Tax provision $ 388,000 $ -- $ 388,000
= ======= = ==== = =======
For the Year Ended December 31, 1993
--------------------------------------
Federal State Total
------- ----- -----
Current taxes payable $ 513,000 $ 50,000 $ 563,000
Deferred tax benefit (86,000) (28,000) (114,000)
-------- -------- ---------
Tax provision $ 427,000 $ 22,000 $ 449,000
= ======= = ====== = =======
</TABLE>
The difference between the provision for income taxes and the amount computed by
applying the federal statutory income tax rate to income before income taxes is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Tax provision at statutory rate $ 481,000 $423,000 $459,000
Tax exempt interest (123,000) (38,000) --
Other, net 2,000 3,000 (10,000)
--------- -------- --------
Tax provision $ 360,000 $388,000 $449,000
========= ======== ========
</TABLE>
9. RELATED-PARTY TRANSACTIONS:
---------------------------
The Corporation incurred professional fees of $286,000, $331,000 and $315,000 in
1995, 1994 and 1993, respectively. Included in these amounts were approximately
$69,000, $154,000 and $169,000 in 1995, 1994 and 1993, respectively, of fees
paid to law firms that were shareholders of the Corporation or had
representatives who were shareholders and members of the Board of Directors.
In 1995, the Bank began purchasing automobile loans from a financial services
corporation whose president was a member of the Bank's Board of Directors. This
company provides all the servicing for these loans. The balance of this
automobile loan portfolio was $5,280,000 and $252,000 as of December 31, 1995
and 1994, respectively.
10. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Corporation, from time to time, may be a defendant in legal proceedings
relating to the conduct of its banking business. Such legal proceedings are a
normal part of the banking business and, in management's opinion, the financial
position and
A-21
<PAGE>
the results of operations of the Corporation will not be materially adversely
affected by the resolution of such legal proceedings.
In November 1995, the Bank entered into an operating lease agreement to rent the
building and property of the Moorestown Branch for a period of twenty years with
two five-year renewal options. Terms of the lease, commencing in July 1996,
will require lease payments of $127,000 for the first five years, $130,000 for
the second five years, $133,000 for the third five years and $137,000 for the
remaining five years.
11. PROFIT SHARING PLAN:
--------------------
The Bank has a profit sharing plan covering substantially all employees who meet
the age and service qualifications. Contributions made to the plan by the Bank
are allocated to the employees' accounts on a unit basis based on employee
compensation. The Bank is not obligated to make a contribution in any given
year. The Bank made no contributions in 1995 and 1994 and $21,000 in 1993. The
total funded assets of the plan amounted to $102,000 at December 31, 1995. The
Plan was amended to a 401(k) plan in 1995 which permits employee contributions
and investment decisions. The Bank may, at its discretion, match employee
contributions with a percentage contribution to be decided annually.
12. STOCK OPTION PLAN:
------------------
The aggregate number of shares of common stock for which options may be issued
under the Incentive Stock Option Plan is 50,000 shares. Participants and number
of shares granted are determined at the discretion of the Board of Directors.
As of December 31, 1995 no options had been granted.
13. SHAREHOLDERS' EQUITY:
---------------------
The Corporation declared a stock dividend of 5.0% on February 7, 1996 and
January 25, 1995 which has been reflected in the accompanying financial
statements. The stock dividend increased the number of common shares
outstanding by 36,750 shares and 34,000 shares in 1995 and 1994, respectively,
and resulted in a transfer from retained earnings of approximately $184,000 and
$175,000 to common stock in 1995 and 1994, respectively, and $294,000 and
$280,000 to additional paid-in-capital in 1995 and 1994, respectively.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE
SHEET RISK AND CONCENTRATIONS OF CREDIT 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 standby letters
of credit. These instruments involve, in varying degrees, elements of credit
and interest rate risk that are not recognized in the consolidated financial
statements.
The Bank's exposure to credit loss in the event of nonperformance by other
parties to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual or notional 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.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses with the
exception of home equity lines and personal lines of credit and may require
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent
A-22
<PAGE>
future cash requirements. The Bank evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained if deemed necessary
by the Bank upon the extension of credit is based on management's credit
evaluation of the counterparty. Collateral for commercial commitments varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
At December 31, 1995, the Bank had approved outstanding loan commitments of
approximately $36,894,000 relating to undisbursed loans and lines of credit at
normal terms.
Standby letters of credit are instruments issued by the Bank that guarantee the
beneficiary payment by the Bank in the event of default by the Bank's customer
in the nonperformance of an obligation or service. Most standby letters of
credit are extended for one-year periods. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank holds collateral supporting those commitments
for which collateral is deemed necessary primarily in the form of certificates
of deposit and liens on real estate. The amount of standby letters of credit
issued and outstanding as of December 31, 1995 and 1994, were approximately
$552,000 and $219,000, respectively.
The Bank originates residential, commercial real estate and consumer loans to
customers in southern New Jersey. The majority of these loans are concentrated
in southern Burlington County, Camden County, Gloucester County and northern
Atlantic County.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
------------------------------------
The following disclosure of the estimated fair value of financial instruments is
made in accordance with the requirements of SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments." The estimated fair value amounts have been
determined by the Bank using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts the
Bank could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1995
-------------------------
Carrying Estimated
Amount Fair Value
------ ----------
ASSETS:
<S> <C> <C>
Investment securities $50,337,000 $50,337,000
Loans held for sale 1,467,000 1,467,000
Loans held to maturity 96,129,000 96,335,000
LIABILITIES:
Demand deposit accounts 19,812,000 19,812,000
Interest bearing demand 46,355,000 46,355,000
Savings accounts 21,155,000 21,155,000
Time certificates of deposit 57,972,000 58,121,000
</TABLE>
A-23
<PAGE>
The fair value of investment securities is based on quoted market prices, dealer
quotes and prices obtained from independent pricing services. The fair value of
loans held for sale is based upon the commitment made by the purchaser. The
fair value of loans is estimated by discounting future cash flows using current
interest rates at which similar loans would be made to borrowers with similar
credit ratings and remaining maturities.
The fair value of deposit liabilities for demand and savings deposits is the
amount payable on demand at the reporting date. The fair value of fixed-maturity
time certificates of deposit was estimated using the rates currently offered for
deposits of similar remaining maturities.
A-24
<PAGE>
16. ATCORP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION:
--------------------------------------------------------
CONDENSED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
December 31
----------------------------
1995 1994
---- ----
<S> <C> <C>
ASSETS:
Cash $ 263,000 $ 307,000
Investment in bank subsidiary 10,217,000 8,506,000
----------- ----------
$ 10,480,000 $ 8,813,000
= ========== = =========
LIABILITIES:
Other liabilities 12,000 31,000
------ ------
SHAREHOLDERS' EQUITY:
Common stock 3,902,000 3,718,000
Additional paid-in capital 3,804,000 3,510,000
Retained earnings 2,265,000 1,689,000
Net unrealized holding gain (loss) on 542,000 (90,000)
securities
Treasury stock (45,000) (45,000)
------- -------
Total shareholders' equity 10,468,000 8,782,000
---------- ---------
$ 10,480,000 $ 8,813,000
= ========== = =========
</TABLE>
CONDENSED STATEMENTS OF INCOME
------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INCOME:
Interest income $ 10,000 $ 30,000 $ 7,000
EXPENSE:
Amortization of organization costs -- -- 25,000
Other operating expenses 15,000 13,000 13,000
Legal and professional 20,000 31,000 4,000
------ ------ -----
Loss before income taxes and
equity in undistributed net
income of subsidiaries (25,000) (14,000) (35,000)
FEDERAL INCOME TAX BENEFIT -- -- 12,000
---- ---- ------
Loss before equity in undistri-
buted net income of
subsidiaries (25,000) (14,000) (23,000)
EQUITY IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES 1,079,000 871,000 1,026,000
--------- ------- ---------
NET INCOME $ 1,054,000 $ 857,000 $ 1,003,000
= ========= = ======= = =========
</TABLE>
A-25
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,054,000 $ 857,000 $ 1,003,000
Adjustments to reconcile net income
to net cash provided by
operating activities-
Amortization of organization
costs -- -- 25,000
(Increase) decrease in receivable
from bank subsidiary -- 12,000 (2,000)
(Decrease) increase in other liabilities (19,000) 24,000 3,000
Undistributed earnings of
subsidiaries (1,079,000) (871,000) (1,026,000)
---------- -------- ----------
Total adjustments (1,098,000) (835,000) (1,000,000)
---------- -------- ----------
Net cash provided by operating
activities (44,000) 22,000 3,000
Cash, beginning of year 307,000 285,000 282,000
------- ------- -------
Cash, end of year $ 263,000 $ 307,000 $ 285,000
=========== ========= ===========
</TABLE>
17. Event (Unaudited) Subsequent to Date of Auditor's Report
On July 18, 1996, with the approval of the Board of Directors, Atcorp, Inc.
entered into an Agreement and Plan of Affiliation (the Agreement) with
Susquehanna Bancshares, Inc. (Susquehanna). The agreement provides, among other
things, that Susquehanna will acquire Atcorp, Inc. and its subsidiaries for
approximately 771,750 shares of Susquehanna common stock, or one share of
Susquehanna common stock for each Atcorp, Inc. fully diluted share. The
acquisition is subject to federal and state regulatory approvals as well as
approval of the shareholders of Atcorp, Inc. and other conditions including,
among other things, the transaction qualifying for pooling-of-interest
accounting.
A-26
<PAGE>
APPENDIX B
FARMERS BANC CORP.
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
INDEX TO CONSOLIDATED FBC FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Condition (Unaudited) (As of June 30,1996 and 1995)................................ B-2
Consolidated Statements of Income (Unaudited) (As of June 30, 1996 and 1995).................................. B-3
Independent Auditor's Report.................................................................................. B-4
Consolidated Statements of Condition (As of December 31, 1995 and 1994)....................................... B-5
Consolidated Statements of Income (For the years ended December 31, 1995 and 1994)............................ B-6
Consolidated Statements of Changes in Shareholders' Equity
(For the years ended December 31, 1995 and 1994)...................................................... B-7
Consolidated Statements of Cash Flows (For the years ended December 31, 1995 and 1994)........................ B-8
Notes to Financial Statements................................................................................. B-9
</TABLE>
B-1
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
JUNE 30, 1996 AND 1995
----------------------
(Dollars in thousands) Unaudited
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ---------- ----------
<S> <C> <C>
Cash and due from banks $ 2,608 $ 3,044
Money market mutual fund 644 618
Federal funds sold 2,900 4,175
---------- ----------
Total cash and cash equivalents 6,152 7,837
Interest - bearing deposits with banks 500 --
Investment securities:
Available-for-sale at fair value 19,019 9,559
Held to maturity (market value of
$17,142 in 1996
and $23,122 in 1995) 17,147 23,121
Other (market value of $68 in 1996
and 1995) 68 68
Loans, net of allowance for credit losses of $476
in 1996 and $440 in 1995 40,148 38,700
Accrued interest receivable 518 539
Properties and equipment, net 944 977
Other assets 903 751
---------- ----------
Total assets $85,399 $81,552
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ----------------------------------------
Liabilities:
- ------------
Demand deposits $10,968 $10,634
Savings, money market, and NOW deposits 17,865 21,375
Time certificates of deposit $100,000 and over 6,704 4,370
Other time deposits 39,181 35,222
---------- ----------
Total deposits 74,718 71,601
Accrued interest payable 356 276
Accrued expenses and other liabilities 89 83
---------- ----------
Total liabilities 75,163 71,960
---------- ----------
Shareholders' equity:
- ---------------------
Common stock, $.83 par value; 500,000 shares authorized;
303,600 shares in 1996 and 276,000 shares in 1995 issued
and outstanding 253 230
Additional paid-in capital 1,650 1,650
Retained earnings 8,410 7,688
Net unrealized gain (loss) on
securities available for sale, (77) 24
net of deferred income taxes
---------- ----------
Total shareholders' equity 10,236 9,592
---------- ----------
Total liabilities and shareholders' equity $85,399 $81,552
========== ==========
</TABLE>
B-2
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
---------------------------------------
(Dollars in thousands except per share) Unaudited
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 1,812 $ 1,798
Interest on securities available-for-sale 673 400
Interest on securities to be held to maturity 471 628
Interest on deposits with other banks 15 --
Interest on federal funds sold 78 103
Interest on money market mutual fund 31 29
---------- ----------
Total interest income 3,080 2,958
Interest expense:
Interest on deposits 1,222 1,133
---------- ----------
Net interest income 1,858 1,825
Provision for credit losses 30 30
---------- ----------
Net interest income after provision
for credit losses 1,828 1,795
---------- ----------
Other income:
Service charges on deposit accounts 71 78
Other income 90 74
---------- ----------
Total other income 161 152
---------- ----------
Operating expenses:
Salaries and employee benefits 661 580
Occupancy expense 58 46
Equipment expense 49 48
Other operating expense 346 378
---------- ----------
Total operating expenses 1,114 1,052
---------- ----------
Income before income tax expense 875 895
Income tax expense 192 192
---------- ----------
Net income $683 $703
========== ==========
Net income per share of common stock 2.25 2.32
========== ==========
Average shares outstanding 303,600 303,600
========== ==========
</TABLE>
B-3
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors and Shareholders
Farmers Banc Corp.
Mullica Hill, NJ 08062
We have audited the accompanying consolidated statements of condition of the
Farmers Banc Corp. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Farmers Banc
Corp. and Subsidiaries at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the years then
ended, in conformity with generally accepted accounting principles.
Respectfully submitted,
PETRONI & ASSOCIATES
/s/ Nick L. Petroni
Certificated Public Accountant
January 30, 1996
B-4
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1995 AND 1994
--------------------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ------------ ------------
<S> <C> <C>
Cash and due from banks 2,844,339 2,246,144
Money market mutual fund 324,914 2,508,176
Federal funds sold 3,520,000 4,050,000
------------ ------------
Total cash and cash equivalents 6,689,253 8,804,320
Interest - bearing deposits with banks 500,000
Investment securities:
Available-for-sale at fair value 18,153,559 6,810,288
Held to maturity (market value of $20,777,070 in 1995
and $25,360,252 in 1994) 20,534,911 26,304,314
Other (market value of $68,450 in 1995 and 1994) 68,450 68,450
Loans, net of allowance for credit losses of $431,429 in
1995 and $412,669 in 1994 36,418,294 36,452,775
Accrued interest receivable 844,714 751,005
Properties and equipment, net 1,160,191 1,016,439
Other assets 336,111 377,084
------------ ------------
Total assets 84,705,483 80,584,675
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
- ------------
Demand deposits 11,494,864 10,995,649
Savings, money market, and NOW deposits 24,244,522 28,574,383
Time certificates of deposit $100,000 and over 3,678,287 2,572,354
Other time deposits 34,823,673 29,228,383
------------ ------------
Total deposits 74,241,346 71,370,769
Accrued interest payable 264,900 193,006
Accrued expenses and other liabilities 156,677 141,803
------------ ------------
Total liabilities 74,662,923 71,705,578
------------ ------------
Shareholders' equity:
- ---------------------
Common stock, $.83 par value; 500,000 shares authorized; 253,000 230,000
303,600 shares issued and outstanding
Additional paid-in capital 1,650,250 1,650,250
Retained earnings 7,962,650 7,186,426
Net unrealized gain (loss) on securities available
for sale, net of deferred income taxes 176,660 (187,579)
------------ ------------
Total shareholders' equity 10,042,560 8,879,097
------------ ------------
Total liabilities and shareholders' equity 84,705,483 80,584,675
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-5
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
--------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Interest income:
Interest and fees on loans 3,462,905 3,155,522
Interest on securities available-for-sale 661,571 928,973
Interest on securities to be held to maturity 1,508,823 1,050,504
Interest on deposits with other banks 5,083
Interest on federal funds sold 288,943 263,669
Interest on money market mutual fund 42,883 36,085
------------- -------------
Total interest income 5,970,208 5,434,753
Interest expense:
Interest on deposits 2,381,718 1,868,788
------------- -------------
Net interest income 3,588,490 3,565,965
Provision for credit losses 55,000 100,000
------------- -------------
Net interest income after provision
for credit losses 3,533,490 3,465,965
------------- -------------
Other income:
Service charges on deposit accounts 153,382 166,260
Other service charges and fees
Net realized losses on sales of securities available (52,731)
for sale
Other income 93,183 87,337
------------- -------------
Total other income 246,565 200,866
------------- -------------
Operating expenses:
Salaries and employee benefits 1,257,127 1,177,265
Occupancy expense 106,308 117,796
Equipment expense 130,657 117,886
Other operating expense 722,599 730,930
------------- -------------
Total operating expenses 2,216,691 2,143,877
------------- -------------
Income before income tax expense 1,563,364 1,522,954
Income tax expense 382,800 380,570
------------- -------------
Net income 1,180,564 1,142,384
============= =============
Net income per share of common stock 3.89 3.76
============= =============
Average shares outstanding 303,600 303,600
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-6
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
--------------------------------------
<TABLE>
<CAPTION>
Net Change in
Additional Unrealized Gain Total
Common Paid-In Retained (Loss) on Securities Shareholders'
Stock Capital Earnings Available-for-Sale Equity
----------- ----------- ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 230,000 1,650,250 6,412,042 78,637 8,370,929
Net income for 1994 1,142,384 1,142,384
Cash dividends paid - $1.212 per share (368,000) (368,000)
Net change in unrealized gain (loss) on
securities available-for-sale (266,216) (266,216)
----------- ----------- ----------- ------------------- -----------
Balance at December 31, 1994 230,000 1,650,250 7,186,426 (187,579) 8,879,097
Net income for 1995 1,180,564 1,180,564
Cash dividends paid - $1.256 per share (381,340) (381,340)
10% stock dividend - 27,600 shares
of common stock 23,000 (23,000)
Net change in unrealized gain (loss)
on securities available-for-sale 364,239 364,239
----------- ----------- ----------- ------------------- -----------
Balance at December 31, 1995 253,000 1,650,250 7,962,650 176,660 10,042,560
=========== =========== =========== =================== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-7
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
--------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income 1,180,564 1,142,384
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 97,289 89,072
Amortization and accretion, net 93,053 132,583
Provision for credit losses 55,000 100,000
Loss on obsolete or retired assets 2,075
Deferred income taxes (25,936) (16,530)
Net realized losses on securities available-for-sale 52,731
Increase in interest receivable (93,709) (114,317)
(Increase) decrease in prepaid expense and other assets (13,289) 35,191
Increase in accrued interest payable 71,894 18,947
(Decrease) increase in deferred income (4,145) 2,098
Decrease in accrued expenses and liabilities (14,367) (21,359)
Increase in accrued income taxes 29,241 10,448
------------ ------------
Total adjustments 195,031 290,939
------------ ------------
Net cash provided by operating activities 1,375,595 1,433,323
------------ ------------
<CAPTION>
<S> <C> <C>
Cash flows from investing activities:
Net (increase) in interest-bearing deposits with other banks (500,000)
Proceeds from sales of securities available-for-sale 912,356
Proceeds from maturities or calls of securities available-for-sale 4,106,326 2,035,355
Purchases of securities available-for-sale (9,988,323) (1,082,758)
Proceeds from maturities of securities held to maturity 4,740,449 5,194,419
Purchases of securities to be held to maturity (3,973,495) (10,733,858)
Net increase in loans (122,976) (4,235,809)
Purchases of properties and equipment (241,041) (142,158)
------------ ------------
Net cash used in investing activities (5,979,060) (8,052,453)
------------ ------------
Cash flows from financing activities:
Net increase in non-interest bearing demand deposit accounts 498,376 2,333,651
Net increase (decrease) in savings, NOW, and money market
deposit accounts (4,329,861) 118,531
Net increase in time deposits 6,701,223 197,317
Dividends paid (381,340) (368,000)
------------ ------------
Net cash provided by financing activities 2,488,398 2,281,499
------------ ------------
Net increase (decrease) in cash and equivalents (2,115,067) (4,337,631)
Cash and cash equivalents, January 1 8,804,320 13,141,951
------------ ------------
Cash and cash equivalents, December 31 6,689,253 8,804,320
============ ============
Interest paid 2,309,824 1,849,841
============ ============
Income taxes paid 379,495 356,752
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
B-8
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------
The accounting and reporting policies of Farmers Banc Corp. and Subsidiaries
conform to generally accepted accounting principles and to general practices in
the banking industry. The more significant of the principles used in preparing
the financial statements are briefly described below.
Principles of Consolidation:
- ----------------------------
The accompanying consolidated financial statements include the accounts of
Farmers Banc Corp. and its wholly owned subsidiary Farmers National Bank (the
Bank) and the Bank's wholly owned subsidiary Farmer's Investment Co. All
significant intercompany transactions and amounts have been eliminated.
Nature of Operations:
- ---------------------
The Farmers Banc Corp., a bank holding company, is incorporated in the State of
New Jersey. The Farmers National Bank (the Bank) operates under a national bank
charter and provides full banking services, except for trust 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
area served by the Bank is in the southern region of New Jersey and services are
provided at two branches located in Gloucester County.
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.
Cash and Cash Equivalents:
- --------------------------
For purpose of presentation in the Statement of Cash Flows, the Bank considers
cash and cash equivalents to include cash on hand, amounts due from banks,
investments in money market mutual funds and federal funds sold, since their
maturities are generally one business day.
Investment in Securities:
- -------------------------
The Bank's investments in securities are classified in the following categories
and accounted for as follows:
Securities to be Held to Maturity:
Debt securities for which the Bank has the positive intent and ability to hold
to maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts which are recognized in interest income using the
interest method over the period of maturity.
Securities Available-for-Sale:
Securities available-for-sale consist of bonds, notes and debentures not
classified as held-to-maturity securities. Unrealized holding gains and losses,
net of tax effect, on available-for-sale securities are reported as a net amount
in a separate component of shareholders' equity until realized. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.
B-9
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ----------------------------------------------------
Gains and losses on the sale of available-for-sale securities are determined
using the specific-identification method.
Other securities include Federal Reserve Bank and Atlantic Central Bankers Bank
stock.
Loans:
- ------
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, net of unearned discount,
allowance for credit losses, and unearned loan fees. Unearned discounts on
discounted loans are recognized as income over the term of the loans using a
method that approximates the interest method. For all other loans, interest is
accrued daily on the outstanding principal balances.
Loans are generally placed on non-accrual status when a loan is specifically
determined to be impaired or when principal or interest is delinquent for 90
days or more. Any unpaid interest previously accrued on these loans is reversed
from income. Interest income generally is not recognized on specific impaired
loans unless the likelihood of further loss is remote. Interest payments
received on such loans are applied as a reduction of the loan principal balance.
Interest income on other non-accrual loans is recognized only to the extent of
interest payments received.
Loan origination fees (mortgage points) are capitalized and recognized as an
adjustment of yield on the related loans.
Allowance for Credit Losses:
- ----------------------------
The allowance for credit losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans,
historical loss experience, specific impaired loans and other pertinent factors.
Loans deemed uncollectible are charged to the allowance. Provisions for credit
losses and recoveries on loans previously charged off are added to the
allowance.
Foreclosed Real Estate:
- -----------------------
Real estate, acquired through partial or total satisfaction of loans, is carried
at the lower of cost or fair market value less costs to sell at the date of
foreclosure. At the date of acquisition, losses are charged to the allowance
for loan losses. Subsequent write downs are charged to expense in the period
they are incurred.
Properties and Equipment:
- -------------------------
Land is carried at cost. Bank premises, furniture and equipment are stated at
cost less accumulated depreciation. Depreciation of property and equipment is
computed on the straight-line method over the estimated useful lives.
Maintenance and repairs of property and equipment are charged to operations, and
major improvements are capitalized. Upon retirement, sale or other disposition
of property and equipment, the cost and accumulated depreciation are eliminated
from the accounts, and gain or loss is included in income.
Income Taxes:
- -------------
B-10
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ----------------------------------------------------
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of the allowance for credit
losses, accumulated depreciation, pension expense and deferred loan fees for
financial and income tax reporting. The deferred tax asset valuation allowance
relates to state net deferred tax assets that are not expected to be realized
due to current state income tax laws. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled as prescribed by SFAS No. 109, Accounting for Income Taxes. As changes
in tax laws or rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
Employee Benefits:
- ------------------
The Bank has a defined benefit pension plan covering substantially all of its
employees who meet the eligibility requirements. To be eligible, an employee
must be 21 years of age and have completed one participation year of service.
In addition, to the plan discussed above, the Bank has a defined contribution
plan entitled "Farmer's National Bank of Mullica Hill Profit Sharing Plan."
This is a discretionary, employer's contributory-only plan, with a non-
integrated allocation.
Postretirement Benefits:
- ------------------------
The Bank has an unfunded defined benefit postretirement plan which provides life
insurance and health insurance benefits to retired individuals. Employees who
retire at age 62 or older, must have worked for the Bank 10 years or more to be
eligible for the single supplement coverage; the exception is if 62, the spouse
of employees and officers with more than 25 years of service will be eligible to
have payments made in full by the Bank for the retiree and spouse. The plan is
reviewed annually and may be modified or terminated at the discretion of the
Board of Directors. Postretirement health care and life insurance benefits are
charged to employee benefits expense when paid. The amount paid for such
benefits in both 1995 and 1994 was $13,587.
Earnings Per Share:
- -------------------
Net income per share of common stock is calculated on the weighted average
number of shares outstanding during the period after giving retroactive effect
of stock dividends and stock splits.
Advertising Costs:
- ------------------
Advertising costs are charged to income as incurred. Advertising costs included
in net income for 1995 amounted to $21,700.
Fair Value of Financial Instruments:
- ------------------------------------
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash and Short-Term Instruments: For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
B-11
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ----------------------------------------------------
Securities available-for-sale and held-to-maturity: Fair values are based
on quoted market prices or dealer quotes. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities. The carrying values of restricted equity securities
approximate fair values.
Loans Receivable: It is not practical for the Bank to estimate fair
values of loans receivable. The Bank has not yet developed a valuation
model necessary to make fair value estimates for loans receivable.
Deposit Liabilities: Fair value of demand deposits, savings accounts, and
NOW accounts is defined as the amount payable on demand at the reporting
date. It is not practical for the Bank to estimate fair values of time
certificates of deposit. The Bank has not yet developed a valuation model
necessary to make fair value estimates for these deposit liabilities.
Accrued Interest: The carrying amounts of accrued interest approximate
their fair values.
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 standby
letters of credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
B-12
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2: INVESTMENT SECURITIES
- ------------------------------
Debt and equity securities have been classified in the consolidated statements
of financial condition according to management's intent. The carrying amount of
securities and their approximate fair values at December 31, were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
- ----------------------------
1995
----
U.S. government and agency securities 14,826,685 251,367 171,567 14,906,485
State and municipal obligations 5,641,001 167,600 5,459 5,803,142
Corporate debt securities 67,225 224 6 67,443
----------- ----------- ----------- -----------
20,534,911 419,191 177,032 20,777,070
=========== =========== =========== ===========
1994
----
U.S. government and agencies securities 15,878,350 78,708 828,498 15,128,560
State and municipal obligations 9,834,436 54,227 235,197 9,653,466
Corporate debt securities 591,528 1,745 15,047 578,226
----------- ----------- ----------- -----------
26,304,314 134,680 1,078,742 25,360,252
=========== =========== =========== ===========
</TABLE>
Included in the state and municipal obligations category above are local
municipal bond anticipation notes with maturities of less than one year. Quoted
market prices are not readily available for these securities and the carrying
amount is considered to approximate the estimated market values. The carrying
amounts for these securities at December 31, 1995 and 1994 were $1,459,860 and
$2,455,507, respectively.
Securities Available-for-Sale:
- --------------------------------
<TABLE>
<CAPTION>
1995
----
<S> <C> <C> <C> <C>
U.S. government and agency securities 12,472,774 151,065 60,196 12,563,643
State and municipal obligations 3,727,932 116,813 4,667 3,840,078
Corporate debt securities 1,685,186 64,652 1,749,838
----------- ----------- ----------- -----------
17,885,892 332,530 64,863 18,153,559
Other restricted equity securities 68,450 68,450
----------- ----------- ----------- -----------
17,954,342 332,530 64,863 18,222,009
=========== =========== =========== ===========
1994
----
U.S. government and agency securities 6,291,830 1,728 283,079 6,010,479
Corporate debt securities 802,668 1,478 4,337 799,809
----------- ----------- ----------- -----------
7,094,450 3,206 287,416 6,810,288
Other restricted equity securities 68,450 68,450
----------- ----------- ----------- -----------
7,162,948 3,206 287,416 6,878,738
=========== =========== =========== ===========
</TABLE>
B-13
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 2: INVESTMENT SECURITIES (Continued)
- -----------------------------------------
Investment securities with a carrying value of $453,261 and $437,739 at December
31, 1995 and 1994, were pledged to secure public deposits and for other purposes
required or permitted by law.
During December 1995, management elected to transfer certain held-to-maturity
debt securities with a carrying value of $4,932,752 and an estimated fair value
of $5,037,594 to the available-for-sale category. This transfer resulted in an
unrealized net gain of $104,842 which has been reflected in a separate component
of shareholders' equity as of December 31, 1995. The Financial Accounting
Standards Board allowed a "45 day window of opportunity" to transfer securities
among categories without evaluating the remaining securities classification as
prescribed by SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities.
The Bank had no gross realized gains during 1995 or 1994. Gross-realized losses
on sales of available-for-sale securities were as follows:
1994
----
Gross-realized losses:
- ----------------------
U.S. government and agency securities 52,731
======
The maturities of securities to be held-to-maturity and available-for-sale at
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Carrying Market Carrying Market
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less 6,202,611 6,246,394 4,613,263 4,632,974
Due from one year to five years 14,779,573 14,874,555 11,378,926 10,947,582
Due from five to ten years 9,577,521 9,763,204 9,326,551 8,949,069
Due after ten years 7,861,098 8,046,476 8,080,072 7,640,915
Federal Reserve Bank stock 56,450 56,450 56,450 56,450
Atlantic Central Bankers Bank stock 12,000 12,000 12,000 12,000
----------- ----------- ----------- -----------
38,489,253 38,999,079 33,467,262 32,238,990
=========== =========== =========== ===========
</TABLE>
B-14
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTES 3: LOANS
- ---------------
Major classifications of loans in the consolidated statements of condition at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Residential real estate 16,789,426 17,516,870
Agricultural 1,559,405 1,613,636
Commercial 4,714,530 4,586,754
Consumer loans 7,595,196 7,992,657
Commercial real estate 5,713,204 4,192,734
Real estate construction 662,024 1,151,000
Other 11,000 11,000
-------------- --------------
37,044,785 37,064,651
Deferred loan origination fees (195,062) (199,207)
Allowance for loan losses (431,429) (412,669)
-------------- --------------
Loans, net 36,418,294 36,452,775
============== ==============
</TABLE>
An analysis of the change in allowance for credit losses follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Balance January 1, 412,669 375,943
Provision for credit losses 55,000 100,000
Amounts charged off (75,825) (85,956)
Recoveries 39,585 22,682
-------------- --------------
Balance December 31, 432,429 412,669
-------------- --------------
</TABLE>
The loan portfolio includes loans that are on non-accrual as follows:
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Demand 265,155 117,572
Mortgage 630,794 485,130
Time 35,000 95,000
Installment 133,644 197,694
Home equity 148,789 44,085
-------------- --------------
Total 1,213,382 939,481
============== ==============
</TABLE>
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
The non-accrual loans scheduled above had the effect of reducing income
approximately $75,608 in 1995 and $37,180 in 1994 and earnings per share
approximately $.25 and $.12, respectively.
Loans past due 90 days or more and still earning totaled $586,728 and $441,321
at December 31, 1995 and 1994, respectively.
NOTE 4: PROPERTIES AND EQUIPMENT
- ---------------------------------
A summary of properties and equipment included in the consolidated statements of
condition at December 31, is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Land 40,863 40,863
Bank premises 876,539 866,539
Equipment, furniture and 715,103 673,924
fixtures
Construction in progress 189,661 2,212
------------ ------------
Total cost 1,822,166 1,583,538
Less: accumulated depreciation 661,975 567,099
------------ ------------
Net book value 1,160,191 1,016,439
============ ============
</TABLE>
Depreciation expense amounted to $97,289 in 1995 and $89,072 in 1994.
NOTE 5: FORECLOSED REAL ESTATE
- -------------------------------
The balance of other real estate owned acquired through foreclosure or in-
substance foreclosure in settlement of loans is included in other assets and
totaled $202,227 and $84,500 at December 31, 1995 and 1994, respectively. Gain
on foreclosed real estate includes net revenue of $4,367 in 1995. The Bank had
no gains or losses on foreclosed real estate during 1994.
NOTE 6: DEPOSITS
- -----------------
The following is a maturity distribution of time deposits in denomination of
$100,000 or more at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Three months or less 1,105,690 701,658
Over three months through twelve months 1,315,611 865,924
Over twelve months to 2 years 827,632 600,000
Over 2 years to 3 years 228,909 304,772
Over 4 years to 5 years 200,445 100,000
------------ ------------
3,678,287 2,572,354
============ ============
</TABLE>
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 7: INCOME TAXES
- ---------------------
The consolidated provision for income taxes for 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Components of income tax expense:
Currently paid or payable:
Federal 408,536 397,000
State 200 100
------------ ------------
Total current 408,736 397,100
Deferred income taxes
Federal (25,936) (16,530)
------------ ------------
Net income tax expense 382,800 380,570
============ ============
</TABLE>
The provision for federal and state income taxes differs from that computed by
applying the federal and state statutory rates to income before income tax
expense, as indicated in the following analysis:
<TABLE>
<CAPTION>
1995 Percentage 1994 Percentage
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Expected tax provision at
a statutory rate 672,247 43.000% 654,870 43,000%
Effect of tax-exempt income (148,855) -9.521% (140,447) -9.222%
Income of subsidiary federal taxable (170,341) -10.896% (153,661) -10.090%
Other, net 29,749 1.903% 19,808 1.301%
----------- ----------- ----------- -----------
382,800 24.486% 380,570 24.989%
=========== =========== =========== ===========
</TABLE>
The net deferred tax assets included in other assets in the consolidated
statements of financial condition at December 31, 1995 and 1994 include the
following components:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax liabilities (173,267) (50,439)
Deferred tax assets 281,070 362,408
Deferred tax asset valuation allowance (28,671) (71,134)
------------ ------------
Net deferred taxes 79,132 240,835
============ ============
</TABLE>
B-17
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 8: RELATED PARTY TRANSACTIONS
- -----------------------------------
The bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), on the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with others. These persons and firms were indebted
to the Bank for loans totaling $1,947,901 at December 31, 1995 and $1,370,029 at
December 31, 1994.
NOTE 9: SHAREHOLDERS' EQUITY
- -----------------------------
During 1995, a 3 for 1 stock split was approved increasing the number of shares
issued and outstanding from 92,000 to 276,000. A 10% stock dividend was also
authorized during 1995. 27,600 additional shares were issued to shareholders' of
record and $23,000 representing the par value of $.8333 per share was
reclassified from retained earnings to common stock. The difference between
estimated fair market value of those shares and par value was not recorded and
is estimated at $49.1667 per share totaling approximately $1,357,000.
NOTE 10: RETIREMENT PLAN
- -------------------------
Defined Benefit Pension Plan
- ----------------------------
The total pension expense for 1995 and 1994 was $87,693 and $77,010,
respectively. Cost components of the plan, as required by SFAS87, for the years
ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Service cost of the current period 85,037 81,402
Interest cost on the projected benefit obligation 98,223 86,698
Actual return on assets held in the plan (366,452) 4,465
Net amortization and deferral 270,885 (95,555)
----------- -----------
Net periodic pension cost 87,693 77,010
=========== ===========
</TABLE>
The weighted average assumed rate of return used in determining the actuarial
present value of accumulated plan benefits was 7.25 percent for 1995 and 1994.
The weighted average expected rate of return on assets was 8.50 percent for 1995
and 1994. The rate of increase in future compensation levels was 6 percent for
1995 and 1994. A reconciliation of the funded status of the plan with amounts
reported in the consolidated statements of financial condition at December 31,
1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Projected benefit obligation (1,522,762) (1,359,475)
Plan assets at fair value (principally corporate
debt and equity instruments) 1,580,536 1,152,396
----------- -----------
Funded status 57,774 (207,079)
Unrecognized net obligation existing
December 1, 1988 being recognized over 19 years 60,100 65,108
----------- -----------
Unrecognized prior service costs 0 0
Unrecognized net gain (197,307) 57,952
----------- -----------
Accrued pension liability at end of period
included in accrued expenses (79,433) (84,019)
=========== ===========
Defined Contribution Profit Sharing Plan
- ----------------------------------------
</TABLE>
B-18
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 14: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
- ----------------------------------------------------------------------
Contributions to the defined contribution profit sharing plan are made
at the discretion of the Board of Directors. No contributons were made during
1995 or 1994.
NOTE 11: COMMITMENTS AND CONTINGENT LIABILITIES
- ------------------------------------------------
The Banks' consolidated financial statements do not reflect various commitments
and contingent liabilities which arise in the normal course of business and
which involve elements of credit risk, interest-rate risk and liquidity risk.
Commitments are also described in Note 14: Financial Instruments with Off-
Balance Sheet Risk.
The Bank and its subsidiaries are parties to litigation and claims arising in
the normal course of business. Management, after consultation with legal
counsel, believes that the liabilities, if any, arising from such litigation and
claims will not be material to the consolidated financial position.
NOTE 12: REGULATORY MATTERS
- ----------------------------
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions, the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The dividends that the
Bank could have declared without the approval of the Comptroller of the
Currency, amounted to approximately $2,742,572 in 1995 and $2,605,750 in 1994.
The Bank is also required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulators. At December 31, 1995 and
1994, the Bank was required to have a minimum Tier I and Total Capital Ratios of
4% and 8%, respectively. The Bank's actual ratios were approximately 23.11% and
24.37%, and 23.11% and 21.62%, respectively.
In addition, the Bank maintained a capital leverage ratio of 11.81% at December
31, 1995 and 11.19% at December 31, 1994, which exceeded the minimum required by
regulation.
NOTE 13: CONCENTRATIONS OF CREDIT RISK
- ---------------------------------------
The Bank's operations are affected by various risk factors, including interest-
rate risk, credit risk and risk from geographic concentration of lending
activities. Management attempts to manage interest rate risk through various
asset/liability management techniques designed to match maturities of assets and
liabilities. Loan policies and administration are designed to provide assurance
that loans will only be granted to creditworthy borrowers, although credit
losses are expected to occur because of subjective factors and factors beyond
the control of the Bank. In addition, the Bank is a community bank and, as such,
is mandated by the Community Reinvestment Act and other regulation to conduct
most of its lending activities within the geographic area where it is located.
As a result, the Bank and its borrowers may be especially vulnerable to the
consequences of changes in the local economy.
NOTE 14: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
- -----------------------------------------------------------
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit
and financial guarantees. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the statements of
financial position. The contract or notional amounts of those instruments
reflect the extent of the Bank's involvement in particular classes of financial
instruments.
B-19
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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, standby
letters of credit and financial guarantees written, is represented by the
contractual notional 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.
Commitments to extend credit are agreements to lend a customer as long as there
is no violations of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitments amounts do not necessarily
represent future cash requirements. The bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counter party. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and income-
producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer of a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar
transactions. Most guarantees extend for one year. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank holds collateral supporting those
commitments for which collateral is deemed necessary. The extent of collateral
held for those commitments at December 31, 1995, varies from 0% to 100%; the
average amount collateralized was 100%.
The Bank has not been required to perform on any financial guarantees during the
past two years. The Bank has not incurred any losses on its commitments in
either 1995 or 1994.
A summary of the Bank's commitments at December 31, was as follows:
<TABLE>
<CAPTION>
Notional Amounts
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Commitments to extend credit 3,986,354 3,709,014
Standby letters of credit 403,769 292,963
------------ ------------
Total commitments and contingencies 4,390,123 4,001,977
============ ============
</TABLE>
B-20
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 15: FAIR VALUES OF FINANCIAL INSTRUMENTS
- ----------------------------------------------
The estimated fair values of the Bank's financial instruments at December 31,
are as follows:
<TABLE>
<CAPTION>
1995
------------------------------
Carrying Fair
Amount Value
-------------- --------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents 6,689,253 6,689,253
Interest-bearing deposits with other banks 500,000 500,000
Securities available-for-sale 17,885,892 18,153,559
Securities to be held-to-maturity 20,534,911 20,777,070
Other securities 68,450 68,450
Loans receivable 36,849,723 36,849,723
Allowance for credit losses (431,429) (431,429)
Accrued interest receivable 844,714 844,714
Financial liabilities:
Deposit liabilities 74,241,346 74,241,346
Accrued interest payable 264,900 264,900
</TABLE>
It is not practical to estimate the market values of loans receivable and time
certificates of deposit. These financial instruments do not have readily
available published market values and the Bank has not yet developed the
valuation models necessary to perform these calculations. The loan portfolio
consists generally of residential mortgages with repayment terms up to 30 years
and commercial mortgages which are generally originated as 3 or 5 year balloon
mortgages. Other loans included in the portfolio are consumer installments which
consist of personal unsecured loans with repayment terms up to 3 years, direct
and indirect auto loans with repayment terms up to 5 years, home improvement
loans with repayment up to 10 years, demand loans which consist of notes payable
on demand with interest billed monthly or open lines of credit which generally
expire in one year, and home equity revolving lines of credit at variable
interest rates and scheduled repayment to term at 15 years. The average interest
rates for significant loan receivable categories and time deposit liabilities
for 1995 were as follows:
1995
-------------
Loans receivable:
Mortgage loans 8.63%
Commercial and demand loans 10.66%
Consumer installment loans 8.77%
Home equity lines of credit 10.49%
Deposit liabilities:
Time certificates - regular 5.05%
B-21
<PAGE>
FARMERS BANC CORP. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
-----------------------------
NOTE 16: RECLASSIFICATIONS
- ---------------------------
Certain items have been reclassified for 1994 to conform with the 1995
presentation. Such reclassifications had no effect on net earnings or
shareholders' equity as previously reported.
B-22
<PAGE>
APPENDIX C
AI MERGER AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF AFFILIATION
DATED AS OF THE 18TH DAY OF JULY, 1996
BY AND AMONG
SUSQUEHANNA BANCSHARES, INC.,
SUSQUEHANNA BANCSHARES EAST, INC.,
ATCORP, INC.
AND
EQUITY NATIONAL BANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I. THE PLAN OF MERGER . . . . . . . . . . . . . . . . . . . . . C-1-
SECTION 1.1 The Merger and Bank Acquisition; Closing;
Effective Time . . . . . . . . . . . . . . . . . . . . . . . C-1-
SECTION 1.2 Effect on Outstanding Share . . . . . . . . . . . . . C-3-
SECTION 1.3 Surrender and Exchange of AI Certificates . . . . . . C-4-
SECTION 1.4 Dissenters' Rights . . . . . . . . . . . . . . . . . C-6-
SECTION 1.5 Other Matters . . . . . . . . . . . . . . . . . . . . C-6-
ARTICLE II. CONDUCT PENDING THE MERGER AND BANK
ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-7-
SECTION 2.1 Conduct of AI's and ENB's Businesses Prior
to the Effective Time . . . . . . . . . . . . . . . . . . . . C-7-
SECTION 2.2 Forbearance by AI or ENB . . . . . . . . . . . . . . C-7-
SECTION 2.3 Cooperation . . . . . . . . . . . . . . . . . . . . . C-9-
SECTION 2.4 Conduct of SBI's Business Prior to the
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . C-9-
ARTICLE III. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . C-9-
SECTION 3.1 Representations and Warranties of AI and
ENB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-9-
SECTION 3.2 Representations and Warranties of SBI and
its Material Subsidiaries . . . . . . . . . . . . . . . . . . C-30-
ARTICLE IV. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . C-38-
SECTION 4.1 Acquisition Proposals . . . . . . . . . . . . . . . . C-38-
SECTION 4.2 Securities Registration and Disclosure . . . . . . . . C-41-
SECTION 4.3 Employees . . . . . . . . . . . . . . . . . . . . . . C-41-
SECTION 4.4 Access and Information . . . . . . . . . . . . . . . . C-42-
SECTION 4.5 Certain Filings, Consents and
Arrangements . . . . . . . . . . . . . . . . . . . C-45-
SECTION 4.6 Takeover Statutes . . . . . . . . . . . . . . . . . . C-45-
SECTION 4.7 Additional Agreements . . . . . . . . . . . . . . . . C-45-
SECTION 4.8 Publicity . . . . . . . . . . . . . . . . . . . . . . C-46-
SECTION 4.9 Shareholders' Meeting . . . . . . . . . . . . . . . . C-46-
SECTION 4.10 Notification of Certain Matters . . . . . . . . . . . C-46-
SECTION 4.11 Insurance . . . . . . . . . . . . . . . . . . . . . . C-47-
SECTION 4.12 Dividends . . . . . . . . . . . . . . . . . . . . . . C-47-
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 4.13 Indemnification . . . . . . . . . . . . . . . . . . . C-47-
ARTICLE V. CONDITIONS TO CONSUMMATION . . . . . . . . . . . . . . . . . C-49-
SECTION 5.1 Conditions to Closing . . . . . . . . . . . . . . . . . C-49-
SECTION 5.2 Conditions to Obligations of SBI and SBI
Merger Sub . . . . . . . . . . . . . . . . . . . . . . . . . . C-52-
SECTION 5.3 Conditions to the Obligations of AI and
ENB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-53-
ARTICLE VI. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . C-54-
SECTION 6.1 Termination . . . . . . . . . . . . . . . . . . . . . . C-54-
SECTION 6.2 Effect of Termination . . . . . . . . . . . . . . . . . C-56-
SECTION 6.3 Expenses . . . . . . . . . . . . . . . . . . . . . . . C-56-
ARTICLE VII. OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . C-57-
SECTION 7.1 Certain Definitions; Interpretation . . . . . . . . . . C-57-
SECTION 7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . C-58-
SECTION 7.3 Parties in Interest . . . . . . . . . . . . . . . . . . C-58-
SECTION 7.4 Waiver and Amendment . . . . . . . . . . . . . . . . . C-59-
SECTION 7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . C-59-
SECTION 7.6 Governing Law . . . . . . . . . . . . . . . . . . . . . C-59-
SECTION 7.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . C-59-
SECTION 7.8 Notices . . . . . . . . . . . . . . . . . . . . . . . C-59-
SECTION 7.9 Entire Agreement; Etc . . . . . . . . . . . . . . . . . C-61-
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF AFFILIATION dated as of the 18th day of July,
1996 (this "Plan" or this "Agreement"), by and among Susquehanna Bancshares,
Inc., a Pennsylvania corporation ("SBI"), Susquehanna Bancshares East, Inc., a
New Jersey corporation ("SBI Merger Sub"), ATCORP, Inc., a New Jersey
corporation ("AI"), and Equity National Bank, a national banking association
("ENB").
RECITALS:
WHEREAS, the boards of directors of SBI, SBI Merger Sub and AI have
each determined that it is in the best interests of their respective
shareholders for SBI to acquire AI and ENB by means of a merger of SBI Merger
Sub with and into AI (the "Merger") as a result of which AI will become a direct
wholly-owned subsidiary of SBI and ENB will become a second-tier subsidiary of
SBI (the "Bank Acquisition"), all upon the terms and subject to the conditions
set forth herein; and
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement and to
set forth the conditions to the Merger and the Bank Acquisition; and
WHEREAS, AI and SBI desire to merge in the manner provided for herein
and to adopt this Agreement as a plan of reorganization and to consummate such
plan in accordance with the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this Agreement and
prescribe the terms and conditions hereof and the manner and basis of carrying
it into effect, which shall be as follows:
ARTICLE I. THE PLAN OF MERGER
SECTION 1.1 The Merger and Bank Acquisition; Closing; Effective
---------------------------------------------------
Time.
- ----
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the State of New Jersey at the Effective
Time (as defined in Section 1.1(c)), SBI Merger Sub shall be merged with and
into AI and the
<PAGE>
separate corporate existence of SBI Merger Sub shall thereupon cease. AI shall
be the surviving corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and shall continue to be governed by the laws of
the State of New Jersey and shall continue to be a registered bank holding
company under the Bank Holding Company Act of 1956, as amended, and the separate
corporate existence of AI with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger. The name of the
Surviving Corporation shall be "Susquehanna Bancshares East, Inc." The Merger
shall have the effects specified in the New Jersey Business Corporation Act, as
amended ("NJBCA").
(b) The closing of the Merger and the Bank Acquisition (the
"Closing") shall take place contemporaneously at such place and time and on such
date, following three (3) business days' notice to AI, as shall be agreed upon
by all parties, which date shall not be later than the 22nd business day after
(i) the last approval required of any of the Regulatory Agencies (as defined at
Section 5.1(b)) is granted and any related waiting periods expire, (ii) the
lifting, discharge or dismissal of any stay of any such governmental approval or
of any injunction against the Merger or the Bank Acquisition and (iii) all
shareholder approvals required by the parties hereunder are received.
(c) Immediately following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to Article VI hereof,
SBI Merger Sub and AI will cause a certificate of merger ("Certificate of
Merger") to be properly prepared and completed and filed with the Secretary of
State of New Jersey. The Merger shall become effective at 12:01 a.m. on the day
following the day on which the Certificate of Merger has been duly filed and
accepted by the Secretary of State of New Jersey (the "Effective Time") . The
"Effective Date" when used herein means the day on which the Effective Time for
the Merger occurs.
(d) At the Effective Time, the certificate of incorporation and
bylaws of SBI Merger Sub in effect immediately prior to the Effective Time shall
continue as the charter and bylaws of the Surviving Corporation. At the
Effective Time, the directors and officers of SBI Merger Sub immediately prior
to the
C-2
<PAGE>
Effective Time shall be and become the directors and officers of the Surviving
Corporation.
SECTION 1.2 Effect on Outstanding Shares.
----------------------------
(a) At the Effective Time, by virtue of the Merger, automatically and
without any action on the part of the holder thereof, subject to the provisions
of Section 1.3 hereof with respect to the payment of fractional shares in cash
and Section 1.4 hereof with respect to dissenters' rights, if any, each share of
common stock, par value $5.00 per share, of AI (the "AI Common Stock") issued
and outstanding at the Effective Time (other than (i) shares the holders of
which (each a "Dissenting Stockholder") are exercising appraisal rights pursuant
to the NJBCA (the "Dissenters' Shares"), if any, and (ii) shares held directly
or indirectly by SBI, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) shall become and be converted into
the right to receive shares of Common Stock par value $2.00 per share, of SBI
("SBI Common Stock") determined in conformity with the Exchange Ratio set forth
at Schedule 1.2 hereof (such SBI Common Stock, determined on the basis of the
Exchange Ratio, as to each AI shareholder and, collectively, to all AI
shareholders is the "Merger Consideration"). As of the Effective Time, each
share of AI Common Stock held directly or indirectly by SBI, other than shares
held in a fiduciary capacity or in satisfaction of a debt previously contracted,
shall be cancelled and retired and cease to exist, and no exchange or payment
shall be made with respect thereto.
(b) The shares of common stock of SBI Merger Sub issued and
outstanding immediately prior to the Effective Time, by virtue of and after the
Merger, shall be converted into and thereafter constitute the issued and
outstanding shares of the capital stock of the Surviving Corporation.
(c) If prior to the Effective Time, the outstanding shares of SBI
Common Stock shall have been increased, decreased, changed into or exchanged for
a different number or kind of shares or securities through a reclassification,
stock dividend, stock split or reverse stock split, or other similar change,
appropriate adjustment shall be made to the Exchange Ratio.
C-3
<PAGE>
SECTION 1.3 Surrender and Exchange of AI Certificates.
-----------------------------------------
(a) Within five (5) business days after the Effective Time, SBI shall
cause to be sent to each person who immediately prior to the Effective Time was
a holder of record of AI Common Stock transmittal materials and instructions for
surrendering certificates for AI Common Stock ("Old Certificates") in exchange
for a certificate for the number of whole shares of SBI Common Stock to which
such person is entitled under Section 1.2 hereof.
(b) No certificates for fractional shares of SBI Common Stock shall
be issued in connection with the Merger. In lieu thereof, SBI shall issue to any
holder of AI Common Stock certificates otherwise entitled to a fractional share,
upon surrender of such certificates in accordance with the instructions
furnished by SBI, a check for an amount of cash equal to the fraction of a share
of SBI Common Stock represented by the certificates so surrendered multiplied by
the Average Price Per Share of SBI Common Stock Before Closing as determined in
conformity with Schedule 1.2.
(c) If the record date of any dividend on SBI Common Stock occurs
after the Effective Time, the declaration shall include dividends on all whole
shares of SBI Common Stock into which shares of AI Common Stock have been
converted under this Agreement, but no former holder of AI Common Stock shall be
entitled to receive payment of any such dividend until surrender of the
shareholder's Old Certificates shall have been effected in accordance with the
instructions furnished by SBI. Upon surrender for exchange of a shareholder's
Old Certificates, such shareholder shall be entitled to receive from SBI an
amount equal to all such dividends, without interest thereon and less the amount
of taxes, if any, which may have been imposed or paid thereon, declared, and for
which the payment date has occurred, on the whole shares of SBI Common Stock
into which the shares represented by such Old Certificates have been converted.
(d) After the Effective Time, there shall be no transfer on the stock
transfer books of AI or SBI of shares of AI Common Stock. If Old Certificates
are presented for transfer after the Effective Time, they shall be cancelled and
certificates representing whole shares of SBI Common Stock (and a
C-4
<PAGE>
check in lieu of any fractional share) shall be issued in exchange therefor as
provided herein.
(e) In the event that any Old Certificates have not been surrendered
for exchange in accordance with this Section on or before the second anniversary
of the Effective Time, SBI may at any time thereafter, with or without notice to
the holders of record of such Old Certificates, sell for the accounts of any or
all of such holders any or all of the shares of SBI Common Stock which such
holders are entitled to receive under Section 1.2 hereof (the "Unclaimed
Shares"). Any such sale may be made by public or private sale or sale at any
broker's board or on any securities exchange in such manner and at such times as
SBI shall determine. If, in the opinion of counsel for SBI, it is necessary or
desirable, any Unclaimed Shares may be registered for sale under the Securities
Act of 1933, as amended (the "Securities Act") and applicable state laws. SBI
shall not be obligated to make any sale of Unclaimed Shares if it shall
determine not to do so, even if notice of sale of the Unclaimed Shares has been
given. The net proceeds of any such sale of Unclaimed Shares shall be held for
holders of the unsurrendered Old Certificates whose Unclaimed Shares have been
sold, to be paid to them upon surrender of the Old Certificates. From and after
any such sale, the sole right of the holders of the unsurrendered Old
Certificates whose Unclaimed Shares have been sold shall be the right to collect
the net sale proceeds held by SBI for their respective accounts, and such
holders shall not be entitled to receive any interest on such net sale proceeds
held by SBI.
(f) If outstanding certificates for shares of AI Common Stock are not
surrendered prior to the date on which such certificates would otherwise escheat
to or become the property of any governmental unit or agency, the unclaimed
items shall, to the extent permitted by abandoned property and any other
applicable law, become the property of SBI (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the
foregoing, neither SBI nor its agents or any other person shall be liable to any
former holder of AI Common Stock for any property delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
C-5
<PAGE>
(g) In the event any Old Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Old Certificate to be lost, stolen or destroyed and, if required by SBI,
the posting by such person of a bond in such amount as SBI may direct as
indemnity against any claim that may be made against it with respect to such Old
Certificate, SBI will issue in exchange for such lost, stolen or destroyed Old
Certificate, the shares of SBI Common Stock into which the AI Common Stock
represented by such Old Certificate have been converted pursuant to this
Agreement.
SECTION 1.4 Dissenters' Rights. In accordance with the provisions of
------------------
Section 14A:11-1 of the NJBCA, the AI Shareholders are not entitled to
Dissenters' Rights.
SECTION 1.5 Other Matters. Notwithstanding any term of this
--------------
Agreement to the contrary, SBI may, in its discretion at any time prior to the
Effective Time, designate a direct or indirect wholly-owned subsidiary to
substitute for SBI Merger Sub as a constituent corporation in the Merger by
written notice to AI so long as the exercise of this right does not materially
adversely affect the interests of the AI shareholders in a manner which has not
been disclosed to them in the Proxy Statement/Prospectus (as hereinafter
defined) or cause a material delay in consummation of the transactions described
herein. SBI shall also have the right to cause SBI Merger Sub or such
substitute, to be the surviving corporation of the Merger, so long as the
exercise of such right does not have a material adverse effect on the interests
of the holders of the capital stock of AI in a manner which has not been
disclosed to them in the Proxy Statement/Prospectus or cause a material delay
in, or otherwise adversely affect, consummation of the transactions described
herein; if such right is exercised, and such substitute corporation is organized
under the laws of another state, this Agreement shall be deemed to be modified
to accord such change, including, without limitation, that the laws of such
other state, together with the laws of New Jersey, will govern the Merger if
such substitute corporation shall be the survivor. Nothing in this Agreement
shall be deemed to restrict the ability of SBI or any of its subsidiaries to
merge with or with and into another entity so long as no such other transaction
shall materially adversely affect the parties' ability to consummate the Bank
C-6
<PAGE>
Acquisition or cause a material delay in, or otherwise adversely affect,
consummation of the transactions described herein.
ARTICLE II. CONDUCT PENDING THE MERGER AND BANK ACQUISITION
SECTION 2.1 Conduct of AI's and ENB's Businesses Prior to the
-------------------------------------------------
Effective Time.
- --------------
Except as expressly provided in this Agreement, during the period from
the date of this Agreement to the Effective Time, AI and ENB shall (and the word
"it" in this Article II refers to each of AI, ENB, and each subsidiary of
either, as the case may be) (i) conduct its business in the usual, regular and
ordinary course consistent with past practice, (ii) maintain and preserve intact
in all material respects its business organization, assets, leases, properties,
investment securities, employees and advantageous business relationships and use
its reasonable efforts to retain the services of its officers and key employees,
(iii) not knowingly take any action which would materially adversely affect or
delay its ability to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions described herein or to
perform its covenants and agreements on a timely basis under this Agreement, and
(iv) not knowingly take any action that is reasonably likely to have a Material
Adverse Effect (as defined in Section 7.1 hereof) on AI or ENB.
SECTION 2.2 Forbearance by AI or ENB. During the period from the
------------------------
date of this Agreement to the Effective Time, neither AI nor ENB shall, without
the prior written consent of SBI, which consent shall not be unreasonably
withheld:
(a) other than in the ordinary course of business consistent with
past practice, make any advance or loan or incur any indebtedness for borrowed
money, assume, guarantee, endorse or otherwise as an accommodation become
responsible for, the obligations of any individual, corporation or other person.
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend , or make any distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any
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securities or obligations convertible into or exchangeable for any shares of its
capital stock, or grant any stock appreciation rights or grant, sell or issue to
any individual, corporation or other person any shares of its capital stock or
any right to acquire, or securities evidencing a right to convert into or
acquire any shares of its capital stock, or issue any additional shares of
capital stock;
(c) other than in the ordinary course of business consistent with
past practice and pursuant to policies, if any, currently in effect, sell,
transfer, mortgage, encumber or otherwise dispose of any of its properties,
leasehold interests or assets to any individual, corporation or other entity, or
cancel, release or assign any indebtedness of any such person or any contracts
or agreements as in force at the date of this Agreement;
(d) except as set forth in Annex 2.2(d), increase in any manner the
compensation or fringe benefits of any of its employees or directors or pay any
pension or retirement allowance not required by law or by any existing plan or
agreement to any such employees, or become a party to, amend or commit itself to
any pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any employee or director, other
than general increases in compensation in the ordinary course of business
consistent with past practice not in excess of 4%, on an aggregated basis, in
any 12-month period, and payment of bonuses in the ordinary course, or
voluntarily accelerate the vesting of any stock options or other compensation or
benefit; provided, however, the parties confirm and understand that on July 16,
1996, the Board of Directors of AI resolved to set aside a total of $420,000 to
be paid to a certain officers of AI and ENB as bonuses. The recipients of
bonuses, the allocation of this amount among such recipients and the timing of
payments of such bonuses will be determined in the next few weeks, based upon,
among other things, the recommendations of senior management of AI, by the
directors of AI in consultation with representatives of SBI.
(e) amend the ENB charter or the Second Restated Certificate of
Incorporation of AI (the "AI Certificate"), as the case may be, or the bylaws of
either, except as expressly
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contemplated by this Agreement or required by law or regulation, in each case as
concurred in by its counsel;
(f) except as set forth in Annex 2.2(f) hereto, change its method of
accounting as in effect at December 31, 1995, except as required by changes in
generally accepted accounting principles or required by law or regulation, in
each case, as concurred in by its independent auditors; or
(g) permit or allow its direct or indirect ownership of the capital
stock of any subsidiary described in Annex 3.1(c) hereto to be less than 100% of
their respective total capital stock.
SECTION 2.3 Cooperation. AI and ENB each shall cooperate with SBI
-----------
and SBI Merger Sub and SBI and SBI Merger Sub each shall cooperate with AI and
ENB in completing the transactions described herein and each shall not take,
cause to be taken or agree or make any commitment to take any action: (i) that
would cause any of the representations or warranties of it that are set forth in
Article III hereof not to be true and correct in all material respects, or (ii)
in the case of AI or ENB, that is inconsistent with or prohibited by Section 2.1
or Section 2.2.
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time.
-----------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, SBI shall not knowingly take any action
and shall not knowingly cause its Material Subsidiaries (as hereinafter defined)
to take any action which would materially adversely affect or delay its ability
to obtain any necessary approvals, consents or waivers of any governmental
authority required for the transactions described herein or that is reasonably
likely to have a Material Adverse Effect on SBI, on a consolidated basis.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of AI and ENB. AI and ENB
--------------------------------------------
represent and warrant to SBI and SBI Merger Sub (and the word "it" in this
Article III refers to each of AI, ENB, and each subsidiary of either, as the
case may be), that, except
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as specifically disclosed in the Annex of disclosure schedules included
herewith, to the best of its knowledge:
(a) Corporate Organization and Qualification. AI is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New Jersey and is in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by AI requires such qualification, except for such failure to qualify
or be in such good standing which, when taken together with all other such
failures, would not have a Material Adverse Effect on AI and its subsidiaries,
taken as a whole. AI is a bank holding company duly registered with the Board
(as hereinafter defined). ENB is a national banking association duly organized
and in good standing under the laws of the United States of America. AI and ENB
each has the requisite corporate and other power and authority (including all
federal, state, local and foreign governmental authorizations) to carry on their
respective businesses as they are now being conducted and to own their
respective properties and assets. AI has made available to SBI and SBI Merger
Sub a complete and correct copy of the AI Certificate and charter of ENB, and
the bylaws of each, and such charter or certificate, as applicable, and such
bylaws are in full force and effect as of the date hereof.
(b) Authorized Capital. The authorized capital stock of AI consists
of 2,000,000 shares of AI Common Stock of which approximately 771,750 shares of
AI Common Stock were issued and outstanding as of the date of this Agreement and
1,000,000 shares of serial preferred stock of which no shares were issued and
outstanding as of the date of this Agreement and an additional 8,516 shares of
AI Common Stock were issued and held as treasury stock as of the date of this
Agreement. The authorized capital stock of ENB consists of 1,000,000 shares of
common stock, $5.00 par value per share, of which 875,000 shares of common stock
were issued and outstanding as of the date of this Agreement; all of these
shares are held by AI. All of the outstanding shares of capital stock of AI and
ENB have been duly authorized and are validly issued, fully paid and
nonassessable (except in the case of ENB, as provided at 12 U.S.C.A. (S) 55).
Neither AI nor ENB has any shares of capital stock reserved for issuance except
pursuant to the AI Stock Option Plans. Neither AI nor ENB has any outstanding
bonds, debentures, notes or other obligations the
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holders of which have the right to vote (or convertible into or exercisable for
securities having the right to vote) with shareholders on any matter. The
shares of ENB Common Stock owned by AI are owned free and clear of all liens,
pledges, security interests, claims or other encumbrances. The outstanding
shares of capital stock of AI and ENB have not been issued in violation of any
preemptive rights. Except as set forth in Annex 3.1(b) or in Annex 3.1(m),
there are no outstanding subscriptions, options, warrants, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other securities of AI or ENB. After the
Effective Time neither SBI nor SBI Merger Sub will have any obligation to issue,
transfer or sell any shares of capital stock pursuant to any Employee Plan (as
defined in Section 3.1(m)).
(c) Subsidiaries. The only subsidiaries of AI are as listed and
described at Annex 3.1(c). The only subsidiaries of ENB are listed and
described at Annex 3.1(c).
Each such subsidiary is duly organized and existing as a corporation,
is in good standing under the laws of the jurisdiction in which it was
organized, and has adequate corporate power to carry on its business as now
conducted. All of the outstanding capital stock of all such subsidiaries has
been validly issued, is fully paid and nonassessable and is owned by AI or ENB,
free and clear of all liens, security interests and encumbrances. All such
subsidiaries, other than ENB, are organized under Delaware or New Jersey law and
make no use of fictitious names in the conduct of their respective businesses.
(d) Corporate Authority. Subject only to approval of this Agreement
by the holders of the number of votes required by the AI Certificate or bylaws
of AI cast by all holders of AI Common Stock (without any minority, class or
series voting requirement), and, subject to the regulatory approvals specified
in Section 5.1(b) hereof, AI and ENB each has the requisite corporate power and
authority, and legal right, and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
applicable to either AI or ENB described herein. This Agreement has been duly
and validly executed and delivered by AI and ENB and constitutes the valid and
binding obligations of AI and ENB enforceable against each, in accordance with
its terms, except to the extent
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enforcement is limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights or the application by a court of equitable
principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the transactions described
herein by it will not, constitute (i) subject to receipt of the required
regulatory approvals specified in Section 5.1(b), a breach or violation of, or a
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, to which it (or any of its respective
properties) is subject, which breach, violation or default would have a Material
Adverse Effect on it, or enable any person to enjoin the Merger or the Bank
Acquisition, (ii) a breach or violation of, or a default under, the AI
Certificate or the charter of ENB or bylaws of either of them, (iii) a breach of
any duty owed by AI to ENB, or any person holding an interest in ENB, or (iv)
except as disclosed in Annex 3.1(e), a breach or violation of, or a default
under (or an event which with due notice or lapse of time or both would
constitute a default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of it
under any of the terms, conditions or provisions of any note, bond, indenture,
deed of trust, loan agreement or other agreement, instrument or obligation to
which it is a party, or to which any of their respective properties or assets
may be bound or affected, except for any of the foregoing that, individually or
in the aggregate, would not have a Material Adverse Effect on it or enable any
person to enjoin the Merger or the Bank Acquisition; and the consummation of the
transactions described herein will not require any approval, consent or waiver
under any such law, rule, regulation, judgment, decree, order, governmental
permit or license or the approval, consent or waiver of any other party to any
such agreement, indenture or instrument, other than (i) the required approvals,
consents and waivers of governmental authorities referred to in Section 5.1(b)
and (ii) the approval of its shareholders referred to in Section 3.1(d), (iii)
any such approval, consent or waiver that already has been obtained and (iv) any
other approvals, consents or waivers, the absence of which, individually or in
the aggregate, would not result in a
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Material Adverse Effect on it or enable any person to enjoin the Merger or the
Bank Acquisition.
(f) Reports.
1. AI's consolidated statement of financial condition as of
March 31, 1996 previously provided to SBI and each statement of financial
condition provided after the date hereof to SBI (including in each case any
related notes and schedules) as required by Section 4.4 hereof fairly presents
or will fairly present the financial position of it as of its date and each of
the consolidated statements of income and shareholders' equity and of cash flows
provided therewith (including in each case any related notes and schedules),
fairly presents or will fairly present the results of operations, shareholders'
equity and cash flows, as the case may be, of it for the periods set forth
therein (subject, in the case of unaudited interim statements, to normal year-
end audit adjustments that are not material in amount or effect), in each case
in accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
2. Except as set forth in Annex 3.1(f), it has timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file since
January 1, 1993 with (A) the Office of the Comptroller of the Currency (the
"OCC"), (B) the Federal Deposit Insurance Corporation (the "FDIC"), (C) the
Board of Governors of the Federal Reserve System (the "Board"), (D) the
Securities and Exchange Commission (the "SEC"), and (E) any state banking
commission or other regulatory authority (collectively, the Regulatory Agencies
listed (A) through (E) are the "AI Regulatory Agencies"), and all other material
reports and statements required to be filed by it since January 1, 1993,
including, without limitation, any report or statement required to be filed
pursuant to the laws, rules or regulations of the United States or any AI
Regulatory Agency and has paid all fees and assessments due and payable in
connection therewith, and no such report, registration or statement contains any
material misstatement or omission or is otherwise in material noncompliance with
any law, regulation or requirement.
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(g) Absence of Certain Changes or Events. Since January 1, 1996, to
the date hereof, it has not incurred any material liability, except in the
ordinary course of its business consistent with past practice, nor has there
been any change in the financial condition, properties, assets, business,
results of operations or prospects of it which, individually or in the
aggregate, has had, or might reasonably be expected to result in, a Material
Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through December 31, 1991. All
federal, state, local and foreign tax returns required to be filed by it or on
its behalf have been timely filed or requests for extensions have been timely
filed and any such extension shall have been granted and not have expired, and,
to the knowledge of management, all such filed returns are complete and accurate
in all material respects. All taxes shown on such returns, and all taxes
required to be shown on returns for which extensions have been granted, have
been paid in full or adequate provision has been made for any such taxes on its
balance sheet (in accordance with generally accepted accounting principles)
other than those taxes which are being contested in appropriate forums in
proceedings which are being diligently pursued. Adequate provision has been
made on its balance sheet (in accordance with generally accepted accounting
principles consistently applied) for all federal, state, local and foreign tax
liabilities for periods subsequent to those for which returns have been filed.
There is no audit examination, deficiency, or refund litigation pending or, to
the knowledge of AI or ENB, threatened, with respect to any taxes that could
result in a determination that would have a Material Adverse Effect on it. All
taxes, interest, additions and penalties due with respect to completed and
settled examinations or concluded litigation relating to it have been paid in
full or adequate provision has been made for any such taxes on its balance sheet
(in accordance with generally accepted accounting principles). It has not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any tax due that is currently in effect, other than an
extension until September 15, 1996 of the due date of its tax returns for 1995.
(i) Litigation and Liabilities. Except as set forth in Annex 3.1(i),
there are no (i) civil, criminal or
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administrative actions, suits, claims, hearings, investigations or proceedings
before any court, governmental agency or otherwise pending or, to the knowledge
of management, threatened against it or involving any Employee Plan as defined
at subsection (m) hereof or (ii) obligations or liabilities, whether or not
accrued, contingent or otherwise, including, without limitation, those relating
to environmental and occupational safety and health matters, or any other facts
or circumstances of which its management is aware that could reasonably be
expected to result in any claims against or obligations or liabilities of it,
that, alone or in the aggregate, are reasonably likely to have a Material
Adverse Effect on it or to hinder or delay, in any material respect,
consummation of the transactions described in this Agreement.
(j) Absence of Regulatory Actions. It is not a party to any currently
effective cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or subject to any order or directive by, or a recipient of any extraordinary
supervisory letter from, nor since January 1, 1995, except as set forth in
minutes of meetings of the Board of Directors of ENB in 1995, has it adopted any
board resolutions at the request of, federal or state governmental authorities,
including, without limitation, the AI Regulatory Agencies, charged with the
supervision or regulation of national banking associations or bank holding
companies or engaged in the insurance of bank deposits nor has it been advised
by any AI Regulatory Agency that it is contemplating issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolution or similar undertaking.
(k) Agreements.
1. Except as set forth in Annex 3.1(k) attached hereto, as of
the date of this Agreement it is not a party to, or bound by, any oral or
written:
(a) "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission;
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(b) consulting agreement not terminable on thirty (30) days'
or less notice involving the payment of more than $10,000 per annum, in the case
of any such agreement;
(c) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of the transactions described in this Agreement;
(d) agreement with respect to any officer providing any term
of employment or compensation guarantee extending for a period longer than one
year or for a payment in excess of $75,000;
(e) agreement or plan, including any stock option plan,
stock appreciation rights plan, employee stock ownership plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be increased, or
the vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions described in this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
described in this Agreement;
(f) agreement containing covenants that limit its ability to
compete in any line of business or with any person, or that involve any
restriction on the geographic area in which, or method by which, it may carry on
its business (other than as may be required by law or any regulatory agency);
(g) agreement, contract or understanding, other than this
Agreement, regarding the capital stock of AI and/or ENB or committing to dispose
of some or all of the capital stock or substantially all of the assets of AI
and/or ENB; or
(h) collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization.
2. It is not in default under or in violation of any provision
of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement to which it is a party or by which it is bound or to which any
of its respective properties or assets is subject, other than such defaults or
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violations as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on it.
(l) Labor Matters. Except as disclosed in Annex 3.1(l), it is not
the subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike, other labor dispute
or organizational effort involving it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list of
all pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group insurance, severance and other employee benefits, incentive and
welfare policies, contracts, plans and arrangements, and all trust agreements
related thereto, which it sponsors or maintains or to which it is required to
contribute with respect to any of its present or former directors, officers, or
other employees (hereinafter referred to collectively as the "Employee Plans").
i. All of the Employee Plans comply in all material respects
with all applicable requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and other applicable laws; no fiduciary
of any Employee Plan which is subject to ERISA has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to any Employee Plan which is likely to result in any material
penalties, taxes or other events under Section 502(i) of ERISA or Section 4975
of the Code which would have a Material Adverse Effect on it;
ii. it does not maintain or contribute to any Employee Plan
which is a "defined benefit" plan subject to Title IV of ERISA, or is a pension
plan subject to the funding requirements of Section 412 of the Code or Section
302 of ERISA;
iii. neither it nor any entity which is considered one employer
with AI or ENB under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate") has contributed to any "multi-employer plan," as defined in Section
3(37) of ERISA, on or after September 26, 1980;
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iv. each Employee Plan of it which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a "Qualified Plan") has received a
favorable determination letter from the Internal Revenue Service ("IRS")
covering the requirements of the Tax Equity and Fiscal Responsibility Act of
1982, the Retirement Equity Act of 1984 and the Deficit Reduction Act of 1984
and the Tax Reform Act of 1986; and such Employee Plan has been amended to
reflect the requirement of subsequent legislation applicable to such plans and
it is not aware of any circumstances likely to result in revocation of any such
favorable determination letter; and each Qualified Plan has complied at all
relevant times in all material respects with all applicable requirements of
Section 401(a) of the Code;
v. each Qualified Plan which is an "employee stock ownership
plan" (as defined in Section 4975(e)(7) of the Code) has at all relevant times
satisfied all of the applicable requirements of Sections 409 and 4975(e)(7) of
the Code and the regulations thereunder;
vi. neither it nor any ERISA Affiliate has committed any act or
omission or engaged in any transaction that have caused it to incur, or created
a material risk that it may incur, liability for any excise tax under Sections
4971 through 4980B of the Code, other than excise taxes which heretofore have
been paid and fully reflected in its financial statements;
vii. there is no pending or threatened litigation,
administrative action or proceeding relating to any Employee Plan other than
routine claims for benefits;
viii. except as disclosed in Annex 3.1(m), there has been no
announcement or legally binding commitment by it to create an additional
Employee Plan, or to amend an Employee Plan except for amendments required by
applicable law which do not materially increase the cost of such Employee Plan;
ix. except as disclosed in Annex 3.1(m), the execution and
delivery of this Agreement and the consummation of the transactions described
herein will not result in any payment or series of payments by AI or ENB to any
person which is an
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"excess parachute payment" (as defined in Section 280G of the Code) under any
Employee Plan, increase any benefits payable under any Employee Plan, or
accelerate the time of payment or vesting of any such benefit;
x. except as disclosed in Annex 3.1(m)(x), all annual reports
have been timely filed with respect to each Employee Plan, and it has made
available to SBI a true and correct copy of (A) reports on the applicable form
of the Form 5500 series filed with the IRS for plan years beginning after 1987,
(B) such Employee Plan, including amendments thereto, (C) each trust agreement
and insurance contract relating to such Employee Plan, including amendments
thereto, (D) the most recent summary plan description for such Employee Plan,
including amendments thereto, if the Employee Plan is subject to Title I of
ERISA, (E) the most recent actuarial report or valuation if such Employee Plan
is a Pension Plan and (F) the most recent determination letter issued by the IRS
if such Employee Plan is a Qualified Plan;
xi. except as disclosed in Annex 3.1(m)(xi) hereof, there are
no retiree health benefit plans except as required to be maintained by COBRA.
(n) Title to Assets. It has good and marketable title to its
properties and assets (other than property as to which it is lessee), except for
(i) such items shown in the AI consolidated financial statements or notes
thereto, (ii) liens on real property for current real estate taxes not yet
delinquent or (iii) such defects in title which would not, individually or in
the aggregate, have a Material Adverse Effect on it. With respect to any
property leased by it, there are no defaults by it, or any of the other parties
thereto, or any events which, with the giving of notice or lapse of time or
both, would become defaults by it or any of the other parties thereto, under any
of such leases, except for such defaults or events which would not, individually
or in the aggregate, have a Material Adverse Effect on it; and all such leases
are in full force and effect and are enforceable against it, as the case may be,
and there is no circumstance existing as of the date of this Agreement which
causes or would cause such leases to be unenforceable against any of the other
parties thereto except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar
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laws affecting the rights of creditors generally as well as principles of equity
to the extent enforcement by a court of equity is required.
(o) Compliance with Laws. It has all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which could,
individually or in the aggregate, have a Material Adverse Effect on it; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and no written notice of suspension or cancellation of any of
them has been received by it.
(p) Fees. Except as set forth in Annex 3.1(p) attached hereto,
neither it nor any of its respective officers, directors, employees or agents,
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for it in connection with the Agreement
or the transactions described herein.
(q) Environmental Matters. Except as set forth in Annex 3.1(q):
1. (a) It, its Participation Facilities and its Loan Properties
(each as defined below) are, and have been, in material compliance with all
Environmental Laws (as defined below), except where non-compliance would, either
individually or in the aggregate, not have a Material Adverse Effect on AI or
any of its subsidiaries taken as a whole. Set forth in Annex 3.1(q)(A) is a list
of Participation Facilities and other real estate owned ("OREO") owned by it and
the locations of such Participation Facilities and OREO;
(b) It, its Participation Facilities and its Loan Properties
hold all permits, licenses, registrations and other authorizations (the
"Environmental Permits") necessary under the Environmental Laws, and all such
Environmental Permits are currently in effect. The Environmental Permits are
listed in Annex 3.1(q)(B), and any that will expire or terminate as a
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result of the transactions described in this Agreement are so designated. It,
its Participation Facilities and its Loan Properties are in material compliance
with all the terms and conditions of such Environmental Permits and have not
materially violated any of them. Neither it, its Participation Facilities nor
its Loan Properties have received any notice of any proposal to amend, revoke,
reissue or replace any Environmental Permit, nor have any events occurred (other
than a change in applicable law) that could form a reasonable basis for any such
action. It, its Participation Facilities, and its Loan Properties have filed
timely and complete applications for renewal of any such Environmental Permits
that are required prior to the Closing.
(c) There is no suit, claim, action, demand, penalty,
executive or administrative order, directive, investigation or proceeding
pending or threatened before any court, governmental agency or board or other
forum against it or any Participation Facility (x) for alleged noncompliance
(including by any predecessor) with, or liability under, any Environmental Law
or (y) relating to the release into the environment of any Hazardous Material
(as defined below) or oil, whether or not occurring at or on a site owned,
leased or operated by it or any Participation Facility, except as to such
matters which, either individually or in the aggregate, do not, and will not,
individually or in the aggregate, have a Material Adverse Effect on AI and its
subsidiaries;
(d) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened before any court, governmental agency or board or other forum
relating to or against it in respect of any Loan Property (x) relating to
alleged noncompliance (including by any predecessor) with, or liability under,
any Environmental Law or (y) relating to the release into the environment of any
Hazardous Material or oil, whether or not occurring at or on a site owned,
leased or operated by any Loan Property, except as to such matters which, either
individually or in the aggregate, would not have a Material Adverse Effect on AI
and its subsidiaries taken as a whole;
(e) There is no reasonable basis for any suit, claim,
action, demand, executive or administrative order,
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directive or proceeding of a type described in Section 3.1(q)(i)(C) or (D);
(f) The properties currently or formerly owned or operated
(including, without limitation, in a fiduciary capacity) by it (including,
without limitation, soil, groundwater or surface water on or under the
properties, and buildings thereon) do not contain any Hazardous Material other
than as permitted under applicable Environmental Laws (provided, however, that
with respect to properties formerly owned or operated by it, such representation
is limited to the period it owned or operated such properties);
(g) It has not received any notice, demand letter, executive
or administrative order, directive or request for information from any federal,
state, local or foreign governmental entity or any third party indicating that
it may be in violation of, or liable under, any Environmental Law;
(h) There are no underground storage tanks on, in or under,
and during the period of its ownership and operation no underground storage
tanks have been closed or removed from, any properties or Participation Facility
which are or have been in its ownership;
(i) During the period of (l) its ownership or operation
(including without limitation in a fiduciary capacity) of any of its respective
current properties, (m) its participation in the management of any Participation
Facility, or (n) its holding of a security interest in a Loan Property, there
has been no release of Hazardous Material or oil in, on, under or affecting such
properties, except as permitted under applicable Environmental Laws or except in
quantities too small to be required to be reported to responsible government
oversight agencies. Prior to the period of (x) its ownership or operation of any
of its respective current properties, (y) its participation in the management of
any Participation Facility, or (z) its holding of a security interest in a Loan
Property, there was no release of Hazardous Material or oil in, on, under or
affecting any such property, Participation Facility or Loan Property, except as
permitted under applicable Environmental Laws or except in quantities too small
to be required to be reported to responsible government oversight agencies; and
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(j) There has not been and is not any Environmental
Condition (as hereinafter defined) at or relating to any property at which
wastes have been deposited or disposed by or at the behest or direction of it,
its Participation Facilities or its Loan Properties, nor has it, its
Participation Facilities or its Loan Properties received written notice of any
such Environmental Condition. For purposes of this Agreement the term
"Environmental Condition" means any condition or circumstance that (i) requires
abatement or remediation under any Environmental Law currently in effect, (ii)
gives rise to any civil or criminal liability under any Environmental Law
currently in effect, or (iii) constitutes a public or private nuisance based on
the presence of Hazardous Materials, under laws applicable on the Closing Date.
(k) There are no environmental liens on any properties owned
or leased by it or on its Loan Properties ("Properties") and no government
actions which could subject the Properties to such liens have been taken, are
pending, or threatened.
(l) No notice or restriction relating to the presence of
Hazardous Materials is required to be placed in the deed to any property subject
to this Agreement and no property subject to this Agreement has such a notice or
restriction in its deed.
(m) The only Loan Properties or Participation Facilities in
which it participates in management are those described in Annex 3.1(q)(i)(A)
hereto.
2. The following definitions apply for purposes of this Section
3.1(q): (a) "Loan Property" means any property in which it holds a security
interest (except that with respect to loans which are secured by residential
property, all representation in this Section 3.1(q) are given to the best
knowledge, without inquiry), and where required by the context, includes the
owner or operator of such property, but only with respect to such property; (b)
"Participation Facility" means any facility in which it participates in the
management (including all property on which it conducts operations of its
business, or which is held as trustee or in any other fiduciary capacity) and,
where required by the context, includes the owner or operator of
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such property, but only with respect to such property; (c) "Environmental Law"
means (i) any federal, state or local law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, legal doctrine, order,
directive, executive or administrative order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (A) the
protection, preservation or restoration of the environment (which includes,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, structures, soil, surface land, subsurface land, plant and animal life
or any other natural resource), or to human health or safety, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect;
"Environmental Law" includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Clean Air Act, the federal Clean
Water Act, the federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the federal Solid Waste
Disposal Act and the federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, the Federal Occupational Safety and
Health Act of 1970, the Federal Hazardous Materials Transportation Act, or any
so-called "Superfund" or "Superlien" law enacted by any state having
jurisdiction over any Loan Property or Participation Facility, each as amended
and as now or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; and (d) "Hazardous Material"
means any substance which is or could be detrimental to human health or safety
or to the environment, currently or hereafter listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or by quantity,
including any substance containing any such substance as a component. Hazardous
Material includes, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance, oil or
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petroleum or any derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead
and polychlorinated biphenyls, any of which is regulated by, or subject to
regulation under, any Environmental Law.
(r) Allowance. The allowance for loan and lease losses shown
on AI's consolidated statement of financial condition as of December 31, 1995
was, and the allowance for loan and lease losses shown on AI's consolidated
statement of financial condition for periods ending after the date of this
Agreement will be, in the opinion of management of AI and ENB, adequate, as of
the date thereof, under generally accepted accounting principles applicable to
commercial banks and bank holding companies and all other applicable regulatory
requirements for all losses reasonably anticipated in the ordinary course of
business as of the date thereof based on information available as of such date.
Set forth in Annex 3.1(r) hereto are the amounts of all loans, leases, advances,
credit enhancements, other extensions of credit, commitments and interest-
bearing assets of it that it has classified internally as "Other Loans Specially
Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans" or words of similar
import, and it shall promptly after the end of each quarter after the date
hereof and on the Effective Date inform SBI of the amount of each such
classification. The OREO and in-substance foreclosures included in any of its
non-performing assets are carried net of reserves at the lower of cost or market
value based on current independent appraisals or current management appraisals.
(s) Anti-takeover Provisions Inapplicable. The provisions of
the NJBCA relating to protection of shareholders do not apply to AI, this
Agreement, the Merger, the Bank Acquisition and the transactions described
herein.
(t) Material Interests of Certain Persons. Except as noted
in Annex 3.1(t), none of its respective officers or directors, or any
"associate" (as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934) of any such officer or director, has any material interest in any
material
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contract or property (real or personal), tangible or intangible, used in or
pertaining to its business.
(u) Insurance. It is presently insured, and has been
insured, in the amounts, with the companies and since the periods set forth in
Annex 3.1(u). All of the insurance policies and bonds maintained by it are in
full force and effect, it is not in default thereunder and all material claims
thereunder have been filed in due and timely fashion. In the judgment of its
management, such insurance coverage is adequate.
(v) Dividends. The only dividends or other distributions
which it has made on its capital stock since January 1, 1994 are set forth in
Annex 3.1(v).
(w) Books and Records. Its books and records have been, and
are being, maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of events and
transactions that should be included therein.
(x) Board Action. Its board of directors (at a meeting duly
called and held) has been duly convened and by the requisite vote of a quorum of
directors (a) determined that the Merger is advisable and in the best interests
of it and its shareholders, (b) approved this Agreement and the transactions
described herein and (c) directed that the Agreement be submitted for
consideration by its shareholders at the AI Meeting (as hereafter defined).
(y) Fairness Opinions. Its board of directors has received
a written opinion from each of Berwind Financial Group, L.P. and Janney
Montgomery Scott Inc., copies of which have been furnished to SBI, to the effect
that the consideration to be received by AI's shareholders pursuant to this
Agreement, at the time of its execution, is fair to such holders from a
financial point of view.
(z) INTENTIONALLY OMITTED.
(aa) Fidelity Bonds. Since at least January 1, 1993, ENB has
continuously maintained fidelity bonds insuring it against acts of dishonesty by
its employees in such amounts as is
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customary for a bank of its size. Since January 1, 1993, the aggregate amount
of all potential claims under such bonds has not exceeded approximately $100,000
and neither AI nor ENB is aware of any facts which would reasonably form the
basis of a claim under such bonds. Neither has a reason to believe that its
fidelity coverage will not be renewed by its carrier on substantially the same
terms as its existing coverage.
(bb) Condition of Tangible Assets. Except as set forth in
Annex 3.1(bb), all buildings, structures and improvements on the real property
owned or leased by it are in good condition, ordinary wear and tear excepted,
and are free from structural defects in all material respects except such
defects to the operations center as have been previously disclosed by AI to SBI.
The equipment, including heating, air conditioning and ventilation equipment
owned by it, is in good operating condition, ordinary wear and tear excepted.
The operation and use of the property in the business conform in all material
respects to all applicable laws, ordinances, regulations, permits, licenses and
certificates.
(cc) Loans by ENB. As of January 1, 1993, and except as
shown on Annex 3.1(cc), in the aggregate, the loans by ENB have been lawfully
made, constitute valid debts of the obligors, have been incurred in the ordinary
course of business, are subject to the terms of payment as shall have been
agreed upon between ENB and each customer and ENB does not know of any
applicable setoff or counterclaim which in the aggregate would have a Material
Adverse Effect on it. A list of all loans thirty (30) days past due, as of June
30, 1996, is set forth in Annex 3.1(r). No part of the amount collectible under
any loan is contingent upon performance by ENB of any obligation and no
agreement for participation, in which ENB has relinquished or agreed to share
control with a participation in management of the facility, or agreement
providing for deductions or discounts have been made with respect to any part of
such loans, except as expressly disclosed in Annex 3.1(cc). ENB does not know of
any pending, threatened or expected actions in connection with any material
loans or commitments presently or previously made by ENB relating to claims
based on theories of "lenders' liability" or any other basis.
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(dd) Regulatory Compliance - OCC. ENB is in compliance in
all material respects with the applicable rules and regulations of the OCC,
except as noted in Annex 3.1(dd) and except where the failure to comply would
not have a Material Adverse Effect on ENB.
(ee) Regulatory Compliance - FDIC. Except as noted on Annex
3.1(ee) hereto and except where the failure to comply would not have a Material
Adverse Effect on it, it is in compliance in all material respects with the
rules and regulations of the FDIC to the extent such rules and regulations are
deemed applicable by regulatory determination.
(ff) Capital Compliance. As of December 31, 1995, ENB was
in compliance with the minimum capital requirements applicable to national
banking associations, including as to leverage ratio requirements, tangible
capital requirements and risk based capital requirements.
(gg) INTENTIONALLY OMITTED.
(hh) Investments. Except as may be noted on Annex 3.1(hh)
hereto, ENB does not, either directly or through a subsidiary, hold any
corporate debt security not of investment grade, as defined in Section 222 of
the Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA"); provided, further, ENB is in compliance with applicable divestiture
requirements established by the FDIC as to any such investments noted as
exceptions on Annex 3.1(hh).
(ii) INTENTIONALLY OMITTED.
(jj) Default. It has not been advised by any AI Regulatory
Agency that it is in "default" or "in danger of default" (as those terms are
defined in FIRREA Sections 204(x)(1) and (2)).
(kk) Federal Reserve Act. Since the enactment of FIRREA,
except as may be noted in Annex 3.1(kk) hereto, it is in compliance in all
material respects with Sections 23A and 22(h) of the Federal Reserve Act.
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(ll) INTENTIONALLY OMITTED.
(mm) Assessments Fully Paid. All payments, fees and charges
assessed by the OCC against ENB, and due on or prior to the date of this
Agreement, have been paid in full. ENB's assessment category with the FDIC is
1A.
(nn) Exchange Act Reports and Financial Statements. AI has
delivered to SBI (i) AI's Annual Report on Form 10-K for AI's fiscal year ended
December 31, 1995, containing consolidated balance sheets of AI at December 31,
1995 and December 31, 1994 and consolidated statements of earnings, changes in
shareholders' equity and cash flows of AI for the three years ended December 31,
1995, 1994 and 1993 and such financial statements have been certified by
independent public accountants, and (ii) AI's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996 containing unaudited consolidated balance
sheets of AI as at such date and unaudited consolidated statements of earnings
and cash flows of AI for the three month period reflected therein. All such
reports (collectively, the "AI Reports") (i) comply in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and the rules and regulations of the SEC thereunder, (ii) do not
contain any untrue statement of a material fact and (iii) do not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No documents to be filed by AI with the SEC or any AI Regulatory
Agency in connection with this Agreement, or the transactions described herein
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading. All documents which AI is responsible for filing with the SEC or any
Regulatory Agency in connection with the Merger and Bank Acquisition will comply
as to form in all material respects with the requirements of applicable law.
(oo) Proxy Statement/Prospectus, Etc. With respect to
information relating to AI and its subsidiaries, neither (i) the Proxy
Statement/Prospectus (as defined hereinafter at Section 4.2) or any amendment or
supplement thereto, at the time it is filed with the SEC, at the time the
Registration Statement (as
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defined hereinafter at Section 4.2) is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of AI or at the date of the
AI Meeting to consider this Agreement nor (ii) any other documents to be filed
by AI with the SEC or any AI Regulatory Agency in connection with this Agreement
or the transactions described herein will contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
SECTION 3.2 Representations and Warranties of SBI and its Material
------------------------------------------------------
Subsidiaries. SBI represents and warrants to AI and ENB (and the word "it" in
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this Article III refers to SBI and each of its Material Subsidiaries, as that
term is defined at Section 3.2(d) hereof), that, except as specifically
disclosed in the Annex of disclosure schedules included herewith, to the best of
its knowledge:
(a) Corporate Organization and Qualification. SBI is a corporation
duly incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business conducted, by SBI requires such qualification, except for such failure
to qualify or be in such good standing which, when taken together with all other
such failures, would not have a Material Adverse Effect on SBI. It has the
requisite corporate and other power and authority (including all federal, state,
local and foreign governmental authorizations) to carry on its business as now
conducted and to own its properties and assets. SBI owns directly or indirectly
all of the outstanding shares of capital stock of SBI Merger Sub. SBI has made
available to AI complete and correct copies of the articles of incorporation and
bylaws of SBI and will make available to AI complete and correct copies of the
certificate of incorporation and bylaws of SBI Merger Sub; such articles and
bylaws of SBI are in full force and effect as of the date hereof.
(b) Corporate Authority. Subject only to approval of this Agreement
by the holders of two-thirds of the votes cast by all holders of SBI Common
Stock (without any minority, class or series voting requirement), if deemed
applicable by the
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management of SBI, and, subject to the regulatory approvals specified in Section
5.1(b) hereof, SBI has the requisite corporate power and authority, and legal
right, and has taken all corporate action necessary in order to execute and
deliver this Agreement and to consummate the transactions applicable to SBI
described herein. This Agreement has been duly and validly executed and
delivered by SBI and constitutes the valid and binding obligation of SBI
enforceable against SBI in accordance with its terms, except to the extent
enforcement is limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights or the application by a court of equitable
principles.
(c) Capitalization. In furtherance of the provisions of the NJBCA,
Section 14A:11-1, SBI Common Stock is held of record by not less than 4,000
persons. The authorized capital stock of SBI consists as of the date of this
Agreement of 32,000,000 shares of SBI Common Stock, of which approximately
13,500,000 shares are issued and outstanding (an additional 30,175 shares are
held as treasury stock) and 5,000,000 shares of Preferred Stock, no par value
per share, of which none are outstanding. Sufficient shares of authorized, but
unissued, shares of SBI Common Stock to effect the transactions described herein
will be reserved by SBI for such purpose.
(d) Bank Subsidiaries. SBI owns, directly, all of the issued and
outstanding shares of capital stock of Farmers First Bank, a bank and trust
company organized under the laws of the Commonwealth of Pennsylvania; Farmers &
Merchants Bank and Trust, a bank organized under the laws of the State of
Maryland; Citizens National Bank of Southern Pennsylvania, a national banking
association with headquarters in Greencastle, Pennsylvania; First National Trust
Bank, a national banking association with headquarters in Sunbury, Pennsylvania;
and Williamsport National Bank, a national banking association with headquarters
in Williamsport, Pennsylvania (collectively the "Bank Subsidiaries"). All of
the issued and outstanding capital stock of the Bank Subsidiaries is duly and
validly authorized and issued, fully paid and nonassessable (other than as
provided in 12 U.S.C.A. (S) 55 with respect to national banks) and is owned by
SBI free and clear of any liens, security interests, encumbrances, restrictions
on transfer or other rights of any third person with respect thereto. SBI owns,
directly or
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indirectly, all of the issued and outstanding shares of capital stock of
Atlantic Federal Savings Bank, Fairfax Savings, F.S.B. and Reisterstown Federal
Savings Bank, each a federal savings bank operating in Maryland (collectively,
the "Savings Bank Subsidiaries"). All of the issued and outstanding capital
stock of the Savings Bank Subsidiaries is duly and validly authorized and issued
free and clear of any liens, security interests, encumbrances, restrictions on
transfer or other rights of any third person with respect thereto other than
rights of account holders to liquidation accounts maintained by the Savings Bank
Subsidiaries in accordance with the rules of the Office of Thrift Supervision
(the "OTS"). The Bank Subsidiaries and the Savings Bank Subsidiaries are the
"Material Subsidiaries." There are no options, calls, warrants, conversion
privileges or other agreements obligating any Material Subsidiary at present or
upon the occurrence of any event to issue or sell any shares of its capital
stock. Each of Farmers First Bank and Farmers & Merchants Bank and Trust is a
bank and trust company duly organized, validly existing and in good standing
under the laws of the Commonwealth of Pennsylvania and the State of Maryland,
respectively, and is duly authorized to engage in the banking and trust business
as an insured bank under the Federal Deposit Insurance Act, as amended. Each of
Citizens National Bank of Southern Pennsylvania, First National Trust Bank, and
Williamsport National Bank is a national banking association duly organized,
validly existing and in good standing under the laws of the United States and is
duly authorized to engage in the banking and trust business as an insured bank
under the Federal Deposit Insurance Act, as amended. Each of Atlantic Federal
Savings Bank, Fairfax Savings, F.S.B. and Reisterstown Federal Savings Bank is a
federal savings and loan association, duly organized, validly existing and in
good standing under the laws of the United States and is duly authorized to
engage in the savings and loan business under the Federal Deposit Insurance Act,
as amended. Each Material Subsidiary has corporate power and legal authority
and governmental authorizations which are material to its respective operations
and to transact the respective businesses in which it is presently engaged.
(e) No Violations. The execution, delivery and performance of this
Agreement by SBI and SBI Merger Sub does not, and the consummation of the
transactions described herein by SBI and SBI Merger Sub will not, constitute (i)
a breach or violation
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of, or a default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument to
which SBI or SBI Merger Sub (or any of SBI's respective properties or assets) is
subject, which breach, violation or default would have a Material Adverse Effect
on SBI on a consolidated basis, or enable any person to enjoin the Merger or the
Bank Acquisition, (ii) a breach or violation of, or a default under, SBI's or
SBI Merger Sub's articles or certificate of incorporation, respectively, or
bylaws of either or (iii) a breach or violation of, or a default under (or an
event which with due notice or lapse of time or both would constitute a default
under), or result in the termination of, accelerate the performance required by,
or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of SBI's properties or assets under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which it is a
party, or to which any of SBI's properties or assets may be bound or affected,
except for any of the foregoing that, individually or in the aggregate, would
not have a Material Adverse Effect on SBI, on a consolidated basis; and the
consummation of the transactions described herein will not require any approval,
consent or waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (i) the
required approvals, consents and waivers of governmental authorities referred to
in Section 5.1(b), (ii) the approval of shareholders referred to in Section
3.2(b), (iii) any such approval, consent or waiver that already has been
obtained and (iv) any other approvals, consents or waivers the absence of which,
individually or in the aggregate, would not result in a Material Adverse Effect
on SBI, on a consolidated basis, or enable any person to enjoin the Merger or
the Bank Acquisition.
(f) Required Consents. SBI has no reason to believe that it will be
unable to obtain consents and approvals, including, without limitation, all such
consents and approvals of governmental authorities and its shareholders,
necessary to consummate the transactions contemplated by this Agreement by March
31, 1997 or that any such consents or approvals would contain any condition or
requirement that would result in a Material Adverse Effect on SBI.
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(g) Board and Shareholder Action. SBI's Board of Directors (at a
meeting duly called and held) has been duly convened and by the requisite vote
of all directors (a) determined that the Merger in the case of AI and the Bank
Acquisition in the case of ENB is advisable and in the best interests of it and
its shareholders, and (b) approved this Agreement and the transactions described
herein.
(h) SBI Merger Sub.
i. SBI Merger Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey. All of
the outstanding shares of capital stock of SBI Merger Sub have been validly
issued, are fully paid and nonassessable and are owned directly by SBI free and
clear of any lien, charge or other encumbrance. SBI Merger Sub possesses no
assets nor is subject to any liabilities and will not acquire assets or incur
liabilities prior to the Effective Time. Since the date of its incorporation,
SBI Merger Sub has not engaged in any activities other than in connection with
the consummation of the Merger and the Bank Acquisition or as expressly
contemplated by this Agreement.
ii. SBI Merger Sub has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution, delivery and performance of this Agreement by SBI Merger Sub and the
consummation of the transactions described herein have been duly and validly
authorized by all necessary corporate actions (including without limitation
stockholder action) in respect thereof on the part of SBI Merger Sub. This
Agreement is a valid and binding obligation of SBI Merger Sub, enforceable
against SBI Merger Sub in accordance with its terms.
iii. All of the authorized capital stock of SBI Merger Sub,
which consists solely of 100 shares of common stock, $.01 par value per share,
is presently issued and outstanding.
iv. Subject to approval by its shareholders at the SBI Meeting,
SBI will, as the sole shareholder of SBI Merger Sub, vote to approve this
Agreement and the Merger.
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(i) SBI Reports. SBI has furnished to AI and ENB true and complete
copies of: (i) all of its annual reports on Form 10-K filed with the SEC since
January 1, 1993 and its annual reports to shareholders for each of the three
years ended December 31, 1995, 1994 and 1993, respectively; (ii) all of its
quarterly reports on Form 10-Q and current reports, if any, on Form 8-K filed
with the SEC since January 1, 1996; (iii) each final registration statement,
prospectus or offering circular which SBI has used in connection with the sale
of securities since January 1, 1994; and (iv) each definitive proxy statement
distributed by SBI to its shareholders since January 1, 1994.
All such reports (i) comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, (ii) do not contain any untrue statement of a material fact and
(iii) do not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(j) SBI Benefit Plans. SBI has furnished to AI and ENB true, correct
and complete copies of all of SBI's bonus, deferred compensation, pension,
profit-sharing, retirement, medical, group life, disability income, stock
purchase, stock option, other "employee benefit plans" (as that term is used
within the meaning of Section 3(3) of ERISA) or any other fringe benefit plan,
agreement, arrangement or practice, all amendments thereto and all summary plan
descriptions thereof, or, in the alternative, SBI has provided materials
generally descriptive of the foregoing, and in such case, SBI will provide such
specific additional information as may reasonably be requested. The foregoing
are collectively referred to as the "SBI Benefit Plans."
(k) Reports. SBI has timely filed all material reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that it was required to file since January 1, 1994 with
(A) the Board, (B) the FDIC, (C) the OTS, (D) the SEC, (E) the OCC, and (F) the
Pennsylvania Department of Banking and the Maryland Banking Commissioner
(collectively, the Regulatory Agencies listed in (A) through (F) are the "SBI
Regulatory Agencies") and all other material reports and statements required to
be filed by it since
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January 1, 1994, including, without limitation, any report or statement required
to be filed pursuant to the laws, rules or regulations of the United States or
any SBI Regulatory Agency and has paid all fees and assessments due and payable
in connection therewith, and no such report, registration or statement contains
any material misstatement or omission or is otherwise in material noncompliance
with any law, regulation or requirement.
(l) SBI's Balance Sheets. SBI's balance sheets as of December 31,
1995 previously provided to AI and each balance sheet provided after the date
hereof to AI (including in each case any related notes and schedules) fairly
presents or will fairly present SBI's financial position as of its date and each
of the statements of income and shareholders' equity and of cash flows provided
therewith (including in each case any related notes and schedules), fairly
presents or will fairly present the results of operations, shareholders' equity
and cash flows, as the case may be, of it for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved.
(m) Absence of Certain Changes or Events. Since January 1, 1996, SBI
has not incurred any material liability, except in the ordinary course of its
business consistent with past practice, nor has there been any change in the
financial condition, properties, assets, business, results of operation or
prospects of it which, individually or in the aggregate, has had, or might
reasonably be expected to result in, a Material Adverse Effect on it.
(n) Fees. Neither SBI nor any of its officers, directors, employees
or agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for it in connection with the
Agreement or the transactions described herein.
(o) Registration Statement, Etc. Except for information relating to
AI and ENB, neither (i) the Registration Statement, the Proxy
Statement/Prospectus or any amendment or
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supplement thereto, or any other registration statement filed with the SEC
during the term of this Agreement, at the time it is filed with the SEC, at the
time it is declared effective, at the time the Proxy Statement/Prospectus is
mailed to the shareholders of AI or at the date of the AI Meeting to consider
the approval of this Agreement nor (ii) any other documents to be filed by SBI
with the SEC or any Regulatory Agency in connection with this Agreement or the
transactions described herein will contain any untrue statement of material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading. All documents which SBI is responsible for filing with
the SEC or any Regulatory Agency in connection with the Merger and Bank
Acquisition will comply as to form in all material respects with the
requirements of applicable law.
(p) Compliance with Laws. It has the permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental
authorities, including Regulatory Agencies, that are required in order to permit
it to carry on its business as it is presently conducted and the absence of
which would, individually or in the aggregate, have a Material Adverse Effect on
SBI, on a consolidated basis; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect, and no suspension
or cancellation of any of them is threatened.
(q) Absence of Regulatory Actions. It is not a party to any cease
and desist order, written agreement or memorandum of understanding with, or a
party to any commitment letter or similar undertaking to, or subject to any
order or directive by, or a recipient of any extraordinary supervisory letter
from, nor has it adopted any board resolutions at the request of, federal or
state governmental authorities, including, without limitation, the SBI
Regulatory Agencies charged with the supervision or regulation of banks or bank
holding companies or savings and loan holding companies or engaged in the
insurance of bank and/or savings and loan deposits nor has it been advised by
any SBI Regulatory Agency that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of
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understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
(r) Litigation and Liabilities. Except as set forth in Annex 3.2(r),
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened against it or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise, including, without limitation, those relating to environmental and
occupational safety and health matters, or any other facts or circumstances of
which its management is aware that could reasonably be expected to result in any
claims against or obligations or liabilities of it, that, alone or in the
aggregate, are reasonably likely to have a Material Adverse Effect on SBI, on a
consolidated basis, or to hinder or delay, in any material respect, consummation
of the transactions contemplated by this Agreement.
(s) Environmental Matters. SBI is unaware of any activity or
conditions on or in any property owned, occupied, leased, or held as security by
SBI or a Material Subsidiary which would subject SBI or any Material Subsidiary
to damages, penalties, injunctive relief or cleanup costs under any
Environmental Laws.
ARTICLE IV. COVENANTS
SECTION 4.1 Acquisition Proposals. AI agrees that it and its
---------------------
officers and directors shall not, and that it shall direct and use its best
efforts to cause its employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it) not
to, initiate, solicit or knowingly encourage, directly or indirectly, any
inquiries or the making of any proposal or offer (including, without limitation,
any proposal or offer to its shareholders) with respect to a merger,
consolidation or similar transaction involving, or any purchase, sale or other
disposition of all or any significant portion of the assets or any equity
securities of, AI or ENB (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or, except to the extent required for the
discharge by its board of directors of
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its fiduciary duties as determined upon consultation with counsel, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal. AI and ENB each agrees that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing. AI and
ENB each agrees that it will take the necessary steps to inform the appropriate
individuals or entities referred to in the first sentence hereof of the
obligations imposed upon each of them in this Section 4.1. AI and ENB each
agree that it will notify SBI immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations,
or discussions are sought to be initiated or continued with, it.
SECTION 4.2. Securities Registration and Disclosure. AI shall
--------------------------------------
cooperate with SBI in the preparation, in accordance with the requirements of
the proxy rules under the Exchange Act, of the Proxy Statement/Prospectus and
the filing thereof as part of the Registration Statement. Within a reasonable
period following the date hereof, SBI will prepare and file with the SEC under
the Securities Act of 1933, as amended (the "Securities Act") a registration
statement for the registration of the shares of SBI Common Stock to be issued
pursuant hereto (the "Registration Statement"), and AI will file with the SEC
under the Exchange Act the preliminary form of the Proxy Statement/Prospectus
included in the Registration Statement, and each party shall be responsible for
providing all information concerning itself and its subsidiaries required to be
included therein. SBI shall take any action required to be taken under any
applicable state securities or "blue sky" laws in connection with the issuance
of shares of SBI Common Stock pursuant to this Agreement and AI shall furnish
SBI all information concerning AI and its shareholders as SBI may reasonably
request in connection with any such action. At least five (5) business days
prior to its filing with the SEC, SBI shall provide a copy of the Registration
Statement to AI and its counsel for review. Each party will promptly provide
the other with copies of all correspondence, comment letters, notices or other
communications to or from the SEC relating to the Registration Statement, the
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Proxy Statement/Prospectus or any amendment or supplement thereto, and SBI will
advise AI promptly after it receives notice thereof, of the effectiveness of the
Registration Statement, of the issuance of any stop order with respect to the
effectiveness thereof, of the suspension of the qualification of the SBI Common
Stock issuable in connection herewith for offering or sale in any jurisdiction,
or the initiation or threat of any proceeding for any such purpose.
AI will take appropriate action to call a meeting of its shareholders
(the "AI Meeting") to be held not more than forty-five (45) days following the
effective date of the Registration Statement (which meeting may be the Annual
Meeting of Shareholders of AI), to consider approval of this Agreement and,
except to the extent legally required for the discharge by AI's board of
directors of its fiduciary duties and subject to receipt of an updated fairness
opinion from its financial advisor dated on or immediately prior to the date of
the Proxy Statement/Prospectus, will use its best efforts to secure such
approval. In connection with the AI Meeting, AI will duly solicit, in
compliance with Section 14(a) of the Exchange Act and the proxy rules of the SEC
thereunder, the vote of its shareholders by mailing or delivering to each such
shareholder, as soon as practicable after the effectiveness of the Registration
Statement, the Proxy Statement/Prospectus, and as soon as practicable
thereafter, any amendments or supplements thereto as may be necessary to assure
that at the date of the AI Meeting the Proxy Statement/Prospectus shall conform
to the requirements of Sections 3.1(oo) and 3.2(o) hereof.
AI will furnish to SBI a list of all persons known to AI who at the
date of the AI Meeting may be deemed to be "affiliates" of AI within the meaning
of Rule 145 under the Securities Act. AI will use its best efforts to cause
each such person identified in its list to deliver at or prior to the Closing a
written agreement providing that such person will not sell, pledge, transfer or
otherwise dispose of the shares of SBI Common Stock to be received by such
person hereunder except (i) in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder and (ii) after such time
as financial results covering at least thirty (30) days of post-Merger combined
operations have been published within the
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meaning of Section 201.01 of the SEC's Codification of Financial Reporting
Policies.
SECTION 4.3 Employees.
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(a) SBI and any of its affiliates shall have the right (but not the
obligation) to employ, as officers and employees of SBI, the Surviving
Corporation, ENB or other affiliates of SBI immediately following the Effective
Time, any persons who are officers and employees of each of AI and ENB
immediately before the Effective Time. It shall be a condition to employment by
SBI or any of its affiliates that any former officer or employee of AI or ENB
agree to cancel any existing employment contract, agreement or understanding
between him or herself and AI or ENB, including without limitation all benefits
related to severance arrangements upon a change of control or otherwise, prior
to accepting such new employment and without accepting any of the severance
benefits or other benefits or payments associated with such contract, agreement
or understanding.
(b) Each person employed by AI or ENB prior to the Effective Time who
remains an employee of the Surviving Corporation, ENB or any other SBI
subsidiary following the Effective Time (each a "Continued Employee") shall be
entitled, as an employee of SBI or an SBI subsidiary, to participate in whatever
employee benefit plans, as defined in Section 3(3) of ERISA, or whatever stock
option, bonus or incentive plans or other fringe benefit programs that may be in
effect generally for employees of SBI or SBI's subsidiaries from time to time
("SBI's Plans"), if such Continued Employee shall be eligible or selected for
participation therein and otherwise shall not be participating in a similar plan
which continues to be maintained by the Surviving Corporation or ENB for such
employee. All such participation shall be subject to such terms of such plans
as may be in effect from time to time provided, that Continued Employees will be
eligible to participate in SBI's Plans on the same basis as similarly situated
employees of SBI or SBI's subsidiaries. Such Continued Employees will receive
credit for past service with AI or ENB for purposes of eligibility and vesting,
but not benefit accrual, under SBI's Plans.
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(c) AI and ENB shall take all timely and necessary action to cease
participation or accrual of benefits, effective as of the Effective Time, by
each person employed by AI or ENB prior to the Effective Time in each Employee
Plan (as defined in Section 3.1(m)), and to terminate each Employee Plan, other
than an Employee Plan containing a cash or deferred arrangement qualified under
Section 401(k) of the Code ("Employee 401(k) Plan"), effective as of the
Effective Time; provided that SBI may, in its sole discretion, give notice to AI
or ENB, as the case may be, not less than twenty (20) days (sixty-one (61) days
in the case of any Pension Plan (as defined in Section 3.1(m)) prior to the
Effective Time, that any Employee Plan shall not be terminated and/or
participation or accrual of benefits thereunder shall not cease pursuant to this
Section 4.3(c). SBI shall, after receipt of an IRS favorable plan determination
letter confirming the ENB 401(k) Profit Sharing Plan's tax qualified status,
upon its termination, allow each participant to either roll-over his/her account
balance to the SBI 401(k) Plan or receive distribution of his/her closing
account balance. If the fair market value of the assets of any Pension Plan
does not equal or exceed the present value of its "benefits liabilities" (as
defined in Section 4001(a)(16) of ERISA) as of the date of its termination, as
determined by certification of an enrolled actuary in accordance with procedures
established by the Pension Benefit Guaranty Corporation, AI or ENB, as the case
may be, shall make such additional contributions to the Pension Plan as may be
necessary to permit its termination in a standard termination (within the
meaning of Section 4041 of ERISA). At the sole discretion of SBI, any Employee
401(k) Plan shall be merged with any similar such plan maintained and designated
by SBI, effective at or after the Effective Time, as elected by SBI, and AI or
ENB, as the case may be, shall take any and all timely and necessary action to
effect such merger.
SECTION 4.4 Access and Information.
----------------------
(a) Upon reasonable notice, and subject to applicable laws relating
to the exchange of information, each of AI and ENB shall afford to SBI and its
representatives (including, without limitation, directors, officers and
employees of SBI and its affiliates, and counsel, accountants and other
professionals retained) such access during normal business hours throughout the
period prior to the Effective Time to the books, records
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(including, without limitation, tax returns and work papers of independent
auditors), properties, personnel and such other information as SBI may
reasonably request (other than reports or documentation which are not permitted
to be disclosed under applicable law); provided, however, that no investigation
pursuant to this Section 4.4 shall affect or be deemed to modify any
representation or warranty made herein. SBI will not, and will cause its
representatives not to, use any information obtained pursuant to this Section
4.4 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement and in no event will SBI directly or indirectly
use such information for any competitive or commercial purpose. Subject to the
requirements of law, SBI will keep confidential, and will cause its
representatives to keep confidential, all information and documents obtained
pursuant to this Section 4.4 unless such information (i) was already known to
SBI or an affiliate of SBI, (ii) becomes available to SBI or an affiliate of SBI
from other sources not known by such person to be bound by a confidentiality
agreement, (iii) is disclosed with the prior written approval of AI or ENB, as
the case may be, (iv) is or becomes readily ascertainable from published
information or trade sources or (v) was already publicly available. Without in
any way limiting the foregoing, ENB shall provide to SBI within forty-five (45)
days of the end of each calendar month and AI shall provide to SBI within forty-
five (45) days of the end of each calendar quarter consolidated and
consolidating financial statements (including a balance sheet and income
statement) as of the end of, and for, such period that are in conformance with
generally accepted accounting principles and the representation set forth in
Section 3.1(f). In the event that this Agreement is terminated or the
transactions contemplated by this Agreement shall otherwise not be consummated,
each party shall, if so requested, promptly cause all copies of documents or
extracts thereof containing information and data as to another party hereto (or
an affiliate of any party hereto) to be returned to the party which furnished
the same. This Section 4.4 supersedes and terminates any agreement between the
parties relating to the confidentiality of information which may have been
exchanged (the "Confidentiality Agreement").
(b) During the period from the date of this Agreement to the
Effective Date, SBI shall provide to AI and ENB the following documents and
information:
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1. As soon as reasonably available, but in no event more than forty-
five (45) days after the end of each fiscal quarter of SBI ending after the date
of this Agreement, SBI will deliver to AI and ENB its quarterly report on Form
10-Q as filed with the SEC.
2. As soon as reasonably available, but in no event more than ninety
(90) days after the end of each fiscal year of SBI ending after the date of this
Agreement, SBI will deliver to AI and ENB its annual report on Form 10-K as
filed with the SEC.
3. SBI will deliver to AI and ENB, contemporaneously with its being
filed with the SEC, a copy of each current report on Form 8-K filed by SBI after
the date of this Agreement.
4. At least five (5) business days prior to submission, SBI will
furnish to AI and ENB the portions which describe the transactions (including
any financial information or pro forma financial information of, or including,
AI or ENB) described herein of (A) registration statements, prospectuses or
offering circulars used by SBI in connection with the sale of securities after
the date of this Agreement, (B) proxy statements distributed by SBI to its
shareholders after the date of this Agreement, and (C) all other publicly-
available reports, statements or other documents which are either distributed to
shareholders or filed by SBI or any of its subsidiaries with the SEC. Any
comments timely received by SBI from AI in connection with the foregoing will be
reviewed and considered in good faith, but SBI shall not be bound to comply with
the recommendations set forth in such comments. SBI also shall furnish AI with
copies of the foregoing in the form filed with the SEC or otherwise distributed
to shareholders.
5. SBI will promptly notify AI and ENB of any material changes to
SBI's Plans.
vi. SBI will make available on its premises to AI its Reports of
Examination, accountant's letters to management and any other items which shall
be mutually agreed upon by the parties hereto.
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SECTION 4.5 Certain Filings, Consents and Arrangements. SBI shall
------------------------------------------
use all reasonable efforts to obtain all necessary approvals required to carry
out the transactions contemplated by this Agreement and to consummate the Merger
and Bank Acquisition. AI and ENB shall cooperate with SBI in connection
therewith, including, without limitation, furnishing all information concerning
AI or ENB, as the case may be, as may be reasonably requested by SBI in
connection with any such action. SBI shall use all reasonable efforts to
provide, five (5) business days prior to submission, AI with copies of all
material applications, notices, petitions or other filings or submissions
prepared by SBI in connection with consummation of the Merger and Bank
Acquisition. Any comments timely received by SBI from AI in connection with the
foregoing will be reviewed and considered in good faith, but SBI shall not be
bound to comply with the recommendations set forth in such comments. SBI will
consult with AI with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and governmental authorities
necessary or advisable to consummate the transactions described in this
Agreement and SBI will keep AI apprised of the status of matters relating to
completion of the transactions described herein. SBI shall promptly furnish AI
with copies of applications in the form filed with any governmental authority in
respect of the transactions described herein.
SECTION 4.6 Takeover Statutes. Neither the New Jersey Shareholders
-----------------
Protection Act (Section 14A:10A-1-10A-6 of the NJBCA), nor any other "fair
price," "moratorium," or other form of anti-takeover statute or regulation or
any similar provision of the AI Certificate or the charter of ENB, is applicable
to the transactions described in this Agreement and, if any such statute,
regulation or provisions shall become applicable to the transactions described
in this Agreement, AI and ENB and the members of the Boards of Directors of AI
and ENB shall grant such approvals and take such actions as are necessary so
that the transactions described herein may be consummated as promptly as
practicable on the terms described herein and otherwise act to eliminate or
minimize the effects of such statute or regulation or provision on the
transactions described herein.
SECTION 4.7 Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto
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agrees to use all reasonable efforts to take promptly, or cause to be taken
promptly, all actions and to do promptly, or cause to be done promptly, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions described in this Agreement as
promptly as practicable, including using efforts to obtain all necessary actions
or non-actions, extensions, waivers, consents and approvals from all applicable
governmental authorities, or other entities, effecting all necessary
registrations, applications and filings and obtaining any required contractual
consents and regulatory approvals.
SECTION 4.8 Publicity. Except as required by law, AI and ENB shall
---------
not, without the prior consent of SBI (which consent shall not be unreasonably
withheld), issue any press releases or otherwise make public filings under
securities laws, with respect to this Agreement or the transactions described
herein. Prior to issuing any press release or making any public filings under
securities laws which makes any reference to AI or ENB, SBI shall provide a copy
to AI for comment and in all such instances the parties shall cooperate.
SECTION 4.9 Shareholders' Meeting. If determined advisable by its
---------------------
board of directors, after consultation with its counsel, SBI shall take all
action necessary, in accordance with applicable law and its articles of
incorporation and bylaws, to convene a special meeting of the holders of its
capital stock (the "SBI Meeting") as promptly as practicable for the purpose of
considering and taking the action required by this Agreement and other
acquisition transactions which it has planned. Except to the extent legally
required for the discharge by SBI's board of directors of its fiduciary duties
as advised in writing by such board's counsel, its board of directors shall
recommend in writing to its shareholders that at the SBI Meeting, the holders of
its capital stock vote in favor of and approve the Merger, the Bank Acquisition
and this Agreement. To the extent required by applicable law, SBI shall prepare
a proxy statement or information statement or other documents in connection with
such SBI Meeting which shall comply with all applicable laws.
SECTION 4.10 Notification of Certain Matters. Each party shall give
-------------------------------
prompt notice to the others of: (a) any notice of, or other communication
relating to, a default or event that,
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with notice or lapse of time or both, would become a default, received by it or
any of its subsidiaries subsequent to the date of this Agreement and prior to
the Effective Time, under any contract material to the financial condition,
properties, businesses, results of operations or prospects of it to which it is
a party or is subject; and (b) any material adverse change in its financial
condition, properties, business, or results of operations on a consolidated
basis or the occurrence of any event which, so far as reasonably can be foreseen
at the time of its occurrence, is reasonably likely to result in any such
change. Each party shall give prompt notice to the other parties of any notice
or other communication from any third party alleging that the consent of such
third party is or may be required in connection with the transactions
contemplated by this Agreement.
SECTION 4.11 Insurance. AI and ENB shall use best efforts to retain
---------
no less than the level of insurance coverage presently held by them as of the
date hereof.
SECTION 4.12 Dividends. AI shall not declare, pay or set aside any
---------
dividend or other distribution in respect of its capital stock.
SECTION 4.13 Indemnification.
---------------
(a) From and after the Effective Time through the second anniversary
of the Effective Date, SBI agrees to indemnify and hold harmless each present
and former director and officer of AI or its Subsidiaries and each officer or
employee of AI or its Subsidiaries that is serving as a director or trustee of
another entity expressly at AI's request or direction (each, an "Indemnified
Party"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, the
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, and
whether or not the Indemnified Party is a party thereto, arising out of matters
existing or occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under the AI
Certificate, the charter of ENB or the bylaws of either in effect on the date
hereof.
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(b) Any Indemnified Party wishing to claim indemnification under
Section 4.13(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify SBI thereof, but the failure to so notify
shall not relieve SBI of any liability it may have hereunder to such Indemnified
Party if such failure does not materially and substantially prejudice SBI. In
the event of any such claim, action, suit, proceeding or investigation, (i) SBI
shall have the right to assume the defense thereof with counsel reasonably
acceptable to the Indemnified Party and SBI shall not be liable to such
Indemnified Party for any legal expenses of other counsel subsequently incurred
by such Indemnified Party in connection with the defense thereof, except that if
SBI does not elect to assume such defense within a reasonable time or counsel
for the Indemnified Party at any time advises that there are issues which raise
conflicts of interest between SBI and the Indemnified Party, the Indemnified
Party may retain counsel satisfactory to such Indemnified Party, and SBI shall
remain responsible for the reasonable fees and expenses of such counsel as set
forth above, promptly as statements therefor are received; provided, however,
that SBI shall be obligated pursuant to this paragraph (b) to pay for only one
firm of counsel for all Indemnified Parties in any one jurisdiction with respect
to any given claim, action, suit, proceeding or investigation unless the use of
one counsel for such Indemnified Parties would present such counsel with a
conflict of interest; (ii) the Indemnified Party will reasonably cooperate in
the defense of any such matter and (iii) SBI shall not be liable for any
settlement effected by an Indemnified Party without its prior written consent,
which consent may not be withheld unless such settlement is unreasonable in
light of such claims, actions, suits, proceedings or investigations against, and
defenses available to, such Indemnified Party.
(c) In the event SBI or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of SBI assume
the obligations set forth in this Section 4.13.
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(d) The provisions of this Section 4.13 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1 Conditions to Closing. The respective obligations of the
---------------------
parties to effect the Merger and Bank Acquisition shall be subject to the
satisfaction or waiver prior to the Effective Time of the following conditions:
(a) The Agreement and the transactions described herein shall have
been approved by the requisite vote of the shareholders of SBI, subject to the
qualifications set forth in Section 4.9 hereof, and AI in accordance with
applicable law.
(b) All of the required approvals, consents or waivers with respect to
this Agreement (including both the Merger and the Bank Acquisition) and the
transactions described herein including, without limitation, the approvals,
notices to, consents or waivers of (i) the Board, (ii) the OCC, (iii) the
Pennsylvania Department of Banking, if applicable, (iv) the Commissioner of
Banking of the State of New Jersey, and (v) the New Jersey Department of
Environmental Protection and Energy, if applicable, (which, together with the AI
Regulatory Agencies and the SBI Regulatory Agencies, are the "Regulatory
Agencies") shall have been obtained and shall remain in full force and effect,
and all applicable statutory waiting periods (including without limitation all
applicable statutory waiting periods relating to the Merger and the Bank
Acquisition) shall have expired; and the parties shall have procured all other
regulatory approvals, consents or waivers of governmental authorities or other
persons that are necessary or appropriate to the consummation of the
transactions contemplated by this Agreement except those approvals, consents or
waivers, if any, for which failure to obtain would not, individually or in the
aggregate, have a Material Adverse Effect on SBI, AI or ENB (after giving effect
to the transactions described herein); provided, however, that no approval,
consent or waiver referred to in this Section 5.1(b) shall be deemed to have
been received if it shall include any condition or requirement that reasonably
would result in a Material Adverse Effect on SBI.
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(c) All other requirements prescribed by law which are necessary to
the consummation of the transactions described in this Agreement shall have been
satisfied.
(d) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger, the Bank Acquisition or any other
transaction described in this Agreement, and no litigation or proceeding shall
be pending against any of the parties herein or any of their subsidiaries
brought by any governmental agency including, without limitation, the Regulatory
Agencies seeking to prevent consummation of the transactions described herein.
(e) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of the
Merger, the Bank Acquisition, or any other transaction described in this Plan.
(f) The Merger shall as of the date of the Closing meet the
requirements for pooling-of-interests accounting treatment under generally
accepted accounting principles and under the accounting rules of the SEC, and
SBI shall have received a letter from Coopers & Lybrand in form and substance
reasonably satisfactory to SBI as to the matters specified in this Section
5.1(f).
(g) The Registration Statement shall have been filed (the date of
which is referred to herein as the "Filing Date") by SBI with the SEC under the
Securities Act, and shall have been declared effective prior to the time the
Proxy Statement/Prospectus is first mailed to the shareholders of AI, and no
stop order with respect to the effectiveness of the Registration Statement shall
have been issued; the SBI Common Stock to be issued pursuant to this Agreement
shall be duly registered or qualified under the securities or "blue sky" laws of
all states in which such action is required for purposes of the initial issuance
of such shares and the distribution thereof to the shareholders of AI entitled
to receive such shares.
(h) SBI shall have received a ruling from the Internal Revenue
Service (the "IRS") or an opinion of Morgan, Lewis &
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Bockius LLP, counsel to SBI and SBI Merger Sub, to the effect that:
1. The Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and AI and SBI will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by AI or SBI by reason of
the Merger;
3. Except for cash received in lieu of fractional shares, no
gain or loss will be recognized by the shareholders of AI who receive solely SBI
Common Stock upon the exchange of their shares of AI Common Stock for shares of
SBI Common Stock;
4. The basis of the SBI Common Stock to be received by the AI
shareholders will be, in each instance, the same as the basis of the AI Common
Stock surrendered in exchange therefor;
5. The holding period of the SBI Common Stock received by an AI
shareholder receiving SBI Common Stock will include the period during which the
AI Common Stock surrendered in exchange therefor was held; and
6. Cash received by an AI shareholder in lieu of a fractional
share interest of SBI Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest of
SBI Common Stock which he, she or it would otherwise be entitled to receive and
will qualify as capital gain or loss.
In case a ruling from the IRS is sought, AI and SBI shall
cooperate and each shall furnish to the other and to the IRS such information
and representations as shall, in the opinion of counsel for SBI and AI, be
necessary or advisable to obtain such ruling.
(i) All litigation pending against AI or ENB which, individually or in
the aggregate, would have a Material Adverse Effect on AI's consolidated
operations, shall have been settled
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<PAGE>
or otherwise resolved on terms reasonably satisfactory to SBI, AI and ENB.
(j) INTENTIONALLY OMITTED.
SECTION 5.2 Conditions to Obligations of SBI and SBI Merger Sub. The
---------------------------------------------------
obligations of SBI and SBI Merger Sub to effect the Merger and Bank Acquisition
shall be subject to the satisfaction or waiver prior to the Effective Time of
the following additional conditions:
(a) Each of the representations and warranties of AI and ENB
contained in this Agreement shall be true and correct in all material respects
as of the Effective Date as if made on such date (or on the date when made in
the case of any representation or warranty which specifically relates to an
earlier date); each of AI and ENB shall have performed each of its covenants and
agreements, which are material to its operations and prospects, contained in
this Agreement; and SBI and SBI Merger Sub shall have received certificates
signed by the Chief Executive Officer and the Controller of ENB and the
President and the Treasurer of AI, dated the Effective Date, to the foregoing
effect.
(b) Arthur Andersen LLP or such other accounting firm as is
acceptable to the parties, shall have furnished to SBI (i) a "cold comfort"
letter, dated the date of the mailing of the notice of the AI Meeting, which
letter shall be in customary form, reasonably acceptable to SBI, and (ii) a
letter, dated the Effective Date, in form and substance satisfactory to SBI to
the effect that, based upon a subsequent event review performed with respect to
the financial condition of AI and ENB, and affiliates, for the period from
December 31, 1995 to a specified date not more than five (5) days prior to the
date of such letter, including but not limited to (a) their inspection of the
minute books of AI, ENB and their affiliates, (b) inquiries made by them of
officers and other employees of AI, ENB and their affiliates responsible for
financial and accounting matters as to transactions and events during the
period, as to consistency of accounting procedures with prior periods and as to
the existence and disclosure of any material contingent liabilities, and (c) of
other specified procedures and inquiries performed by them, nothing has come to
their attention that would indicate that (A) during the period from December 31,
1995 to a specified date not
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<PAGE>
more than five (5) days prior to the date of such letter, there was any change
in the capitalization of AI or ENB on a consolidated basis, or (B) any material
adjustments would be required to be made to the audited financial statements for
the period ended December 31, 1995 in order for them to be in conformity with
generally accepted accounting principles applied on a consistent basis with that
of prior periods.
(c) SBI shall have received an opinion or opinions dated as of the
Effective Date, from Ballard Spahr Andrews & Ingersoll, in a form reasonably
acceptable to SBI.
(d) There shall not have occurred any change in the financial
condition, properties, assets, business or results of operation of AI or ENB
which, individually or in the aggregate, has had or might reasonably be expected
to result in a Material Adverse Effect on AI or ENB other than such changes
resulting from (i) changes in banking laws or regulations, or (ii) changes in
generally accepted accounting principles, or interpretations thereof, that
affect the banking industry.
(e) SBI shall have received from each of the persons identified by AI
pursuant to Section 4.2 hereof an executed counterpart of an affiliate's
agreement in the form contemplated by such Section.
(f) Prior to Closing, all issued and outstanding options, warrants or
rights to acquire AI Common Stock or any capital stock of ENB ("ENB Common
Stock") shall have been cancelled, and no compensation or other rights will be
payable or exchangeable in the Merger and Bank Acquisition in respect of any
such rights which remain unexercised at the Effective Time.
SECTION 5.3 Conditions to the Obligations of AI and ENB. The
-------------------------------------------
obligations of AI to effect the Merger and Bank Acquisition shall be subject to
the satisfaction or waiver prior to the Effective Time of the following
additional conditions:
(a) Each of the representations, warranties and covenants of SBI
contained in this Agreement shall be true and correct in all material respects
on the Effective Date as if made on such date (or on the date when made in the
case of any representation or warranty which specifically relates to an
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<PAGE>
earlier date); SBI shall have performed each of its covenants and agreements,
which are material to its operations and prospects, contained in this Agreement;
and AI shall have received certificates signed by the President or Vice
President and Secretary, as well as the Chief Financial Officer of SBI, dated
the Effective Date, to the foregoing effect.
(b) AI shall have received an opinion dated as of the Effective Date,
from Morgan, Lewis & Bockius LLP, Harrisburg, Pennsylvania, counsel to SBI and
SBI Merger Sub, in a form reasonably acceptable to AI.
(c) There shall not have occurred any change in the financial
condition, properties, assets, business or results of operation of SBI which,
individually or in the aggregate, has had or might reasonably be expected to
result in a Material Adverse Effect on SBI.
(d) AI shall have received an updated opinion from Janney Montgomery
Scott Inc., dated as of a date no later than the date of the Proxy
Statement/Prospectus mailed to the AI shareholders in connection with the Merger
and not subsequently withdrawn, to the effect that the Merger Consideration is
fair to AI's shareholders from a financial point of view.
(e) The shares of SBI Common Stock to be issued in the Merger shall
have been authorized to be listed for quotation on The Nasdaq Stock Market.
(f) A certificate for the required number of whole shares of the SBI
Common Stock, as determined in accordance with Section 1.2 and Schedule 1.2, and
cash payable for the fractional shares interests shall have been delivered to
Farmers First Bank, as Exchange Agent.
ARTICLE VI. TERMINATION
SECTION 6.1 Termination. This Agreement may be terminated, and the
-----------
Merger and the Bank Acquisition abandoned, prior to the Effective Date, either
before or after its approval by the shareholders of SBI and AI:
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<PAGE>
(a) by the mutual, written consent of AI and SBI if the board of
directors of each so determines by a vote of a majority of the members of the
entire board;
(b) by AI if (i) by written notice to SBI that there has been a
material breach by SBI of any representation, warranty, covenant or agreement
contained herein and such breach is not cured or not curable within thirty (30)
days after written notice of such breach is given to SBI by AI, (ii) by written
notice to SBI that any condition precedent to AI's obligations as set forth in
Article V of this Agreement has not been met or waived by AI at such time as
such condition can no longer be satisfied, (iii) the Board of Directors of AI
fails to make, withdraws or modifies or changes the favorable recommendation
described at Section 4.2 or (iv) the Board of Directors of AI recommends to the
stockholders of AI that an Acquisition Proposal is likely to be more favorable,
from a financial point of view, to the stockholders of AI than the Merger;
(c) by SBI by written notice to the other parties, in the event (i)
of a material breach by AI or ENB of any representation, warranty, covenant or
agreement contained herein and such breach is not cured or not curable within
thirty (30) days after written notice of such breach is given to AI by SBI or
(ii) any condition precedent to SBI's obligations as set forth in Article V of
this Agreement has not been met or waived by SBI at such time as such condition
can no longer be satisfied;
(d) by AI, whether before or after approval of the Merger by the AI
stockholders, by giving written notice of such election to SBI within two (2)
business days following a determination that the Average Closing Price Per Share
of SBI Common Stock Before Closing is less than $25.00 per share (subject to
adjustment in accordance with Section 1.2(c) herein) at the time such
calculation is required to be made pursuant to Schedule 1.2 hereof.
(e) by SBI, whether before or after approval of the Merger by the SBI
shareholders, if it chooses to give written notice of the election described in
Schedule 1.2 to AI, but if at all, within two (2) business days following a
determination that the Average Closing Price Per Share of SBI Common Stock
Before Closing is greater than $31.00 per share (subject to adjustment
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<PAGE>
in accordance with Section 1.2(c) herein at the time such calculation is
required to be made pursuant to Schedule 1.2 hereof.
(f) by SBI or AI by written notice to the other, in the event that
the Merger and Bank Acquisition are not consummated by March 31, 1997, unless
the failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in this Agreement by the party
seeking to terminate; provided, however, that such date may be extended by the
written agreement of the parties hereto.
SECTION 6.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement, as provided above, this Agreement shall thereafter become
void and have no effect, except that the provisions of Sections 3.1(p) and
3.2(n) (Fees), 4.4 (relating to confidentiality and return of documents), 4.8
(Publicity) and 6.3 and 7.7 (Expenses) of this Agreement shall survive any such
termination and abandonment.
SECTION 6.3 Expenses. Any termination of this Agreement pursuant to
--------
Section 6.1(a) hereof shall be without cost, expense or liability on the part of
any party to the others. Subject to the provisions of the following paragraph,
any termination of this Agreement pursuant to Section 6.1(b)(i), (ii) or (iii)
or 6.1(c) hereof shall also be without cost, liability or expense on the part of
any party to the others, unless the breach of a representation or warranty or
covenant is caused by the willful conduct or gross negligence of a party, in
which event said party shall be liable to the other parties for all out-of-
pocket costs and expenses, including without limitation, reasonable legal,
accounting and investment banking fees and expenses, incurred by such other
party in connection with their entering into this Agreement and their carrying
out of any and all acts contemplated hereunder ("Expenses").
So long as SBI shall not have breached its obligations hereunder, if
this Agreement is terminated by AI pursuant to clause (iv) of Section 6.1(b)
hereof or if the Board of Directors of AI fails to make, withdraws or modifies
or changes the favorable recommendation described at Section 4.2 on a basis
other than a material adverse change in SBI, AI shall promptly,
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<PAGE>
but in no event later than two (2) business days after such termination, pay SBI
a fee of $500,000 which amount shall be payable by wire transfer of same day
funds. If AI fails to promptly pay the amount due pursuant to this Section 6.3,
and, in order to obtain such payment, SBI commences a suit which results in a
judgment against AI for all or a substantial portion of the fee set forth in
this Section 6.3, AI shall pay to SBI its costs and expenses (including
reasonable attorneys' fees) in connection with such suit.
ARTICLE VII. OTHER MATTERS
SECTION 7.1 Certain Definitions; Interpretation. As used in this
-----------------------------------
Agreement, the following terms shall have the meanings indicated:
"knowledge," with respect to a person, means actual knowledge without
independent investigation beyond such investigation as would be appropriate
to such person's office and position, and as to a person which is a
corporation, means the knowledge of such person's senior management.
"material" means material to the party in question (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in a material
adverse effect upon (A) the financial condition, properties, assets,
business or results of operations of such person and its subsidiaries,
taken as a whole, or (B) the ability of such person to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement. In the case of ENB, receipt of a CAMEL rating in connection
with a safety and soundness examination which is lower than the rating
given to ENB in connection with the safety and soundness examination most
recently reported prior to the date of this Agreement shall be deemed to
have a "Material Adverse Effect" on ENB.
C-57
<PAGE>
"person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"senior management" of a person which is a corporation means such
person's executive officers.
"subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Sections, Annexes or Schedules,
such reference shall be to a Section of, or Annex or Schedule to, this Agreement
unless otherwise indicated. The table of contents, tie sheet and headings
contained in this Agreement are for ease of reference only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation". Any singular term in this Agreement
shall be deemed to include the plural, and any plural term the singular.
SECTION 7.2 Survival. The representations, warranties and agreements
--------
of the parties set forth in this Agreement shall not survive the Effective Time,
and shall be terminated and extinguished at the Effective Time, and from and
after the Effective Time none of the parties hereto shall have any liability to
the other on account of any breach or failure of any of those representations,
warranties and agreement; provided, however, that the foregoing clause shall not
-------- -------
(i) apply to agreements of the parties which by their terms are intended to be
performed either in whole or in part after the Effective Time, and (ii) shall
not relieve any person of liability for fraud, deception or intentional
misrepresentation.
SECTION 7.3 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and their respective
successors and assigns, and, other than the right to receive the consideration
payable in the Merger pursuant to Article I hereof, is not intended to and shall
not confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
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<PAGE>
SECTION 7.4 Waiver and Amendment. Prior to the Effective Time, any
--------------------
provision of this Agreement may be: (i) waived by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties hereto approved
by their respective boards of directors, except that no amendment or waiver may
be made that would change the form or the amount of the Merger Consideration or
otherwise have the effect of prejudicing the AI shareholders' interest in the
Merger Consideration following the AI Meeting.
SECTION 7.5 Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
SECTION 7.6 Governing Law. This Agreement shall be governed by, and
-------------
interpreted in accordance with, the laws of the Commonwealth of Pennsylvania,
or, to the extent it may control, federal law, without reference to the choice
of law principles thereof.
SECTION 7.7 Expenses. Subject to the provisions of Section 6.3
--------
hereof, each party hereto will bear all expenses incurred by it in connection
with this Agreement and the transactions described herein; provided, however,
that all filing and other fees (other than federal and state income taxes)
required to be paid to any governmental agency or authority in connection with
the consummation of the transactions described herein shall be paid by SBI.
SECTION 7.8 Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
C-59
<PAGE>
If to AI, to:
Atcorp, Inc.
Sagemore Corporate Center
Route 73 and Marlton Parkway
Marlton, NJ 08053
Attention: Marc L. Reitzes
With copies to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street
51st Floor
Philadelphia, PA 17103-7599
Attention: Justin P. Klein, Esquire
If to ENB, to:
Equity National Bank
Sagemore Corporate Center
Route 73 and Marlton Parkway
Marlton, NJ 08053
Attention: Marc L. Reitzes
With copies to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street
51st Floor
Philadelphia, PA 17103-7599
Attention: Justin P. Klein, Esquire
If to SBI, to:
Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger, President
and Chief Executive Officer
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<PAGE>
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
and Wendy L. Holden, Esquire
If to SBI Merger Sub, to:
Susquehanna Bancshares East, Inc.
c/o Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger, President
and Chief Executive Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
and Wendy L. Holden, Esquire
SECTION 7.9 Entire Agreement; Etc. This Agreement, together with
---------------------
such other agreements as are executed by the parties in connection herewith, on
the date hereof, represent the entire understanding of the parties hereto with
reference to the transactions described herein and supersede any and all other
oral or written agreements heretofore made, including, without limitation, the
Confidentiality Agreement. All terms and provisions of this Agreement, together
with such other agreements as are executed by the parties in connection
herewith, on the date hereof, shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Nothing in this Agreement is intended to confer upon any other person any rights
or remedies of any nature whatsoever under or by reason of this Agreement except
as expressly provided.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the day and year first above
written.
SUSQUEHANNA BANCSHARES, INC.
By: /s/ Robert S. Bolinger
-------------------------------
Title: President and CEO
SUSQUEHANNA BANCSHARES EAST, INC.
By: /s/ Wendy L. Holden
------------------------------
Title: Incorporator
ATCORP, INC.
By: /s/ Marc Reitzes
---------------------------------
Title: Chairman and CEO
EQUITY NATIONAL BANK
By: /s/ Marc Reitzes
---------------------------------
Title: Chairman and CEO
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<PAGE>
SCHEDULE 1.2
Exchange Provisions
-------------------
So long as the Average Price Per Share of SBI Common Stock Before
Closing is between $25.00 and $31.00, then, 771,750 shares of SBI Common Stock
shall be exchanged for all of the outstanding AI Common Stock. In the event the
date set forth in Section 7.1(f) is extended beyond the record date set for
SBI's second quarterly dividend for 1997 and if the Effective Time has not
occurred prior to or on such record date (for SBI's second quarterly dividend of
1997), then AI shall receive 776,750 shares of SBI Common Stock rather than
771,750 shares of SBI Common Stock.
The Average Price Per Share of SBI Common Stock Before Closing shall
be determined by adding the price at which SBI Common Stock is reported to have
closed by The Nasdaq Stock Market (or if SBI Common Stock is not quoted on The
Nasdaq Stock Market then as reported by a recognized source as to the principal
trading market on which such shares are traded) over the period of ten business
days ending on the second business day preceding the date set for Closing,
pursuant to Section 1.1(b) hereof, and dividing such total by 10 (such Average
Price Per Share Before Closing is also referred to as the "Average Closing
Price").
The Exchange Ratio will be determined by dividing the total number of
shares of SBI Common Stock to be issued as provided above (subject to adjustment
in accordance with Section 1.2(c) hereof), by the total number of shares of AI
Common Stock outstanding on the Effective Date.
AI shall have the right to terminate this Agreement, in accordance
with Section 6.1(d), if the Average Price Per Share of SBI Common Stock Before
Closing is less than $25.00 (subject to adjustment in accordance with Section
1.2(c) herein). SBI shall have the right to terminate this Agreement, in
accordance with Section 6.1(e), if the Average Price Per Share of SBI Common
Stock Before Closing is greater than $31.00 (subject to adjustment in accordance
with Section 1.2(c) herein); provided, however, if such price is greater than
$31.00 (subject to adjustment in accordance with Section 1.2(c) herein) and SBI
does not exercise its termination right pursuant to Section 6.1(e),
<PAGE>
then all of the shares of AI shall be exchanged for the number of shares of SBI
Common Stock as though the Average Price Per Share of SBI Common Stock Before
Closing had been $31.00.
<PAGE>
APPENDIX D
FBC MERGER AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF AFFILIATION
DATED AS OF THE 18th DAY OF JULY, 1996
BY AND AMONG
SUSQUEHANNA BANCSHARES, INC.,
SUSQUEHANNA BANCSHARES EAST II, INC.,
FARMERS BANC CORP.
AND
FARMERS NATIONAL BANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
ARTICLE I. THE PLAN OF MERGER........................................... D-1
SECTION 1.1 The Merger and Bank Acquisition; Closing;
Effective Time.............................................. D-1
SECTION 1.2 Effect on Outstanding Shares............................ D-2
SECTION 1.3 Surrender and Exchange of FBC
Certificates.................................................... D-3
SECTION 1.4 Dissenters' Rights...................................... D-5
SECTION 1.5 Other Matters........................................... D-5
ARTICLE II. CONDUCT PENDING THE MERGER AND BANK ACQUISITION
................................................................... D-6
SECTION 2.1 Conduct of FBC's and FNB's Businesses
Prior to the Effective Time..................................... D-6
SECTION 2.2 Forbearance by FBC or FNB............................... D-6
SECTION 2.3 Cooperation............................................. D-7
SECTION 2.4 Conduct of SBI's Business Prior to the
Effective Time.................................................. D-7
ARTICLE III. REPRESENTATIONS AND WARRANTIES............................. D-8
SECTION 3.1 Representations and Warranties of FBC and
FNB................................................... D-8
SECTION 3.2 Representations and Warranties of SBI and
its Material Subsidiaries............................. D-24
ARTICLE IV. COVENANTS.................................................. D-31
SECTION 4.1 Acquisition Proposals................................... D-31
SECTION 4.2. Securities Registration and Disclosure.................. D-32
SECTION 4.3 Employees............................................... D-33
SECTION 4.4 Access and Information.................................. D-35
SECTION 4.5 Certain Filings, Consents and
Arrangements.................................................... D-37
SECTION 4.6 Takeover Statutes....................................... D-37
SECTION 4.7 Additional Agreements................................... D-37
SECTION 4.8 Publicity............................................... D-38
SECTION 4.9 Shareholder's Meeting................................... D-38
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.10 Notification of Certain Matters......................... D-38
SECTION 4.11 Insurance............................................... D-39
SECTION 4.12 Dividends............................................... D-39
SECTION 4.13 Indemnification......................................... D-39
ARTICLE V. CONDITIONS TO CONSUMMATION.................................... D-40
SECTION 5.1 Conditions to Closing.................................... D-40
SECTION 5.2 Conditions to Obligations of SBI and SBI
Merger Sub II.................................................... D-43
SECTION 5.3 Conditions to the Obligations of FBC and
FNB.............................................................. D-44
ARTICLE VI. TERMINATION.................................................. D-45
SECTION 6.1 Termination.............................................. D-45
SECTION 6.2 Effect of Termination.................................... D-46
SECTION 6.3 Expenses................................................. D-46
ARTICLE VII. OTHER MATTERS............................................... D-47
SECTION 7.1 Certain Definitions; Interpretation...................... D-47
SECTION 7.2 Survival................................................. D-47
SECTION 7.3 Parties in Interest...................................... D-48
SECTION 7.4 Waiver and Amendment..................................... D-48
SECTION 7.5 Counterparts............................................. D-48
SECTION 7.6 Governing Law............................................ D-48
SECTION 7.7 Expenses................................................. D-48
SECTION 7.8 Notices.................................................. D-49
SECTION 7.9 Entire Agreement; Etc.................................... D-50
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF AFFILIATION dated as of the 18th day of July,
1996 (this "Plan" or this "Agreement"), by and among Susquehanna Bancshares,
Inc., a Pennsylvania corporation ("SBI"), Susquehanna Bancshares East II, Inc.,
a New Jersey corporation ("SBI Merger Sub II"), Farmers Banc Corp., a New Jersey
corporation ("FBC"), and Farmers National Bank, a national banking association
("FNB").
RECITALS:
WHEREAS, the boards of directors of SBI, SBI Merger Sub II and FBC
have each determined that it is in the best interests of their respective
shareholders for SBI to acquire FBC and FNB by means of a merger of SBI Merger
Sub II with and into FBC (the "Merger") as a result of which FBC will become a
direct wholly-owned subsidiary of SBI and FNB will become a second-tier
subsidiary of SBI (the "Bank Acquisition"), all upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the parties desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement and to
set forth the conditions to the Merger and the Bank Acquisition; and
WHEREAS, FBC and SBI desire to merge in the manner provided for herein
and to adopt this Agreement as a plan of reorganization and to consummate such
plan in accordance with the provisions of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this Agreement and
prescribe the terms and conditions hereof and the manner and basis of carrying
it into effect, which shall be as follows:
ARTICLE
I. THE PLAN OF MERGER
SECTION 1.1 The Merger and Bank Acquisition; Closing; Effective Time.
--------------------------------------------------------
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the State
<PAGE>
of New Jersey at the Effective Time (as defined in Section 1.1(c)), SBI Merger
Sub II shall be merged with and into FBC and the separate corporate existence of
SBI Merger Sub II shall thereupon cease. FBC shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving Corporation")
and shall continue to be governed by the laws of the State of New Jersey and
shall continue to be a registered bank holding company under the Bank Holding
Company Act of 1956, as amended, and the separate corporate existence of FBC
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger. The name of the Surviving Corporation shall
be "Susquehanna Bancshares East II, Inc." The Merger shall have the effects
specified in the New Jersey Business Corporation Act, as amended ("NJBCA").
(b) The closing of the Merger and the Bank Acquisition (the "Closing")
shall take place contemporaneously at such place and time and on such date,
following three (3) business days' notice to FBC, as shall be agreed upon by all
parties, which date shall not be later than the 22nd business day after (i) the
last approval required of any of the Regulatory Agencies (as defined at Section
5.1(b)) is granted and any related waiting periods expire, (ii) the lifting,
discharge or dismissal of any stay of any such governmental approval or of any
injunction against the Merger or the Bank Acquisition and (iii) all shareholder
approvals required by the parties hereunder are received.
(c) Immediately following the Closing, and provided that this
Agreement has not been terminated or abandoned pursuant to Article VI hereof,
SBI Merger Sub II and FBC will cause a certificate of merger ("Certificate of
Merger") to be properly prepared and completed and filed with the Secretary of
State of New Jersey. The Merger shall become effective at 12:01 a.m. on the day
following the day on which the Certificate of Merger has been duly filed and
accepted by the Secretary of State of New Jersey (the "Effective Time"). The
"Effective Date" when used herein means the day on which the Effective Time for
the Merger occurs.
(d) At the Effective Time, the certificate of incorporation and bylaws
of SBI Merger Sub II in effect immediately prior to the Effective Time shall
continue as the certificate and bylaws of the Surviving Corporation. At the
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Effective Time, the directors and officers of SBI Merger Sub II immediately
prior to the Effective Time shall be and become the directors and officers of
the Surviving Corporation.
SECTION 1.2 Effect on Outstanding Shares.
----------------------------
(a) At the Effective Time, by virtue of the Merger, automatically and
without any action on the part of the holder thereof, subject to the provisions
of Section 1.3 hereof with respect to the payment of fractional shares in cash
and Section 1.4 hereof with respect to dissenters' rights, if any, each share of
common stock, par value $.83 per share, of FBC (the "FBC Common Stock") issued
and outstanding at the Effective Time (other than (i) shares the holders of
which (each a "Dissenting Stockholder") are exercising appraisal rights pursuant
to the NJBCA (the "Dissenters' Shares"), if any, and (ii) shares held directly
or indirectly by SBI, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) shall become and be converted into
the right to receive shares of Common Stock par value $2.00 per share, of SBI
("SBI Common Stock") determined in conformity with the Exchange Ratio set forth
at Schedule 1.2 hereof (such SBI Common Stock, determined on the basis of the
Exchange Ratio, as to each FBC shareholder and, collectively, to all FBC
shareholders is the "Merger Consideration"). As of the Effective Time, each
share of FBC Common Stock held directly or indirectly by SBI, other than shares
held in a fiduciary capacity or in satisfaction of a debt previously contracted,
shall be cancelled and retired and cease to exist, and no exchange or payment
shall be made with respect thereto.
(b) The shares of common stock of SBI Merger Sub II issued and
outstanding immediately prior to the Effective Time, by virtue of and after the
Merger, shall be converted into and thereafter constitute the issued and
outstanding shares of the capital stock of the Surviving Corporation.
(c) If prior to the Effective Time, the outstanding shares of SBI
Common Stock shall have been increased, decreased, changed into or exchanged for
a different number or kind of shares or securities through a reclassification,
stock dividend, stock split or reverse stock split, or other similar change,
appropriate adjustment shall be made to the Exchange Ratio.
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SECTION 1.3 Surrender and Exchange of FBC Certificates.
------------------------------------------
(a) Within five (5) business days after the Effective Time, SBI shall
cause to be sent to each person who immediately prior to the Effective Time was
a holder of record of FBC Common Stock transmittal materials and instructions
for surrendering certificates for FBC Common Stock ("Old Certificates") in
exchange for a certificate for the number of whole shares of SBI Common Stock to
which such person is entitled under Section 1.2 hereof.
(b) No certificates for fractional shares of SBI Common Stock shall be
issued in connection with the Merger. In lieu thereof, SBI shall issue to any
holder of FBC Common Stock certificates otherwise entitled to a fractional
share, upon surrender of such certificates in accordance with the instructions
furnished by SBI, a check for an amount of cash equal to the fraction of a share
of SBI Common Stock represented by the certificates so surrendered multiplied by
the Average Price Per Share of SBI Common Stock Before Closing as determined in
conformity with Schedule 1.2.
(c) If the record date of any dividend on SBI Common Stock occurs
after the Effective Time, the declaration shall include dividends on all whole
shares of SBI Common Stock into which shares of FBC Common Stock have been or
will be converted under this Agreement, but no former holder of FBC Common Stock
shall be entitled to receive payment of any such dividend until surrender of the
shareholder's Old Certificates shall have been effected in accordance with the
instructions furnished by SBI. Upon surrender for exchange of a shareholder's
Old Certificates, such shareholder shall be entitled to receive from SBI an
amount equal to all such dividends, without interest thereon and less the amount
of taxes, if any, which may have been imposed or paid thereon, declared, and for
which the payment date has occurred, on the whole shares of SBI Common Stock
into which the shares represented by such Old Certificates have been converted.
(d) After the Effective Time, there shall be no transfer on the stock
transfer books of FBC or SBI of shares of FBC Common Stock. If Old Certificates
are presented for transfer after the Effective Time, they shall be cancelled and
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certificates representing whole shares of SBI Common Stock (and a check in lieu
of any fractional share) shall be issued in exchange therefor as provided
herein.
(e) In the event that any Old Certificates have not been surrendered
for exchange in accordance with this Section on or before the second anniversary
of the Effective Time, SBI may at any time thereafter, with or without notice to
the holders of record of such Old Certificates, sell for the accounts of any or
all of such holders any or all of the shares of SBI Common Stock which such
holders are entitled to receive under Section 1.2 hereof (the "Unclaimed
Shares"). Any such sale may be made by public or private sale or sale at any
broker's board or on any securities exchange in such manner and at such times as
SBI shall determine. If, in the opinion of counsel for SBI, it is necessary or
desirable, any Unclaimed Shares may be registered for sale under the Securities
Act of 1933, as amended (the "Securities Act") and applicable state laws. SBI
shall not be obligated to make any sale of Unclaimed Shares if it shall
determine not to do so, even if notice of sale of the Unclaimed Shares has been
given. The net proceeds of any such sale of Unclaimed Shares shall be held for
holders of the unsurrendered Old Certificates whose Unclaimed Shares have been
sold, to be paid to them upon surrender of the Old Certificates. From and after
any such sale, the sole right of the holders of the unsurrendered Old
Certificates whose Unclaimed Shares have been sold shall be the right to collect
the net sale proceeds held by SBI for their respective accounts, and such
holders shall not be entitled to receive any interest on such net sale proceeds
held by SBI.
(f) If outstanding certificates for shares of FBC Common Stock are not
surrendered prior to the date on which such certificates would otherwise escheat
to or become the property of any governmental unit or agency, the unclaimed
items shall, to the extent permitted by abandoned property and any other
applicable law, become the property of SBI (and to the extent not in its
possession shall be paid over to it), free and clear of all claims or interest
of any person previously entitled to such claims. Notwithstanding the
foregoing, neither SBI nor its agents or any other person shall be liable to any
former holder of FBC Common Stock for any property delivered to a public
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official pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Old Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Old Certificate to be lost, stolen or destroyed and, if required by SBI,
the posting by such person of a bond in such amount as SBI may direct as
indemnity against any claim that may be made against it with respect to such Old
Certificate, SBI will issue in exchange for such lost, stolen or destroyed Old
Certificate, the shares of SBI Common Stock into which the FBC Common Stock
represented by such Old Certificate has been converted pursuant to this
Agreement.
SECTION 1.4 Dissenters' Rights. In accordance with the provisions of
------------------
Section 14A:11-1 of the NJBCA, the FBC Shareholders are not entitled to
Dissenters' Rights.
SECTION 1.5 Other Matters. Notwithstanding any term of this
-------------
Agreement to the contrary, SBI may, in its discretion at any time prior to the
Effective Time, designate a direct or indirect wholly-owned subsidiary to
substitute for SBI Merger Sub II as a constituent corporation in the Merger by
written notice to FBC so long as the exercise of this right does not materially
adversely affect the interests of the FBC shareholders, or cause a material
delay in consummation of the transactions contemplated herein. SBI shall also
have the right to cause SBI Merger Sub II or such substitute, to be the
surviving corporation of the Merger, so long as the exercise of such right does
not have a material adverse effect on the interests of the holders of the
capital stock of FBC, or cause a material delay in, or otherwise adversely
affect, consummation of the transactions described herein; if such right is
exercised, and such substitute corporation is organized under the laws of
another state, this Agreement shall be deemed to be modified to accord such
change, including, without limitation, that the laws of such other state,
together with the Laws of New Jersey, will govern in the Merger if such
substitute corporation shall be the survivor. Nothing in this Agreement shall
be deemed to restrict the ability of SBI or any of its subsidiaries to merge
with or with and into another entity so long as no such other transaction shall
materially adversely affect the parties' ability to consummate the Bank
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Acquisition or cause a material delay in, or otherwise adversely affect,
consummation of the transactions contemplated herein.
ARTICLE II. CONDUCT PENDING THE MERGER AND BANK ACQUISITION
SECTION 2.1 Conduct of FBC's and FNB's Businesses Prior to the
--------------------------------------------------
Effective Time.
--------------
Except as expressly provided in this Agreement, during the period from
the date of this Agreement to the Effective Time, FBC and FNB shall (and the
word "it" in this Article II refers to each of FBC, FNB, and each subsidiary of
either, as the case may be) (i) conduct its business in the usual, regular and
ordinary course consistent with past practice, (ii) maintain and preserve intact
in all material respects its business organization, assets, leases, properties,
investment securities, employees and advantageous business relationships and use
its reasonable efforts to retain the services of its officers and key employees,
(iii) not knowingly take any action which would materially adversely affect or
delay its ability to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions described herein or to
perform its covenants and agreements on a timely basis under this Agreement, and
(iv) not knowingly take any action that is reasonably likely to have a Material
Adverse Effect (as defined in Section 7.1 hereof) on FBC or FNB.
SECTION 2.2 Forbearance by FBC or FNB. During the period from the
-------------------------
date of this Agreement to the Effective Time, neither FBC nor FNB shall, without
the prior written consent of SBI, which consent shall not be unreasonably
withheld:
(a) other than in the ordinary course of business consistent with past
practice, make any advance or loan or incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
for, the obligations of any individual, corporation or other person.
(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend other than the semiannual regular cash dividend and
special cash dividend referred to in Section 4.12 or make any distribution on,
or directly or indirectly redeem, purchase or otherwise acquire, any
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shares of its capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or grant any stock
appreciation rights or grant, sell or issue to any individual, corporation or
other person any shares of its capital stock or any right to acquire, or
securities evidencing a right to convert into or acquire any shares of its
capital stock, or issue any additional shares of capital stock;
(c) other than in the ordinary course of business consistent with past
practice and pursuant to policies, if any, currently in effect, sell, transfer,
mortgage, encumber or otherwise dispose of any of its properties, leasehold
interests or assets to any individual, corporation or other entity, or cancel,
release or assign any indebtedness of any such person or any contracts or
agreements as in force at the date of this Agreement;
(d) increase in any manner the compensation or fringe benefits of any
of its employees or pay any pension or retirement allowance not required by law
or by any existing plan or agreement to any such employees, or become a party
to, amend or commit itself to any pension, retirement, profit-sharing or welfare
benefit plan or agreement or employment agreement with or for the benefit of any
employee, other than general increases in compensation in the ordinary course of
business consistent with past practice not in excess of 4%, on an aggregated
basis, in any 12-month period, and payment of bonuses in the ordinary course, or
voluntarily accelerate the vesting of any other compensation or benefit;
(e) amend FNB's charter or the certificate of incorporation of FBC
(the "FBC Certificate"), or the bylaws of either, except as expressly
contemplated by this Agreement or required by law or regulation, in each case as
concurred in by its counsel;
(f) except as set forth in Annex 2.2(f) hereto, change its method of
accounting as in effect at December 31, 1995, except as required by changes in
generally accepted accounting principles or required by law or regulation, in
each case, as concurred in by its independent auditors; or
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(g) permit or allow its direct or indirect ownership of the capital
stock of any subsidiary described in the annex hereto to be less than 100% of
their respective total capital stock.
SECTION 2.3 Cooperation. FBC and FNB each shall cooperate with SBI
-----------
and SBI Merger Sub II and SBI and SBI Merger Sub II each shall cooperate with
FBC and FNB in completing the transactions described herein and each shall not
take, cause to be taken or agree or make any commitment to take any action: (i)
that would cause any of the representations or warranties of it that are set
forth in Article III hereof not to be true and correct in all material respects,
or (ii) in the case of FBC or FNB, that is inconsistent with or prohibited by
Section 2.1 or Section 2.2.
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time.
-----------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, SBI shall not knowingly take any action
and shall not knowingly cause its Material Subsidiaries (as hereinafter defined)
to take any action which would materially adversely affect or delay its ability
to obtain any necessary approvals, consents or waivers of any governmental
authority required for the transactions described herein or that is reasonably
likely to have a Material Adverse Effect on SBI, on a consolidated basis.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of FBC and FNB. FBC and
---------------------------------------------
FNB represent and warrant to SBI and SBI Merger Sub II (and the word "it" in
this Article III refers to each of FBC, FNB, and each subsidiary of either, as
the case may be), that, except as specifically disclosed in the Annex of
disclosure schedules included herewith, to the best of its knowledge:
(a) Corporate Organization and Qualification. FBC is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of New Jersey and is in good standing as a foreign corporation in each
jurisdiction where the properties owned, leased or operated, or the business
conducted, by FBC requires such qualification, except for such failure to
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qualify or be in such good standing which, when taken together with all other
such failures, would not have a Material Adverse Effect on FBC and its
subsidiaries, taken as a whole. FBC is a bank holding company duly registered
with the Board. FNB is a national banking association duly organized and in
good standing under the laws of the United States of America. FBC and FNB each
has the requisite corporate and other power and authority (including all
federal, state, local and foreign governmental authorizations) to carry on their
respective businesses as they are now being conducted and to own their
respective properties and assets. FBC has made available to SBI and SBI Merger
Sub II a complete and correct copy of the FBC Certificate and charter of FNB and
the bylaws of each, such charter or FBC Certificate as well as the bylaws of
each are in full force and effect as of the date hereof.
(b) Authorized Capital. The authorized capital stock of FBC consists
of 500,000 shares of FBC Common Stock of which approximately 303,600 shares of
FBC Common Stock were issued and outstanding as of the date of this Agreement.
All of the outstanding capital stock of FNB is held by FBC. All of the
outstanding shares of capital stock of FBC and FNB have been duly authorized and
are validly issued, fully paid and nonassessable (except in the case of FNB, as
provided at 12 U.S.C.A. (S) 55). Neither FBC nor FNB has any shares of capital
stock reserved for issuance. Neither FBC nor FNB has any outstanding bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or convertible into or exercisable for securities having the right to
vote) with shareholders on any matter. The shares of FNB Common Stock owned by
FBC are owned free and clear of all liens, pledges, security interests, claims
or other encumbrances. The outstanding shares of capital stock of FBC and FNB
have not been issued in violation of any preemptive rights. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of FBC or FNB. After the Effective
Time neither SBI nor SBI Merger Sub II will have any obligation to issue,
transfer or sell any shares of capital stock pursuant to any Employee Plan (as
defined in Section 3.1(m)).
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(c) Subsidiaries. The only subsidiaries of FBC are as listed and
described at Annex 3.1(c). The only subsidiaries of FNB are listed and
described at Annex 3.1(c).
Each such subsidiary is duly organized and existing as a corporation,
is in good standing under the laws of the jurisdiction in which it was
organized, and has adequate corporate power to carry on its business as now
conducted. All of the outstanding capital stock of all such subsidiaries has
been validly issued, is fully paid and nonassessable (except in the case of FNB,
as provided at 12 U.S.C.A. (S) 55) and is owned by FBC or FNB, free and clear of
all liens, security interests and encumbrances. All such subsidiaries, other
than FNB, are organized under Delaware law and make no use of fictitious names
in the conduct of their respective businesses.
(d) Corporate Authority. Subject only to approval of this Agreement
by the holders of the number of votes required by the FBC Certificate or bylaws
of FBC cast by all holders of FBC Common Stock (without any minority, class or
series voting requirement), and, subject to the regulatory approvals specified
in Section 5.1(b) hereof, FBC and FNB each has the requisite corporate power and
authority, and legal right, and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
applicable to either FBC or FNB described herein. This Agreement has been duly
and validly executed and delivered by FBC and FNB and constitutes the valid and
binding obligations of FBC and FNB enforceable against each, in accordance with
its terms, except to the extent enforcement is limited by bankruptcy, insolvency
and other similar laws affecting creditors' rights or the application by a court
of equitable principles.
(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, and the consummation of the transactions described
herein by it will not, constitute (i) subject to receipt of the required
regulatory approvals specified in Section 5.1(b), a breach or violation of, or a
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, to which it (or any of its respective
properties) is subject, which breach, violation or default would have a Material
Adverse Effect on it, or enable any person to enjoin the Merger or the Bank
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Acquisition, (ii) a breach or violation of, or a default under, the FBC
Certificate or the charter of FNB or bylaws of either of them, (iii) a breach of
any duty owed by FBC to FNB, or any person holding an interest in FNB, or (iv)
except as disclosed in Annex 3.1(e), a breach or violation of, or a default
under (or an event which with due notice or lapse of time or both would
constitute a default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of it
under any of the terms, conditions or provisions of any note, bond, indenture,
deed of trust, loan agreement or other agreement, instrument or obligation to
which it is a party, or to which any of their respective properties or assets
may be bound or affected, except for any of the foregoing that, individually or
in the aggregate, would not have a Material Adverse Effect on it or enable any
person to enjoin the Merger or the Bank Acquisition; and the consummation of the
transactions described herein will not require any approval, consent or waiver
under any such law, rule, regulation, judgment, decree, order, governmental
permit or license or the approval, consent or waiver of any other party to any
such agreement, indenture or instrument, other than (i) the required approvals,
consents and waivers of governmental authorities referred to in Section 5.1(b)
and (ii) the approval of its shareholders referred to in Section 3.1(d), (iii)
any such approval, consent or waiver that already has been obtained and (iv) any
other approvals, consents or waivers, the absence of which, individually or in
the aggregate, would not result in a Material Adverse Effect on it or enable any
person to enjoin the Merger or the Bank Acquisition.
(f) Reports.
i. FBC's consolidated statement of financial condition as of
December 31, 1995 previously provided to SBI and each statement of financial
condition provided after the date hereof to SBI (including in each case any
related notes and schedules) as required by Section 4.4 hereof fairly presents
or will fairly present the financial position of it as of its date and each of
the consolidated statements of income and shareholders' equity and of cash flows
provided therewith (including in each case any related notes and schedules),
fairly presents or will fairly present the results of operations,
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stockholders' equity and cash flows, as the case may be, of it for the periods
set forth therein (subject, in the case of unaudited interim statements, to
normal year-end audit adjustments that are not material in amount or effect), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein.
ii. Except as set forth in Annex 3.1(f), it has timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file since
January 1, 1993 with (A) the Office of the Comptroller of the Currency (the
"OCC"), (B) the Federal Deposit Insurance Corporation (the "FDIC"), (C) the
Board of Governors of the Federal Reserve System (the "Board"), and (D) any
state banking commission or other regulatory authority (collectively, the
Regulatory Agencies listed in (A) through (D) are the "FBC Regulatory
Agencies"), and all other material reports and statements required to be filed
by it since January 1, 1993, including, without limitation, any report or
statement required to be filed pursuant to the laws, rules or regulations of the
United States or any FBC Regulatory Agency and has paid all fees and assessments
due and payable in connection therewith, and no such report, registration or
statement contains any material misstatement or omission or is otherwise in
material noncompliance with any law, regulation or requirement.
iii. FBC is not a reporting company registered under The
Securities Exchange Act of 1934, as amended.
(g) Absence of Certain Changes or Events. Since January 1, 1996, to
the date hereof, it has not incurred any material liability, except in the
ordinary course of its business consistent with past practice, nor has there
been any change in the financial condition, properties, assets, business,
results of operations or prospects of it which, individually or in the
aggregate, has had, or might reasonably be expected to result in, a Material
Adverse Effect on it.
(h) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through December 31, 1993. All
federal, state, local and foreign
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tax returns required to be filed by it or on its behalf have been timely filed
or requests for extensions have been timely filed and any such extension shall
have been granted and not have expired, and, to the knowledge of management, all
such filed returns are complete and accurate in all material respects. All
taxes shown on such returns, and all taxes required to be shown on returns for
which extensions have been granted, have been paid in full or adequate provision
has been made for any such taxes on its balance sheet (in accordance with
generally accepted accounting principles) other than those taxes which are being
contested in appropriate forums in proceedings which are being diligently
pursued. Adequate provision has been made on its balance sheet (in accordance
with generally accepted accounting principles consistently applied) for all
federal, state, local and foreign tax liabilities for periods subsequent to
those for which returns have been filed. There is no audit examination,
deficiency, or refund litigation pending or, to the knowledge of FBC or FNB,
threatened, with respect to any taxes that could result in a determination that
would have a Material Adverse Effect on it. All taxes, interest, additions and
penalties due with respect to completed and settled examinations or concluded
litigation relating to it have been paid in full or adequate provision has been
made for any such taxes on its balance sheet (in accordance with generally
accepted accounting principles). It has not executed an extension or waiver of
any statute of limitations on the assessment or collection of any tax due that
is currently in effect.
(i) Litigation and Liabilities. Except as set forth in Annex 3.1(i),
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened against it or
involving any Employee Plan as defined at subsection (m) hereof or (ii)
obligations or liabilities, whether or not accrued, contingent or otherwise,
including, without limitation, those relating to environmental and occupational
safety and health matters, or any other facts or circumstances of which its
management is aware that could reasonably be expected to result in any claims
against or obligations or liabilities of it, that, alone or in the aggregate,
are reasonably likely to have a Material Adverse Effect on it or to hinder or
delay, in any
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material respect, consummation of the transactions contemplated by this
Agreement.
(j) Absence of Regulatory Actions. It is not a party to any cease and
desist order, written agreement or memorandum of understanding with, or a party
to any commitment letter or similar undertaking to, or subject to any order or
directive by, or a recipient of any extraordinary supervisory letter from, nor
has it adopted any board resolutions at the request of, federal or state
governmental authorities, including, without limitation, the FBC Regulatory
Agencies, charged with the supervision or regulation of national banking
associations or bank holding companies or engaged in the insurance of bank
deposits nor has it been advised by any FBC Regulatory Agency that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter, board
resolution or similar undertaking.
(k) Agreements.
i. Except as set forth Annex 3.1(k) attached hereto, as of the
date of this Agreement it is not a party to, or bound by, any oral or written:
(A) "material contract" as such term is defined in Item
601(b)(10) of Regulation S-K promulgated by the Securities and Exchange
Commission;
(B) consulting agreement not terminable on thirty (30) days'
or less notice involving the payment of more than $10,000 per annum, in the case
of any such agreement;
(C) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of the transactions described in this Agreement;
(D) agreement with respect to any officer providing any term
of employment or compensation guarantee extending for a period longer than one
year or for a payment in excess of $75,000;
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(E) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan, restricted stock plan
or stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions described in this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
described in this Agreement;
(F) agreement containing covenants that limit its ability to
compete in any line of business or with any person, or that involve any
restriction on the geographic area in which, or method by which, it may carry on
its business (other than as may be required by law or any regulatory agency);
(G) agreement, contract or understanding, other than this
Agreement, regarding the capital stock of FBC and/or FNB or committing to
dispose of some or all of the capital stock or substantially all of the assets
of FBC and/or FNB; or
(H) collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization.
ii. It is not in default under or in violation of any provision
of any note, bond, indenture, mortgage, deed of trust, loan agreement, lease or
other agreement to which it is a party or by which it is bound or to which any
of its respective properties or assets is subject, other than such defaults or
violations as could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect on it.
(l) Labor Matters. Except as disclosed in Annex 3.1(l), it is not the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike, other labor dispute
or organizational effort involving it pending or threatened.
(m) Employee Benefit Plans. Annex 3.1(m) contains a complete list of
all pension, retirement, stock option, stock purchase, stock ownership, savings,
stock appreciation right, profit sharing, deferred compensation, consulting,
bonus, group
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insurance, severance and other employee benefits, incentive and welfare
policies, contracts, plans and arrangements, and all trust agreements related
thereto, in respect to any of its present or former directors, officers, or
other employees (hereinafter referred to collectively as the "Employee Plans").
i. All of the Employee Plans comply in all material respects
with all applicable requirements of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), the Code and other applicable laws; has not
engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Employee Plan which is likely to
result in any material penalties, taxes or other events under Section 502(i) of
ERISA or Section 4975 of the Code which would have a Material Adverse Effect on
it;
ii. no liability to the Pension Benefit Guaranty Corporation has
been or is expected by it to be incurred with respect to any Employee Plan which
is subject to Title IV of ERISA ("Pension Plan"), or with respect to any
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA) currently or
formerly maintained by it or any entity which is considered one employer with
FBC or FNB under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate");
iii. no Pension Plan or single-employer plan of an ERISA
Affiliate had an "accumulated funding deficiency" (as defined in Section 302 of
ERISA (whether or not waived)) as of the last day of the end of the most recent
plan year ending prior to the date hereof; all contributions to any Pension Plan
or single-employer plan of an ERISA Affiliate that were required by Section 302
of ERISA and were due prior to the date hereof have been made on or before the
respective dates on which such contributions were due; the fair market value of
the assets of each Pension Plan or single-employer plan of an ERISA Affiliate
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or single-employer plan of an
ERISA Affiliate as of the end of the most recent plan year with respect to the
respective Pension Plan or single-employer plan of an ERISA Affiliate ending
prior to the date hereof, calculated on the basis of the actuarial assumptions
used in the most recent actuarial valuation for such Pension Plan or single-
employer plan of an ERISA Affiliate as of
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<PAGE>
the date hereof; no notice of a "reportable event" (as defined in Section 4043
of ERISA) for which the 30-day reporting requirement has not been waived has
been required to be filed for any Pension Plan or single-employer plan of an
ERISA Affiliate within the 12 month period ending on the date hereof.
iv. neither has it provided, nor is it required to provide, security
to any Pension Plan or to any single employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code;
v. neither it nor any ERISA Affiliate has contributed to any
"multi-employer plan," as defined in Section 3(37) of ERISA, on or after
September 26, 1980;
vi. each Employee Plan of it which is an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the Code (a "Qualified Plan") has received a
favorable determination letter from the Internal Revenue Service ("IRS")
covering the requirements of the Tax Equity and Fiscal Responsibility Act of
1982, the Retirement Equity Act of 1984 and the Deficit Reduction Act of 1984
and the Tax Reform Act of 1986; each such Employee Plan has been amended to
reflect the requirements of subsequent legislation applicable to such plans it
is not aware of any circumstances likely to result in revocation of any such
favorable determination letter; and each Qualified Plan has complied at all
relevant times in all material respects with all applicable requirements of
Section 401(a) of the Code;
vii. each Qualified Plan which is an "employee stock ownership plan"
(as defined in Section 4975(e)(7) of the Code) has at all relevant times
satisfied all of the applicable requirements of Sections 409 and 4975(e)(7) of
the Code and the regulations thereunder;
viii. neither it nor any ERISA Affiliate has committed any act or
omission or engaged in any transaction that has caused it to incur, or created a
material risk that it may incur, liability for any excise tax under Sections
4971 through 4980B of the Code, other than excise taxes which heretofore have
been paid and fully reflected in its financial statements;
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<PAGE>
ix. there is no pending or threatened litigation, administrative
action or proceeding relating to any Employee Plan other than routine claims for
benefits;
x. except as disclosed in Annex 3.1(m), there has been no
announcement or legally binding commitment by it to create an additional
Employee Plan, or to amend an Employee Plan except for amendments required by
applicable law which do not materially increase the cost of such Employee Plan,
and it does not have any obligations for retiree health and life benefits under
any Employee Plan that cannot be terminated without incurring any liability
thereunder;
xi. except as disclosed in Annex 3.1(m), the execution and delivery
of this Agreement and the consummation of the transactions described herein will
not result in any payment or series of payments by FBC or FNB to any person
which is an "excess parachute payment" (as defined in Section 280G of the Code)
under any Employee Plan, increase any benefits payable under any Employee Plan,
or accelerate the time of payment or vesting of any such benefit;
xii. except as disclosed in Annex 3.1(m), all annual reports have
been timely filed with respect to each Employee Plan, and it has made available
to SBI a true and correct copy of (A) reports on the applicable form of the Form
5500 series filed with the IRS for plan years beginning after 1987, (B) such
Employee Plan, including amendments thereto, (C) each trust agreement and
insurance contract relating to such Employee Plan, including amendments thereto,
(D) the most recent summary plan description for such Employee Plan, including
amendments thereto, if the Employee Plan is subject to Title I of ERISA, (E) the
most recent actuarial report or valuation if such Employee Plan is a Pension
Plan and (F) the most recent determination letter issued by the IRS if such
Employee Plan is a Qualified Plan.
xiii. except as disclosed in Annex 3.1(m), there are no retiree
health benefit plans except as required to be maintained by COBRA.
(n) Title to Assets. It has good and marketable title to its properties
and assets (other than property as to which it
D-19
<PAGE>
is lessee), except for (i) such items shown in the FBC consolidated financial
statements or notes thereto, (ii) liens on real property for current real estate
taxes not yet delinquent or (iii) such defects in title which would not,
individually or in the aggregate, have a Material Adverse Effect on it. With
respect to any property leased by it, there are no defaults by it, or any of the
other parties thereto, or any events which, with the giving of notice or lapse
of time or both, would become defaults by it or any of the other parties
thereto, under any of such leases, except for such defaults or events which
would not, individually or in the aggregate, have a Material Adverse Effect on
it; and all such leases are in full force and effect and are enforceable against
it, as the case may be, and there is no circumstance existing as of the date of
this Agreement which causes or would cause such leases to be unenforceable
against any of the other parties thereto except as the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights of creditors generally as well as principles of equity to the extent
enforcement by a court of equity is required.
(o) Compliance with Laws. It has all permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which could,
individually or in the aggregate, have a Material Adverse Effect on it; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and no suspension or cancellation of any of them is
threatened.
(p) Fees. Except as set forth in Annex 3.1(p) attached hereto,
neither it nor any of its respective officers, directors, employees or agents,
has employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for it in connection with the Agreement
or the transactions contemplated hereby.
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<PAGE>
(q) Environmental Matters. Except as disclosed in Annex 3.1(q):
i. (A) It, its Participation Facilities and its Loan
Properties (each as defined below) are, and have been, in material compliance
with all Environmental Laws (as defined below), except where non-compliance
would, either individually or in the aggregate, not have a Material Adverse
Effect on FBC or any of its subsidiaries taken as a whole. Set forth in Annex
3.1(q)(A) is a list of Participation Facilities or other real estate owned
("OREO") owned by it and the locations of such Participation Facilities or OREO;
(B) It, its Participation Facilities and its Loan
Properties hold all permits, licenses, registrations and other authorizations
(the "Environmental Permits") necessary under the Environmental Laws, and all
such Environmental Permits are currently in effect. The Environmental Permits
are listed in Annex 3.1(q)(B), and any that will expire or terminate as a result
of the transactions contemplated by this Agreement are so designated. It, its
Participation Facilities and its Loan Properties are in material compliance with
all the terms and conditions of such Environmental Permits and have not
materially violated any of them. Neither it, its Participation Facilities nor
its Loan Properties have received any notice of any proposal to amend, revoke,
reissue or replace any Environmental Permit, nor have any events occurred (other
than a change in applicable law) that could form a reasonable basis for any such
action. It, its Participation Facilities, and its Loan Properties have filed
timely and complete applications for renewal of any such Environmental Permits
that are required prior to the Closing.
(C) There is no suit, claim, action, demand, penalty,
executive or administrative order, directive, investigation or proceeding
pending or threatened before any court, governmental agency or board or other
forum against it or any Participation Facility (x) for alleged noncompliance
(including by any predecessor) with, or liability under, any Environmental Law
or (y) relating to the release into the environment of any Hazardous Material
(as defined below) or oil, whether or not occurring at or on a site owned,
leased or operated by it or any Participation Facility. As to all such
D-21
<PAGE>
matters set forth in Annex 3.1(q)(C), they do not, and will not, individually or
in the aggregate, have a Material Adverse Effect on FBC and its subsidiaries;
(D) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or
threatened before any court, governmental agency or board or other forum
relating to or against any Loan Property (or it in respect of such Loan
Property) (x) relating to alleged noncompliance (including by any predecessor)
with, or liability under, any Environmental Law or (y) relating to the release
into the environment of any Hazardous Material or oil, whether or not occurring
at or on a site owned, leased or operated by any Loan Property, except as to
such matters which, either individually or in the aggregate, would not have a
Material Adverse Effect on FBC and its subsidiaries taken as a whole;
(E) There is no reasonable basis for any suit, claim, action, demand,
executive or administrative order, directive or proceeding of a type described
in Section 3.1(q)(i)(C) or (D);
(F) The properties currently owned or operated (including, without
limitation, in a fiduciary capacity) by it (including, without limitation, soil,
groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) do not contain any Hazardous Material other than as permitted
under applicable Environmental Laws (provided, however, that with respect to
properties formerly owned or operated by it, such representation is limited to
the period it owned or operated such properties);
(G) It has not received any notice, demand letter, executive or
administrative order, directive or request for information from any federal,
state, local or foreign governmental entity or any third party indicating that
it may be in violation of, or liable under, any Environmental Law;
(H) There are no underground storage tanks on, in or under, and during
the period of its ownership and operation no underground storage tanks have been
closed or
D-22
<PAGE>
removed from, any properties or Participation Facility which are or have been in
its ownership;
(I) During the period of (l) its ownership or operation (including,
without limitation, in a fiduciary capacity) of any of its respective current
properties, (m) its participation in the management of any Participation
Facility, or (n) its holding of a security interest in a Loan Property, there
has been no release of Hazardous Material or oil in, on, under or affecting such
properties, except as permitted under applicable Environmental Laws or except in
quantities too small to be required to be reported to responsible government
oversight agencies. Prior to the period of (x) its ownership or operation of
any of its respective current properties, (y) its participation in the
management of any Participation Facility, or (z) its holding of a security
interest in a Loan Property, there was no release of Hazardous Material or oil
in, on, under or affecting any such property, Participation Facility or Loan
Property, except as permitted under applicable Environmental Laws or except in
quantities too small to be required to be reported to responsible government
oversight agencies; and
(J) There has not been and is not any Environmental Condition (as
hereinafter defined) at or relating to any property at which wastes have been
deposited or disposed by or at the behest or direction of it, its Participation
Facilities or its Loan Properties, nor has it, its Participation Facilities or
its Loan Properties received written notice of any such Environmental Condition.
For purposes of this Agreement the term "Environmental Condition" means any
condition or circumstance that (i) requires abatement or remediation under any
Environmental Law currently in effect, (ii) gives rise to any civil or criminal
liability under any Environmental Law currently in effect, or (iii) constitutes
a public or private nuisance based on the presence of Hazardous Materials, under
laws applicable on the Closing Date;
(K) There are no environmental liens on any properties owned or leased
by it or on its Loan Properties ("Properties") and no government actions which
could subject the Properties to such liens have been taken, are pending, or
threatened;
D-23
<PAGE>
(L) No notice or restriction relating to the presence of Hazardous
Materials is required to be placed in the deed to any property subject to this
Agreement and no property subject to this Agreement has such a notice or
restriction in its deed; and
(M) The only Loan Properties or Participation Facilities in which it
participates in management are those described in Annex 3.1(q)(i)(A) hereto.
ii. The following definitions apply for purposes of this Section 3.1(q):
(a) "Loan Property" means any property in which it holds a security interest
(except that with respect to loans which are secured by residential property,
all representation in this Section 3.1(q) are given to the best knowledge,
without inquiry), and where required by the context, includes the owner or
operator of such property, but only with respect to such property; (b)
"Participation Facility" means any facility in which it participates in the
management (including all property on which it conducts operations of its
business, or which is held as trustee or in any other fiduciary capacity) and,
where required by the context, includes the owner or operator of such property,
but only with respect to such property; (c) "Environmental Law" means (i) any
federal, state or local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, legal doctrine, order,
directive, executive or administrative order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (A) the
protection, preservation or restoration of the environment (which includes,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, structures, soil, surface land, subsurface land, plant and animal life
or any other natural resource), or to human health or safety, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect;
"Environmental Law" includes, without limitation, the federal Comprehensive
Environmental Response Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act, the federal Clean Air Act, the federal Clean
Water Act, the federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments
D-24
<PAGE>
thereto), the federal Solid Waste Disposal Act and the federal Toxic Substances
Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Occupational Safety and Health Act of 1970, the Federal Hazardous Materials
Transportation Act, or any so-called "Superfund" or "Superlien" law enacted by
any state having jurisdiction over any Loan Property or Participation Facility,
each as amended and as now in effect, and (ii) any common law or equitable
doctrine (including, without limitation, injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material; and (d)
"Hazardous Material" means any substance which is defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or by quantity,
including any substance containing any such substance as a component. Hazardous
Material includes, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste, industrial
substance, oil or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos-containing material, urea formaldehyde
foam insulation, lead and polychlorinated biphenyls, any of which is regulated
by, or subject to regulation under, any Environmental Law.
(r) Allowance. The allowance for loan and lease losses shown on FBC's
consolidated statement of financial condition as of December 31, 1995 was, and
the allowance for loan and lease losses shown on FBC's consolidated statement of
financial condition for periods ending after the date of this Agreement will be,
in the opinion of management of FBC and FNB, adequate, as of the date thereof,
under generally accepted accounting principles applicable to commercial banks
and bank holding companies and all other applicable regulatory requirements for
all losses reasonably anticipated in the ordinary course of business as of the
date thereof based on information available as of such date. It has disclosed
to SBI in writing prior to the date hereof the amounts of all loans, leases,
advances, credit enhancements, other extensions of credit, commitments and
interest-bearing assets of it that it has classified internally as "Other Loans
Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss,"
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<PAGE>
"Classified," "Criticized," "Credit Risk Assets," "Concerned Loans" or words of
similar import, and it shall promptly after the end of each quarter after the
date hereof and on the Effective Date inform SBI of the amount of each such
classification. The OREO and in-substance foreclosures included in any of its
non-performing assets are carried net of reserves at the lower of cost or market
value based on current independent appraisals or current management appraisals.
(s) Anti-takeover Provisions Inapplicable. The provisions of the
NJBCA relating to protection of shareholders do not apply to FBC, this
Agreement, the Merger, the Bank Acquisition and the transactions described
herein.
(t) Material Interests of Certain Persons. Except as noted in Annex
3.1(t), none of its respective officers or directors, or any "associate" (as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934) of
any such officer or director, has any material interest in any material contract
or property (real or personal), tangible or intangible, used in or pertaining to
its business.
(u) Insurance. It is presently insured, and has been insured, in the
amounts, with the companies and since the periods set forth in Annex 3.1(u).
All of the insurance policies and bonds maintained by it are in full force and
effect, it is not in default thereunder and all material claims thereunder have
been filed in due and timely fashion. In the judgment of its management, such
insurance coverage is adequate.
(v) Dividends. The only dividends or other distributions which it has
made on its capital stock since January 1, 1994 are set forth in Annex 3.1(v).
(w) Books and Records. Its books and records have been, and are
being, maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of events and
transactions that should be included therein.
(x) Board Action. Its board of directors (at a meeting duly called
and held) has been duly convened and by the requisite vote of directors (a)
determined that the Merger is
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<PAGE>
advisable and in the best interests of it and its shareholders, (b) approved
this Agreement and the transactions described herein and (c) directed that the
Agreement be submitted for consideration by its shareholders at the FBC Meeting
(as hereafter defined).
(y) Fairness Opinions. Its board of directors has received a written
opinion, a copy of which has been furnished to SBI, to the effect that the
consideration to be received by FBC shareholders pursuant to this Agreement, at
the time of its execution, is fair to such holders from a financial point of
view.
(z) INTENTIONALLY OMITTED.
(aa) Fidelity Bonds. Since at least January 1, 1993, FNB has
continuously maintained fidelity bonds insuring it against acts of dishonesty by
its employees in such amounts as is customary for a bank of its size. Since
January 1, 1993, the aggregate amount of all potential claims under such bonds
has not exceeded $0 and neither FBC nor FNB is aware of any facts which would
reasonably form the basis of a claim under such bonds. Neither has a reason to
believe that its fidelity coverage will not be renewed by its carrier on
substantially the same terms as its existing coverage.
(bb) Condition of Tangible Assets. Except as set forth in Annex
3.1(bb), all buildings, structures and improvements on the real property owned
or leased by it are in functional condition, and FBC and FNB are not aware of
any material structural defects. The equipment, including heating, air
conditioning and ventilation equipment owned by it, is in functional operating
condition and free of material defects to the best of FNB's and FBC's knowledge.
The operation and use of the property in the business conform in material
respect to all applicable laws, ordinances, regulations, permits, licenses and
certificates.
(cc) Loans by FNB. As of January 1, 1993, and except as shown on
Annex 3.1(cc), in the aggregate, the loans by FNB have been lawfully made,
constitute valid debts of the obligors, have been incurred in the ordinary
course of business, are subject to the terms of payment as shall have been
agreed upon
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<PAGE>
between FNB and each customer and FNB does not know of any applicable setoff or
counterclaim which in the aggregate would have a Material Adverse Effect on it.
A list of all loans thirty (30) days past due, as of May 31, 1996, has been
delivered to SBI. No part of the amount collectible under any loan is
contingent upon performance by FNB of any obligation and no agreement for
participation, in which FNB has relinquished or agreed to share control with a
participation in management of the facility, or agreement providing for
deductions or discounts have been made with respect to any part of such loans,
except as expressly disclosed in Annex 3.1(cc). FNB does not know of any
pending, threatened or expected actions in connection with any material loans or
commitments presently or previously made by FNB relating to claims based on
theories of "lenders' liability" or any other basis.
(dd) Regulatory Compliance - OCC. FNB is in compliance in all
material respects with the applicable rules and regulations of the OCC, except
as noted in Annex 3.1(dd) and except where the failure to comply would not have
a Material Adverse Effect on FNB.
(ee) Regulatory Compliance - FDIC. Except as noted on Annex 3.1(ee)
hereto and except where the failure to comply would not have a Material Adverse
Effect on it, it is in compliance in all material respects with the rules and
regulations of the FDIC to the extent such rules and regulations are deemed
applicable by regulatory determination.
(ff) Capital Compliance. As of December 31, 1995, FNB was in
compliance with the minimum capital requirements applicable to national banking
associations, including as to leverage ratio requirements, tangible capital
requirements and risk based capital requirements.
(gg) INTENTIONALLY OMITTED.
(hh) Investments. Except as may be noted on Annex 3.1(hh) hereto, FNB
does not, either directly or through a subsidiary, hold any corporate debt
security not of investment grade, as defined in Section 222 of the Financial
Institution Reform, Recovery and Enforcement Act of 1989 ("FIRREA"); provided,
further, FNB is in compliance with applicable
D-28
<PAGE>
divestiture requirements established by the FDIC as to any such investments
noted as exceptions on Annex 3.1(hh).
(ii) INTENTIONALLY OMITTED.
(jj) Default. It has not been advised by any FBC Regulatory Agency
that it is in "default" or "in danger of default" (as those terms are defined in
FIRREA Sections 204(x)(1) and (2)).
(kk) Federal Reserve Act. Since the enactment of FIRREA, except as
may be noted in Annex 3.1(kk) hereto, it is in compliance in all material
respects with Sections 23A and 22(h) of the Federal Reserve Act.
(ll) INTENTIONALLY OMITTED.
(mm) Assessments Fully Paid. All payments, fees and charges assessed
by the OCC against FNB, and due on or prior to the date of this Agreement, have
been paid in full. FNB's assessment category with the FDIC is 1A.
(nn) Documents Filed with Regulatory Agencies. Documents to be filed
by FBC with any FBC Regulatory Agency in connection with this Agreement, or the
transactions contemplated hereby, will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading.
SECTION 3.2 Representations and Warranties of SBI and its Material
------------------------------------------------------
Subsidiaries. SBI represents and warrants to FBC and FNB (and the word "it" in
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this Article III refers to SBI and each of its Material Subsidiaries, as that
term is defined at Section 3.2(d) hereof), that, except as specifically
disclosed in the Annex of disclosure schedules included herewith, to the best of
its knowledge:
(a) Corporate Organization and Qualification. SBI is a corporation
duly incorporated, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and is in good standing as a foreign corporation in
each jurisdiction where the properties owned, leased or operated, or the
business
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<PAGE>
conducted, by SBI requires such qualification, except for such failure to
qualify or be in such good standing which, when taken together with all other
such failures, would not have a Material Adverse Effect on SBI. It has the
requisite corporate and other power and authority (including all federal, state,
local and foreign governmental authorizations) to carry on its business as now
conducted and to own its properties and assets. SBI owns directly or indirectly
all of the outstanding shares of capital stock of SBI Merger Sub II. SBI has
made available to FBC complete and correct copies of the articles of
incorporation and bylaws of SBI and will make available to FBC complete and
correct copies of the certificate of incorporation and bylaws of SBI Merger Sub
II; such articles and bylaws of SBI are in full force and effect as of the date
hereof.
(b) Corporate Authority. Subject only to the regulatory approvals
specified in Section 5.1(b) hereof, SBI has the requisite corporate power and
authority, and legal right, and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
applicable to SBI described herein. This Agreement has been duly and validly
executed and delivered by SBI and constitutes the valid and binding obligations
of SBI enforceable against SBI, in accordance with its terms, except to the
extent enforcement is limited by bankruptcy, insolvency and other similar laws
affecting creditors' rights or the application by a court of equitable
principles.
(c) Capitalization. In furtherance of the provisions of the NJBCA,
Section 14A:11-1, SBI Common Stock is held of record by not less than 4,000
persons. The authorized capital stock of SBI consists as of the date of this
Agreement of 32,000,000 shares of SBI Common Stock, of which approximately
13,500,000 shares are issued and outstanding (an immaterial number of shares are
issuable pursuant to options, warrants and similar rights and 30,175 shares are
held as treasury stock) and 5,000,000 shares of Preferred Stock, no par value
per share, of which none are outstanding. Sufficient shares of authorized, but
unissued, shares of SBI Common Stock to effect the transactions described herein
will be reserved by SBI for such purpose.
(d) Bank Subsidiaries. SBI owns, directly, all of the issued and
outstanding shares of capital stock of Farmers First
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<PAGE>
Bank, a bank and trust company organized under the laws of the Commonwealth of
Pennsylvania; Farmers & Merchants Bank and Trust, a bank organized under the
laws of the State of Maryland; Citizens National Bank of Southern Pennsylvania,
a national banking association with headquarters in Greencastle, Pennsylvania;
First National Trust Bank, a national banking association with headquarters in
Sunbury, Pennsylvania; and Williamsport National Bank, a national banking
association with headquarters in Williamsport, Pennsylvania (collectively the
"Bank Subsidiaries"). All of the issued and outstanding capital stock of the
Bank Subsidiaries is duly and validly authorized and issued, fully paid and
nonassessable (other than as provided in 12 U.S.C.A. (S) 55 with respect to
national banks) and is owned by SBI free and clear of any liens, security
interests, encumbrances, restrictions on transfer or other rights of any third
person with respect thereto. SBI owns, directly or indirectly, all of the
issued and outstanding shares of capital stock of Atlantic Federal Savings Bank,
Fairfax Savings, F.S.B. and Reisterstown Federal Savings Bank, each a federal
savings bank operating in Maryland (collectively, the "Savings Bank
Subsidiaries"). All of the issued and outstanding capital stock of the Savings
Bank Subsidiaries is duly and validly authorized and issued, free and clear of
any liens, security interests, encumbrances, restrictions on transfer or other
rights of any third person with respect thereto other than rights of account
holders to liquidation accounts maintained by the Savings Bank Subsidiaries in
accordance with the rules of the Office of Thrift Supervision ("OTS"). The Bank
Subsidiaries and the Savings Bank Subsidiaries are the "Material Subsidiaries."
There are no options, calls, warrants, conversion privileges or other agreements
obligating any Material Subsidiary at present or upon the occurrence of any
event to issue or sell any shares of its capital stock. Each of Farmers First
Bank and Farmers & Merchants Bank and Trust is a bank and trust company duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and the State of Maryland, respectively, and is
duly authorized to engage in the banking and trust business as an insured bank
under the Federal Deposit Insurance Act, as amended. Each of Citizens National
Bank of Southern Pennsylvania, First National Trust Bank, and Williamsport
National Bank is a national banking association duly organized, validly existing
and in good standing under the laws of the United States and is duly authorized
to engage in the
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<PAGE>
banking and trust business as an insured bank under the Federal Deposit
Insurance Act, as amended. Each of Atlantic Federal Savings Bank, Fairfax
Savings, F.S.B. and Reisterstown Federal Savings Bank is a federal savings and
loan association, duly organized, validly existing and in good standing under
the laws of the United States and is duly authorized to engage in the savings
and loan business under the Federal Deposit Insurance Act, as amended. Each
Material Subsidiary has corporate power and legal authority and governmental
authorizations which are material to its respective operations and to transact
the respective businesses in which it is presently engaged.
(e) No Violations. The execution, delivery and performance of this
Agreement by SBI and SBI Merger Sub II does not, and the consummation of the
transactions described herein by SBI and SBI Merger Sub II will not, constitute
(i) a breach or violation of, or a default under, any law, rule or regulation or
any judgment, decree, order, governmental permit or license, or agreement,
indenture or instrument to which SBI or SBI Merger Sub II (or any of SBI's
respective properties or assets) is subject, which breach, violation or default
would have a Material Adverse Effect on SBI on a consolidated basis, or enable
any person to enjoin the Merger or the Bank Acquisition, (ii) a breach or
violation of, or a default under, SBI's or SBI Merger Sub II's articles or
certificate of incorporation, respectively, or bylaws of either or (iii) a
breach or violation of, or a default under (or an event which with due notice or
lapse of time or both would constitute a default under), or result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of SBI's properties or assets under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which it is a party, or to which any of
SBI's properties or assets may be bound or affected, except for any of the
foregoing that, individually or in the aggregate, would not have a Material
Adverse Effect on SBI, on a consolidated basis; and the consummation of the
transactions contemplated hereby will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (i) the
required approvals, consents and waivers of governmental
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authorities referred to in Section 5.1(b), (ii) any such approval, consent or
waiver that already has been obtained and (iii) any other approvals, consents or
waivers the absence of which, individually or in the aggregate, would not result
in a Material Adverse Effect on SBI, on a consolidated basis, or enable any
person to enjoin the Merger or the Bank Acquisition.
(f) Required Consents. SBI has no reason to believe that it will be
unable to obtain consents and approvals, including, without limitation, all such
consents and approvals of governmental authorities and its shareholders,
necessary to consummate the transactions described in this Agreement by March
31, 1997 or that any such consents or approvals would contain any condition or
requirement that would result in a Material Adverse Effect on SBI.
(g) Board and Shareholder Action. SBI's Board of Directors (at a
meeting duly called and held) has been duly convened and by the requisite vote
of all directors (a) determined that the Merger in the case of FBC and the Bank
Acquisition in the case of FNB is advisable and in the best interests of it and
its shareholders, and (b) approved this Agreement and the transactions described
herein.
(h) SBI Merger Sub II.
i. SBI Merger Sub II is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey. All of
the outstanding shares of capital stock of SBI Merger Sub II have been validly
issued, are fully paid and nonassessable and are owned directly by SBI free and
clear of any lien, charge or other encumbrance. SBI Merger Sub II possesses no
assets nor is subject to any liabilities and will not acquire assets or incur
liabilities prior to the Effective Time. Since the date of its incorporation,
SBI Merger Sub II has not engaged in any activities other than in connection
with the consummation of the Merger and the Bank Acquisition or as expressly
contemplated by this Agreement.
ii. SBI Merger Sub II has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
Execution, delivery and performance of this Agreement by SBI Merger Sub II and
the consummation of
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the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate actions (including without limitation stockholder
action) in respect thereof on the part of SBI Merger Sub II. This Agreement is
a valid and binding obligation of SBI Merger Sub II, enforceable in accordance
with its terms.
iii. All of the authorized capital stock of SBI Merger Sub II,
which consists solely of 100 shares of common stock, $.01 par value per share,
is presently issued and outstanding.
iv. SBI will, as the sole shareholder of SBI Merger Sub II, vote
to approve this Agreement and the Merger.
(i) SBI Reports. SBI has furnished to FBC and FNB true and complete
copies of (i) all of its annual reports on Form 10-K filed with the SEC since
January 1, 1993 and its annual reports to shareholders for each of the three
years ended December 31, 1995, 1994 and 1993, respectively; (ii) all of its
quarterly reports on Form 10-Q and current reports, if any, on Form 8-K filed
with the SEC since January 1, 1996; (iii) each final registration statement,
prospectus or offering circular which SBI has used in connection with the sale
of securities since January 1, 1994; and (iv) each definitive proxy statement
distributed by SBI to its shareholders since January 1, 1994. All such reports
(i) comply in all material respects with the requirements of the Exchange Act
and the rules and regulations of the SEC thereunder, (ii) do not contain any
untrue statement of a material fact and (iii) do not omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(j) SBI Benefit Plans. SBI has furnished to FBC and FNB true, correct
and complete copies of all of SBI's bonus, deferred compensation, pension,
profit-sharing, retirement, medical, group life, disability income, stock
purchase, stock option, other "employee benefit plans" (as that term is used
within the meaning of Section 3(3) of ERISA) or any other fringe benefit plan,
agreement, arrangement or practice, all amendments thereto and all summary plan
descriptions thereof, or, in the alternative, SBI has provided materials
generally descriptive of
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the foregoing, and in such case, SBI will provide such specific additional
information as may reasonably be requested. The foregoing are collectively
referred to as the "SBI Benefit Plans."
(k) Reports. SBI has timely filed all material reports, registrations
and statements, together with any amendments required to be made with respect
thereto, that it was required to file since January 1, 1994 with (A) the Board,
(B) the FDIC, (C) the OTS, (D) the OCC, (E) the SEC, and (F) the Pennsylvania
Department of Banking and the Maryland Banking Commissioner (collectively, the
Regulatory Agencies listed (A) through (F) are the "SBI Regulatory Agencies")
and all other material reports and statements required to be filed by it since
January 1, 1994, including, without limitation, any report or statement required
to be filed pursuant to the laws, rules or regulations of the United States or
any SBI Regulatory Agency and has paid all fees and assessments due and payable
in connection therewith, and no such report, registration or statement contains
any material misstatement or omission or is otherwise in material noncompliance
with any law, regulation or requirement.
(l) SBI's Balance Sheets. SBI's balance sheets as of December 31,
1995 previously provided to FBC and each balance sheet provided after the date
hereof to FBC (including in each case any related notes and schedules) fairly
presents or will fairly present SBI's financial position as of its date and each
of the statements of income and shareholders' equity and of cash flows provided
therewith (including in each case any related notes and schedules), fairly
presents or will fairly present the results of operations, shareholders' equity
and cash flows, as the case may be, of it for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved.
(m) Absence of Certain Changes or Events. Since March 31, 1996, SBI
has not incurred any material liability, except in the ordinary course of its
business consistent with past practice, nor has there been any change in the
financial condition, properties, assets, business, results of operation or
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prospects of it which, individually or in the aggregate, has had, or might
reasonably be expected to result in, a Material Adverse Effect on it.
(n) Fees. Neither SBI nor any of its officers, directors, employees
or agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for it in connection with the
Agreement or the transactions described herein.
(o) Registration Statement, Etc. Except for information relating to
FBC and FNB, neither (i) the Registration Statement, the Proxy
Statement/Prospectus or any amendment or supplement thereto, or any other
registration statement filed with the SEC during the term of this Agreement, at
the time it is filed with the SEC, at the time it is declared effective, at the
time the Proxy Statement/Prospectus is mailed to the shareholders of FBC or at
the date of the FBC Meeting to consider the approval of this Agreement nor (ii)
any other documents to be filed by SBI with the SEC or any Regulatory Agency in
connection with this Agreement or the transactions described herein will contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading. All
documents which SBI is responsible for filing with the SEC or any Regulatory
Agency in connection with the Merger and Bank Acquisition will comply as to form
in all material respects with the requirements of applicable law.
(p) Compliance with Laws. It has the permits, licenses, certificates
of authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental
authorities, including Regulatory Agencies that are required in order to permit
it to carry on its business as it is presently conducted and the absence of
which would, individually or in the aggregate, have a Material Adverse Effect on
SBI, on a consolidated basis; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect, and no suspension
or cancellation of any of them is threatened.
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(q) Absence of Regulatory Actions. It is not a party to any cease and
desist order, written agreement or memorandum of understanding with, or a party
to any commitment letter or similar undertaking to, or subject to any order or
directive by, or a recipient of any extraordinary supervisory letter from, nor
has it adopted any board resolutions at the request of, federal or state
governmental authorities, including, without limitation, the SBI Regulatory
Agencies charged with the supervision or regulation of banks or bank holding
companies or savings and loan holding companies or engaged in the insurance of
bank and/or savings and loan deposits nor has it been advised by any SBI
Regulatory Agency that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
(r) Litigation and Liabilities. Except as set forth in Annex 3.2(r),
there are no (i) civil, criminal or administrative actions, suits, claims,
hearings, investigations or proceedings before any court, governmental agency or
otherwise pending or, to the knowledge of management, threatened against it or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise, including, without limitation, those relating to environmental and
occupational safety and health matters, or any other facts or circumstances of
which its management is aware that could reasonably be expected to result in any
claims against or obligations or liabilities of it, that, alone or in the
aggregate, are reasonably likely to have a Material Adverse Effect on SBI, on a
consolidated basis, or to hinder or delay, in any material respect, consummation
of the transactions contemplated by this Agreement.
(s) Environmental Matters. SBI is unaware of any activity or
conditions on or in any property owned, occupied, leased, or held as security by
SBI or a Material Subsidiary which would subject SBI or any Material Subsidiary
to damages, penalties, injunctive relief or cleanup costs under any
Environmental Laws.
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ARTICLE IV. COVENANTS
SECTION 4.1 Acquisition Proposals. FBC agrees that it shall direct
---------------------
and use its best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) not to, initiate or solicit, directly or
indirectly, any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to its shareholders) with respect to a
merger, consolidation or similar transaction involving, or any purchase, sale or
other disposition of all or any significant portion of the assets or any equity
securities of, FBC or FNB (any such proposal or offer being hereinafter referred
to as an "Acquisition Proposal") or, except to the extent legally required for
the discharge by its board of directors of its fiduciary duties as determined
upon consultation with counsel, engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal. FBC and FNB
each agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. FBC and FNB each agrees that
it will take the necessary steps to inform the appropriate individuals or
entities referred to in the first sentence hereof of the obligations imposed
upon each of them in this Section 4.1. FBC and FNB each agree that it will
notify SBI immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations, or discussions are
sought to be initiated or continued with, it.
SECTION 4.2. Securities Registration and Disclosure. FBC shall
--------------------------------------
cooperate with SBI in the preparation, in accordance with the requirements of
the proxy rules under the Exchange Act, of the Proxy Statement/Prospectus and
the filing thereof as part of the Registration Statement. Following the date
hereof, SBI will prepare and file with the SEC under the Securities Act of 1933,
as amended (the "Securities Act") a registration statement for the registration
of the shares of SBI Common Stock to be issued pursuant hereto (the
"Registration Statement"), FBC will cooperate with SBI and SBI will file with
the SEC under the
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Exchange Act the preliminary form of the Proxy Statement/Prospectus included in
the Registration Statement. Each of SBI and FBC shall be responsible for
providing all information concerning itself and its subsidiaries required to be
included in the Proxy Statement/Prospectus. SBI shall take any action required
to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of shares of SBI Common Stock pursuant to this
Agreement and FBC shall furnish SBI all information concerning FBC and its
shareholders as SBI may reasonably request in connection with any such action.
At least five (5) business days prior to its filing with the SEC, SBI shall
provide a copy of the Registration Statement to FBC and its counsel for review.
Each party will promptly provide the other with copies of all correspondence,
comment letters, notices or other communications to or from the SEC relating to
the Registration Statement, the Proxy Statement/Prospectus or any amendment or
supplement thereto, and SBI will advise FBC promptly after it receives notice
thereof, of the effectiveness of the Registration Statement, of the issuance of
any stop order with respect to the effectiveness thereof, of the suspension of
the qualification of the SBI Common Stock issuable in connection herewith for
offering or sale in any jurisdiction, or the initiation or threat of any
proceeding for any such purpose.
FBC will take appropriate action to call a meeting of its shareholders
(the "FBC Meeting"), to be held not more than sixty (60) days following the
effective date of the Registration Statement (which meeting may be the Annual
Meeting of Shareholders of FBC), to consider approval of this Agreement and,
except to the extent legally required for the discharge by FBC's board of
directors of its fiduciary duties and subject to receipt of an updated fairness
opinion from its financial advisor dated on or immediately prior to the date of
the Proxy Statement/Prospectus, will use its best efforts to secure such
approval. In connection with the FBC Shareholders' Meeting, FBC will duly
solicit the vote of its shareholders by mailing or delivering to each such
shareholder, as soon as practicable after the effectiveness of the Registration
Statement, the Proxy Statement/Prospectus, and as soon as practicable
thereafter, any amendments or supplements thereto as may be necessary to assure
that at the date of the FBC Meeting the Proxy Statement/Prospectus shall conform
to the requirements of Sections 3.1(nn) and 3.2(o) hereof.
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FBC will furnish to SBI a list of all persons known to FBC who at the
date of the FBC Shareholders' Meeting may be deemed to be "affiliates" of FBC
within the meaning of Rule 145 under the Securities Act. FBC will use its best
efforts to cause each such person identified in its list to deliver at or prior
to the Closing a written agreement providing that such person will not sell,
pledge, transfer or otherwise dispose of the shares of SBI Common Stock to be
received by such person hereunder except (i) in compliance with the applicable
provisions of the Securities Act and the rules and regulations thereunder and
(ii) after such time as financial results covering at least thirty (30) days of
post-Merger combined operations have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies.
SECTION 4.3 Employees.
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(a) SBI and any of its affiliates shall have the right (but not the
obligation) to employ, as officers and employees of SBI, the Surviving
Corporation, FNB or other affiliates of SBI immediately following the Effective
Time, any persons who are officers and employees of each of FBC and FNB
immediately before the Effective Time; provided, however, SBI shall cause the
Surviving Corporation, or FNB, as the case may be, to continue the employment of
Joseph H. Doble, Richard M. Stuart and Joan Hoglen on substantially the same
terms as exist at the Effective Time for at least one year. If any of such
individuals refuses such employment with SBI or any of its affiliates or shall
refuse to cancel any existing employment contract, agreement or understanding
between him or herself and FBC or FNB, such refusal shall not constitute a basis
for termination of this Agreement. In all cases, including with respect to
Messrs. Doble and Stuart and Ms. Hoglen, it shall be a condition to employment
by SBI or any of its affiliates (including the Surviving Corporation and FNB)
that any officer or employee of FBC or FNB agree to cancel any existing
employment contract, agreement or understanding between him or herself and FBC
or FNB, including without limitation all benefits related to severance
arrangements upon a change of control or otherwise, prior to accepting such new
employment and without accepting any of the severance benefits or other benefits
or payments associated with such contract, agreement or understanding.
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(b) Each person employed by FBC or FNB prior to the Effective Time who
remains an employee of the Surviving Corporation, FNB or any other SBI
subsidiary following the Effective Time (each a "Continued Employee") shall be
entitled, as an employee of SBI or an SBI Subsidiary, to participate in whatever
employee benefit plans, as defined in Section 3(3) of ERISA, or whatever stock
option, bonus or incentive plans or other fringe benefit programs that may be in
effect generally for employees of SBI or SBI's subsidiaries from time to time
("SBI's Plans"), if such Continued Employee shall be eligible or selected for
participation therein and otherwise shall not be participating in a similar plan
which continues to be maintained by the Surviving Corporation or FNB for such
employee. All such participation shall be subject to such terms of such plans
as may be in effect from time to time provided, further that Continued Employees
will be eligible to participate in SBI's plans on the same basis as similarly
situated employees of SBI or SBI's subsidiaries. Such Continued Employees will
receive credit for past service with FBC or FNB for purposes of eligibility and
vesting, but not benefit accrual, under SBI's Plans.
(c) FBC and FNB shall take all timely and necessary action to cease
participation or accrual of benefits, effective as of the Effective Time, by
each person employed by FBC or FNB prior to the Effective Time in each Employee
Plan (as defined in Section 3.1(m)), and to terminate each Employee Plan, other
than an Employee Plan containing a cash or deferred arrangement qualified under
Section 401(k) of the Code ("Employee 401(k) Plan"), effective as of the
Effective Time; provided that SBI may, in its sole discretion, give notice to
FBC or FNB, as the case may be, not less than twenty (20) days (sixty-one (61)
days in the case of any Pension Plan (as defined in Section 3.1(m)) prior to the
Effective Time, that any Employee Plan shall not be terminated and/or
participation or accrual of benefits thereunder shall not cease pursuant to this
Section 4.3(c). SBI shall, after receipt of an IRS favorable plan determination
letter confirming the FBC Money Purchase Plan's tax qualified status, upon its
termination, allow each participant to either roll-over his/her account balance
to the SBI 401(k) Plan or receive distribution of his/her closing account
balance. If the fair market value of the assets of any Pension Plan does not
equal or exceed the present value of its "benefits liabilities" (as defined in
Section 4001(a)(16) of ERISA) as of the date of its
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termination, as determined by certification of an enrolled actuary in accordance
with procedures established by the Pension Benefit Guaranty Corporation, FBC or
FNB, as the case may be, shall make such additional contributions to the Pension
Plan as may be necessary to permit its termination in a standard termination
(within the meaning of Section 4041 of ERISA). At the sole discretion of SBI,
any Employee 401(k) Plan shall be merged with any similar such plan maintained
and designated by SBI, effective at or after the Effective Time, as elected by
SBI, and FBC or FNB, as the case may be, shall take any and all timely and
necessary action to effect such merger.
SECTION 4.4 Access and Information.
----------------------
(a) Upon reasonable notice, and subject to applicable laws relating to
the exchange of information, each of FBC and FNB shall afford to SBI and its
representatives (including, without limitation, directors, officers and
employees of SBI and its affiliates, and counsel, accountants and other
professionals retained) such access during normal business hours throughout the
period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties,
personnel and such other information as SBI may reasonably request (other than
reports or documentation which are not permitted to be disclosed under
applicable law); provided, however, that no investigation pursuant to this
Section 4.4 shall affect or be deemed to modify any representation or warranty
made herein. SBI will not, and will cause its representatives not to, use any
information obtained pursuant to this Section 4.4 for any purpose unrelated to
the consummation of the transactions contemplated by this Agreement and in no
event will SBI directly or indirectly use such information for any competitive
or commercial purpose. Subject to the requirements of law, SBI will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.4 unless such
information (i) was already known to SBI or an affiliate of SBI, (ii) becomes
available to SBI or an affiliate of SBI from other sources not known by such
person to be bound by a confidentiality agreement, (iii) is disclosed with the
prior written approval of FBC or FNB, as the case may be, (iv) is or becomes
readily ascertainable from published information or trade sources or (v) was
already publicly available. Without in any
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way limiting the foregoing, FNB shall provide to SBI within forty-five (45) days
of the end of each calendar month and FBC shall provide to SBI within forty-five
(45) days of the end of each calendar quarter consolidated and consolidating
financial statements (including a balance sheet and income statement) as of the
end of, and for, such period that are in conformance with generally accepted
accounting principles and the representation set forth in Section 3.1(f). In
the event that this Agreement is terminated or the transactions contemplated by
this Agreement shall otherwise not be consummated, each party shall, if so
requested, promptly cause all copies of documents or extracts thereof containing
information and data as to another party hereto (or an affiliate of any party
hereto) to be returned to the party which furnished the same. This Section 4.4
supersedes and terminates any agreement between the parties relating to the
confidentiality of information which may have been exchanged (the
"Confidentiality Agreement").
(b) During the period from the date of this Agreement to the Effective
Date, SBI shall provide to FBC and FNB the following documents and information:
i. As soon as reasonably available, but in no event more than
forty-five (45) days after the end of each fiscal quarter of SBI ending after
the date of this Agreement, SBI will deliver to FBC and FNB its quarterly report
on Form 10-Q as filed with the SEC.
ii. As soon as reasonably available, but in no event more than
ninety (90) days after the end of each fiscal year of SBI ending after the date
of this Agreement, SBI will deliver to FBC and FNB its annual report on Form
10-K as filed with the SEC.
iii. SBI will deliver to FBC and FNB, contemporaneously with its
being filed with the SEC, a copy of each current report on Form 8-K filed by SBI
after the date of this Agreement.
iv. At least five (5) business days prior to submission, SBI will
furnish to FBC and FNB the portions which describe the transactions (including
any financial information or pro forma financial information of, or including,
FBC or FNB)
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described herein of (A) registration statements, prospectuses or offering
circulars used by SBI in connection with the sale of securities after the date
of this Agreement, (B) proxy statements distributed by SBI to its shareholders
after the date of this Agreement, and (C) all other publicly-available reports,
statements or other documents which are either distributed to shareholders or
filed by SBI or any of its subsidiaries with the SEC. Any comments timely
received by SBI from FBC in connection with the foregoing will be reviewed and
considered in good faith, but SBI shall not be bound to comply with the
recommendations set forth in such comments. SBI also shall furnish FBC with
copies of the foregoing in the form filed with the SEC or otherwise distributed
to shareholders.
v. SBI will promptly notify FBC and FNB of any material changes
to SBI's Plans.
vi. SBI will make available on its premises to FBC its Reports
of Examination, Accountant's Letters to Management and any other items which
shall be mutually agreed upon by the parties hereto.
SECTION 4.5 Certain Filings, Consents and Arrangements. SBI shall
------------------------------------------
use all reasonable efforts to obtain all necessary approvals required to carry
out the transactions contemplated by this Agreement and to consummate the Merger
and Bank Acquisition. FBC and FNB shall cooperate with SBI in connection
therewith, including without limitation furnishing all information concerning
FBC or FNB, as the case may be, as may be reasonably requested by SBI in
connection with any such action. SBI shall use all reasonable efforts to
provide, five (5) business days prior to submission, FBC with copies of all
material applications, notices, petitions or other filings or submissions
prepared by SBI in connection with consummation of the Merger and Bank
Acquisition. Any comments timely received by SBI from FBC in connection with
the foregoing will be reviewed and considered in good faith, but SBI shall not
be bound to comply with the recommendations set forth in such comments. SBI
will consult with FBC with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and governmental authorities
necessary or advisable to consummate the transactions described in this
Agreement and SBI will keep FBC apprised of the status of matters relating to
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completion of the transactions described herein. SBI shall promptly furnish FBC
with copies of applications in the form filed with any governmental authority in
respect of the transactions contemplated hereby.
SECTION 4.6 Takeover Statutes. Neither the New Jersey Shareholders
-----------------
Protection Act (Section 14A:10A-1 of the NJBCA), nor any other "fair price,"
"moratorium," or other form of anti-takeover statute or regulation or any
similar provision of FNB's charter or the FBC Certificate (other than as has
been previously disclosed with respect to the necessary FBC shareholder vote),
is applicable to the transactions described in this Agreement and, if any such
statute, regulation or provisions shall become applicable to the transactions
described in this Agreement, FBC and FNB and the members of the Boards of
Directors of FBC and FNB shall grant such approvals and take such actions as are
necessary so that the transactions described herein may be consummated as
promptly as practicable on the terms described herein and otherwise act to
eliminate or minimize the effects of such statute or regulation or provision on
the transactions described herein.
SECTION 4.7 Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions described in this Agreement as promptly as
practicable, including using efforts to obtain all necessary actions or non-
actions, extensions, waivers, consents and approvals from all applicable
governmental authorities, or other entities, effecting all necessary
registrations, applications and filings and obtaining any required contractual
consents and regulatory approvals.
SECTION 4.8 Publicity. Except as required by law, FBC and FNB shall
---------
not, without the prior consent of SBI (which consent shall not be unreasonably
withheld), issue any press releases or otherwise make public filings under
securities laws, with respect to this Agreement or the transactions described
herein. Prior to issuing any press release or making any public filings under
securities laws which makes any reference to FBC or
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FNB, SBI shall provide a copy to FBC for comment and in all such instances the
parties shall cooperate.
SECTION 4.9 Shareholder's Meeting. If determined advisable by its
---------------------
board of directors, after consultation with its counsel, SBI shall take all
action necessary, in accordance with applicable law and its articles of
incorporation and bylaws, to convene a special meeting of the holders of its
capital stock (the "SBI Meeting") as promptly as practicable for the purpose of
considering and taking the action required by this Agreement and other
acquisition transactions which it has planned. Except to the extent legally
required for the discharge by SBI's board of directors of its fiduciary duties
as advised in writing by such board's counsel, its board of directors shall
recommend in writing to its shareholders that at the SBI Meeting, the holders of
its capital stock vote in favor of and approve the Merger, the Bank Acquisition
and this Agreement. To the extent required by applicable law, SBI shall prepare
a proxy statement or information statement or other documents in connection with
such SBI Meeting which shall comply with all applicable laws.
SECTION 4.10 Notification of Certain Matters. Each party shall give
-------------------------------
prompt notice to the others of: (a) any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by it or any of its subsidiaries subsequent to
the date of this Agreement and prior to the Effective Time, under any contract
material to the financial condition, properties, businesses, results of
operations or prospects of it to which it is a party or is subject; and (b) any
material adverse change in its financial condition, properties, business, or
results of operations on a consolidated basis or the occurrence of any event
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in any such change. Each party shall give prompt
notice to the other parties of any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement.
SECTION 4.11 Insurance. FBC and FNB shall use best efforts to retain
---------
no less than the level of insurance coverage presently held by them as of the
date hereof.
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<PAGE>
SECTION 4.12 Dividends. FBC shall not declare, pay or set aside any
---------
dividend or other distribution in respect of its capital stock in excess of
FBC's semiannual regular cash dividend in an amount, and payable at a time,
consistent with past practice and a semiannual special cash dividend payable
through December 31, 1996 also in an amount, and payable at a time, consistent
with past practice. If the Effective Date extends beyond December 31, 1996, FBC
shall be entitled to pay, immediately prior to the Effective Date, a regular and
special cash dividend in an amount representing a pro rata portion, based on the
Effective Date, of the regular and special cash dividend previously paid, also
consistent with past practice.
SECTION 4.13 Indemnification.
---------------
(a) From and after the Effective Time through the second anniversary
of the Effective Date, SBI agrees to indemnify and hold harmless each present
and former director and officer of FBC or its Subsidiaries and each officer or
employee of FBC or its Subsidiaries that is serving as a director or trustee of
another entity expressly at FBC's request or direction (each, an "Indemnified
Party"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively, the
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, and
whether or not the Indemnified Party is a party thereto, arising out of matters
existing or occurring at or prior to the Effective Time (including the
transactions contemplated by this Agreement), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under the
FBC Certificate, the charter of FNB, or the bylaws of either in effect on the
date hereof.
(b) Any Indemnified Party wishing to claim indemnification under
Section 4.13(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify SBI thereof, but the failure to so notify
shall not relieve SBI of any liability it may have hereunder to such Indemnified
Party if such failure does not materially prejudice the indemnifying party. In
the event of any such claim, action, suit, proceeding or investigation, (i) SBI
shall have the right to assume the defense thereof with counsel reasonably
acceptable
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<PAGE>
to the Indemnified Party and SBI shall not be liable to such Indemnified Party
for any legal expenses of other counsel subsequently incurred by such
Indemnified Party in connection with the defense thereof, except that if SBI
does not elect to assume such defense within a reasonable time or counsel for
the Indemnified Party at any time advises that there are issues which raise
conflicts of interest between SBI and the Indemnified Party, the Indemnified
Party may retain counsel satisfactory to such Indemnified Party, and SBI shall
remain responsible for the reasonable fees and expenses of such counsel as set
forth above, promptly as statements therefor are received; provided, however,
that SBI shall be obligated pursuant to this paragraph (b) to pay for only one
firm of counsel for all Indemnified Parties in any one jurisdiction with respect
to any given claim, action, suit, proceeding or investigation unless the use of
one counsel for such Indemnified Parties would present such counsel with a
conflict of interest; (ii) the Indemnified Party will reasonably cooperate in
the defense of any such matter and (iii) SBI shall not be liable for any
settlement effected by an Indemnified Party without its prior written consent,
which consent may not be withheld unless such settlement is unreasonable in
light of such claims, actions, suits, proceedings or investigations against, and
defenses available to, such Indemnified Party.
(c) In the event SBI or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of SBI assume
the obligations set forth in this Section 4.13.
(d) The provisions of this Section 4.13 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1 Conditions to Closing. The respective obligations of the
---------------------
parties to effect the Merger and Bank Acquisition shall be subject to the
satisfaction or waiver prior
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<PAGE>
to the Effective Time of the following conditions:
(a) The Agreement and the transactions described herein shall have
been approved by the requisite vote of the shareholders of SBI, subject to the
qualifications set forth in Section 4.9 hereof, and FBC in accordance with
applicable law.
(b) All of the required approvals, consents or waivers with respect to
this Agreement (including both the Merger and the Bank Acquisition) and the
transactions described herein including, without limitation, the approvals,
notices to, consents or waivers of (i) the Board, (ii) the Pennsylvania
Department of Banking, if applicable, (iv) the Commissioner of Banking of the
State of New Jersey, and (v) the New Jersey Department of Environmental
Protection and Energy, if applicable, (which, together with the FBC Regulatory
Agencies and the SBI Regulatory Agencies, are the "Regulatory Agencies") shall
have been obtained and shall remain in full force and effect, and all applicable
statutory waiting periods (including without limitation all applicable statutory
waiting periods relating to the Merger and the Bank Acquisition) shall have
expired; and the parties shall have procured all other regulatory approvals,
consents or waivers of governmental authorities or other persons that are
necessary or appropriate to the consummation of the transactions described in
this Agreement except those approvals, consents or waivers, if any, for which
failure to obtain would not, individually or in the aggregate, have a Material
Adverse Effect on SBI, FBC or FNB (after giving effect to the transactions
described herein); provided, however, that no approval, consent or waiver
referred to in this Section 5.1(b) shall be deemed to have been received if it
shall include any condition or requirement that reasonably would result in a
Material Adverse Effect on SBI.
(c) All other requirements prescribed by law which are necessary to
the consummation of the transactions described in this Agreement shall have been
satisfied.
(d) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger, the Bank Acquisition or any other
transaction described in this Agreement, and no litigation or proceeding shall
be
D-49
<PAGE>
pending against any of the parties herein or any of their subsidiaries brought
by any governmental agency (including, without limitation, the Regulatory
Agencies) seeking to prevent consummation of the transactions described herein.
(e) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation of the
Merger, the Bank Acquisition, or any other transaction described in this
Agreement.
(f) The Merger shall as of the date of the Closing meet the
requirements for pooling-of-interests accounting treatment under generally
accepted accounting principles and under the accounting rules of the SEC, and
SBI shall have received a letter from Coopers & Lybrand in form and substance
reasonably satisfactory to SBI as to the matters specified in this Section
5.1(f).
(g) The Registration Statement shall have been filed (the date of
which is referred to herein as the "Filing Date") by SBI with the SEC under the
Securities Act, and shall have been declared effective prior to the time the
Proxy Statement/Prospectus is first mailed to the shareholders of FBC, and no
stop order with respect to the effectiveness of the Registration Statement shall
have been issued; the SBI Common Stock to be issued pursuant to this Agreement
shall be duly registered or qualified under the securities or "blue sky" laws of
all states in which such action is required for purposes of the initial issuance
of such shares and the distribution thereof to the shareholders of FBC entitled
to receive such shares.
(h) SBI shall have received a ruling from the Internal Revenue
Service (the "IRS") or an opinion of Morgan, Lewis & Bockius LLP, counsel to SBI
and SBI Merger Sub II, to the effect that:
i. The Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and FBC and SBI will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
D-50
<PAGE>
ii. No gain or loss will be recognized by FBC or SBI by reason of
the Merger;
iii. Except for cash received in lieu of fractional shares, no
gain or loss will be recognized by the shareholders of FBC who receive solely
SBI Common Stock upon the exchange of their shares of FBC Common Stock for
shares of SBI Common Stock;
iv. The basis of the SBI Common Stock to be received by the FBC
shareholders will be, in each instance, the same as the basis of the FBC Common
Stock surrendered in exchange therefor;
v. The holding period of the SBI Common Stock received by an FBC
shareholder receiving SBI Common Stock will include the period during which the
FBC Common Stock surrendered in exchange therefor was held; and
vi. Cash received by an FBC shareholder in lieu of a fractional
share interest of SBI Common Stock will be treated as having been received as a
distribution in full payment in exchange for the fractional share interest of
SBI Common Stock which he, she or it would otherwise be entitled to receive and
will qualify as capital gain or loss.
In case a ruling from the IRS is sought, FBC and SBI shall
cooperate and each shall furnish to the other and to the IRS such information
and representations as shall, in the opinion of counsel for SBI and FBC, be
necessary or advisable to obtain such ruling.
(i) All litigation pending against FBC or FNB which, individually or
in the aggregate, would have a Material Adverse Effect on FBC's consolidated
operations, shall have been settled or otherwise resolved on terms reasonably
satisfactory to SBI, FBC and FNB.
(j) INTENTIONALLY OMITTED.
SECTION 5.2 Conditions to Obligations of SBI and SBI Merger Sub II.
------------------------------------------------------
The obligations of SBI and SBI Merger Sub II to effect the Merger and Bank
Acquisition shall be subject to the
D-51
<PAGE>
satisfaction or waiver prior to the Effective Time of the following additional
conditions:
(a) Each of the representations and warranties of FBC and FNB
contained in this Agreement shall be true and correct in all material respects
as of the Effective Date as if made on such date (or on the date when made in
the case of any representation or warranty which specifically relates to an
earlier date); each of FBC and FNB shall have performed each of its covenants
and agreements, which are material to its operations and prospects, contained in
this Agreement; and SBI and SBI Merger Sub II shall have received certificates
signed by the Chief Executive Officer and the Controller of FNB and the
President and the Treasurer of FBC, dated the Effective Date, to the foregoing
effect.
(b) Coopers & Lybrand L.L.P. shall have furnished to SBI an "agreed
upon procedures" letter, dated the Effective Date, in form and substance
satisfactory to SBI to the effect that based upon procedures performed with
respect to the financial condition of FBC and FNB, which procedures shall
include (a) reading of the minute books of FBC, FNB and their affiliates, (b)
inquiries made of officers and other employees of FBC, FNB and their affiliates
responsible for financial and accounting matters with respect to consistent
application of accounting procedures with prior periods and as to the existence
and disclosure of material contingent liabilities, and (c) other specified
procedures and inquiries performed by them, nothing has come to their attention
that would indicate that, since the date of the most recent audited financial
statements, there has been no material adverse change in capital stock, long-
term debt or total or net assets and, as compared with the same period of the
prior year, there has been no material adverse change in the total or per share
amounts of income before extraordinary items or net income.
(c) SBI shall have received an opinion or opinions dated as of the
Effective Date, from Blank Rome Comisky & McCauley, in a form reasonably
acceptable to SBI.
(d) There shall not have occurred any change in the financial
condition, properties, assets, business or results of operation of FBC or FNB
which, individually or in the aggregate, has had or might reasonably be expected
to result in a Material
D-52
<PAGE>
Adverse Effect on FBC or FNB other than such changes resulting from (i) changes
in banking laws or regulations, or (ii) changes in generally accepted accounting
principles, or interpretations thereof, that affect the banking industry.
(e) SBI shall have received to the extent reasonably attainable from
each of the persons identified by FBC pursuant to Section 4.2 hereof an executed
counterpart of an affiliate's agreement in the form contemplated by such
Section.
SECTION 5.3 Conditions to the Obligations of FBC and FNB. The
--------------------------------------------
obligations of FBC to effect the Merger and Bank Acquisition shall be subject to
the satisfaction or waiver prior to the Effective Time of the following
additional conditions:
(a) Each of the representations, warranties and covenants of SBI
contained in this Agreement shall be true and correct in all material respects
on the Effective Date as if made on such date (or on the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); SBI shall have performed each of its covenants and agreements, which are
material to its operations and prospects, contained in this Agreement; and FBC
shall have received certificates signed by the President or Vice President and
Secretary, as well as the Chief Financial Officer of SBI, dated the Effective
Date, to the foregoing effect.
(b) FBC shall have received an opinion dated as of the Effective Date,
from Morgan, Lewis & Bockius LLP, Harrisburg, Pennsylvania, counsel to SBI and
SBI Merger Sub II, in a form reasonably acceptable to FBC.
(c) There shall not have occurred any change in the financial
condition, properties, assets, business or results of operation of SBI which,
individually or in the aggregate, has had or might reasonably be expected to
result in a Material Adverse Effect on SBI.
(d) FBC shall have received an updated opinion from its financial
advisor dated as of a date no later than the date of the Proxy
Statement/Prospectus mailed to the FBC shareholders in connection with the
Merger and not subsequently withdrawn, to
D-53
<PAGE>
the effect that the Merger Consideration is fair to FBC's shareholders from a
financial point of view.
(e) The shares of SBI Common Stock to be issued in the Merger shall
have been authorized to be listed for quotation on the NASDAQ National Market
Issues System.
(f) A certificate for the required number of whole shares of the SBI
Common Stock, as determined in accordance with Section 1.2 and Schedule 1.2, and
cash payable for the fractional shares interests shall have been delivered to
Farmers First Bank, as Exchange Agent.
ARTICLE VI. TERMINATION
SECTION 6.1 Termination. This Agreement may be terminated, and the
-----------
Merger and the Bank Acquisition abandoned, prior to the Effective Date, either
before or after its approval by the shareholders of FBC:
(a) by the mutual, written consent of FBC and SBI if the board of
directors of each so determines by a vote of a majority of the members of the
entire board;
(b) by FBC if (i) by written notice to SBI that there has been a
material breach by SBI of any representation, warranty, covenant or agreement
contained herein and such breach is not cured or not curable within thirty (30)
days after written notice of such breach is given to SBI by FBC, (ii) by written
notice to SBI that any condition precedent to FBC's obligations as set forth in
Article V of this Agreement has not been met or waived by FBC at such time as
such condition can no longer be satisfied, (iii) the Board of Directors of FBC
fails to make, withdraws or modifies or changes the favorable recommendation
described at Section 4.2, or (iv) the Board of Directors of FBC recommends to
the stockholders of FBC that an Acquisition Proposal is likely to be more
favorable, from a financial point of view, to the stockholders of FBC than the
Merger;
(c) by SBI by written notice to the other parties, in the event (i) of
a material breach by FBC or FNB of any representation, warranty, covenant or
agreement contained herein
D-54
<PAGE>
and such breach is not cured or not curable within thirty (30) days after
written notice of such breach is given to FBC by SBI or (ii) any condition
precedent to SBI's obligations as set forth in Article V of this Agreement has
not been met or waived by SBI at such time as such condition can no longer be
satisfied.
(d) by SBI or FBC by written notice to the other, in the event that
the Merger and Bank Acquisition are not consummated by March 31, 1997, unless
the failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in this Agreement by the party
seeking to terminate; provided, however, that such date may be extended by the
written agreement of the parties hereto.
(e) by FBC, whether before or after approval of the Merger by the FBC
stockholders, by giving written notice of such election to SBI within one (1)
business day following a determination that the Average Closing Price Per Share
of the SBI Common Stock Before Closing is less than $25.00 per share (subject to
adjustment in accordance with Section 1.2(c) herein) at the time such
calculation is required to be made pursuant to Schedule 1.2 hereof.
(f) by SBI, whether before or after approval of the Merger by the SBI
shareholders, if it chooses to give written notice of the election described in
Schedule 1.2 to FBC, but if at all, within one (1) business day following a
determination that the Average Closing Price Per Share of SBI Common Stock
Before Closing is greater than $31.00 per share (subject to adjustment in
accordance with Section 1.2(c) herein at the time such calculation is required
to be made pursuant to Schedule 1.2 hereof.
SECTION 6.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement, as provided above, this Agreement shall thereafter become
void and have no effect, except that the provisions of Sections 3.1(p) and
3.2(n) (Fees), 4.4 (relating to confidentiality and return of documents), 4.8
(Publicity) and 6.3 and 7.7 (Expenses) of this Agreement shall survive any such
termination and abandonment.
D-55
<PAGE>
SECTION 6.3 Expenses. Any termination of this Agreement pursuant to
--------
Section 6.1(a) hereof shall be without cost, expense or liability on the part of
any party to the others. Any termination of this Agreement pursuant to Section
6.1(b)(i) or (ii) or 6.1(c) hereof shall also be without cost, liability or
expense on the part of any party to the others, unless the breach of a
representation or warranty or covenant is caused by the willful conduct or gross
negligence of a party, in which event said party shall be liable to the other
parties for all out-of-pocket costs and expenses, including without limitation,
reasonable legal, accounting and investment banking fees and expenses, incurred
by such other party in connection with their entering into this Agreement and
their carrying out of any and all acts contemplated hereunder ("Expenses").
So long as SBI shall not have breached its obligations hereunder, if
this Agreement is terminated by FBC pursuant to clauses (iii) or (iv) of Section
6.1(b) hereof, FBC shall promptly, but in no event later than two (2) business
days after such termination, pay SBI a fee of $500,000 which amount shall be
payable by wire transfer of same day funds. If FBC fails to promptly pay the
amount due pursuant to this Section 6.3, and, in order to obtain such payment,
SBI commences a suit which results in a judgment against FBC for all or a
substantial portion of the fee set forth in this Section 6.3, FBC shall pay to
SBI its costs and expenses (including reasonable attorneys' fees) in connection
with such suit.
ARTICLE VII. OTHER MATTERS
SECTION 7.1 Certain Definitions; Interpretation. As used in this
-----------------------------------
Agreement, the following terms shall have the meanings indicated:
"material" means material to the party in question (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in a material
adverse effect upon (A) the financial condition, properties,
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<PAGE>
assets, business or results of operations of such person and its
subsidiaries, taken as a whole, or (B) the ability of such person to
perform its obligations under, and to consummate the transactions
contemplated by, this Agreement. In the case of FNB, receipt of a CAMEL
rating in connection with a safety and soundness examination which is two
levels lower than the rating given to FNB in connection with the safety and
soundness examination most recently reported prior to the date of this
Agreement shall be deemed to have a "Material Adverse Effect" on FNB.
"person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Sections, Annexes or Schedules,
such reference shall be to a Section of, or Annex or Schedule to, this Agreement
unless otherwise indicated. The table of contents, tie sheet and headings
contained in this Agreement are for ease of reference only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation". Any singular term in this Agreement
shall be deemed to include the plural, and any plural term the singular.
SECTION 7.2 Survival. The representations, warranties and agreements
--------
of the parties set forth in this Agreement shall not survive the Effective Time,
and shall be terminated and extinguished at the Effective Time, and from and
after the Effective Time none of the parties hereto shall have any liability to
the other on account of any breach or failure of any of those representations,
warranties and agreement; provided, however, that the foregoing clause shall not
-------- -------
(i) apply to agreements of the parties which by their terms are intended to be
performed either in whole or in part after the Effective Time, and (ii) shall
not relieve any person of liability for fraud, deception or intentional
misrepresentation.
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SECTION 7.3 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto and their respective
successors and assigns, and, other than the right to receive the consideration
payable in the Merger pursuant to Article I hereof, is not intended to and shall
not confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement; provided, however, it is
expressly recognized that Joseph H. Doble, Richard M. Stuart and Joan Hoglen are
entitled to the benefit of SBI's undertaking at Section 4.3.
SECTION 7.4 Waiver and Amendment. Prior to the Effective Time, any
--------------------
provision of this Agreement may be: (i) waived by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties hereto approved
by their respective boards of directors, except that no amendment or waiver may
be made that would change the form or the amount of the Merger Consideration or
otherwise have the effect of prejudicing the FBC shareholders' interest in the
Merger Consideration following the FBC Shareholders' Meeting.
SECTION 7.5 Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
SECTION 7.6 Governing Law. This Agreement shall be governed by, and
-------------
interpreted in accordance with, the laws of the Commonwealth of Pennsylvania,
or, to the extent it may control, federal law, without reference to the choice
of law principles thereof.
SECTION 7.7 Expenses. Subject to the provisions of Section 6.3
--------
hereof, each party hereto will bear all expenses incurred by it in connection
with this Agreement and the transactions described herein; provided, however,
that all filing and other fees (other than federal and state income taxes)
required to be paid to any governmental agency or authority in connection with
the consummation of the transactions described herein shall be paid by SBI.
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<PAGE>
SECTION 7.8 Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.
If to FBC, to:
Farmers Banc Corp.
114 North Main Street
Mullica Hill, NJ 08062
Attention:
With copies to:
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 17103-2599
Attention: Lawrence R. Wiseman, Esquire
If to FNB, to:
Farmers National Bank
114 North Main Street
Mullica Hill, NJ 08062
Attention:
With copies to:
Blank Rome Comisky & McCauley
Four Penn Center Plaza
Philadelphia, PA 17103-2599
Attention: Lawrence R. Wiseman, Esquire
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<PAGE>
If to SBI, to:
Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger, President
and Chief Executive Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
and Wendy L. Holden, Esquire
If to SBI Merger Sub II, to:
Susquehanna Bancshares East II, Inc.
c/o Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, PA 17543
Attention: Robert S. Bolinger, President and Chief Executive
Officer
With copies to:
Morgan, Lewis & Bockius LLP
One Commerce Square
417 Walnut Street
Harrisburg, PA 17101-1904
Attention: Charles L. O'Brien, Esquire
and Wendy L. Holden, Esquire
SECTION 7.9 Entire Agreement; Etc. This Agreement, together with
---------------------
such other agreements as are executed by the parties in connection herewith, on
the date hereof, represent the entire understanding of the parties hereto with
reference to the transactions described herein and supersede any and all other
oral or written agreements heretofore made, including, without limitation, the
Confidentiality Agreement. All terms and provisions of this Agreement, together
with such other agreements
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<PAGE>
as are executed by the parties in connection herewith, on the date hereof, shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. Nothing in this Agreement is intended to
confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement except as expressly provided in Sections
4.3 and 4.13.
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IN WITNESS WHEREOF, the parties hereto have caused this Plan to be
executed by their duly authorized officers as of the day and year first above
written.
SUSQUEHANNA BANCSHARES, INC.
By:
------------------------------
Title:
SUSQUEHANNA BANCSHARES EAST II, INC.
By:
------------------------------
Title:
FARMERS BANC CORP.
By:
------------------------------
Title:
FARMERS NATIONAL BANK
By:
------------------------------
Title:
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<PAGE>
SCHEDULE 1.2
Exchange Provisions
-------------------
So long as the Average Price Per Share of SBI Common Stock Before
Closing is between $25.00 and $31.00, then, pursuant to the Merger, FBC Common
Stock will be exchanged for SBI Common Stock at a ratio of 2.281 shares of SBI
Common Stock for each share of FBC Common Stock.
The Average Price Per Share of SBI Common Stock Before Closing shall
be determined by adding the price at which SBI Common Stock is reported to have
closed by NASDAQ's NMS (or if SBI Common Stock is not quoted on NASDAQ's NMS
then as reported by a recognized source as to the principal trading market on
which such shares are traded) over the period of ten business days ending of the
fifth business day preceding the date set for Closing, pursuant to Section
1.1(b) hereof, and dividing such total by 10 (such Average Price Per Share
Before Closing is also referred to as the "Average Closing Price").
FBC shall have the right to terminate this Agreement, in accordance
with Section 6.1(e), if the Average Price Per Share of SBI Common Stock Before
Closing is less than $25.00 (subject to adjustment in accordance with Section
1.2(c) herein). SBI shall have the right to terminate this Agreement, in
accordance with Section 6.1(f), if the Average Price Per Share of SBI Common
Stock Before Closing is greater than $31.00 (subject to adjustment in accordance
with Section 1.2(c) herein); provided, however, if such price is greater than
$31.00 (subject to adjustment in accordance with Section 1.2(c) herein) and SBI
does not exercise its termination right pursuant to Section 6.1(f), then all of
the shares of FBC shall be exchanged for the number of shares of SBI Common
Stock as provided in the first paragraph hereof.
<PAGE>
APPENDIX E
OPINION OF BERWIND FINANCIAL GROUP, L.P.
<PAGE>
Appendix E
November 8, 1996
Board of Directors
Atcorp, Inc.
8000 Sagemore Drive
Suite 8101
Marlton, NJ 08053
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of Atcorp, Inc. ("Atcorp") of
the financial terms of the proposed merger by and between Atcorp,
Susquehanna Bancshares, Inc. ("Susquehanna"), and Susquehanna Bancshares
East, Inc. ("Susquehanna East"). The terms of the proposed merger (the
"Proposed Merger") by and between Atcorp, Susquehanna and Susquehanna East
are set forth in the Agreement and Plan of Affiliation dated July 18, 1996,
(the "Merger Agreement") and provides that each outstanding share of Atcorp
common stock will be converted into the right to receive shares of Common
Stock par value $2.00 per share of Susquehanna determined in conformity
with the exchange ratio set forth in Schedule 1.2 (a) of the Merger
Agreement, with cash to be paid in lieu of any fractional shares.
Berwind Financial Group, L.P., as part of its investment banking
business, regularly is engaged in the valuation of assets, securities and
companies in connection with various types of asset and security
transactions, including mergers, acquisitions, private placements and
valuations for various other purposes, and in the determination of adequate
consideration in such transactions.
In arriving at our opinion, we have, among other things: (i)
reviewed the historical financial performances, current financial positions
and general prospects of Atcorp and Susquehanna, (ii) reviewed the Merger
Agreement, (iii) reviewed and analyzed the stock market performance of
Atcorp and Susquehanna, (iv) studied and analyzed the consolidated
financial and operating data of Atcorp and Susquehanna, (v) considered the
terms and conditions of the Proposed Merger between Atcorp, Susquehanna and
Susquehanna East as compared with the terms and conditions of comparable
bank and bank holding company mergers and acquisitions, (vi) met and/or
communicated with certain members of Atcorp's and Susquehanna's senior
management to discuss their respective operations, historical financial
statements, and future prospects, and (vii) conducted such other financial
analyses, studies and investigations as we deemed appropriate.
Our opinion is given in reliance on information and
representations made or given by Atcorp and Susquehanna, and their
respective officers, directors, auditors, counsel and other agents, and on
filings, releases and other information issued by Atcorp and Susquehanna
including financial statements, financial projections, and stock price data
as well as certain information from recognized independent sources. We
have not independently verified the information concerning Atcorp and
Susquehanna nor other data which we have considered in our review and, for
purposes of the opinion set forth below, we have assumed and relied upon
the accuracy and completeness of all such information and data.
Additionally, we assume that the Proposed Merger is, in all respects,
lawful under applicable law.
E-1
<PAGE>
Board of Directors
November 8, 1996
Page 2
With regard to financial and other information relating to the
general prospects of Atcorp and Susquehanna, we have assumed that such
information has been reasonably prepared and reflects the best currently
available estimates and judgments of the managements of Atcorp and
Susquehanna as to Atcorp's and Susquehanna's most likely future
performance. In rendering our opinion, we have assumed that in the course
of obtaining the necessary regulatory approvals for the Proposed Merger no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Proposed Merger to Atcorp.
Our opinion is based upon information provided to us by the
managements of Atcorp and Susquehanna, as well as market, economic,
financial, and other conditions as they exist and can be evaluated only as
of the date hereof and speaks to no other period. Our opinion pertains
only to the financial consideration of the Proposed Merger and does not
constitute a recommendation to the Board of Atcorp and does not constitute
a recommendation to Atcorp's shareholders as to how such shareholders
should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date
hereof, the Proposed Merger by and between Atcorp, Susquehanna and
Susquehanna East is fair, from a financial point of view, to the
shareholders of Atcorp.
Sincerely,
BERWIND FINANCIAL GROUP, L.P.
E-2
<PAGE>
APPENDIX F
OPINION OF JANNEY MONTGOMERY SCOTT INC.
<PAGE>
Appendix F
November 8, 1996
The Board of Directors
ATCORP, Inc.
8000 Sagemore Drive
Marlton, New Jersey 08053
Members of the Board:
ATCORP, Inc. ("ATCORP") and Susquehanna Bancshares, Inc. ("Susquehanna")
have entered into an Agreement providing for the Merger ("Merger") of
ATCORP with and into Susquehanna. The terms of the Agreement providing for
the Merger are set forth in the Agreement and Plan of Affiliation ("Plan")
dated July 18, 1996. You have asked our opinion as to whether the Exchange
Ratio pursuant to the Plan is fair, from a financial point of view, to the
shareholders of ATCORP.
The terms of the Merger provide that at the effective date of the Merger,
each outstanding share of ATCORP Common Stock will be exchanged for one
share of Common Stock of Susquehanna ("Exchange Ratio") so long as the
Average Price Per Share (as defined in the Plan) of Susquehanna's Common
Stock is between $25.00 and $31.00 per share. If the Average Price Per
Share is less than $25.00 per share, ATCORP may terminate the Merger. If
the Average Price Per Share is greater than $31.00, Susquehanna may adjust
the Exchange Ratio to result in a fixed value to ATCORP's shareholders of
$31.00, or terminate the Merger.
Janney Montgomery Scott Inc., 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
ATCORP or Susquehanna for our own account or for the accounts of our
customers. We are familiar with ATCORP, having consulted with ATCORP from
time to time, and are acting as financial advisor to ATCORP in rendering
this opinion. We have not been involved in negotiations with Susquehanna
leading to the Merger and the Plan. We will receive a fee from ATCORP for
rendering this opinion.
In rendering our opinion, we have evaluated the financial statements of
ATCORP and Susquehanna. In addition, we have, among other things:
(a) 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 ATCORP
Common Stock;
(b) to the extent deemed relevant, analyzed selected public information of
certain other banks and bank holding companies and compared ATCORP and
Susquehanna from a financial point of view to these other banks and
bank holding companies;
(c) reviewed the historical market price ranges and trading volume of
Common Stock of ATCORP and Susquehanna;
F-1
<PAGE>
(d) compared the terms of the Merger with the terms of certain other
comparable transactions to the extent information concerning such
acquisitions was publicly available;
(e) reviewed the Plan and related documents; and
(f) performed such other analyses and examination as we deemed necessary.
We have also met with various senior officers of ATCORP and Susquehanna
to discuss the foregoing as well as other matters we believe relevant
to our opinion.
We have relied upon and assumed the accuracy and completeness of all
information provided to us by ATCORP and Susquehanna or publicly available
and we have not independently verified such information. We have relied
upon the managements of ATCORP and Susquehanna 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 managements.
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 ATCORP and Susquehanna 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 Susquehanna necessarily will
be when the Susquehanna Common Stock is issued to ATCORP's shareholders
upon consummation of the Merger. In addition, we express no recommendation
as to how the shareholders of ATCORP 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 Plan is fair, from a
financial point of view, to the shareholders of ATCORP.
Very truly yours,
JANNEY MONTGOMERY SCOTT INC.
F-2
<PAGE>
APPENDIX G
OPINION OF BERWIND FINANCIAL GROUP, L.P.
<PAGE>
Appendix G
November 8, 1996
Board of Directors
Farmers Banc Corp.
114 N. Main Street
Mullica Hill, NJ 08062
Gentlemen:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of Farmers Banc Corp.
("Farmers") of the financial terms of the proposed merger by and between
Farmers, Susquehanna Bancshares, Inc. ("Susquehanna"), and Susquehanna
Bancshares East II, Inc. ("Susquehanna East"). The terms of the proposed
merger (the "Proposed Merger") by and between Farmers, Susquehanna and
Susquehanna East are set forth in the Agreement and Plan of Affiliation
dated July 18, 1996, (the "Merger Agreement") and provides that each
outstanding share of Farmers common stock will be converted into the right
to receive shares of Common Stock par value $2.00 per share of Susquehanna
determined in conformity with the exchange ratio set forth on Schedule 1.2
(a) of the Merger Agreement, with cash to be paid in lieu of any fractional
shares.
Berwind Financial Group, L.P., as part of its investment banking
business, regularly is engaged in the valuation of assets, securities and
companies in connection with various types of asset and security
transactions, including mergers, acquisitions, private placements and
valuations for various other purposes, and in the determination of adequate
consideration in such transactions.
In arriving at our opinion, we have, among other things: (i)
reviewed the historical financial performances, current financial positions
and general prospects of Farmers and Susquehanna, (ii) reviewed the Merger
Agreement, (iii) reviewed and analyzed the stock market performance of
Farmers and Susquehanna, (iv) studied and analyzed the consolidated
financial and operating data of Farmers and Susquehanna, (v) considered the
terms and conditions of the Proposed Merger between Farmers, Susquehanna
and Susquehanna East as compared with the terms and conditions of
comparable bank and bank holding company mergers and acquisitions, (vi) met
and/or communicated with certain members of Farmer's and Susquehanna's
senior management to discuss their respective operations, historical
financial statements, and future prospects, and (vii) conducted such other
financial analyses, studies and investigations as we deemed appropriate.
Our opinion is given in reliance on information and
representations made or given by Farmers and Susquehanna, and their
respective officers, directors, auditors, counsel and other agents, and on
filings, releases and other information issued by Farmers and Susquehanna
including financial statements, financial projections, and stock price data
as well as certain information from recognized independent sources. We
have not independently verified the information concerning Farmers and
Susquehanna nor other data which we have considered in our review and, for
purposes of the opinion set forth below, we have assumed and relied upon
the accuracy and completeness of all such information and data.
Additionally, we assume that the Proposed Merger is, in all respects,
lawful under applicable law.
G-1
<PAGE>
Board of Directors
November 8, 1996
Page 2
With regard to financial and other information relating to the
general prospects of Farmers and Susquehanna, we have assumed that such
information has been reasonably prepared and reflects the best currently
available estimates and judgments of the managements of Farmers and
Susquehanna as to Farmers' and Susquehanna's most likely future
performance. In rendering our opinion, we have assumed that in the course
of obtaining the necessary regulatory approvals for the Proposed Merger no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Proposed Merger to Farmers.
Our opinion is based upon information provided to us by the
managements of Farmers and Susquehanna, as well as market, economic,
financial, and other conditions as they exist and can be evaluated only as
of the date hereof and speaks to no other period. Our opinion pertains
only to the financial consideration of the Proposed Merger and does not
constitute a recommendation to the Board of Farmers and does not constitute
a recommendation to the Farmers Shareholders as to how such shareholders
should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date
hereof, the Proposed Merger by and between Farmers, Susquehanna and
Susquehanna East is fair, from a financial point of view, to the
shareholders of Farmers.
Sincerely,
BERWIND FINANCIAL GROUP, L.P.
G-2
<PAGE>
APPENDIX H
SUSQUEHANNA PRO FORMA SCHEDULES
<PAGE>
The following schedule sets forth certain pro forma data giving
effect to each of the Fairfax and Reisterstown acquisitions as if they
occurred January 1, 1995, and were accounted for as purchases. The
following data are not necessarily indicative of the results that would
have been achieved had such transactions been consummated on such dates and
should not be construed as representative of future operations. This
presentation is subject to the assumptions set forth in the footnotes to
the Susquehanna Pro Forma Schedules on page 145. The schedules should be
read in conjunction with such footnotes and the historical financial
statements, including the notes thereto, of Susquehanna, Fairfax and
Reisterstown incorporated by reference in this Proxy Statement/Prospectus.
The information for Fairfax used in preparing the schedule for the pro
forma income statement for the year ended December 31, 1995 is for the
fiscal year ended September 30, 1995.
H-1
<PAGE>
SUSQUEHANNA PRO FORMA COMBINED ADJUSTMENTS
CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1995
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
SBI
Fairfax Reisterstown Combined
------------------------ -------------------------- -------------
As Reported Pro Forma As Reported Pro Forma Adjustments
----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $36,476 $ (55) [1] $7,137 $ (325) [1] $43,233
Interest expense 19,760 723 [2] 3,491 286 [2] 24,260
------------------------ -------------------------- -------------
Net interest income 16,716 (778) 3,646 (611) 18,973
Provision for loan and lease losses 45 0 0 0 45
------------------------ -------------------------- -------------
Net interest income after provision
for loan and leases losses 16,671 (778) 3,646 (611) 18,928
Other income 2,646 0 565 0 3,211
Other expense:
Salaries and benefits 5,029 (100) [3] 1,089 0 6,018
Occupancy and equipment 1,153 0 72 0 1,225
Other 6,059 1,429 [4] 1,102 122 [3] 8,712
------------------------ -------------------------- -------------
Income before income taxes 7,076 (2,107) 1,948 (733) 6,184
Applicable taxes 2,172 (270) [5] 842 (236) [4] 2,508
------------------------ -------------------------- -------------
NET INCOME $ 4,904 ($1,837) $1,106 ($497) $ 3,676
======================== ========================== =============
</TABLE>
See Footnotes to Pro Forma Combined Condensed Statements of Income on
Page 145.
H-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"), provide that a business corporation may indemnify
directors and officers against liabilities they may incur as such provided that
the particular person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and, with respect to any criminal proceeding, had no reasonable cause to believe
his or her conduct was unlawful. In the case of actions against a director or
officer by or in the right of the corporation, the power to indemnify extends
only to expenses (not judgments and amounts paid in settlement) and such power
generally does not exist if the person otherwise entitled to indemnification
shall have been adjudged to be liable to the corporation unless it is judicially
determined that, despite the adjudication of liability but in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnification for specified expenses. Under Section 1743 of the BCL, the
corporation is required to indemnify directors and officers against expenses
they may incur in defending actions against them in such capacities if they are
successful on the merits or otherwise in the defense of such actions. Under
Section 1745 of the BCL, a corporation may pay the expenses of a director or
officer incurred in defending an action or proceeding in advance of the of the
final disposition thereof upon receipt of an undertaking from such person to
repay the amounts advanced unless it is ultimately determined that such person
is entitled to indemnification from the corporation. Article XIV of
Susquehanna's Bylaws provides indemnification of directors, officers and other
agents of Susquehanna and advancement of expenses to the extent otherwise
permitted by Sections 1741, 1742 and 1745 of the BCL.
Section 1746 of the BCL grants a corporation broad authority to indemnify
its directors, officers and other agents for liabilities and expenses incurred
in such capacity, except in circumstances where the act or failure to act giving
rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness. Pursuant to the authority of
Section 1746 of the BCL, Susquehanna has also entered into employment agreements
with certain principal officers which also provide for indemnification in
connection with the performance of their offices.
Article XIV conditions any indemnification or advancement of expenses upon
a determination, made in accordance with the procedures specified in Section
1744 of the BCL, by Susquehanna's Directors or shareholders that indemnification
or advancement of expenses is proper because the Director or officer met the
standard of conduct set forth in Section 1741 or 1742 of the BCL, as applicable.
As authorized by Section 1747 of the BCL and Article XIV, Susquehanna
maintains, on behalf of its Directors and officers, insurance protection against
certain liabilities arising out of the discharge of their duties, as well as
insurance covering Susquehanna for indemnification payments made to its
Directors and officers for certain liabilities. The premiums for such insurance
are paid by Susquehanna.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
Number Description
------ -----------
2.1* Agreement and Plan of Affiliation, Dated as of the 18th Day of
July, 1996, By and Among Susquehanna Bancshares, Inc.,
Susquehanna Bancshares East, Inc., Atcorp, Inc. and Equity
National Bank (1) (Exhibit 2 (a)).
2.2* Agreement and Plan of Affiliation Dated as of the 18th Day of
July, 1996, By and Among Susquehanna Bancshares, Inc.,
Susquehanna Bancshares East II, Inc., Farmers Banc Corp. and
Farmers National Bank. (1)(Exhibit 2 (b)).
3.1 Articles of Incorporation of Susquehanna Bancshares, Inc.
(2)(Attachment E)
3.2 By-laws of Susquehanna Bancshares, Inc. (2)(Attachment E)
4.1* Subchapters 25E, 25F, 25G and 25H of the Pennsylvania Business
Corporation Law of 1988, as amended.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding legality of
the Susquehanna Bancshares, Inc. Common Stock being registered.
23.1** Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5.1 hereto).
23.2* Consent of Coopers & Lybrand L.L.P. regarding Susquehanna
Bancshares, Inc.
23.3* Consent of Coopers & Lybrand L.L.P. regarding Reisterstown
Holdings, Inc.
23.4* Consent of Arthur Andersen LLP regarding Atcorp, Inc..
23.5* Consent of Petroni & Associates regarding Farmers Banc Corp.
23.6* Consent of KPMG Peat Marwick LLP regarding Fairfax Financial
Corporation.
23.7* Consent of KPMG Peat Marwick LLP regarding Atlanfed Bancorp,
Inc.
23.8** Consent of Berwind Financial Group, L.P. regarding Farmers Banc
Corp.
23.9** Consent of Berwind Financial Group, L.P. regarding Atcorp,
Inc.
23.10** Consent of Janney Montgomery Scott Inc. regarding Atcorp,
Inc.
24.6* Powers of Attorney (included on the signature page).
99.1* Form of Atcorp, Inc. Proxy.
99.2* Form of Farmers Banc Corp. Proxy.
_______________________
* Filed previously.
** Filed herewith.
(1) Exhibit incorporated herein by reference to the registrant's Current
Report on Form 8-K dated July 18, 1996.
II-2
<PAGE>
(2) Exhibit incorporated herein by reference to the registrant's
Registration Statement on Form S-4 (registration no. 33-53608) filed
October 22, 1992.
(b) Financial Statement Schedules:
None.
Item 22. Undertakings
(1) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(2) 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.
(3) 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.
(4) 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.
(5) 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, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is
II-3
<PAGE>
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a Director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such Director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) The undersigned registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Amendment No. 1 to its
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Lititz, Pennsylvania on
November 5, 1996.
SUSQUEHANNA BANCSHARES, INC.
By:/s/ Robert S. Bolinger
-------------------------------------
ROBERT S. BOLINGER
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Amendment No. 1 to its Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated. Each person whose signature appears below in so signing also
makes, constitutes and appoints Robert S. Bolinger and Richard M. Cloney,
and each of them acting alone, his true and lawful attorney-in-fact, with
full power of substitution, for him in any and all capacities, to execute
and cause to be filed with the Securities and Exchange Commission any or
all amendments and post-effective amendments to this Registration
Statement, with exhibits thereto and other documents in connection
therewith, and hereby ratifies and confirms all that said attorney-in-fact
or his substitute or substitutes may do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert S. Bolinger President and Chief November 5, 1996
- --------------------------- Executive Officer
ROBERT S. BOLINGER and a Director
/s/ Drew K. Hostetter Treasurer (Principal November 5, 1996
- --------------------------- Financial and Accounting
DREW K. HOSTETTER Officer)
/s/ Richard M. Cloney Vice President, Secretary November 5, 1996
- --------------------------- and a Director
RICHARD M. CLONEY
* Director November 5, 1996
- ---------------------------
JOHN M. DENLINGER
* Director November 5, 1996
- ---------------------------
HENRY H. GIBBEL
* Director November 5, 1996
- ---------------------------
.RICHARD E. FUNKE
* Director November 5, 1996
- ---------------------------
GEORGE J. MORGAN
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C> <C>
* Director November 5, 1996
- ---------------------------
JAMES G. APPLE
- --------------------------- Director October __, 1996
EDWARD W. HELFRICK
* Director November 5, 1996
- ---------------------------
ROGER V. WIEST
* Director November 5, 1996
- ---------------------------
MARLEY R. GROSS
* Director November 5, 1996
- ---------------------------
T. MAX HALL
* Director November 5, 1996
- ---------------------------
RAYMOND M. O'CONNELL
* Director November 5, 1996
- ---------------------------
C. WILLIAM HETZER, JR.
* Director November 5, 1996
- ---------------------------
ROBERT C. REYMER, JR.
/s/ Robert S. Bolinger Attorney-in-Fact November 5,1996
- ---------------------------
ROBERT S. BOLINGER
* By: /s/ Robert S. Bolinger
- ---------------------------
ROBERT S. BOLINGER
Attorney-in-Fact
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
2.1* Agreement and Plan of Affiliation, Dated as of the 18th Day of
July, 1996, By and Among Susquehanna Bancshares, Inc.,
Susquehanna Bancshares East, Inc., Atcorp, Inc. and Equity
National Bank (1) (Exhibit 2 (a)).
2.2* Agreement and Plan of Affiliation Dated as of the 18th Day of
July, 1996, By and Among Susquehanna Bancshares, Inc.,
Susquehanna Bancshares East II, Inc., Farmers Banc Corp. and
Farmers National Bank. (1)(Exhibit 2 (b)).
3.1 Articles of Incorporation of Susquehanna Bancshares, Inc.
(2)(Attachment E)
3.2 By-laws of Susquehanna Bancshares, Inc. (2)(Attachment E)
4.1* Subchapters 25E, 25F, 25G and 25H of the Pennsylvania Business
Corporation Law of 1988, as amended.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding legality of
the Susquehanna Bancshares, Inc. Common Stock being registered.
23.1** Consent of Morgan, Lewis & Bockius LLP (included in its opinion
filed as Exhibit 5.1 hereto).
23.2* Consent of Coopers & Lybrand L.L.P. regarding Susquehanna
Bancshares, Inc.
23.3* Consent of Coopers & Lybrand L.L.P. regarding Reisterstown
Holdings, Inc.
23.4* Consent of Arthur Andersen LLP regarding Atcorp, Inc..
23.5* Consent of Petroni & Associates regarding Farmers Banc Corp.
23.6* Consent of KPMG Peat Marwick LLP regarding Fairfax Financial
Corporation.
23.7* Consent of KPMG Peat Marwick LLP regarding Atlanfed Bancorp,
Inc.
23.8** Consent of Berwind Financial Group, L.P. regarding Farmers Banc
Corp.
23.9** Consent of Berwind Financial Group, L.P. regarding Atcorp,
Inc.
23.10** Consent of Janney Montgomery Scott Inc. regarding Atcorp,
Inc.
24.6* Powers of Attorney (included on the signature page).
99.1* Form of Atcorp, Inc. Proxy.
99.2* Form of Farmers Banc Corp. Proxy.
- ------------------
* Filed previously.
** Filed herewith.
(1) Exhibit incorporated herein by reference to the registrant's Current
Report on Form 8-K dated July 18, 1996.
(2) Exhibit incorporated herein by reference to the registrant's
Registration Statement on Form S-4 (registration no. 33-53608) filed
October 22, 1992.
<PAGE>
EXHIBIT 2.1
<PAGE>
Included as Appendix C to the Proxy Statement/Prospectus
<PAGE>
EXHIBIT 2.2
<PAGE>
Included as Appendix D to the Proxy Statement/Prospectus
<PAGE>
PENNSYLVANIA Business Corporation Law
Subchapter E. Control Transactions
2541 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--
Except as otherwise provided in this section, this subchapter apply to a
registered corporation unless:
(1) the registered corporation is one described in section 2502(1)(ii) or
(2) (relating to registered corporation status):
(2) the bylaws, by amendment adopted either:
(i) by March 23, 1984; or
(ii) on or after March 23, 1988, and on or before June 21, 1988;
and, in either event, not subsequently rescinded by an article amendment,
explicitly provide that this subchapter shall not be applicable to the
corporation in the case of a corporation which on June 21, 1988, did not have
outstanding one or more classes or series of preference shares entitled, upon
the occurrence of a default in the payment of dividends or another similar
contingency, to elect a majority of the members of the board of directors (a
bylaw adopted on or before June 21, 1988, by a corporation excluded from the
scope of this paragraph by the restriction of this paragraph to certain
outstanding preference shares shall be ineffective unless ratified under
paragraph (3));
(3) the bylaws of which explicitly provide that this subchapter
shall to be applicable to the corporation by amendment ratified by the
board of directors on or after December 19, 1990, and on or before March
19, 1991, in the case of a corporation:
(i) which on June 21, 1988, had outstanding one or more classes
or series of preference shares entitled, upon the occurrence of a default
in the payment of dividends or another similar contingency, to elect a
majority of the members of the board of directors; and
(ii) the bylaws of which on that date contained a provision
described in paragraph (2); or
(4) the articles explicitly provide that this subchapter shall
not be applicable to the corporation by a provision included in the
original articles, by an article amendment adopted prior to the date of the
control transaction and prior to or on March 23, 1988, pursuant to the
procedures then applicable to the corporation, or by an article amendment
adopted prior to the date of the control transaction and subsequent to
March 23, 1988, pursuant to both:
(i) the procedures then applicable to the corporation; and
(ii) unless such proposed amendment has been approved by the
board of directors of the corporation, in which event this subparagraph
shall not be applicable, the affirmative vote of the shareholders entitled
to cast at least 80% of the votes which all shareholders are entitled to
cast thereon.
A reference in the articles or bylaws to former section 910 (relating to
right of shareholders to receive payment for shares following a control
transaction) of the act of May 5, 1933 (P.L. 364, No. 106), known as the
Business Corporation Law of 1933, shall be a reference to this subchapter
for the purposes of this section. See section 101(c) (relating to
references to prior statutes).
(b) Inadvertent transactions. --This subchapter shall not apply
to any person or group that inadvertently becomes a controlling person or
group if that controlling person or group, as soon as practicable, divests
itself of a sufficient amount of its voting shares so that it is no longer
a controlling person or group.
(c) Certain subsidiaries.--This subchapter shall not apply to
any corporation that on December 23, 1983, was a subsidiary of any other
corporation. (Last amended by Act 169, L. `92, eff. 2-16-93.)
2542 DEFINITIONS.--The following words and phrases when used in
this subchapter shall have the meanings given to them in this section
unless the context clearly indicates otherwise:
"Control transaction." The acquisition by a person or group of
the status of a controlling person or group.
"Controlling person or group." A controlling person or group as
defined in section 2543 (relating to controlling person or group).
"Fair value." A value not less than the highest price paid per
share the controlling person or group at any time during the 90-day
period ending on and including the date of the control transaction plus an
increment representing any value, including, without limitation, any
proportion of any value payable for acquisition of control of the
corporation, that may not be reflected in such price.
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"Partial payment amount." The amount per share specified in
section 2545(c)(2) (relating to contents of notice).
"Subsidiary." Any corporation as to which any other corporation
has or has the right to acquire, directly or indirectly, through the
exercise of all warrants, options and rights and the conversion of all
convertible securities, whether issued or granted by the subsidiary or
otherwise, voting power over voting shares of the subsidiary that would
entitle the holders thereof to cast in excess of 50% of the votes that all
shareholders would be entitled to cast in the election of directors of such
subsidiary, except that a subsidiary will not be deemed to cease being a
subsidiary as long as such corporation remains a controlling person or
group within the meaning of this subchapter.
"Voting shares." The term shall have the meaning specified in
section 2552 (relating to definitions).
(Last amended by Act 36, L. '89, eff. 4-27-90.)
2543 CONTROLLING PERSON OR GROUP.--(a) General rule.--For the
purpose of this subchapter, a "controlling person or group" means a person
who has, or a group of persons acting in concert that has, voting power
over voting shares of the registered corporation that would entitle the
holders thereof to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the corporation.
(b) Exceptions generally.--Notwithstanding subsection (a):
(1) A person or group which would otherwise be a controlling
person or group within the meaning of this section shall not be deemed a
controlling person or group unless, subsequent to the later of March 23,
1988, or the date this subchapter becomes applicable to a corporation by
bylaw or article amendment or otherwise, that person or group increases the
percentage of outstanding voting shares of the corporation over which it
has voting power to in excess of the percentage of outstanding voting
shares of the corporation over which that person or group had voting power
on such later date, and to at least the amount specified in subsection (a),
as the result of forming or enlarging a group or acquiring, by purchase,
voting power over voting shares of the corporation.
(2) No person or group shall be deemed to be a controlling
person or group at any particular time if voting power over any of the
following voting shares is required to be counted at such time in order to
meet the 20% minimum:
(i) Shares which have been held continuously by a natural person
since January 1, 1983, and which are held by such natural person at such
time.
(ii) Shares which are held at such time by any natural person or
trust, estate, foundation or other similar entity to the extent the shares
were acquired solely by gift, inheritance, bequest, devise or other
testamentary distribution or series of these transactions, directly or
indirectly, from a natural person who had acquired the shares prior to
January 1, 1983.
(iii) Shares which were acquired pursuant to a stock split,
stock dividend, reclassification or similar recapitalization with respect
to shares described under this paragraph that have been held continuously
since their issuance by the corporation by the natural person or entity
that acquired them from the corporation or that were acquired, directly or
indirectly, from such natural person or entity, solely pursuant to a
transaction or series of transactions described in subparagraph (ii), and
that are held at such time by a natural person or entity described in
subparagraph (ii).
(iv) Control shares as defined in section 2562 (relating to
definitions) which have not yet been accorded voting rights pursuant to
section 2564(a) (relating to voting rights of shares acquired in a control-
share acquisition).
(v) Shares, the voting rights of which are attributable to a
person under subsection (d) if:
(A) the person acquired the option or conversion right directly
from or made the contract, arrangement or understanding or has the
relationship directly with the corporation; and
(B) the person does not at the particular time own or otherwise
effectively possess the voting rights of the shares.
(vi) Shares acquired directly from the corporation or an
affiliate or associate, as defined in section 2552 (relating to
definitions), of the corporation by a person engaged in business as an
underwriter of securities who acquires the shares through his participation
in good faith in a firm commitment underwriting registered under the
Securities Act of 1933.
(3) In determining whether a person or group is or would be a
controlling person or group at any particular time, there shall be
disregarded voting power arising from a contingent right of the holders of
one or more classes or series of preference shares to elect one or more
members of the board of directors upon or during the continuation of a
default in the payment of dividends on such shares or another similar
contingency.
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<PAGE>
(c) Certain record holders.--A person shall not be a controlling
person under subsection (a) if the person holds voting power, in good faith
and not for the purpose of circumventing this subchapter, as an agent,
bank, broker, nominee or trustee for one or more beneficial owners who do
not individually or, if they are a group acting in concert, as a group have
the voting power specified in subsection (a), or who are not deemed a
controlling person or group under subsection (b).
(d) Existence of voting power.--For the purposes of this
subchapter, a person has voting power over a voting share if the person has
or shares, directly or indirectly, through any option, contract,
arrangement, understanding, conversion right or relationship, or by acting
jointly or in concert or otherwise, the power to vote, or to direct the
voting of, the voting share. (Last amended by Act 198, L. `90, eff. 12-19-
90.)
2544 RIGHT OF SHAREHOLDERS TO RECEIVE PAYMENT FOR SHARES.--Any
holder of voting shares of a registered corporation that becomes the
subject of a control transaction who shall object to the transaction shall
be entitled to the rights and remedies provided in this subchapter.
2545 NOTICE TO SHAREHOLDERS.--(a) General rule.--Prompt notice
that a control transaction has occurred shall be given by the controlling
person or group to:
(1) Each shareholder of record of the registered corporation
holding voting shares.
(2) To the court, accompanied by a petition to the court praying
that the fair value of the voting shares of the corporation be determined
pursuant to section 2547 (relating to valuation procedures) if the court
should receive pursuant to section 2547 certificates from shareholders of
the corporation or an equivalent request for transfer of uncertificated
securities.
(b) Obligations of the corporation.--If the controlling person
or group so requests, the corporation shall, at the option of the
corporation and at the expense of the person or group, either furnish a
list of all such shareholders to the person or group or mail the notice to
all such shareholders.
(c) Contents of notice.--The notice shall state that:
(1) All shareholders are entitled to demand that they be paid
the fair value of their shares.
(2) The minimum value the shareholder can receive under this
subchapter is the highest price paid per share by the controlling person or
group within the 90-day period ending on and including the date of the
control transaction, and stating that value.
(3) If the shareholder believes the fair value of his shares is
higher, that this subchapter provides an appraisal procedure for
determining the fair value of such shares, specifying the name of the court
and its address and the caption of the petition referenced in subsection
(a)(2), and stating that the information is provided for the possible use
by the shareholder in electing to proceed with a court-appointed appraiser
under section 2547. There shall be included in, or enclosed with, the
notice a copy of this subchapter.
(d) Optional procedure.--The controlling person or group may, at
its option, supply with the notice referenced in subsection (c) a form for
the shareholder to demand payment of the partial payment amount directly
from the controlling person or group without utilizing the court-appointed
appraiser procedure of section 2547, requiring the shareholder to state the
number and class or series, if any, of the shares owned by him, and stating
where the payment demand must be sent and the procedures to be followed.
2546 SHAREHOLDER DEMAND FOR FAIR VALUE.--(a) General rule.--
after the occurrence of the control transaction, any holder of voting
shares of the registered corporation may, prior to or within a reasonable
time after the notice required by section 2545 (relating to notice to
shareholders) is given, which time period may be specified in the notice,
make written demand on the controlling person or group for payment of the
amount provided in subsection (c) with respect to the voting shares of the
corporation held by the shareholder, and the controlling person or group
shall be required to pay that amount to the shareholder pursuant to the
procedures specified in section 2547 (relating to valuation procedures).
(b) Contents of demand.--The demand of the shareholder shall
state the number and class or series, if any, of the shares owned by him
with respect to which the demand is made.
(c) Measure of value.--A shareholder making written demand under
this section shall be entitled to receive cash for each of his shares in an
amount equal to the fair value of each voting share as of the date on which
the control transaction occurs, taking into account all relevant factors,
including an increment representing a proportion of any value payable for
acquisition of control of the corporation.
(d) Purchases independent of subchapter.--The provisions of this
subchapter shall not preclude a controlling person or group subject to this
subchapter from offering, whether in the notice required by section 2545
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<PAGE>
or otherwise, to purchase voting shares of the corporation at a price other
than that provided in subsection (c), and the provisions of this subchapter
shall not preclude any shareholder from agreeing to sell his voting shares
at that or any other price to any person.
2547 VALUATION PROCEDURES.--(a) General rule.--If, within 45
days (or such other time period, if any, as required by applicable law)
after the date of the notice required by section 2545 (relating to notice
to shareholders), or, if such notice was not provided prior to the date of
the written demand by the shareholder under section 2546 (relating to
shareholder demand for fair value), then within 45 days (or such other time
period, if any, required by applicable law) of the date of such written
demand, the controlling person or group and the shareholder are unable to
agree on the fair value of the shares or on a binding procedure to
determine the fair value of the shares, then each shareholder who is unable
to agree on both the fair value and on such a procedure with the
controlling person or group and who so desires to obtain the rights and
remedies provided in this subchapter shall, no later than 30 days after
the expiration of the applicable 45-day or other period, surrender to the
court certificates representing any of the shares that are certificated
shares, duly endorsed for transfer to the controlling person or group, or
cause any uncertificated shares to be transferred to the court as escrow
agent under subsection (c) with a notice stating that the certificates or
uncertificated shares are being surrendered or transferred, as the case may
be, in connection with the petition referenced in section 2545 or, if no
petition has theretofore been filed, the shareholder may file a petition
within the 30-day period in the court praying that the fair value (as
defined in this subchapter) of the shares be determined.
(b) Effect of failure to give notice and surrender
certificates.--Any shareholder who does not so give notice and surrender
any certificates or cause uncertificated shares to be transferred within
such time period shall have no further right to receive, with respect to
shares the certificates of which were not so surrendered or the
uncertificated shares which were not so transferred under this section,
payment under this subchapter from the controlling person or group with
respect to the control transaction giving rise to the rights of the
shareholder under this subchapter.
(c) Escrow and notice.--The court shall hold the certificates
surrendered and the uncertificated shares transferred to it in escrow for,
and shall promptly, following the expiration of the time period during
which the certificates may be surrendered and the uncertificated shares
transferred, provide a notice to the controlling person or group of the
number of shares of surrendered or transferred.
(d) Partial payment for shares.--The controlling person or group
shall then make a partial payment for the shares so surrendered or
transferred to the court, within ten business days of receipt of the notice
from the court, at a per-share price equal to the partial payment amount.
The court shall then make payment as soon as practicable, but in any event
within ten business days, to the shareholders who so surrender or transfer
their shares to the court of the appropriate per-share amount received from
the controlling person or group.
(e) Appointment of appraiser.--Upon receipt of any share
certificate surrendered or uncertificated share transferred under this
section, the court shall, as soon as practicable but in any event within 30
days, appoint an appraiser with experience in appraising share values of
companies of like nature to the registered corporation to determine the
fair value of the shares.
(f) Appraisal procedure.--The appraiser so appointed by the
court shall, as soon as reasonably practicable, determine the fair value of
the shares subject to its appraisal and the appropriate market rate of
interest on the amount then owed by the controlling person or group to the
holders of the shares. The determination of any appraiser so appointed by
the court shall be final and binding on both the controlling person or
group and all shareholders who so surrendered their share certificates or
transferred their shares to the court, except that the determination of the
appraiser shall be subject to review to the extent and within the time
provided or prescribed by law in the case of other appointed judicial
officers. See 42 Pa.C.S.(S)(S)5105(a)(3)(relating to right to appellate
review) and 5571(b) (relating to appeals generally).
(g) Supplemental payment.--Any amount owed, together with
interest, as determined pursuant to the appraisal procedures of this
section shall be payable by the controlling person or group after it is so
determined and upon and concurrently with the delivery or transfer to the
controlling person or group by the court (which shall make delivery of the
certificate or certificates surrendered or the uncertificated shares
transferred to it to the controlling person or group as soon as practicable
but in any event within ten business days after the final determination of
the amount owed) of the certificate or certificates representing shares
surrendered or the uncertificated shares transferred to the court, and the
court shall then make payment, as soon as practicable but in any event
within ten business days after receipt of payment from the controlling
person or group, to the shareholders
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who so surrendered or transferred their shares to the court of the
appropriate per-share amount received from the controlling person or group.
(h) Voting and dividend rights during appraisal proceedings.--
Shareholders who surrender their share to the court pursuant to this
section shall retain the right to vote their shares and receive dividends
or other distributions thereon until the court receives payment in full for
each of the shares so surrendered or transferred of the partial payment
amount (and, thereafter, the controlling person or group shall be entitled
to vote such shares and receive dividends or other distributions thereon.)
The fair value (as determined by the appraiser) of any dividends or other
distributions so received by the shareholders shall be subtracted from any
amount owing to such shareholders under this section.
(i) Powers of the court.--The court may appoint such agents,
including the transfer agent of the corporation, or any other institution,
to hold the share certificates so surrendered and the shares surrendered or
transferred under this section, to effect any necessary change in record
ownership of the shares after the payment by the controlling person or
group to the court of the amount specified in subsection (h), to receive
and disburse dividends or other distributions, to provide notices to
shareholders and to take such other actions as the court determines are
appropriate to effect the purposes of this subchapter.
(j) Costs and expenses.--The costs and expenses of any appraiser
or other agents appointed by the court shall be assessed against the
controlling person or group. The costs and expenses of any other procedure
to determine fair value shall be paid as agreed to by the parties agreeing
to the procedure.
(k) Jurisdiction exclusive.--The jurisdiction of the court under
this subchapter is plenary and exclusive and the controlling person or
group and all shareholders who so surrendered or transferred their shares
to the court shall be made a party to the proceeding as in an action
against their shares.
(l) Duty of corporation.--The corporation shall comply with
requests for information, which may be submitted pursuant to procedures
maintaining the confidentiality of the information, made by the court or
the appraiser selected by the court. If any of the shares of the
corporation are not represented by certificates, the transfer, escrow or
retransfer of those shares contemplated by this section shall be registered
by the corporation, which shall give the witness notice required by section
1528(f) (relating to uncertificated shares) to the transferring
shareholder, the court and the controlling shareholder or group, as
appropriate in the circumstances.
(m) Payment under optional procedure.--Any amount agreed upon
between the parties or determined pursuant to the procedure agreed upon
between the parties shall be payable by the controlling person or group
after it is agreed upon or determined and upon and concurrently with the
delivery of any certificate or certificates representing such shares or the
transfer of any uncertificated shares to the controlling person or group by
the shareholder.
(n) Title to shares.--Upon full payment by the controlling
person or group of the amount owed to the shareholder or to the court, as
appropriate, the shareholder shall cease to have any interest in the
shares.
2548 COORDINATION WITH CONTROL TRANSACTION.--(a) General rule.-
-A person or group that proposes to engage in a control transaction may
comply with the requirements of this subchapter in connection with the
control transaction, and the effectiveness of the rights afforded in this
subchapter to shareholders may be conditioned upon the consummation of the
control transaction.
(b) Notice.--The person or group shall give prompt written
notice of the satisfaction of any such condition to each shareholder who
has made demand as provided in this subchapter.
Subchapter F. Business Combinations
2551 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--
Except as otherwise provided in this section, this subchapter shall apply
to every registered corporation.
(b) Exceptions.--The provisions of this subchapter shall not
apply to any business combination:
(1) Of a registered described in section 2502(1)(ii) or (2)
(relating to registered corporation status).
(2) Of a corporation whose articles have been amended to provide
that the corporation shall be subject to the provisions of this subchapter,
which was not a registered corporation described in section 2502(1)(i) on
the effective date of such amendment, and which is a business combination
with an interest shareholder whose share acquisition date is prior to the
effective date of such amendment.
(3) Of a corporation:
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(i) The bylaws of which, by amendment adopted by June 21, 1988,
and not subsequently rescinded either by an article amendment or by a bylaw
amendment approved by at least 85% of the whole board of directors,
explicitly provide that this subchapter shall not be applicable to the
corporation; or
(ii) The articles of which explicitly provide that this
subchapter shall not be applicable to the corporation by a provision
included in the original articles, or by an article amendment adopted
pursuant to both:
(A) The procedures then applicable to the corporation; and
(B) The affirmative vote of the holders, other than interested
shareholders and their affiliates and associates, of shares entitling the
holders to cast a majority of the votes that all shareholders would be
entitled to cast in an election of directors of the corporation, excluding
the voting shares of interested shareholders and their affiliates and
associates, expressly electing not to be governed by this subchapter.
The amendment to the articles shall not be effective until 18 months after
the vote of the shareholders of the corporation and shall not apply to any
business combination of the corporation with an interested shareholder
whose share acquisition date is on or prior to the effective date of the
amendment.
(4) Of a corporation with an interested shareholder of the
corporation which became an interested shareholder inadvertently, if the
interested shareholder:
(i) As soon as practicable, divests itself of a sufficient
amount of the voting shares of the corporation so that it no longer is the
beneficial owner, directly or indirectly, of shares entitling the person to
cast at least 20% of the votes that all shareholders would be entitled to
cast in an election of directors of the corporation; and
(ii) Would not at any time within the five-year period preceding
the announcement date with respect to the business combination have been an
interested shareholder but for such inadvertent acquisition.
(5) With an interested shareholder who was the beneficial owner,
directly or indirectly, of shares entitling the person to cast at least 15%
of the votes that all shareholders would be entitled to cast in an election
of directors of the corporation on March 23, 1988, and remain so to the
share acquisition date of the interested shareholder.
(6) Of a corporation that on March 23, 1988, was a subsidiary of
any other corporation. A corporation that was a subsidiary on such date
will not be deemed to cease being a subsidiary as long as the other
corporation remains a controlling person or group of the subsidiary within
the meaning of subchapter E (relating to control transactions).
A reference in the articles or bylaws to former section 911 (relating to
requirements relating to certain business combinations) of the act of May
5, 1933 (P.L. 364, No. 106), known as the Business Corporation Law of 1933,
shall be deemed a reference to this subchapter for the purposes of this
section. See section 101(c) (relating to references to prior statutes).
(c) Continued applicability.--A registered corporation that is
organized under the laws of this Commonwealth shall not cease to be subject
to this subchapter by reason of events occurring or actions taken while the
corporation is subject to the provisions of this subchapter. See section
4146 (relating to provisions applicable to all foreign corporations).
(Last amended by Act 169, L. `92, eff. 2-16-93.)
2552 DEFINITIONS.--The following words and phrases when used in
this subchapter shall have the meanings given to them in this section
unless the context clearly indicates otherwise:
"Affiliate." A person that directly, or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under common
control with, a specified person.
"Announcement date." When used in reference to any business
combination, the date of the first public announcement of the final,
definitive proposal for such business combination.
"Associate." When used to indicate a relationship with any
person:
(1) Any corporation or organization of which such person is an
officer, director or partner or is, directly or indirectly, the beneficial
owner of shares entitling that person to cast at least 10% of the votes
that all shareholders would be entitled to cast in an election of directors
of the corporation or organization;
(2) Any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as
trustee or in a similar fiduciary capacity; and
(3) Any relative or spouse of such person, or any relative of
the spouse, who has the same home as such person.
"Beneficial owner." When used with respect to any shares, a
person:
(1) that, individually or with or through any of its affiliates
or associates, beneficially owns such shares, directly or indirectly:
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(2) that, individually or with or through any of its affiliates
or associates, has:
(i) the right to acquire such shares (whether the right is
exercisable immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding (whether or not in writing), or
upon the exercise of conversation rights, exchange rights, warrants or
options, or otherwise, except that a person shall not be deemed the
beneficial owner of shares tendered pursuant to a tender or exchange offer
made by such person or the affiliates or associates of any such person
until the tendered shares are accepted for purchase or exchange; or
(ii) the right to vote such shares pursuant to any agreement,
arrangement or understanding (whether or not in writing), except that a
person shall not be deemed the beneficial owner of any shares under this
subparagraph if the agreement, arrangement or understanding to vote such
shares:
(A) arises solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made in accordance with the
applicable rules and regulations under the exchange act; and
(B) is not then reportable on a schedule 13D under the exchange
act, (or any comparable or successor report); or
(3) that has any agreement, arrangement or understanding
(whether or not in writing), for the purpose of acquiring, holding, voting
(except voting pursuant to a revocable proxy or consent as described in
paragraph (2)(ii), or disposing of such shares with any other person that
beneficially owns, or whose affiliates or associates beneficially own,
directly or indirectly, such shares.
"Business combination." A business combination as defined in
section 2554 (relating to business combination).
"Common shares." Any shares other than preferred shares.
"Consummation date." With respect to any business combination,
the date of consummation of the business combination, or, in the case of a
business combination as to which a shareholder vote is taken, the later of
the business day prior to the vote or 20 days prior to the date of
consummation of such business combination.
"Control," "controlling," "controlled by" or "under common
control with." The possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a person,
whether through the ownership of voting shares, by contract, or otherwise.
A person's beneficial ownership of shares entitling that person to cast at
least 10% of the votes that all shareholders would be entitled to cast in
an election of directors of the corporation shall create a presumption that
such person has control of the corporation. Notwithstanding the foregoing,
a person shall not be deemed to have control of a corporation if such
person holds voting shares, in good faith and not for the purpose of
circumventing this subchapter, as in agent, bank, broker, nominee,
custodian or trustee for one or more beneficial owners who do not
individually or as a group have control of the corporation.
"Interested shareholder." An interested shareholder as defined
in section 2553 (relating to interested shareholder).
"Market value." When used in reference in shares or property of
any corporation:
(1) In the case of shares, the highest closing sale price during
the 30-day period immediately preceding the date in question of the share
of the composite tape for New York Stock Exchange-listed shares, or, if the
shares are not quoted in the composite tape or if the shares are not listed
on the exchange, on the principal United States securities exchange
registered under the exchange act, on which such shares are listed, or, if
the shares are not listed on any such exchange, the highest closing bid
quotation with respect to the share during the 30-day period preceding the
date in question on the National Association of Securities Dealers, Inc.
Automated Quotations System or any system then in use, or if no quotations
are available, the fair market value on the date in question of the share
as determined by the board of directors of the corporation in good faith.
(2) In the case of property other than cash or shares, the fair
market value of the property on the date in question as determined by the
board of directors of the corporation in good faith.
"Preferred shares." Any class or series of shares of a
corporation which, under the bylaws or articles of the corporation, is
entitled to receive payment of dividends prior to any payment of dividends
on some other class or series of shares, or is entitled in the event of any
voluntary liquidation, dissolution or winding up of the corporation to
receive payment or distribution of a preferential amount before any
payments or distributions are received by some other class or series of
shares.
"Share acquisition date." With respect to any person and any
registered corporation, the date that such person first becomes an
interested shareholder of such corporation.
"Shares." (1) Any shares or similar security, any certificate
of interest, any participation in any profit-sharing agreement, any voting
trust certificate, or any certificate of deposit for shares.
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(2) Any security convertible, with or without consideration,
into shares, or any option right, conversion right or privilege of buying
shares without being bound to do so, or any other security carrying any
right to acquire, subscribe to or purchase shares.
"Subsidiary." Any corporation as to which any other corporation
is the beneficial owner, directly or indirectly, of shares of the first
corporation that would entitle the other corporation to cast in excess of
50% of the votes that all shareholders would be entitled to cast in the
election of directors of the first corporation.
"Voting shares." Shares of a corporation entitled to vote
generally in the election of directors. (Last amended by Act 198, `90,
eff. 12-19-90.)
2553 INTERESTED SHAREHOLDER.--(a) General rule.--The term
"interested shareholder," when used in reference to any registered
corporation, means any person (other than the corporation or any subsidiary
of the corporation) that:
(1) Is the beneficial owner, directly or indirectly, of shares
entitling that person to cast at least 20% of the votes that all
shareholders would be entitled to cast in an election of directors of the
corporation; or
(2) Is an affiliate or associate of such corporation and at any
time within the five-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of shares entitling that
person to cast at least 20% of the votes that all shareholders would be
entitled to cast in an election of directors of the corporation.
(b) Exception.--For the purpose of determining whether a person
is an interested shareholder:
(1) The number of votes that would be entitled to be cast in an
election of directors of the corporation shall be calculated by including
shares deemed to be beneficially owned by the person through application of
the definition of "beneficial owner" in section 2552 (relating to
definitions), but excluding any other unissued shares of such corporation
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion or option rights, or
otherwise; and
(2) There shall be excluded from the beneficial ownership of the
interested shareholder any:
(i) Shares which have been held continuously by a natural person
since January 1, 1983, and which are then held by that natural person;
(ii) Shares which are then held by any natural person or trust,
estate, foundation or other similar entity to the extent such shares were
acquired solely by gift, inheritance, bequest, devise or other testamentary
distribution or series of those transactions, directly or indirectly, from
a natural person who had acquired such shares prior to January 1, 1983; or
(iii) Shares which were acquired pursuant to a stock split,
stock dividend, reclassification or similar recapitalization with respect
to shares described under this paragraph that have been held continuously
since their issuance by the corporation by the natural person or entity
that acquired them from the corporation, or that were acquired, directly or
indirectly, from the natural person or entity, solely pursuant to a
transaction or series of transactions described in subparagraph (ii), and
that are then held by a natural person or entity described in subparagraph
(ii).
2554 BUSINESS COMBINATION.--The term "business combination,"
when used in reference to any registered corporation and any interested
shareholder of the corporation, means any of the following:
(1) A merger, consolidation, share exchange or division of the
corporation or any subsidiary of the corporation:
(i) with the interested shareholder; or
(ii) with, involving or resulting in any other corporation
(whether or not itself an interested shareholder of the registered
corporation) which is, or after the merger, consolidation, share exchange
or division would be, an affiliate or associate of the interested
shareholder.
(2) A sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with the
interested shareholders or any affiliate or associate of such interested
shareholder of assets of the corporation or any subsidiary of the
corporation.
(i) Having an aggregate market value equal to 10% or more of the
aggregate market value of all the assets, determined on a consolidated
basis, of such corporation;
(ii) Having an aggregate market value equal to 10% or more of
the aggregate market value of all the outstanding shares of such
corporation; or
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(iii) Representing 10% or more of the earning power or net
income, determined on a consolidated basis, of such corporation.
(3) The issuance or transfer by the corporation or any
subsidiary of the corporation (in one transaction or a series of
transactions) of any shares of corporation or any subsidiary of such
corporation which has an aggregate market value equal to 5% or more of the
aggregate market value of all the outstanding shares of the corporation to
the interested shareholder or any affiliate or associate of such interested
shareholder except pursuant to the exercise of option rights to purchase
shares, or pursuant to the conversion of securities having conversion
rights, offered, to a dividend or distribution paid or made, pro rata to
all shareholders of the corporation.
(4) The adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by, or pursuant to any agreement,
arrangement or understanding (whether or not in writing) with, the
interested shareholder or any affiliate or associate of such interested
shareholder.
(5) A reclassification of securities (including, without
limitation, any split of shares, dividend or shares, or other distribution
of shares in respect of shares, or any reverse split of shares), or
recapitalization of the corporation, or any merger or consolidation of the
corporation with any subsidiary of the corporation, or any other
transaction (whether or not with or into or otherwise involving the
interested shareholder), proposed by, or pursuant to any agreement,
arrangement or understanding (whether or not in writing) with, the
interested shareholder of any affiliate or associate of the interested
shareholder, which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class or series of
voting shares or securities convertible into voting shares of the
corporation or any subsidiary of the corporation which is, directly or
indirectly, owned by the interested shareholder or any affiliate or
associate of the interested shareholder, except as a result of immaterial
changes due to fractional share adjustments.
(6) The receipt by the interested shareholder or any affiliate
or associate of the interested shareholder of the benefit, directly or
indirectly (except proportionately as a shareholder of such corporation),
of any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by or through the
corporation. (Last amended by Act 198, L. `90, eff. 12-19-90.)
2555 REQUIREMENTS RELATING TO CERTAIN BUSINESS COMBINATIONS.--
Notwithstanding anything to the contrary contained in this subpart (except
the provisions of section 2551 (relating to application and effect of
subchapter)), a registered corporation shall not engage at any time in any
business combination with any interested shareholder of the corporation
other than:
(1) A business combination approved by the board of directors of
the corporation prior to the interested shareholder's share acquisition
date, or where the purchase of shares made by the interested shareholder on
the interested shareholder's share acquisition date had been approved by
the board of directors of the corporation prior to the interested
shareholder's share acquisition date.
(2) A business combination approved:
(i) By the affirmative vote of the holders of shares entitling
such holders to cast a majority of the votes that all shareholders would be
entitled to cast in an election of directors of the corporation, not
including any voting shares beneficially owned by the interested
shareholder or any affiliate or associate of such interested shareholder,
at a meeting called for such purpose no earlier than three months after the
interested shareholder became, and if at the time of the meeting the
interested shareholder is, the beneficial owner, directly or indirectly, of
shares entitling the interested shareholder to cast at least 80% of the
votes that all shareholders would be entitled to cast in an election of
directors of the corporation, and if the business combination satisfies all
the conditions of section 2556 (relating to certain minimum conditions); or
(ii) By the affirmative vote of all of the holders of all of the
outstanding common shares.
(3) A business combination approved by the affirmative vote of
the holders of shares entitling such holders to cast a majority of the
votes that all shareholders would be entitled to cast in an election of
directors of the corporation, not including any voting shares beneficially
owned by the interested shareholder or any affiliate or associate of the
interested shareholder, at a meeting called for such purpose no earlier
than five years after the interested shareholder's share acquisition date.
(4) A business combination approved at a shareholders' meeting
called for such purpose no earlier than five years after the interested
shareholder's share acquisition date that meets all of the conditions of
section 2556.
2556 CERTAIN MINIMUM CONDITIONS.--A business combination
conforming to section 2555(2)(i) or (4) (relating to requirements relating
to certain business combinations) shall meet all of the following
conditions:
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(1) The aggregate amount of the cash and the market value as of
the date consummation date of consideration other than cash to be received
per share by holders of outstanding common shares of such registered
corporation in the business combination is at least equal to the higher of
the following:
(i) The highest per share price paid by the interested
shareholder at a time when the shareholder was the beneficial owner,
directly or indirectly, of shares entitling that person to cast at least 5%
of the votes that all shareholders would be entitled to cast in an election
of directors of the corporation, for any common shares of the same class or
series acquired by it:
(A) within the five-year period immediately prior to the
announcement date with respect to such business combination; or
(B) within the five-year period immediately prior to, or in, the
transaction in which the interested shareholder became an interested
shareholder;
whichever is higher; plus, in either case, interest compounded annually
from the earlier date on which the highest per-share acquisition price was
paid through the consummation date at the rate for one year United States
treasury obligations from time to time in effect; less the aggregate amount
of any cash dividends paid, and the market value of any dividends paid
other than in cash, per common share since such earliest date, up to the
amount of the interest.
(ii) The market value per common share on the announcement date
with respect to the business combination or on the interested shareholder's
share acquisition date, whichever is higher; plus interest compounded
annually from such date through the consummation date at the rate for one-
year United States treasury obligations from time to time in effect; less
the aggregate amount of any cash dividends paid, and the market value of
any dividends paid other than in cash, per common share since such date, up
to the amount of the interest.
(2) The aggregate amount of the cash and the market value as of
the consummation date of consideration other than cash to be received per
share by holders of outstanding shares of any class or series of shares,
other than common shares, of the corporation is at least equal to the
highest of the following (whether or not the interested shareholder has
previously acquired any shares of such class or series of shares);
(i) The highest per-share price paid by the interested
shareholder at a time when the shareholder was the beneficial owner,
directly or indirectly, of shares entitling that person to cast at lest 5%
of the votes that all shareholders would be entitled to cast in an election
of directors of such corporation, for any shares of such class or series of
shares acquired by it;
(A) within the five-year period immediately prior to the
announcement date with respect to such business combination; or
(B) within the five-year period immediately prior to, or in, the
transaction in which the interested shareholder became an interested
shareholder;
whichever is higher; plus, in either case, interest compounded from the
earliest date on which the highest per-share acquisition price was paid
through the consummation date at the rate for one year United States
treasury obligations from time to time in effect; less the aggregate amount
of any cash dividends paid, and the market value of any dividends paid
other than in cash, per common share since such earliest date, up to the
amount of the interest.
(ii) The market value per common share on the announcement date
with respect to the business combination or on the interested shareholder's
share acquisition date, whichever is higher; plus interest compounded
annually from such date through the consummation date at the rate for one-
year United States treasury obligations from time to time in effect; less
the aggregate amount of any cash dividends paid, and the market value of
any dividends paid other than in cash, per common share since such earliest
date, up to the amount of the interest.
(2) The aggregate amount of the cash and the market value as of
the consummation date of consideration other than cash to be received per
share by holders of outstanding shares of any class or series of shares,
other than common shares, of the corporation is at least equal to the
highest of the following (whether or not the interested shareholder has
previously acquired any shares of such class or series of shares);
(i) The highest per-share price paid by the interested
shareholder at a time when the shareholder was the beneficial owner,
directly or indirectly, of shares entitling that person to cast at least 5%
of the votes that all shareholders would be entitled to cast in an election
of directors of such corporation, for any shares of such class or series of
shares acquired by it;
(A) within the five-year period immediately prior to the
announcement date with respect to the business combination; or
(B) within the five-year period immediately prior to, or in, the
transaction in which the interested shareholder became an interested
shareholder;
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whichever is higher: plus, in either case, interest compounded annually
from the earliest date on which the highest per-share acquisition price was
paid through the consummation date at the rate for one-year United States
treasury obligations from time to time in effect; less the aggregate amount
of any cash dividends paid, and the market value of any dividends paid
other than in cash, per share of such class or series of shares since such
earliest date, up to the amount of the interest.
(ii) The highest preferential amount per share to which the
holders of shares of such class or series of shares are entitled in the
event of any voluntary liquidation, dissolution or winding up of the
corporation, plus the aggregate amount of any dividends declared or due as
to which such holders are entitled prior to payment of dividends on some
other class or series of shares (unless the aggregate amount of the
dividends is included in such preferential amount).
(iii) The market value per share of such class or series of
shares on the announcement date with respect to the business combination or
on the interested shareholder's share acquisition date, whichever is
higher; plus interest compounded annually from such date through the
consummation date at the rate for one-year United States treasury
obligations from time to time in effect; less the aggregate amount of any
cash dividends paid and the market value of any dividends paid other than
in cash, per share of such class or series of shares since such date, up to
the amount of the interest.
(3) The consideration to be received by holders of a particular
class or series of outstanding shares (including common shares) of the
corporation in the business combination is in cash or in the same form as
the interested shareholder has used to acquire the largest number of shares
of such class or series of shares previously acquired by it, and the
consideration shall be distrusted promptly.
(4) The holders of all outstanding shares of the corporation not
beneficially owned by the interested shareholder immediately prior to the
consummation of the business combination are entitled to receive in the
business combination cash or other consideration for such shares in
compliance with paragraphs (1), (2) and (3).
(5) After the interested shareholder's share acquisition date
and prior to the consummation date with respect to the business
combination, the interested shareholder has not become the beneficial owner
of any additional voting shares of such corporation except:
(i) As part of the transaction which resulted in such interested
shareholder becoming an interested shareholder,
(ii) By virtue of proportionate splits of shares, share
dividends or other distributions of shares in respect of shares not
constituting a business combination as defined in this subchapter;
(iii) Through a business combination meeting all of the
conditions of section 2555(1), (2) (3) or (4);
(iv) Through purchase by the interested shareholder at any price
which, if the price had been paid in an otherwise permissible business
combination the announcement date and consummation date of which were the
date of such purchase, would have satisfied the requirements of paragraphs
(1), (2) and (3); or
(v) Through purchase required by and pursuant to the provisions
of, and at no less than the fair value (including interest to the date of
payment) as determined by a court-appointed appraiser under section 2547
(relating to valuation procedures) or, if such fair value was not then so
determined, then at a price that would satisfy the conditions in
subparagraph (iv).
Subchapter G. Control-Share Acquisitions
(Added by Act 36, L. `89, eff. 4-27-90.)
2561 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--
Except as otherwise provided in this section, this subchapter shall apply
to every registered corporation.
(b) Exceptions.--This subchapter shall not apply to any control-
share acquisition:
(1) Of a registered corporation described in section 2502(1)(ii)
or (2) (relating to registered corporation status).
(2) Of a corporation:
(i) the bylaws of which explicitly provide that this subchapter
shall not be applicable to the corporation by amendment adopted by the
board of directors on or before July 26, 1990, in the case of a
corporation:
(A) which on April 27, 1990, was a registered corporation
described in section 2502(1)(i); and
(B) did not on that date have outstanding one or more classes or
series of preference shares entitled, upon the occurrence of a default in
the payment of dividends or another similar contingency, to elect a
majority of the members of the board of directors adopted on or before July
26, 1990, by a corporation excluded from the scope of this subparagraph by
this clause shall be ineffective unless ratified under subparagraph (ii);
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(ii) the bylaws of which explicitly provide that this subchapter
shall not be applicable to the corporation by amendment ratified by the
board of directors on or after December 19, 1990, and on or before March
19, 1991, in the case of a corporation:
(A) which on April 27, 1990, was a registered corporation
described in section 2502(1)(i);
(B) which on that date had outstanding one or more classes or
series of preference shares entitled, upon the occurrence of a default in
the payment of dividends or another similar contingency, to elect a
majority of the members of the board of directors; and
(C) the bylaws of which on that date contained a provision
described in subparagraph (i); or
(iii) in any other case, the articles of which explicitly
provide that this subchapter shall not be applicable to the corporation by
a provision included in the original articles, or by an articles amendment
adopted at any time while it is a corporation other than a registered
corporation described in section 2502(1)(i) prior or before 90 days after
the corporation first becomes a registered corporation described in section
2502(1)(i).
(3) Consummated before October 17, 1989.
(4) Consummated pursuant to contractual rights or obligations
existing before:
(i) October 17, 1989, in the case of a corporation which was a
registered corporation described in section 2502(1)(i) on that date; or
(ii) in any other case, the date this subchapter becomes
applicable to the corporation.
(5) Consummated:
(i) Pursuant to a gift, devise, bequest or otherwise through
the laws of inheritance of descent.
(ii) By a settlor to a trustee under the terms of a family,
testamentary or charitable trust.
(iii) By a trustee to a trust beneficiary or a trustee to a
successor trustee under the terms of, or the addition, withdrawal or demise
of a beneficiary or beneficiaries of, a family, testamentary or charitable
trust.
(iv) Pursuant to the appointment of a guardian or custodian.
(v) Pursuant to a transfer from one spouse to another by
reason of separation or divorce or pursuant to community property laws or
other similar laws of any jurisdiction.
(vi) Pursuant to the satisfaction of a pledge or other security
interest created in good faith and not for the purpose of circumventing
this subchapter.
(vii) Pursuant to a merger, consolidation or plan of share
exchange effected in compliance with the provisions of this chapter if the
corporation is a party to the agreement of merger, consolidation or plan of
share exchange.
(viii) Pursuant to a transfer from a person who beneficially
owns voting shares of the corporation that would entitle the holder thereof
to cast at least 20% of the votes that all shareholders would be entitled
to cast in an election of directors of the corporation and who acquired
beneficial ownership of such shares prior to October 17, 1989.
(ix) By the corporation or any of its
subsidiaries.
(x) By any savings, stock ownership, stock option or other
benefit plan of the corporation or any of its subsidiaries, or by any
fiduciary with respect to any such plan when acting in such capacity.
(xi) By a person engaged in business as an underwriter of
securities who acquires the shares directly from the corporation or an
affiliate or associate of the corporation through his participation in good
faith in a firm commitment underwriting registered under the Securities Act
of 1933.
(xii) Or commenced by a person who first became an acquiring
person:
(A) after April 27, 1990; and
(II) on or before ten business days after the first public
announcement by the corporation that this subchapter is applicable to the
corporation, if this subchapter was not applicable to the corporation on
July 27, 1990.
(c) Effect of distributions.--For purposes of this subchapter,
voting shares of a corporation acquired by a holder as a result of a stock
split, stock dividend or other similar distribution by a corporation of
voting shares issued by the corporation and not involving a sale of such
voting shares shall be deemed to have been acquired by the holder in the
same transaction (at the same time, in the same manner and from the same
person) in which the holder acquired the shares with respect to which such
voting shares were subsequently distributed by the corporation.
(d) Status of certain shares and effect of formation of group on
status.--(1) No share over which voting power, or of which beneficial
ownership, was or is acquired by the acquiring person in or in connection
with a control-share acquisition described in subsection (b) shall be
deemed to be a control share.
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(2) In the case of affiliate, disinterested or existing shares,
the acquisition of a beneficial ownership interest in a voting share by a
group shall not, by itself, affect the status of an affiliate,
disinterested or existing share, as such, if and so long as the person who
had beneficial ownership of the share immediately prior to the acquisition
of the beneficial ownership interest in the share by the group (or a direct
or indirect transferee from the person to the extent such shares were
acquired by the transferee solely pursuant to a transfer or series of
transfer under subsection (b)(5)(i) through (vi)):
(i) is a participant in the group; and
(ii) continues to have at least the same voting and dispositive
power over the share as the person had immediately prior to the acquisition
of the beneficial ownership interest in the share by the group.
(3) Voting shares which are beneficially owned by a person
described in paragraph (1), (2) or (3) of the definition of "affiliate
shares" in section 2562 (relating to definitions) shall continue to be
deemed affiliate shares, notwithstanding paragraph (2) of this subsection
or the fact that such shares are also beneficially owned by a group.
(4) No share of a corporation over which voting power, or of
which beneficial ownership, was or is acquired by the acquiring person
after April 27, 1990, at a time when this subchapter was or is not
applicable to the corporation shall be deemed to be a control share.
(e) Application of duties.--The duty of the board of directors,
committees of the board and individual directors under section 2565
(relating to procedure for establishing voting rights of control shares) is
solely to the corporation and may be enforced directly by the corporation
or may be enforced by a shareholder, as such, by an action in the right of
the corporation, and may not be enforced directly by a shareholder or by
any other person or group. (Last amended by Act 198, L. '90, eff. 12-19-
90.)
2562 DEFINITIONS.--The following words and phrases when used in
this subchapter shall have the meanings given to them in this section
unless the context clearly indicates otherwise:
"Acquiring or not pursuant to an express agreement, arrangement,
relationship or understanding, including as a partnership, limited
partnership, syndicate, or through any means of affiliation whether or not
formally organized, for the purpose of acquiring, holding, voting or
disposing of shares of a registered corporation, shall also constitute a
person for the purposes of this subchapter. A person, together with its
affiliates and associates, shall constitute a person for the purposes of
this subchapter.
"Affiliate," "associate" and "beneficial owner." The terms shall
have the meanings specified in section 2552 (relating to definitions). The
corporation may adopt reasonable provisions to evidence beneficial
ownership, specifically including requirements that holders of voting
shares of the corporation provide verified statements evidencing beneficial
ownership and attesting to the date of acquisition thereof.
"Affiliate shares." All voting shares of a corporation
beneficially owned by:
(1) an acquiring person;
(2) executive officers or directors who are also officers
(including executive officers); or
(3) employee stock plans in which employee participants do not
have, under the terms of the plan, the right to direct confidentially the
manner in which shares held by the plan for the benefit of the employee
will be voted in connection with the consideration of the voting rights to
be accorded control shares.
The term does not include existing shares beneficially owned by executive
officers or directors who are also officers (including executive officers)
if the shares are shares described in paragraph (2) of the definition of
"existing shares" that were beneficially owned continuously by the same
person or entity described in such paragraph since January 1, 1988, or are
shares described in paragraph (3) of that definition that were acquired
with respect to such existing shares.
"Control." The term shall have the meaning specified in section
2573 (relating to definitions).
"Control-share acquisition." An acquisition, directly or
indirectly, by any person of voting power over voting shares of a
corporation that, but for this subchapter, would, when added to all voting
power of the person over other voting shares of the corporation (exclusive
of voting power of the person with respect to existing shares of the
corporation), entitle the person to cast or direct the casting of such a
percentage of the votes for the first time with respect to any of the
following ranges that all shareholders would be entitled to cast in an
election of directors of the corporation:
(1) at least 20% but less than 33 1/3%;
(2) at least 33% but less than 50%; or
(3) 50% or more.
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"Control shares." Those voting shares of a corporation that,
upon acquisition of voting power over such shares by an acquiring person,
would result in a control-share acquisition. Voting shares beneficially
owned by an acquiring person shall also be deemed to be control shares
where such beneficial ownership was acquired by the acquiring person:
(1) within 180 days of the day the person makes a control-share
acquisition; or
(2) with the intention of making a control-share acquisition.
"Disinterested shares." All voting shares of a corporation that
are not affiliate shares and that were beneficially owned by the same
holder (or a direct or indirect transferee from the holder to the extent
such shares were acquired by the transferee solely pursuant to a transfer
or series of transfers under section 2561(b)(5)(i) through (vi) (relating
to application and effect of subchapter)) continuously during the period
from:
(1) the last to occur of the following dates:
(i) 12 months preceding the record date described in paragraph
(2);
(ii) five business days prior to the date on which there is
first publicly disclosed or caused to be disclosed information that there
is a person (including the acquiring person) who intends to engage or may
seek to engage in a control-share acquisition or that there is a person
(including the acquiring person) who has acquired shares as part of, or
with the intent of making, a control-share acquisition, as determined by
the board of directors of the corporation in good faith considering all the
evidence that the board deems to be relevant to such determination,
including, without limitation, media reports, share trading volume and
changes in share prices; or
(iii)(A) October 17, 1989, in the case of a corporation which
was a registered corporation on that date; or
(B) in any other case, the date this subchapter becomes
applicable to the corporation; through
(2) the record date established pursuant to section 2565(c)
(relating to notice and record date).
"Executive officer." When used with reference to a corporation,
the president, any vice-president in charge of a principal business unit,
division or function (such as sales, administration or finance), any other
officer who performs a policy-making function or any other person who
performs similar policy-making functions. Executive officers of
subsidiaries shall be deemed executive officers of the corporation if they
perform such policy-making functions for the corporation.
"Existing shares."
(1) Voting shares which have been beneficially owned
continuously by the same natural person since January 1, 1988.
(2) Voting shares which are beneficially owned by any natural
person or trust, estate, foundation or other similar entity to the extent
the voting shares were acquired solely by gift, inheritance, bequest,
devise or other testamentary distribution or series of these transactions,
directly or indirectly, from a natural person who had beneficially owned
the voting shares prior to January 1, 1988.
(3) Voting shares which were acquired pursuant to a stock split,
stock dividends, or other similar distribution described in section 2561(c)
(relating to effect of distributions) with respect to existing shares that
have been beneficially owned continuously since their issuance by the
corporation by the natural person or entity that acquired them from the
corporation or that were acquired, directly or indirectly, from such
natural person or entity, solely pursuant to a transaction or series of
transactions described in paragraph (2), and that are held at such time by
a natural person or entity described in paragraph (2).
"Proxy." Includes any proxy, consent or authorization
"Proxy solicitation" or "Solicitation of proxies." Includes any
solicitation of a proxy, including a solicitation of a revocable proxy of
the nature and under the circumstances described in section 2563(b)(3)
(relating to acquiring person safe harbor).
"Publicly disclosed or caused to be disclosed." Includes, but is
not limited to, any disclosure (whether or not required by law) that
becomes public made by a person:
(1) with the intent or expectation that such disclosure become
public; or
(2) to another where the disclosing person knows, or reasonably
should have known, that the receiving person was not under an obligation to
refrain from making such disclosure, directly or indirectly, to the public
and such receiving person does make such disclosure, directly or
indirectly, to the public.
"Voting shares." The term shall have the meaning specified in
section 2552 (relating to definitions). (Last amended by Act 198, L. `90,
eff. 12-19-90.)
2563 ACQUIRING PERSON SAFE HARBOR .--(a) Nonparticipant.--For
the purposes of this subchapter, a person shall not be deemed an acquiring
person, absent significant other activities indicating that a
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person should be deemed an acquiring person, by reason of voting or giving
a proxy or consent as a shareholder of the corporation if the person is one
who:
(1) did not acquire any voting shares of the corporation with
the purpose of changing or influencing control of the corporation, seeking
to acquire control of the corporation or influencing the outcome of a vote
of shareholders under section 2564 (relating to voting rights of shares
acquired in a control-share acquisition) or in connection with or as a
participant in any agreement, arrangement, relationship, understanding or
otherwise having any such purpose;
(2) if the control-share acquisition were consummated, would not
be a person that has control over the corporation and will not receive,
directly or indirectly, any consideration from a person that has control
over the corporation other than consideration offered proportionately to
all holders of voting shares of the corporation; and
(3) If a proxy or consent is given, executes a revocable proxy
or consent given without consideration in response to a proxy or consent
solicitation made in accordance with the applicable rules and regulations
under the Exchange Act under circumstances not then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report) by the
person who gave the proxy or consent.
(b) Certain holders.--For the purpose of this subchapter, a
person shall not be deemed an acquiring person if such person holds voting
power within any of the ranges specified in the definition of "control-
share acquisition":
(1) in good faith and not for the purpose of circumventing this
subchapter, as an agent, bank, broker, nominee or trustee for one or more
beneficial owners who do not individually or, if they are a group acting in
concert, as a group have the voting power specified in any of the ranges in
the definition of "control-share acquisition";
(2) in connection with the solicitation of proxies or consents
by or on behalf of the corporation in connection with shareholder meetings
or actions of the corporation;
(3) as a result of the solicitation of revocable proxies or
consents with respect to voting shares if such proxies or consents both:
(i) are given without consideration in response to a proxy or
consent solicitation made in accordance with the applicable rules and
regulations under the Exchange Act; and
(ii) do not empower the holder thereof, whether or not this
power is shared with any other person, to vote such shares except on the
specific matters described in such proxy or consent and in accordance with
the instructions of the giver or such proxy or consent; or
(4) to the extent of voting power arising from a contingent
right of the holders of one or more classes or series of preference shares
to elect one or more members of the board of directors upon or during the
continuation of a default in the payment of dividends on such shares or
another similar contingency. (Last amended by Act 198, L. `90, eff. 12-19-
90.)
.1 In general.--The District Court for the Eastern District of
Pennsylvania held that, in tabulating the votes in a corporate election,
the judge of elections correctly relied upon Pennsylvania's Control Shares
Act (15 Pa. Cons. Stat. Ann. (S)(S)2561 et seq.) to disenfranchise votes
for an insurgent group of shareholders where the votes were granted by a
proxy which vested discretionary authority in the proxyholders. The
Control Shares Act regulates control share acquisitions of corporations,
occurring when any person acquires voting power over specific percentages
of control shares. Although it provides a "safe harbor" for voting power
acquired through proxies if they are given in response to proxy
solicitation in accordance with SEC rules and if the proxy does not vest
the holder with discretionary authority, the proxyholders here failed to
meet the second requirement for exemption from the statute's provisions.
The court went on to hold, however, that for purposes of establishing a
quorum for the meeting, the shares ineffectively cast by proxy must still
be considered to be outstanding shares. This being the case, a quorum was
not present, and all action taken at the meeting was null and void. The
Committee for New Management of Guaranty Bancshares Corp v Dimeling, 772
FSupp 230 (ED Pa 1991).
2564 VOTING RIGHTS OF SHARES ACQUIRED IN A CONTROL-SHARE
ACQUISITION.--(a) General rule.--Control shares shall not have any voting
rights unless a resolution approved by a vote of shareholders of the
registered corporation at an annual or special meeting of shareholders
pursuant to this subchapter restores to the control elections of directors
and all other matters coming before the shareholders. Any such resolution
may be approved only by the affirmative vote of the holders of a majority
of the voting power entitled to vote in two separate votes as follows:
(1) all the disinterested shares of the corporation; and
(2) all voting shares of the corporation.
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(b) Lapse of voting rights.--Voting rights accorded by approval
of a resolution of shareholders shall lapse and be lost if any proposed
control-share acquisition which is the subject of the shareholder approval
is not consummated within 90 days after shareholder approval is obtained.
(c) Restoration of voting rights.--Any control shares that do
not have voting rights accorded to them by approval of a resolution of
shareholders as provided in subsection (a) or the voting rights of which
lapse pursuant to subsection (b) shall regain voting rights on transfer to
a person other than the acquiring person or any affiliate or associate of
the acquiring person (or direct or indirect transferee from the acquiring
person or such affiliate or associate solely pursuant to a transfer or
series of transfers under section 2561 (b)(5)(i) through (vi) (relating to
application and effect of subchapter)) unless such shares shall constitute
control shares of the other person, in which case the voting rights of
those shares shall again be subject to this subchapter. (Last amended by
Act 198, L. '90, eff. 12-19-90.)
2565 PROCEDURE FOR ESTABLISHING VOTING RIGHTS OF CONTROL
SHARES.--(a) Special Meeting.--A special meeting of the shareholders of a
registered corporation shall be called by the board of directors of the
corporation for the purpose of considering the voting rights to be accorded
to the control shares if an acquiring person:
(1) files an information statement fully conforming to section
2566 (relating to information statement of acquiring person);
(2) makes a request in writing for a special meeting of the
shareholders at the time of delivery of the information statement;
(3) makes a control-share acquisition or a bona fide written
offer to make a control-share acquisition; and
(4) gives a written undertaking at the time of delivery of the
information statement to pay or reimburse the corporation for the expenses
of a special meeting of the shareholders.
The special meeting requested by the acquiring person shall be held on the
date set by the board of directors of the corporation, but in no event
later than 50 days after the receipt of the information statement by the
corporation, unless the corporation and the acquiring person mutually agree
to a later date. If the acquiring person so requests in writing at the
time of delivery of the information statement to the corporation, the
special meeting shall not be held sooner than 30 days after receipt by the
corporation of the complete information statement.
(b) Special meeting not requested.--If the acquiring person
complies with subsection (a)(1) and (3), but no request for a special
meeting is made or no written undertaking to pay or reimburse the expenses
of the meeting is given, the issue of the voting rights to be accorded to
control shares shall be submitted to the shareholders at the next annual or
special meeting of the shareholders of which notice had not been given
prior to the receipt of such information statement, unless the matter of
the voting rights becomes moot.
(c) Notice and record date.--The notice of any annual or special
meeting at which the issue of the voting rights to be accorded the control
shares shall be submitted to shareholders shall be given at least ten days
prior to the date named for the meeting and shall be accompanied by:
(1) A copy of the information statement of the acquiring person.
(2) A copy of any amendment of such information statement
previously delivered to the corporation at least seven days prior to the
date on which such notice is given.
(3) A statement disclosing whether the board of directors of the
corporation recommends approval of, expresses no opinion and remains
neutral toward, recommends rejection of, or is unable to take a position
with respect to according voting rights to control shares. In determining
the position that it shall take with respect to according voting rights to
control shares, including to express no opinion and remain neutral or to be
unable to take a position with respect to such issue, the board of
directors shall specifically consider, in addition to any other factors it
deems appropriate, the effect of according voting rights to control shares
upon the interests of employees and of communities in which offices or
other establishments of the corporation are located.
(4) Any other matter required by this subchapter to be
incorporated into or to accompany the notice of meeting of shareholders or
that the corporation elects to include with such notice.
Only shareholders of record on the date determined by the board
of directors in accordance with the provisions of section 1763 (relating to
determination of shareholders of record) shall be entitled to notice of and
to vote at the meeting to consider the voting rights to be accorded to
control shares.
(d) Special meeting or submission of issue at annual or special
meeting not required.--Notwithstanding subsections (a) and (b), the
corporation is not required to call a special meeting of shareholders or
otherwise present
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the issue of the voting rights to be accorded to the control shares at any
annual or special meeting of shareholders unless:
(1) the acquiring person delivers to the corporation a complete
information statement pursuant to section 2566; and
(2) at the time of delivery of such information statement, the
acquiring person has:
(i) entered into a definitive financing agreement or agreements
(which shall not include best efforts, highly confident or similar
undertakings but which may have the usual and customary conditions
including conditions requiring that the control-share acquisition be
consummated and that the control shares be accorded voting rights) with one
or more financial institutions or other persons having the necessary
financial capacity as determined by the board of directors of the
corporation in good faith to provide for any amounts of financing of the
control-share acquisition not to be provided by the acquiring person; and
(ii) delivered a copy of such agreements to the corporation.
(Last amended by Act 198, L. `90, eff. 12-19-90.)
2566 INFORMATION STATEMENT OF ACQUIRING PERSON.--(a) Delivery
of information statement.--An acquiring person may deliver to the
registered corporation at its principal executive office an information
statement which shall contain all of the following:
(1) The identify of the acquiring person and the identity of
each affiliate and associate of the acquiring person.
(2) A statement that the information statement is being
provided under this section.
(3) The number and class or series of voting shares and of any
other security of the corporation beneficially owned, directly or
indirectly, prior to the control-share acquisition and at the time of the
filing of this statement by the acquiring person.
(4) The number and class or series of voting shares of the
corporation acquired or proposed to be acquired pursuant to the control-
share acquisition by the acquiring person and specification of the
following ranges of votes that the acquiring person could cast or direct
the casting of relative to all the votes that would be entitled to be cast
in an election of directors of the corporation that the acquiring person in
good faith believes would result from consummation of the control-share
acquisition:
(i) At least 20% but less than 33 1/3%.
(ii) At least 33 1/3% but less than 50%.
(iii) 50% or more.
(5) The terms of the control-share acquisition or proposed
control-share acquisition, including:
(i) The source of moneys or other consideration and the
material terms of the financial arrangements for the control-share
acquisition and the plans of the acquiring person for meeting its debt-
service and repayment obligations with respect to any such financing.
(ii) A statement identifying any pension fund of the acquiring
person or of the corporation which is a source or proposed source of money
or other consideration for the control-share acquisition, proposed control-
share acquisition or the acquisition of any control shares and the amount
of such money or other consideration which has been or is proposed to be
used, directly or indirectly, in the financing of such acquisition.
(6) Plans or proposals of the acquiring person with regard to
the corporation, including plans or proposals of under consideration to:
(i) Enter into a business combination or combinations involving
the corporation.
(ii) Liquidate or dissolve the corporation.
(iii) Permanently or temporarily shut down any plant, facility
or establishment, or substantial part thereof, of the corporation, or sell
any such plant, facility or establishment, or substantial part thereof, to
any other person.
(iv) Otherwise sell all or a material part of the assets of , or
merge, consolidate, divide or exchange the shares of the corporation to or
with any other person.
(v) Transfer a material portion of the work, operations or
business activities of any plant, facility or establishment of the
corporation to a different location or to a plant, facility or
establishment owned, as of the date the information statement is delivered,
by any other person.
(vi) Change materially the management or policies of employment
of the corporation or the policies of the corporation with respect to labor
relations matters, including, but not limited to, the recognition of or
negotiations with any labor organization representing employees of the
corporation and the administration of collective bargaining agreements
between the corporation and any such organization.
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(vii) Change materially the charitable or community involvement
or contributions or policies, programs or practices relating thereto of the
corporation.
(viii) Change materially the relationship with suppliers or
customers of, or the communities in which there are operations of, the
corporation.
(ix) Make any other material change in the business, corporate
structure, management or personnel of the corporation.
(7) The funding or other provisions the acquiring person
intends to make with respect to all retiree insurance and employee benefit
plan obligations.
(8) Any other facts that would be substantially likely to
affect the decision of a shareholder with respect to voting on the control-
share acquisition pursuant to section 2564 (relating to voting rights of
shares acquired in a control-share acquisition).
(b) Amendment of information statement.--If any material
change occurs in the facts set forth in the information statement,
including any material increase or decrease in the number of voting shares
of the corporation acquired or proposed to be acquired by the acquiring
person, the acquiring person shall promptly deliver, to the corporation at
its principal executive office, an amendment to the information statement
fully explaining such material change. (Last amended by Act 198, L. `90,
eff. 12-19-90.)
2567 REDEMPTION.--Unless prohibited by the terms of the articles
of a registered corporation in effect before a control-share acquisition
has occurred, the corporation may redeem all control shares from the
acquiring person at the average of the high and low sales price of shares
of the same class and series as such prices are specified on a national
securities exchange, national quotation system or similar quotation listing
service on the date the corporation provides notice to the acquiring person
of the call for redemption:
(1) at any time within 24 months after the date on which the
acquiring person consummates a control-share acquisition, if the acquiring
person does not, within 30 days after consummation of the control-share
acquisition, properly request that the issue of voting rights to be
accorded control shares be presented to the shareholders under section
2565(a) or (b) (relating to procedure for establishing voting rights of
control shares); and
(2) at any time within 24 months after the issue of voting
rights to be accorded such shares is submitted to the shareholders pursuant
to section 2565(a) or (b); and
(i) such voting rights are not accorded pursuant to section
2564(a) (relating to voting rights of shares acquired in control-share
acquisition); or
(ii) such voting rights are accorded and subsequently lapse
pursuant to section 2564(b) (relating to lapse of voting rights). (Last
amended by Act 198, L. `90, eff. 12-19-90.)
2568 BOARD DETERMINATIONS.--All determinations made by the board
of directors of the registered corporation under this subchapter shall be
presumed to be correct unless shown by clear and convincing evidence that
the determination was not made by the directors in good faith after
reasonable investigation or was clearly erroneous. (Last amended by Act
198, L. `90, eff. 12-19-90.)
Subchapter H.
Disgorgement by Certain Controlling Shareholders
Following Attempts to Acquire Control
(Added by Act 36, L. `89, eff. 4-27-90.)
2571 APPLICATION AND EFFECT OF SUBCHAPTER.--(a) General rule.--
Except as otherwise provided in this section, this subchapter shall apply
to every registered corporation.
(b) Exceptions.--This subchapter shall not apply to any transfer
of an equity security:
(1) Of a registered corporation described in section 2502(1)(ii)
or (2) (relating to registered corporation status).
(2) Of a corporation:
(i) (A) the bylaws of which explicitly provide that this
subchapter shall not be applicable to the corporation by amendment adopted
by the board of directors on or before July 26, 1990, in the case of a
corporation:
(I) which on April 27, 1990, was a registered corporation
described in section 2502(1)(i); and
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(II) did not on that date have outstanding one or more classes
or series of preference shares entitled, upon the occurrence of a default
in the payment of dividends or another similar contingency, to elect a
majority of the members of the board of directors;
(B) a bylaw adopted on or before July 26, 1990, by a corporation
excluded from the scope of this subparagraph by clause (A)(II) shall be
ineffective unless ratified under subparagraph (ii);
(ii) the bylaws of which explicitly provide that this subchapter
shall not be applicable to the corporation by amendment ratified by the
board of directors on or after (in printing this act in the Laws of
Pennsylvania and the Pennsylvania Consolidated Statutes, the Legislative
Reference Bureau shall insert here, in lieu of this statement, the date
which is the date of enactment of this amendatory act) and on or before (in
printing this act in the Laws of Pennsylvania and the Pennsylvania
Consolidated Statutes, the Legislative Reference Bureau shall insert here,
in lieu of this statement, the date which is 90 days after the date of
enactment of this amendatory act) in the case of a corporation:
(A) which on April 27, 1990, was a registered corporation
described in section 2502(1)(i);
(B) which on that date had outstanding one or more classes or
series of preference shares entitled, upon the occurrence of a default in
the payment of dividends or another similar contingency, to elect a
majority of the members of the board of directors; and
(C) the bylaws of which on that date contained a provision
described in subparagraph (i); or
(iii) in any other case, the articles of which explicitly
provide that this subchapter shall not be applicable to the corporation by
a provision included in the original articles, or by an articles amendment
adopted at any time while it is a corporation other than a registered
corporation described in section 2502(1)(i) or on or before 90 days after
the corporation first becomes a registered corporation described in section
2502(1)(i).
(3) Consummated before October 17, 1989, if both the acquisition
and disposition of each equity security were consummated before October 17,
1989.
(4) Consummated by a person or group who first became a
controlling person or group prior to:
(i) October 17, 1989, if such person or group does not after
such date commence a tender or exchange offer for or proxy solicitation
with respect to voting shares of the corporation, in the case of a
corporation which was a registered corporation described in section
2502(1)(i) on that date; or
(ii) in any other case, the date this subchapter becomes
applicable to the corporation.
(5) Constituting:
(i) In the case of a person or group that, as of October 17,
1989, beneficially owned shares entitling the person or group to cast at
least 20% of the votes that all shareholders would be entitled to cast in
an election of directors of the corporation:
(A) The disposition of equity securities of the corporation by
the person or group.
(B) Subsequent dispositions of any or all equity securities of
the corporation disposed of by the person or group where such subsequent
dispositions are effected by the direct purchaser of the securities from
the person or group if as a result of the acquisition by the purchaser of
the securities disposed of by the person or group, the purchaser,
immediately following the acquisition, is entitled to cast at least 20% of
the votes that all shareholders would be entitled to cast in an election of
directors of the corporation.
(ii) The transfer of the beneficial ownership of the equity
security by:
(A) Gift, devise, bequest or otherwise through the laws of
inheritance or descent.
(B) A settlor to a trustee under the terms of a family,
testamentary or charitable trust.
(C) A trustee to a trust beneficiary or a trustee to a successor
trustee under the terms of a family, testamentary or charitable trust.
(iii) The addition, withdrawal or demise of a beneficiary or
beneficiaries of a family, testamentary or charitable trust.
(iv) The appointment of a guardian or custodian with respect to
the equity security.
(v) The transfer of the beneficial ownership of the equity
security from one spouse to another by reason of separation or divorce or
pursuant to community property laws or other similar laws of any
jurisdiction.
(vi) The transfer of record or the transfer of a beneficial
interest or interests in the equity security where the circumstances
surrounding the transfer clearly demonstrate that no material change in
beneficial ownership has occurred.
(6) Consummated by:
(i) The corporation or any of its subsidiaries.
(ii) Any savings, stock ownership, stock option or other benefit
plan of the corporation or any of its subsidiaries, or any fiduciary with
respect to any such plan when acting in such capacity, or by any
participant in
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any such plan with respect to any equity security acquired pursuant to any
such plan or any equity security acquired as a result of the exercise or
conversion of any equity security (specifically including any options,
warrants or rights) issued to such participant by the corporation pursuant
to any such plan.
(iii) A person engaged in business as an underwriter of
securities who acquires the equity securities directly from the corporation
or an affiliate or associate, as defined in section 2552 (relating to
definitions), of the corporation through his participation in good faith in
a firm commitment underwriting registered under the Securities Act of 1933.
(7)(i) where the acquisition of the equity security has been
approved by a resolution adopted prior to the acquisition of the equity
security; or
(ii) where the disposition of the equity security has been
approved by a resolution adopted prior to the disposition of the equity
security if the equity security at the time of the adoption of the
resolution is beneficially owned by a person or group that is or was a
controlling person or group with respect to the corporation and is in
control of the corporation if:
the resolution in either subparagraph (i) or (ii) is approved by the board
of directors and ratified by the affirmative vote of the shareholders
entitled to cast at least a majority of the votes which all shareholders
are entitled to cast thereon and identifies the specific person or group
that proposes such acquisition or disposition, the specific purpose of such
acquisition or disposition and the specific number of equity securities
that are proposed to be acquired or disposed of by such person or group.
(8) Acquired at any time by a person or group who first became a
controlling person or group:
(i) after April 27, 1990; and
(ii) (A) at a time when this subchapter was or is not
applicable to the corporation; or
(B) on or before ten business days after the first announcement
by the corporation that this subchapter is applicable to the corporation,
if this subchapter was not applicable to the corporation on July 27, 1990.
(c) Effect of distributions.--For purposes of this subchapter,
equity securities acquired by a holder as a result of a stock split, stock
dividend or other similar distribution by a corporation of equity
securities issued by the corporation not involving a sale of the securities
shall be deemed to have been acquired by the holder in the same transaction
(at the same time, in the same manner and from the same person) in which
the holder acquired the existing equity security with respect to which the
equity securities were subsequently distributed by the corporation.
(d) Formation of group.--For the purposes of this subchapter, if
there is no change in the beneficial ownership of an equity security held
by a person, then the formation of or participation in a group involving
the person shall not be deemed to constitute an acquisition of the
beneficial ownership of such equity security by the group. (Last amended
by Act 198, L. `90, eff. 12-19-90.)
2572 POLICY AND PURPOSE.--(a) General rule.--The purpose of
this subchapter is to protect certain registered corporations and
legitimate interests of various groups related to such corporations from
certain manipulative and coercive actions. Specifically, this subchapter
seeks to:
(1) Protect registered corporations from being exposed to and
paying "greenmail."
(2) Promote a stable relationship among the various parties
involved in registered corporations, including the public whose confidence
in the future of a corporation tends to be undermined when a corporation is
put "in play."
(3) Ensure that speculators who put registered corporations "in
play" do not misappropriate corporate values for themselves at the expense
of the corporation and groups affected by corporate actions.
(4) Discourage such speculators from putting registered
corporations "in play" through any means, including, but not limited to,
offering to purchase at least 20% of the voting shares of the corporation
or threatening to wage or waging a proxy contest in connection with or as a
means toward or part of a plan to acquire control of the corporation, with
the effect of reaping short-term speculative profits.
Moreover, this subchapter recognizes the right and obligation of the
Commonwealth to regulate and protect the corporations it creates from
abuses resulting from the application of its own laws affecting generally
corporate governance and particularly director obligations, mergers and
related matters. Such laws, and the obligations imposed on directors or
others thereunder, should not be the vehicles by which registered
corporations are manipulated in certain instances for the purpose of
obtaining short-term profits.
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(b) Limitations.--The purpose of this subchapter is not to
affect legitimate shareholder activity that does not involve putting a
corporation "in play" or involve seeking to acquire control of the
corporation. Specifically, the purpose of this subchapter is not to:
(1) curtail proxy contests on matters properly submitted for
shareholder action under applicable State or other law, including, but not
limited to, certain elections of directors, corporate governance matters
such as cumulative voting or staggered boards, or other corporate matters
such as environmental issues or conducting business in a particular
country, if, in any such instance, such proxy contest is not utilized in
connection with or as a means toward or part of a plan to put the
corporation "in play" or to seek to acquire control of the corporation; or
(2) affect the solicitation of proxies or consents by or on
behalf of the corporation in connection with the shareholder meetings or
actions of the corporation.
2573 DEFINITIONS.--The following words and phrases when used in
this subchapter shall have the meanings given to them in this section
unless the context clearly indicates otherwise:
"Beneficial owner." The term shall have the meaning specified in
section 2552 (relating to definitions).
"Control." The power, whether or not exercised, to direct or
cause the direction of the management and policies of a person, whether
through the ownership of voting shares, by contract or otherwise.
"Controlling person or group."
(1)(i) A person or group who has acquired, offered to acquire
or, directly or indirectly, publicly disclosed or caused to be disclosed
(other than for the purpose of circumventing the intent of this subchapter)
the intention of acquiring voting power over voting shares of a registered
corporation that would entitle the holder thereof to cast at least 20% of
the votes that all shareholders would be entitled to cast in an election of
directors of the corporation; or
(ii) a person or group who has otherwise, directly or
indirectly, publicly disclosed or caused to be disclosed (other than for
the purposes of circumventing the intent of this subchapter) that it may
seek to acquire control of a corporation through any means.
(2) Two or more persons acting in concert, whether or not
pursuant to an express agreement, arrangement, relationship or
understanding, including a partnership, limited partnership, syndicate, or
through any means of affiliation whether or not formally organized, for the
purpose of acquiring, holding, voting or disposing of equity securities of
a corporation shall be deemed a group for purposes of this subchapter.
Notwithstanding any other provision of this subchapter to the contrary, and
regardless of whether a group has been deemed to acquire beneficial
ownership of an equity security under this subchapter, each person who
participates in a group, where such group is a controlling person or group
as defined in this subchapter, shall also be deemed to be a controlling
person or group for the purposes of this subchapter, and a direct or
indirect transferee solely pursuant to a transfer or series of transfers
under section 2571 (b)(5)(ii) through (vi) (relating to application and
effect of subchapter) of an equity security acquired from any person or
group that is or becomes a controlling person or group, shall be deemed to
have acquired such equity security in the same transaction (at the same
time, in the same manner and from the same person) as its acquisition by
the controlling person or group.
"Equity security." Any security, including all shares, stock or
similar security, and any security convertible into (with or without
additional consideration) or exercisable for any such shares, stock or
similar security, or carrying any warrant, right or option to subscribe to
or purchase such shares, stock or similar security or any such warrant,
right, option or similar instrument.
"Profit." The positive value, if any, of the difference between:
(1) the consideration received from the disposition of equity
securities less only the usual and customary broker's commissions actually
paid in connection with such disposition; and
(2) the consideration actually paid for the acquisition of such
equity securities plus only the usual and customary broker's commissions
actually paid in connection with such acquisition.
"Proxy." Includes any proxy, consent or authorization.
"Proxy solicitation" or "solicitation of proxies." Includes any
solicitation of a proxy, including a solicitation of a revocable proxy of
the nature and under the circumstances described in section 2573.1(b)(3)
(relating to controlling person or group safe harbor).
"Publicly disclosed or caused to be disclosed." The term shall
have the meaning specified in section 2562 (relating to definitions).
"Transfer." Acquisition or disposition.
"Voting shares." The term shall have the meaning specified in
section 2552 (relating to definitions). (Last amended by Act 169, L. `92,
eff. 2-16-93.)
-30-
<PAGE>
2574 CONTROLLING PERSON OR GROUP SAFE HARBOR.--(a)
Nonparticipant.--For the purpose of this subchapter, a person or group
shall not be deemed a controlling person or group, absent significant other
activities indicating that a person or group should be deemed a controlling
person or group, by reason of voting or giving a proxy or consent as a
shareholder of the corporation if the person or group is one who or which:
(1) did not acquire any voting shares of the corporation with
the purpose of changing or influencing control of the corporation or
seeking to acquire control of the corporation or in connection with or as a
participant in any agreement, arrangement, relationship, understanding or
otherwise having any such purpose;
(2) if control were acquired, would not be a person or group or
a participant in a group that has control over the corporation and will not
receive, directly or indirectly, any consideration from a person or group
that has control over the corporation other than consideration offered
proportionately to all holders of voting shares of the corporation; and
(3) if a proxy or consent is given, executes a revocable proxy
or consent given without consideration in response to a proxy or consent
solicitation made in accordance with the applicable rules and regulations
under the Exchange Act under circumstances not then reportable in Schedule
13D under the Exchange Act (or any comparable or successor report) by the
person or group who gave the proxy or consent.
(b) Certain holders.--For the purpose of this subchapter, a
person or group shall not be deemed a controlling person or group under
subparagraph (1)(i) of the definition of "controlling person or group" in
section 2573 (relating to definitions) if such person or group holds voting
power:
(1) in good faith and not for the purpose of circumventing this
subchapter, as an agent, bank, broker, nominee or trustee for one or more
beneficial owners who do not individually or, if they are a group acting in
concert, as a group have the voting power specified in subparagraph (1)(i)
of the definition of "controlling person or group" in section 2573;
(2) in connection with the solicitation of proxies or consents
by or on behalf of the corporation in connection with shareholder meetings
or actions of the corporation; or
(3) in the amount specified in subparagraph (1)(i) of the
definition of "controlling person or group" in section 2573 as a result of
the solicitation of revocable proxies or consents with respect to voting
shares if such proxies or consents both:
(i) are given without consideration in response to a proxy or
consent solicitation made in accordance with the applicable rules and
regulations under the exchange act; and
(ii) do not empower the holder thereof, whether or not this
power is shared with any other person, to vote such shares except on the
specific matters described in such proxy or consent and in accordance with
the instructions of the giver of such proxy or consent.
(c) Preference shares.--In determining whether a person or group
would be a controlling person or group within the meaning of this
subchapter, there shall be disregarded voting power, and the seeking to
acquire control of a corporation to the extent based upon voting power
arising from a contingent right of the holders of one or more classes or
series of preference shares to elect one or more members of the board of
directors upon or during the continuation of a default in the payment of
dividends on such shares or another similar contingency. (Last amended by
Act 198, L. `90, eff. 12-19-90.)
2575 OWNERSHIP BY CORPORATION OF PROFITS RESULTING FROM CERTAIN
TRANSACTIONS.--Any profit realized by any person or group who is or was a
controlling person or group with respect to a registered corporation from
the disposition of any equity security of the corporation to any person
(including under Subchapter E (relating to control transactions) or
otherwise), including, without limitation, to the corporation (including
under Subchapter G (relating to control-share acquisitions) or otherwise)
or to another member of the controlling person or group, shall belong to
and be recoverable by the corporation where the profit is realized by such
person or group:
(1) from the disposition of the equity security within 18 months
after the person or group obtained the status of a controlling person or
group; and
(2) the equity security had been acquired by the controlling
person or group within 24 months prior to or 18 months subsequent to the
obtaining by the person or group of the status of a controlling person or
group.
Any transfer by a controlling person or group of the ownership of any
equity security may be suspended on the books of the corporation, and
certificates representing such securities may be duly legended, to enforce
the rights of the corporation under this subchapter. (Last amended by Act
198, L. `90, eff. 12-19-90.)
-31-
<PAGE>
2576 ENFORCEMENT ACTIONS.--(a) Venue.--Actions to recover any
profit due under this subchapter may be commenced in any court of competent
jurisdiction by the registered corporation issuing the equity security or
by any holder of any equity security of corporation in the name and on
behalf of the corporation if the corporation fails or refuses to bring the
action within 60 days after written request by a holder or shall fail to
prosecute the action diligently. If a judgment requiring the payment of
any such profits is entered, the party bringing such action shall recover
all costs, including reasonable attorney fees, incurred in connection with
enforcement of this subchapter.
(b) Jurisdiction.--By engaging in the activities necessary to
become a controlling person or group and thereby becoming a controlling
person or group, the person or group and all persons participating in the
group consent to personal jurisdiction in the courts of this Commonwealth
for enforcement of this subchapter. Courts of this Commonwealth may
exercise personal jurisdiction over any controlling person or group in
actions to enforce this subchapter. The terms of this section shall be
supplementary to the provisions of 42 Pa.C.S. (S)(S)5301 (relating to
persons) through 5322 (relating to bases of personal jurisdiction over
persons outside this Commonwealth) and, for the purpose of this section, 42
Pa.C.S. (S)5322(7)(iv) shall be deemed to include a controlling person or
group as defined in section 2573 (relating to definitions). Service of
process may be made upon such persons outside this Commonwealth in
accordance with the procedures specified by 42 Pa.C.S. (S)5323 (relating to
service of process on persons outside this Commonwealth).
(c) Limitation.--Any action to enforce this subchapter shall be brought
within two years from the date any profit recoverable by the
corporation was realized. (Last amended by Act 198, L. `90, eff.
12-19-90.)
-32-
<PAGE>
EXHIBIT 5.1
<PAGE>
November 4, 1996
Susquehanna Bancshares, Inc.
26 North Cedar Street
Lititz, Pennsylvania 17543
Re: Susquehanna Bancshares, Inc. Joint Proxy/Prospectus on Form S-4
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Susquehanna Bancshares, Inc., a
Pennsylvania corporation (the "Company"), in connection with (i) the
proposed merger (the "AI Merger") of Atcorp, Inc., a New Jersey corporation
("AI"), with and into Susquehanna Bancshares East, Inc. ("SBI East"), a
Pennsylvania corporation and wholly-owned subsidiary of the Company
pursuant to the terms and conditions of the Agreement and Plan of
Affiliation by and between the Company, SBI East, and AI (the "AI Merger
Agreement") dated as of July 18, 1996, (ii) the proposed merger (the "FBC
Merger") of Farmers Banc Corp., a New Jersey Corporation ("FBC") , with
and into Susquehanna Bancshares East II, Inc. ("SBI East II"), a
Pennsylvania Corporation and Wholly-owned subsidiary of the Company,
pursuant to the terms and conditions of the Agreement and Plan of
Affiliation by and between the Company, SBI East II, and FBC (the "FBC
Merger Agreement") dated as of July 18, 1996, and (iii) the preparation of
the subject Registration Statement on Form S-4, as amended (the
"Registration Statement"), filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"),
relating to the offering, subject to certain adjustments, of up to
1,464,370 shares (the "Shares") of the Company's common stock, par value
$2.00 per share ("Common Stock").
We understand that the issuance of the Shares pursuant to the AI
Merger Agreement and FBC Merger Agreement (the "Merger Agreements") is
contingent upon, the requisite approval of the Merger Agreements by the
respective shareholders of AI and FBC. In rendering the opinion set forth
below, we have reviewed (a) the Registration Statement; (b) the Company's
Articles of Incorporation and Bylaws, as amended and restated; (c) certain
records of the Company's corporate proceedings as reflected in its minute
and stock books; (d) the Merger Agreement; and (e) such records, documents,
statutes and decisions as we have deemed relevant. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original
of all documents submitted to us as copies thereof.
<PAGE>
Susquehanna Bancshares, Inc.
November 4, 1996
Page 2
Our opinion set forth below is limited to the Pennsylvania
Business Corporation Law of 1988, as amended.
Based upon the foregoing, we are of the opinion that, when the
Registration Statement has become effective under the Act, and the Shares
are issued as described in the Registration Statement and in accordance
with the terms and conditions of the AI Merger Agreement and FBC Merger
Agreement, the Shares will be validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to
the Registration Statement. In giving such opinion, we do not thereby
admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act or the rules or regulations of the
Securities and Exchange Commission thereunder.
The opinion expressed herein is solely for your benefit, and may
be relied upon only by you.
Very truly yours,
<PAGE>
EXHIBIT 23.2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form S-4 of our report dated January 23, 1996, except for Note 2 as to
which the date is February 1, 1996, on our audits of the consolidated
financial statements of Susquehanna Bancshares, Inc. We also consent to
the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
One South Market Square
Harrisburg, Pennsylvania
October 15, 1996
<PAGE>
EXHIBIT 23.3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
of Susquehanna Bancshares, Inc. on Form S-4 of our report, which includes
an explanatory paragraph related to the change in method of accounting for
income taxes in 1993 and of accounting for certain debt and equity
securities in 1995, dated April 12, 1995, on our audits of the consolidated
financial statements of Reisterstown Holdings, Inc. as of March 31, 1995
and September 31, 1994 and for the six months ended March 31, 1995 and the
years ended September 30, 1994 and 1993. We also consent to the reference
to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Baltimore, Maryland
October 15, 1996
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our
report dated February 27, 1996, and to all references to our Firm included
in this registration statement.
Arthur Andersen LLP
Philadelphia, Pa.
October 15, 1996
<PAGE>
EXHIBIT 23.5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
I consent to the inclusion in this registration statement on Form S-4 of my
report dated January 30, 1996, on my audits of the consolidated financial
statements of Farmers Banc Corp. I also consent to the reference to my
firm under the caption "Experts".
PETRONI & ASSOCIATES
/s/ Nick L. Petroni
Nick L. Petroni, CPA
October 17, 1996
<PAGE>
EXHIBIT 23.6
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Susquehanna Bancshares, Inc.
Lititz, Pennsylvania:
We consent to incorporation by reference in the registration statement on
Form S-4 of Susquehanna Bancshares, Inc. (Susquehanna) of our report dated
November 14, 1995, relating to the consolidated statements of financial
condition of Fairfax Financial Corporation and subsidiaries (the Company)
as of September 30, 1995 and 1994, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the years in the
three-year period ended September 30, 1995, which was incorporated by
reference in Susquehanna's Form 8-K, dated November 21, 1995.
Our report refers to the fact that the Company changed its method of
accounting for investment securities in 1995 to adopt the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities."
We also consent to the reference to our firm under the heading "Experts" in
the registration statement.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
October 15, 1996
<PAGE>
EXHIBIT 23.7
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Susquehanna Bancshares, Inc.
Lititz, Pennsylvania:
We consent to incorporation by reference in the registration statement on
Form S-4 of Susquehanna Bancshares, Inc. of our report dated May 5, 1995,
relating to the consolidated statements of financial condition of Atlanfed
Bancorp, Inc. and subsidiaries as of March 31 1995, and 1994, and the
related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the two-year period ended March 31, 1995.
We also consent to the reference to our firm under the heading "Experts" in
the registration statement.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
October 15, 1996
<PAGE>
EXHIBIT 23.8
<PAGE>
November 8, 1996
To Whom It May Concern:
We hereby consent to the inclusion of our fairness opinion dated
November 8, 1996, as an Appendix to the Farmers Banc Corp./Susquehanna
Bancshares, Inc. Joint Proxy Statement/Prospectus and to the references to
our firm contained therein.
Sincerely,
BERWIND FINANCIAL GROUP, L.P.
<PAGE>
EXHIBIT 23.9
<PAGE>
November 8, 1996
To Whom It May Concern:
We hereby consent to the inclusion of our fairness opinion dated
November 8, 1996 as an Appendix to the Atcorp, Inc./Susquehanna Bancshares,
Inc. Joint Proxy Statement/Prospectus and to the references to our firm
contained therein.
Sincerely,
BERWIND FINANCIAL GROUP, L.P.
<PAGE>
EXHIBIT 23.10
<PAGE>
November 1, 1996
CONSENT OF JANNEY MONTGOMERY SCOTT INC.
We hereby consent to the use of our opinion letter dated July 18, 1996 to
the Board of Directors of ATCORP, Inc. and to the references to our firm in
the Proxy Statement/Prospectus which forms a part of the Registration
Statement on Form S-4 relating to the proposed merger of ATCORP, Inc. with
an into Susquehanna Bancshares, Inc.
In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
JANNEY MONTGOMERY SCOTT INC.
<PAGE>
EXHIBIT 99.1
<PAGE>
REVOCABLE PROXY
ATCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
December 18, 1996
The undersigned hereby appoints Marc L. Reitzes, Michael M. Quick and
Stewart Collins, with full powers of substitution, to act as attorneys and
proxies for the undersigned, to vote all shares of the common stock of Atcorp,
Inc. which the undersigned is entitled to vote at the Special Meeting of
Shareholders, to be held at the offices of AI at 8000 Sagemore Drive, Marlton,
New Jersey on Wednesday, December 18, 1996 at 6:00 p.m. and at any and all
adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
1. The approval of the Agreement and Plan of
Affiliation Dated as of the 18th Day of July
(the "Merger Agreement") By and Among
Susquehanna Bancshares, Inc., Susquehanna
Bancshares East, Inc., Atcorp, Inc. and
Equity National Bank [_] [_] [_]
2. Adjournment of the Meeting to a later date, if
necessary to permit further solicitation of
proxies in the event there are not sufficient
votes at the time of the AI Meeting to constitute
a quorum or to approve the Merger Agreement. [_] [_] [_]
</TABLE>
The Board of Directors recommends a vote "FOR" each of the listed
propositions.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, INCLUDING MATTERS RELATING TO THE CONDUCT OF THE
MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST
JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at any
adjournment thereof, then the power of said attorneys and prior proxies shall
be deemed terminated and of no further force and effect. The undersigned may
also revoke his or her proxy by filing a subsequent proxy or notifying the
Secretary of his or her decision to terminate his or her proxy.
The undersigned acknowledges receipt from Atcorp, Inc. prior to the execution of
this proxy of notice of the Meeting, and a Proxy Statement/Prospectus dated
November 12, 1996.
Dated: ______________________, 1996
___________________________________________________________________________
PRINT NAME OF SHAREHOLDER
___________________________________________________________________________
SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
EXHIBIT 99.2
<PAGE>
REVOCABLE PROXY
FARMERS BANC CORP.
SPECIAL MEETING OF SHAREHOLDERS
December 16, 1996
The undersigned hereby appoints Linda W. Eastlack, Elaine M. Shelmire and
Lillian G. Wozniak, with full powers of substitution, to act as attorneys and
proxies for the undersigned, to vote all shares of the common stock of Farmers
Banc Corp., which the undersigned is entitled to vote at the Special Meeting of
Shareholders, to be held at the Mullica Hill Grange Hall, 78 North Main Street,
Mullica Hill, New Jersey on Monday, December 16, 1996 at 10:00 a.m. and at any
and all adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
1. The approval of the Agreement and Plan of
Affiliation Dated As Of July 18, 1996
(the "Merger Agreement") By and Among Farmers
Banc Corp., Farmers National Bank, Susquehanna
Bancshares, Inc. and Susquehanna Bancshares East
II, Inc. [_] [_] [_]
2. Adjournment of the Meeting to a later date, if
necessary to permit further solicitation of
proxies in the event there are not sufficient
votes at the time of the FBC Meeting to
constitute a quorum or to approve the Merger
Agreement. [_] [_] [_]
</TABLE>
The Board of Directors recommends a vote "FOR" each of the listed
propositions.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS
IS PRESENTED AT SUCH MEETING, INCLUDING MATTERS RELATING TO THE CONDUCT OF THE
MEETING. THIS PROXY CONFERS CERTAIN DISCRETIONARY AUTHORITY DESCRIBED IN THE
PROXY STATEMENT. A MAJORITY OF SAID ATTORNEYS AND PARTIES PRESENT AT SAID
MEETING (OR IF ONLY ONE SHALL BE PRESENT, THEN THAT ONE) MAY EXERCISE ALL OF THE
POWERS HEREUNDER. THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR
BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at any
adjournment thereof, then the power of said attorneys and prior proxies shall
be deemed terminated and of no further force and effect. The undersigned may
also revoke his or her proxy by filing a subsequent proxy or notifying the
Secretary of his or her decision to terminate his or her proxy.
The undersigned acknowledges receipt from Farmers Banc Corp. prior to the
execution of this proxy of notice of the Meeting, and a Proxy
Statement/Prospectus dated December 12, 1996.
Dated: ______________________, 1996
___________________________________________________________________________
PRINT NAME OF SHAREHOLDER
___________________________________________________________________________
SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the enclosed card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
