<PAGE>
As filed with the Securities and Exchange Commission on April 2, 1997
Registration No. 333-
========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_____________________
Susquehanna Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania 6022 23-2201716
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification No.) Identification No.)
incorporation
or organization)
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)
_______________________
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:
CHARLES L. O'BRIEN DAVID S. PETKUN
Morgan, Lewis & Bockius LLP Schnader, Harrison, Segal & Lewis
One Commerce Square Suite 3600
417 Walnut Street 1600 Market Street
Harrisburg, PA 17101 Philadelphia, PA 19103
(717) 237-4030 (215) 751-2146
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 Founders' Bank, as described in the Proxy Statement/Prospectus
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]
______________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================
Proposed Proposed
Maximum Maximum
Title of Each Amount to Offering Aggregate Amount of
Class of Securities be Price Offering Registration
to be Registered Registered Per Unit Price Fee
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Common Stock, par value 471,298 $7.76 (1) $3,657,272.50 $2,328.30
$2.00 per share shares (1)
=============================================================================
</TABLE>
(1) Shares to be issued in the 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 Founders' Capital Stock at
February 28, 1997, 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......... Notice of Meeting of Shareholders;
Summary; Introduction; Approval of the
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 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........................... *
15. Information with Respect to S-3
Companies............................. *
</TABLE>
<PAGE>
<TABLE>
<S> <C>
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
Merger; Dividends and Market Prices of
Securities; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Founders'; Business of
Founders'; Founders' Consolidated
Financial Statements
18.Information if Proxies,
Consents or Authorizations are to
be Solicited....................... Notice of Meeting of Shareholders; Cover
Page of Proxy Statement/ Prospectus;
Summary; The Annual Meeting; Approval of
the 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>
[FOUNDERS' BANK LETTERHEAD]
________________, 1997
Dear Shareholder:
We invite you to attend the Annual Meeting (the "Meeting") of
shareholders of Founders' Bank ("Founders"), a Pennsylvania state chartered
bank, to be held at_____________________________________________, on
_________, __________ ___, 1997 at __:___ __.m. The Meeting is being held in
connection with the proposed acquisition of Founders by Susquehanna
Bancshares, Inc. ("Susquehanna"), a $3.3 billion bank holding company with 115
community banking offices in Pennsylvania, Maryland and New Jersey.
The attached Notice of Annual Meeting and Proxy Statement/Prospectus
describe the formal business to be transacted at the Meeting. Directors and
officers of Founders will be present to respond to any questions that our
shareholders may have.
At the Meeting, the shareholders will be asked to consider and vote upon
a proposal to approve an Agreement and Plan of Affiliation dated February 11,
1997 (the "Merger Agreement") among Founders, Susquehanna and Susquehanna
Interim Bank ("SBI Interim Bank"), a corporate subsidiary of Susquehanna
organized to facilitate the acquisition of Founders. Pursuant to the Merger
Agreement: (i) immediately prior to the Effective Time (as defined in the
Merger Agreement), all of the capital stock of SBI Interim Bank will be
transferred by Susquehanna to its wholly-owned subsidiary, Susquehanna
Bancshares East, Inc. ("SBI East"); and (ii) SBI Interim Bank will merge with
and into Founders (the "Merger"), and Founders will become a direct wholly-
owned subsidiary of SBI East and an indirect, wholly-owned subsidiary of
Susquehanna. Upon the consummation of the Merger, you will receive in
exchange for each share of Founders common stock, par value $2 per share
("Founders Common Stock"), or Founders convertible preferred stock, par value
$2 per share ("Founders Preferred Stock"), which you own, the number of shares
of Susquehanna common stock, par value $2 per share ("Susquehanna Common
Stock"), determined by the exchange ratio set forth in the Merger Agreement,
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 Merger Agreement if the average closing price per share of
Susquehanna Common Stock for a ten business day period ending shortly before
the closing of the Merger is greater than $40, and Founders may terminate the
Merger Agreement if the average closing price per share of Susquehanna Common
Stock for such ten day period is less than $24. Consummation of the Merger is
subject to certain conditions, including the approval of the Merger Agreement
by the requisite vote of Founders' shareholders and by various regulatory
agencies.
Janney Montgomery Scott Inc., Founders' financial advisor, has advised
your Board of Directors that in its opinion the consideration to be received
by Founders' shareholders pursuant to the Merger is fair, from a financial
point of view, to the shareholders of Founders. The Board of Directors of
Founders has carefully considered the Merger Agreement and has determined that
the Merger is in the best interests of Founders and its shareholders.
Accordingly, your Board of Directors recommends that you vote "FOR" approval
of the Merger Agreement.
Your participation in the Meeting, in person or by proxy, is important.
The affirmative vote of the holders of sixty-six and two-thirds percent (66%)
of the outstanding shares entitled to vote at the Meeting is required to
approve the Merger Agreement. An abstention or failure to vote has the same
effect as voting against the 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 Meeting. On behalf of the Board of Directors, I thank you for
your support and urge you to vote "FOR" approval of the Merger Agreement and
the transactions contemplated thereby.
Sincerely,
[signature]
PLEASE DO NOT SEND IN YOUR STOCK CERTIFICATES AT THIS TIME
<PAGE>
FOUNDERS' BANK
101 Bryn Mawr Avenue
Bryn Mawr, Pennsylvania 19010
(610) 525-8500
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, ____________ ___, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting ("Meeting") of shareholders
of Founders' Bank ("Founders"), a Pennsylvania state chartered bank, will
be held at __________________ on _____________, 1997 at __:____
__. m. A Proxy Card and a Proxy Statement/Prospectus for the Meeting are
enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of 13 directors of Founders;
2. The approval of the Agreement and Plan of Affiliation dated February
11, 1997 ("Merger Agreement") by and among Susquehanna Bancshares, Inc.
("Susquehanna"), Susquehanna Interim Bank ("SBI Interim Bank") and
Founders. Pursuant to the Merger Agreement: (i) immediately prior to
the Effective Time (as defined in the Merger Agreement), all of the
capital stock of SBI Interim Bank will be transferred by Susquehanna to
its wholly-owned subsidiary, Susquehanna Bancshares East, Inc. ("SBI
East"); and (ii) SBI Interim Bank will merge with and into Founders
("Merger") and Founders will become a direct, wholly-owned subsidiary
of SBI East and an indirect, wholly-owned subsidiary of Susquehanna.
Upon the consummation of the Merger, each Founders' shareholder will
receive in exchange for each share of the common stock of Founders, par
value $2 per share ("Founders Common Stock"), and each share of
convertible preferred stock of Founders, par value $2 per share
("Founders Preferred Stock"), the number of shares of common stock of
Susquehanna, par value $2 per share ("Susquehanna Common Stock"),
determined by the exchange ratio set forth in the Merger Agreement,
together with a cash payment in lieu of any fractional share of
Susquehanna Common Stock which the Founders' shareholder would
otherwise be entitled to receive;
3. The adjournment of the Meeting to a later date, if necessary, to permit
further solicitation of proxies in the event there are not sufficient
votes at the time of the Meeting to constitute a quorum or to approve
the Merger Agreement; and
4. Such other matters as may properly come before the Meeting or any
adjournment thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Meeting may be adjourned. Pursuant to
the Bylaws of Founders, the Board of Directors has fixed the close of
business on ______________________, 1997, as the record date for
determination of the shareholders entitled to vote at the 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 Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
[signature]
Bryn Mawr, Pennsylvania
_____________, 1997
IMPORTANT: PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. THE PROMPT RETURN OF
PROXIES WILL SAVE FOUNDERS 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>
PROXY STATEMENT/PROSPECTUS
FOUNDERS' BANK
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
, 1997
-----------
SUSQUEHANNA BANCSHARES, INC.
PROSPECTUS
FOR
UP TO 471,298 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 Founders' Bank
("Founders") to be used at the Annual Meeting of shareholders of Founders
("Meeting") which will be held at_______________________________________
__ on ___________________________, 1997 at ____:00 ____.m. The accompanying
Notice of Annual Meeting, Proxy Card and this Proxy Statement/Prospectus
are being first mailed to shareholders on or
about_________________________________, 1997.
At the Meeting, holders of record of common stock of Founders, par
value $2 per share ("Founders Common Stock"), and holders of record of
convertible preferred stock of Founders, par value $2 per share ("Founders
Preferred Stock") (Founders Common Stock and Founders Preferred Stock are
herein collectively referred to as "Founders Capital Stock"), as
of______________________________, 1997 ("Record Date"), will consider and
vote upon: (i) the election of 13 directors of Founders; and (ii) the
approval of the Agreement and Plan of Affiliation dated February 11, 1997
("Merger Agreement") by and among Susquehanna Bancshares, Inc.
("Susquehanna"), Susquehanna Interim Bank ("SBI Interim Bank") and Founders
and the transaction contemplated thereby. A copy of the Merger Agreement
is attached hereto as Appendix A. In addition, shareholders of Founders
may consider and vote upon the approval of the adjournment of the Meeting
in the event there are not sufficient votes cast in person or by proxy at
the Meeting to constitute a quorum or to approve the Merger Agreement, and
such other matters as may properly come before the Meeting or any
adjournments thereof.
Pursuant to the Merger Agreement: (i) immediately prior to the
Effective Time (as defined in the Merger Agreement), all of the capital
stock of SBI Interim Bank will be transferred by Susquehanna to its wholly-
owned subsidiary, Susquehanna Bancshares East, Inc. ("SBI East"); and (ii)
SBI Interim Bank will merge with and into Founders ("Merger"), and Founders
will become a direct, wholly-owned subsidiary of SBI East and an indirect,
wholly-owned subsidiary of Susquehanna. Upon the consummation of the
Merger, each Founders' shareholder will receive for each share of Founders
Capital Stock, the number of shares of common stock of Susquehanna, par
value $2 per share ("Susquehanna Common Stock"), determined by the exchange
ratio set forth in the Merger Agreement ("Exchange Ratio"), together with a
cash payment in lieu of any fractional share of Susquehanna Common Stock
which the Founders' shareholder would otherwise be entitled to receive. If
the average closing price per share of Susquehanna Common Stock for a ten
business day period ending on the second business day before closing of the
Merger is less than $24, Founders shall have the right to terminate the
Merger Agreement, and if such average closing price per share for such
period is more than $40, Susquehanna shall have the right to terminate the
Merger Agreement. If the Merger had been closed on the date of this Proxy
Statement/Prospectus, each share of Founders Capital Stock would have been
converted into the right to receive_______ share of Susquehanna Common
Stock. Consummation of the Merger is conditioned upon, among other things,
the approval of the Merger Agreement by the requisite vote of Founders'
shareholders and by various regulatory agencies.
The consideration to be received by Founders' shareholders pursuant to
the Merger Agreement was negotiated by the Board of Directors of Founders
("Founders Board of Directors") in light of various factors, including
Founders'
<PAGE>
and Susquehanna's recent operating results, current financial condition and
perceived future prospects. Janney Montgomery Scott Inc. ("JMS"),
Founders' financial advisor, has advised the Founders Board of Directors
that in its opinion the consideration to be received by Founders'
shareholders pursuant to the Merger is fair, from a financial point of
view, to the shareholders of Founders. A copy of the JMS opinion dated
________________________, 1997 is attached hereto as Appendix B. THE
FOUNDERS BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF FOUNDERS' SHAREHOLDERS AND RECOMMENDS THAT FOUNDERS'
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Founders Capital 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 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 Founders Capital Stock
was $_____________ on ____________________, 1997. Susquehanna Common Stock
as reported on The Nasdaq Stock Market on______________________, 1997 was
$____________.
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 471,298 shares of
Susquehanna Common Stock issuable pursuant to the 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 Founders and its subsidiary has been supplied
by Founders.
This Proxy Statement/Prospectus does not cover any resales of the
Susquehanna Common Stock issuable in the Merger by any shareholders deemed
to be affiliates of Founders 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 Founders who are not deemed
to be affiliates of Founders or Susquehanna.
THE SHARES OF SUSQUEHANNA COMMON STOCK ISSUABLE IN THE 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 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__________________________, 1997.
-2-
<PAGE>
No person is authorized to give any information or to make any
representations other than those contained in this Proxy
Statement/Prospectus and, if given or made, such other information or
representations must not be relied upon as having been authorized by
Susquehanna or Founders. 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 or Founders contained in
this Proxy Statement/Prospectus since the date hereof.
AVAILABLE INFORMATION
Susquehanna is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and,
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission ("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. The Commission also maintains
a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants, such as
Susquehanna, that file electronically with the Commission. The address of
the Commission's site is http://www.sec.gov. 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. Founders 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 the Merger Agreement. This Proxy Statement/Prospectus does not contain
all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of
the Commission. The Registration Statement, including any amendments and
exhibits thereto, is available for inspection and copying as set forth
above. Statements contained in this Proxy Statement/Prospectus as to the
contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
This Proxy Statement/Prospectus incorporates by reference documents
relating to 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 Founders, 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______________________________, 1997.
-3-
<PAGE>
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 Annual Report on Form 10-K for the year ended December 31, and
1996; and
(2) the Current Report on Form 8-K dated February 28, 1997.
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 the Merger shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing thereof. Any
statement contained 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.
-4-
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION...................................................... -3-
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... -4-
SUMMARY.................................................................... -8-
SELECTED FINANCIAL DATA.................................................... -15-
THE ANNUAL MEETING......................................................... -20-
General................................................................ -20-
Voting, Revocation and Solicitation of Proxies......................... -20-
Principal Security Holders............................................. -21-
Other Matters.......................................................... -22-
Shareholder Proposals and Nominations.................................. -22-
Auditors of Founders................................................... -23-
ELECTION OF DIRECTORS...................................................... -24-
Election of Directors by Holders of Founders Common Stock.............. -24-
Election of Directors by Holders of Founders Preferred Stock........... -27-
Executive Officers Who Are Not Directors............................... -27-
Compensation of Executive Officers..................................... -27-
Employment Agreements.................................................. -28-
Committees and Meetings of the Board of Directors...................... -28-
Stock Options.......................................................... -29-
Certain Relationships and Related Party Transactions................... -29-
APPROVAL OF THE MERGER..................................................... -31-
Background of the Merger............................................... -31-
Reasons for the Merger and Recommendation of the Founders
Board of Directors.................................................... -32-
Vote Required.......................................................... -33-
Opinion of Financial Advisor........................................... -33-
Dissenters' Rights..................................................... -36-
Terms of the Merger.................................................... -38-
Regulatory Approvals of Founders....................................... -43-
Interests of Certain Persons in the Merger............................. -44-
Management and Operations Following the Merger......................... -44-
Accounting Treatment of the Merger..................................... -45-
Income Tax Consequences of the Merger.................................. -45-
RESALE RESTRICTIONS........................................................ -45-
DESCRIPTION OF SUSQUEHANNA AND ITS CAPITAL STOCK........................... -46-
Information Concerning Susquehanna..................................... -46-
General................................................................ -47-
Common Stock........................................................... -47-
Preferred Stock........................................................ -47-
Pennsylvania Anti-Takeover Law Provisions.............................. -47-
Provisions in Susquehanna's Articles of Incorporation and Bylaws....... -48-
COMPARISON OF SHAREHOLDER RIGHTS........................................... -50-
Introduction........................................................... -50-
Dividends.............................................................. -50-
-5-
<PAGE>
Classified Board of Directors.......................................... -50-
Number of Directors.................................................... -50-
Nomination of Directors................................................ -50-
No Cumulative Voting................................................... -51-
Removal of Directors................................................... -51-
Filling Vacancies on the Board of Directors............................ -51-
Call of Special Shareholders' Meeting.................................. -51-
Notice of Shareholders' Meetings....................................... -52-
Quorum Requirements and Adjournment of Meetings........................ -52-
Shareholder Proposals; New Business at a Meeting....................... -52-
Action Without Meeting................................................. -52-
Dissenters' Rights..................................................... -53-
Preemptive Rights...................................................... -53-
Limitations on Directors' Liability.................................... -53-
Indemnification........................................................ -53-
State Anti-Takeover Law Provisions..................................... -54-
Anti-Takeover Provisions in the Susquehanna Articles;
Approval of Certain Transactions..................................... -55-
Amendment of Articles of Incorporation................................. -56-
Amendment of Bylaws.................................................... -56-
DIVIDENDS AND MARKET PRICES OF SECURITIES.................................. -57-
Susquehanna............................................................ -57-
Founders............................................................... -57-
REGULATIONS AFFECTING DIVIDENDS............................................ -58-
Susquehanna............................................................ -58-
Founders............................................................... -59-
BUSINESS OF FOUNDERS....................................................... -60-
General................................................................ -60-
Services............................................................... -60-
Regulation............................................................. -60-
Competition............................................................ -61-
Employees.............................................................. -62-
Litigation............................................................. -62-
Properties............................................................. -62-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF FOUNDERS.............................................. -63-
Results of Operations.................................................. -63-
Financial Condition.................................................... -66-
UNAUDITED PRO FORMA FINANCIAL STATEMENTS................................... -79-
Pro Forma Combined Condensed Balance Sheet
as of December 31, 1996................................................ -79-
ADJOURNMENT OF THE MEETING................................................. -85-
INDEPENDENT ACCOUNTANTS.................................................... -85-
EXPERTS.................................................................... -85-
Susquehanna............................................................ -85-
Founders............................................................... -85-
-6-
<PAGE>
LEGAL OPINIONS............................................................. -85-
INDEX TO FOUNDERS CONSOLIDATED FINANCIAL STATEMENTS........................ F-1
APPENDIX A - MERGER AGREEMENT.............................................. A-1
APPENDIX B - OPINION OF JANNEY MONTGOMERY SCOTT INC........................ B-1
APPENDIX C - DISSENTERS' RIGHTS PROVISIONS................................. C-1
-7-
<PAGE>
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 Annual Meeting
The Meeting will be held at
___________________________________________________________________________
_________________________ on ___________________,
___________________________________, 1997 at ___:00 __.m. At the Meeting,
holders of record of Founders Capital Stock as of the Record Date will
consider and vote upon: (i) the election of 13 directors of Founders; and
(ii) the approval of the Merger Agreement by and among Susquehanna, SBI
Interim Bank and Founders and the transactions contemplated thereby. In
addition, shareholders of Founders may consider and vote upon the approval
of the adjournment of the Meeting in the event there are not sufficient
votes cast in person or by proxy at the Meeting to constitute a quorum or
to approve the Merger Agreement, and such other matters as may properly
come before the Meeting or any adjournments thereof. The holders of record
of shares of Founders Capital Stock at the close of business on the Record
Date,_________________________________, 1997, will be entitled to one vote
for each such share then so held. The presence, in person or by proxy, of
the holders of at least a majority of the outstanding shares of Founders
Capital Stock entitled to vote as of the Record Date will be required to
constitute a quorum at the Meeting. For additional information, see "THE
ANNUAL MEETING."
Founders
Founders is a Pennsylvania state chartered bank headquartered in Bryn
Mawr, Pennsylvania, which conducts its business through three offices
located in Montgomery, Chester and Delaware Counties, Pennsylvania.
Founders' executive offices are located at 101 Bryn Mawr Avenue, Bryn
Mawr, Pennsylvania 19010, and its telephone number is (610) 525-8500.
Susquehanna
Susquehanna is a bank holding company whose primary activity consists
of owning and supervising its seven bank subsidiaries, three federal
savings bank subsidiaries and two other nonbank subsidiaries.
Susquehanna's depository subsidiaries consist of Atlantic Federal Savings
Bank, Baltimore, Maryland; Citizens National Bank of Southern Pennsylvania,
Greencastle, Pennsylvania; Equity National Bank, Atco, New Jersey; Fairfax
Savings, FSB, Baltimore, Maryland; Farmers & Merchants Bank and Trust,
Hagerstown, Maryland; Farmers First Bank, Lititz, Pennsylvania; Farmers
National Bank, Mullica Hill, New Jersey; 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, in northwestern and
central Maryland, principally in Washington and Allegany Counties, the City
of Baltimore, its surrounding suburbs and the Counties of Cecil, Harford,
Wicomico and Worcester, and in southern New Jersey, in Camden, Burlington
and Gloucester Counties. 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.
-8-
<PAGE>
The Merger
In the Merger, Founders will become a direct, wholly-owned subsidiary
of SBI East and an indirect, wholly-owned subsidiary of Susquehanna by
means of a merger of SBI Interim Bank with and into Founders, with Founders
as the surviving entity ("Surviving Bank"). Upon the consummation of the
Merger, Founders' shareholders will receive in exchange for all of the
outstanding shares of Founders Capital Stock a number of shares of
Susquehanna Common Stock to be determined in accordance with the Exchange
Ratio set forth in the Merger Agreement. Founders' shareholders will
receive a cash payment in lieu of any fractional share of Susquehanna
Common Stock which the Founders' shareholders would otherwise be entitled
to receive. If the Merger had been closed on the date of this Proxy
Statement/Prospectus, each share of Founders Capital Stock would have been
converted into the right to receive ______ share of Susquehanna Common
Stock. The last reported sale price of Susquehanna Common Stock on The
Nasdaq Stock Market on _______________, 1997 was $________ per share.
Consummation of the Merger is conditioned upon, among other things, the
approval of the Merger Agreement by the requisite vote of Founders'
shareholders and by various regulatory agencies. See "APPROVAL OF THE
MERGER."
General
Pursuant to the Merger Agreement, SBI Interim Bank will merge
with and into Founders, with Founders as the Surviving Bank, as a result of
which Founders will become a direct wholly-owned subsidiary of SBI East and
an indirect wholly-owned subsidiary of Susquehanna. The name of the
Surviving Bank will be "Founders' Bank."
Exchange Ratio
Pursuant to the Merger Agreement, the outstanding shares of
Founders Capital Stock will be exchanged for shares of Susquehanna Common
Stock in accordance with the Exchange Ratio set forth in the Merger
Agreement ("Merger Consideration"). This number may be adjusted subject to
conditions set forth in the Merger Agreement.
The number of shares of Susquehanna Common Stock to be issued to
holders of Founders Capital Stock in accordance with the 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 Merger. In general, the fraction of a share of Susquehanna
Common Stock to be issued for each share of Founders Capital Stock will
range from .377 if the average closing price over such period is $40 per
share, to .476 if the average closing price during such period is $24 per
share. See Schedule 1.2 to the Merger Agreement attached as Appendix A
hereto for the applicable Exchange Ratio within such range. If the average
closing price over such period is less than $24 per share, Founders will
have the right to terminate the Merger Agreement, and if Founders does not
exercise such right, the applicable Exchange Ratio will be .476. If the
average closing price is greater than $40 per share, Susquehanna will have
the right to terminate the Merger Agreement, and if Susquehanna does not
exercise such right, the applicable Exchange Ratio will be .377.
Additionally, both Founders and Susquehanna will have the right to
terminate the Merger Agreement if the Merger is not consummated by July 30,
1997. Nonetheless, Founders and Susquehanna have the right to extend the
time for closing beyond July 30, 1997 through an amendment to the Merger
Agreement which must be executed by all the parties.
Fractional Shares
No fractional shares of Susquehanna Common Stock will be issued.
Susquehanna will furnish to any holder of Founders Capital 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 Merger Agreement.
-9-
<PAGE>
Closing; Effective Date
The Merger Agreement provides that the closing ("Closing") will
occur following three business days notice to Founders, as shall be agreed
upon by all parties, which date shall not be later than the 30th 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 Merger; and (iii) all shareholder approvals required
by the parties pursuant to the Merger Agreement are received. Immediately
following the Closing, and provided the Merger Agreement has not been
terminated or abandoned in accordance with the terms thereof, Founders and
SBI Interim Bank will request that the Pennsylvania Department of Banking (
"Banking Department") cause articles of merger to be delivered and filed
with the Secretary of State of the Commonwealth of Pennsylvania
("Department of State"). The Merger, and the transactions described in
the Merger Agreement, will become effective at 12:01 a.m. on the business
day following the Closing ("Effective Time"). The presentation of the
articles for acceptance and filing is subject to the rights of the Founders
Board of Directors and the Board of Directors of Susquehanna ("Susquehanna
Board of Directors") to terminate the Merger Agreement under certain
circumstances.
Opinion of Financial Advisor
JMS has rendered its opinion to the Founders Board of Directors that
in its opinion the Merger Consideration is fair, from a financial point of
view, to the shareholders of Founders. This opinion, which is attached
hereto as Appendix B, should be read in its entirety with respect to the
assumptions made and other matters considered by JMS in rendering such
opinion. See "APPROVAL OF THE MERGER -- Opinion of Financial Advisor."
Recommendation of the Founders Board of Directors
The consideration to be received by Founders' shareholders pursuant to
the Merger Agreement was negotiated by the Founders Board of Directors in
light of various factors, including Founders' and Susquehanna's recent
operating results, current financial condition and perceived future
prospects. THE FOUNDERS BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN
THE BEST INTERESTS OF FOUNDERS' SHAREHOLDERS AND RECOMMENDS THAT FOUNDERS'
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Vote Required
The affirmative vote of the holders of sixty-six and two-thirds
percent (66%) of the outstanding shares of Founders Capital Stock entitled
to vote at the Meeting is required to approve the Merger Agreement.
Directors and executive officers are expected to vote substantially all of
the 164,818 shares beneficially held by them as of March 14, 1997,
representing 16.65% of the Founders Capital Stock outstanding at that date,
"FOR" approval of the Merger Agreement and the transactions contemplated
thereby.
Dissenters' Rights
Pursuant to the Pennsylvania Business Corporation Law of 1988, as
amended ("BCL"), the holders of Founders Capital Stock will have the right
to dissent from approval of the Merger, and to demand and receive the "fair
value" of their shares of Founders Capital Stock. In order to assert such
dissenters' rights, a Founders shareholder must: (i) file a written notice
of intent to dissent with Founders prior to the shareholder vote at the
Meeting; (ii) refrain from voting in favor of the Merger; (iii) file a
written demand for payment and deposit the certificates representing his or
her shares in accordance with the terms of the notice to demand payment
that will be sent by Founders; and (iv) comply with certain other statutory
procedures set forth in the BCL. Proxies which are returned but which do
not contain voting instructions will be voted in favor of the Merger
Agreement, which will result in a forfeiture of dissenters' rights with
respect to the Merger. A copy of the applicable sections of the BCL are
attached to this Joint Proxy Statement/Prospectus as Appendix C. Any
deviation from the procedures set forth in such statutory provisions may
result in the forfeiture of dissenters' rights with respect to the Merger.
Accordingly, shareholders wishing to assert
-10-
<PAGE>
dissenters' rights are urged to read carefully "THE MERGER -- Dissenters'
Rights" and Appendix C to this Joint Proxy Statement/Prospectus.
Federal Income Tax Consequences of the Merger
It is anticipated that the Merger will be a tax-free reorganization
for federal income tax purposes and that no gain or loss will be recognized
by shareholders of Founders on the exchange of Founders Capital Stock for
Susquehanna Common Stock (other than with respect to cash received in lieu
of fractional shares). FOUNDERS' SHAREHOLDERS SHOULD CONSULT WITH THEIR
OWN TAX ADVISERS REGARDING THE TAX CONSEQUENCES OF THE MERGER WITH RESPECT
TO THEIR OWN PARTICULAR CIRCUMSTANCES. See "APPROVAL OF THE MERGER --
Federal Income Tax Consequences of the Merger."
Accounting Treatment
The Merger is intended to be accounted for as a pooling-of-interests.
See "APPROVAL OF THE MERGER -- Accounting Treatment of the Merger."
Comparison of Shareholder Rights
After the Merger, holders of Founders Capital Stock will become
holders of Susquehanna Common Stock, and their rights will be governed by
Susquehanna's articles of incorporation ("Susquehanna Articles") and bylaws
("Susquehanna Bylaws"). Certain differences exist between the Susquehanna
Articles and the Susquehanna Bylaws, on the one hand, and Founders'
articles of incorporation ("Founders Articles") and bylaws ("Founders
Bylaws"), on the other. See "COMPARISON OF SHAREHOLDER RIGHTS."
Conditions to the Merger
Consummation of the Merger is subject to various conditions, including
approval of the Merger by the Board of Governors of the Federal Reserve
System ("Federal Reserve Board") and the Banking Department. See "APPROVAL
OF THE MERGER -- Regulatory Approvals of Founders." The Merger is also
subject to satisfaction of various other conditions specified in the Merger
Agreement, including the approval of the Merger Agreement and the
transactions contemplated thereby by the requisite vote of Founders'
shareholders and the satisfaction of the criteria necessary to permit a
pooling-of-interests for accounting purposes. In the event that more than
10% of the outstanding shares of Founders are covered through the exercise
of dissenters' rights, the criteria for pooling-of-interest treatment will
not be satisfied. See "APPROVAL OF THE MERGER -- Terms of the Merger --
Conditions Precedent" and "DISSENTERS' RIGHTS."
Operations After the Merger
It is expected that the persons elected as directors of Founders at
the Meeting will serve as members of the Founders Board of Directors
following the Merger.
Termination of the Merger
The Merger Agreement provides that whether before or after its
approval by the shareholders of Founders, it is terminable, and if so
terminated, the transactions contemplated in the Merger Agreement would
then be abandoned, at any time prior to the Effective Time: (i) by mutual,
written consent of Susquehanna and Founders, if the Board of Directors of
each so determines by majority vote of the members of the entire Board;
(ii) by Founders in the event (a) of a material breach by Susquehanna of
any representation, warranty, covenant or agreement contained in the Merger
Agreement which is not cured or not curable within 30 days after written
notice of such breach is given to Susquehanna by Founders, or (b) by
written notice to Susquehanna that any condition precedent to Founders'
obligations as set forth in Article V of the Merger Agreement has not been
met or waived by Founders at such time as such condition can no
-11-
<PAGE>
longer be satisfied, (c) the Founders Board of Directors fails to make,
withdraws or modifies or changes its favorable recommendation to the
shareholders, or (d) the Founders Board of Directors recommends to the
shareholders of Founders that an Acquisition Proposal (as defined in the
Merger Agreement) is likely to be more favorable, from a financial point of
view, to the shareholders of Founders than the Merger; (iii) by Susquehanna
in the event (a) of a material breach by Founders of any representation,
warranty, covenant or agreement contained in the Merger Agreement which is
not cured or not curable within 30 days after written notice of such breach
is given to Founders, or (b) that any condition precedent to Susquehanna's
obligations as set forth in Article V of the Merger Agreement has not been
met or waived by Susquehanna at such time as such condition can no longer
be satisfied; (iv) by Founders if the average closing price per share of
Susquehanna Common Stock before the Closing is less than $24, and by
Susquehanna if the average closing price per share of Susquehanna Common
Stock before the Closing is greater than $40, in each case by giving notice
of the exercise of such election to the other within one business day
following the determination of the average closing price per share of
Susquehanna Common Stock before the Closing; or (v) by Susquehanna or
Founders if the Merger is not consummated by July 30, 1997, unless the
failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in the 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 Meeting
In the event that there is an insufficient number of votes cast in
person or by proxy at the Meeting to approve the Merger Agreement and the
transactions contemplated thereby, the Founders Board of Directors intends
to adjourn the 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 Meeting is required in order to approve any
such adjournment. The Founders Board of Directors recommends that
shareholders vote "FOR" the proposal to adjourn the Meeting if necessary to
permit further solicitation of proxies to approve the Merger Agreement and
the transactions contemplated thereby. See "ADJOURNMENT OF THE MEETING."
-12-
<PAGE>
COMPARATIVE PER SHARE DATA
Unaudited
The following table sets forth the historical per share data of the
Susquehanna Common Stock, the pro forma historical per share data for
Susquehanna and its 1997 acquisitions, the historical per share data for
Founders, as well as the related unaudited combined pro forma per share
data of Susquehanna, the 1997 acquisitions, and Founders, based on the
assumption that the mergers are effective on January 1, 1994 and were
accounted for as poolings-of-interests. The pro forma results are 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. The 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, the 1997 acquisitions, and Founders
incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Susquehanna Historical per share:
Net income from operations $ 2.28 $ 2.23 $ 1.96
Cash dividends declared 1.17 1.10 1.02
Book value 22.20 21.11 18.66
Susquehanna Pro forma per share [1]:
Net income from operations $ 2.24 $ 2.15 $ 1.90
Cash dividends declared 1.17 1.10 1.02
Book value 21.40 -- --
Founders Historical per share [2]:
Net income from operations $ 0.33 $ 0.64 $ 0.60
Cash dividends declared -- -- --
Book value 7.65 7.40 6.56
Pro Forma per Susquehanna Common
Share [3]:
Net income from operations $ 2.20 $ 2.13 $ 1.88
Cash dividends declared 1.17 1.10 1.02
Book value 21.29 -- --
Pro Forma Equivalent per Founders
Common Share [4]:
Net income from operations $ 0.96 $ 0.93 $ 0.82
Cash dividends declared 0.51 0.48 0.44
Book value 9.28 -- --
</TABLE>
[1] Pro forma Susquehanna amounts give effect to the 1997 acquisitions of
ATCORP, Inc. and Farmers Banc Corp. and the 1996 Fairfax acquisition as if
the Fairfax acquisition took place on January 1, 1996 and eliminate non-
recurring expenses related to the merger of ATCORP, Inc. and Farmers Banc
Corp.
[2] Founders' historical amounts are adjusted for the six-for-five stock
split in 1996.
[3] Pro forma amounts give effect to the Fairfax acquisition as if the
Fairfax acquisition took place January 1, 1996 and gives effect to the 1997
acquisitions as if the 1997 acquisitions took place January 1, 1994. These
amounts also include the combination of Founders based upon the exchange
ratio and eliminate non-recurring merger expenses related to Founders and
the other 1997 acquisitions.
[4] Pro Forma amounts per share were calculated by taking the
corresponding per share amounts for Susquehanna Pro Forma and Founders
Combined and multiplying that by an exchange ratio of which gives effect to
the exchange of .436 shares of Susquehanna for each outstanding share of
Founders at each reporting date.
-13-
<PAGE>
Market Value of Securities
The table below sets forth the last sale price on The Nasdaq Stock
Market for Susquehanna Common Stock for February 10, 1997, the last trading
day before the announcement of the Merger.
Susquehanna
Historical
-----------
February 10, 1997 $36.125
There is no established public trading market for Founders
Capital Stock, and accordingly, there are no published market quotations
for such stock. Trading in Founders Capital Stock is limited and sporadic.
In addition, Founders is not subject to the requirement of filing periodic
reports with the Commission. The absence of an established market and
publicly available information regarding Founders may affect the prices at
which Founders' shares are traded. Subject to the foregoing, the sale price
for Founders Capital Stock on January 15, 1997, the most recent date before
February 10, 1997 on which a sale occurred, was $12 11/16 per share.
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<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain selected consolidated
historical financial information for Susquehanna and Founders. 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 and
Founders, including the notes thereto, incorporated by reference or
appearing elsewhere in this Proxy Statement/Prospectus.
-15-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Susquehanna Historical
(Dollars in thousands, except per share)
At or for the Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $ 128,697 $ 107,209 $ 94,145 $ 87,027 $ 83,761
Provisions for loan and lease losses 4,599 4,994 3,987 5,130 4,721
Other income 21,344 16,080 15,098 15,816 15,284
Other expense 100,816 80,911 72,710 66,004 63,611
Income before taxes, extraordinary
item and cumulative effect of a
change in accounting principle 44,626 37,384 32,546 31,709 30,713
Extraordinary item -- -- (732) -- --
Cumulative effect of a change in
accounting principle -- -- -- 1,023 --
Net income 29,976 26,017 22,096 23,205 22,172
Earnings per common share before
extraordinary item and cumulative effect
of a change in accounting principle $ 2.28 $ 2.23 $ 1.96 $ 1.96 $ 1.99
Dividends declared per common share 1.17 1.10 1.02 0.92 0.87
Balance Sheet Data
Assets $3,038,451 $2,586,157 $2,231,409 $2,051,994 $1,967,450
Loans and leases, net of unearned income 2,173,081 1,712,951 1,466,186 1,309,907 1,282,457
Deposits 2,493,504 2,116,042 1,866,330 1,717,807 1,671,352
Shareholders' equity 292,680 273,399 217,104 218,428 193,804
Shareholders' equity per share (book value) $ 22.20 $ 21.11 $ 18.66 $ 18.78 $ 17.35
Selected Ratios
Return on average assets before extraordinary
item and cumulative effect of a
change in accounting principle 1.01% 1.07% 1.08% 1.13% 1.15%
Return on average shareholders' equity before
extraordinary item and cumulative effect
of a change in accounting principle 10.57% 11.29% 10.51% 10.96% 11.88%
Average shareholders' equity to assets 9.55% 9.48% 10.23% 10.29% 9.72%
Net interest margin (tax equivalent) 4.78% 4.89% 4.94% 4.94% 4.89%
Net charge-offs to average loans and leases 0.21% 0.28% 0.13% 0.15% 0.25%
Allowance for loan and lease losses to
period-end loans and leases 1.47% 1.61% 1.63% 1.66% 1.41%
Nonperforming assets to period-end
loans and leases and OREO 1.45% 1.79% 2.00% 2.05% 2.06%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Founders' Historical
(Dollars in thousands, except per share)
At or for the Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Earnings Data
Net interest income $3,457 $2,965 $2,546 $2,120 $1,728
Provision for loan losses 50 61 152 261 317
Other income 261 165 251 276 319
Other expense 3,236 2,258 2,058 1,847 1,713
Net income 319 605 553 288 17
Earnings per
weighted-average share $0.33 $0.64 $0.60 $0.38 $0.02
Dividends declared per
common share -- -- -- -- --
Balance Sheet Data
Assets $103,203 $76,508 $67,832 $65,539 $58,873
Loans, net of unearned
income 74,726 51,147 38,986 31,957 34,427
Deposits 88,515 66,371 61,084 52,929 48,694
Shareholders' equity 7,573 6,989 6,192 5,636 4,402
Shareholders' equity per
share (book value) $7.65 $7.40 $6.56 $6.42 $6.15
Selected Ratios
Return on average assets 0.36% 0.86% 0.81% 0.50% 0.03%
Return on average
shareholders' equity 4.48% 9.31% 9.44% 6.15% 0.39%
Average shareholders'
equity to average assets 8.15% 9.27% 8.56% 8.05% 8.68%
Net interest margin (tax
equivalent basis) 4.24% 4.37% 3.90% 3.69% 3.45%
Net charge-offs to average
loans 0.01% -0.65% -0.13% 1.02% 0.47%
Allowance for loan losses to
period-end loans 1.77% 2.51% 2.40% 2.32% 2.36%
Nonperforming assets to
period-end loans and OREO 0.46% 0.44% 0.76% 0.89% 4.05%
- -------------------------------------------------------------------------------------
</TABLE>
-17-
<PAGE>
- --------------------------------------------------------------------------------
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
Susquehanna Pro Forma with Founders
The following tables set forth unaudited pro forma selected data for
Susquehanna restated to include ATCORP, Inc. and Farmers Banc Corp. ("1997
Acquisitions") as well as giving effect to the 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 Founders incorporated by reference or
appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Pro Forma Earnings and Balance Sheet Data
(Dollars in Thousands)
At or for the Year Ended
December 31,
-----------------------------------------
1996 1995 1994
--------------- ---------- ----------
<S> <C> <C> <C>
Earnings Data
Net interest income $144,711 $119,671 $105,460
Provision for loan and lease losses 5,359 5,225 4,399
Other income 22,910 17,301 16,378
Other expense 113,242 90,574 81,538
Income from operations 33,190 28,857 25,380
Period-end Balances
Total assets $3,438,637 $2,905,145 $2,498,224
Loans and leases, net of
unearned income 2,424,502 1,898,543 1,613,498
Investment securities 682,886 720,111 690,749
Deposits 2,842,633 2,401,948 2,107,348
Long-term debt 123,368 86,274 49,314
Shareholders' equity 321,029 300,899 240,957
</TABLE>
- --------------------------------------------------------------------------------
-18-
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Key Financial Ratios and Other Data
Year Ended
December 31, 1996
-------------------
<S> <C>
Return on average assets 0.99%
Return on average equity 10.65%
Average shareholders' equity to average assets 9.33%
Noninterest income to average assets 0.67%
Noninterest expense to average assets 3.39%
Nonperforming loans to total loans 1.09%
Nonperforming assets to total assets 0.99%
Average interest-earning assets to average 117.60%
interest-bearing liabilities
Allowance for loan and lease losses to nonperforming loans 133.34%
Net interest income to noninterest expense 127.79%
Net interest income after provision for loan and lease 123.06%
losses to total noninterest expense
</TABLE>
- --------------------------------------------------------------------------------
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<PAGE>
THE ANNUAL MEETING
General
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Founders Board of Directors to be used at
the Meeting which will be held at ________________________________________
on_______________, ________________, 1997 at ___:00 __.m.
At the Meeting, holders of record of Founders Capital Stock as of the Record
Date will consider and vote upon: (i) the election of 13 directors of Founders;
and (ii) the approval of the Merger Agreement and the transactions contemplated
thereby. In addition, shareholders of Founders may consider and vote upon the
approval of the adjournment of the Meeting, in the event there are not
sufficient votes cast in person or by proxy at the Meeting to constitute a
quorum or to approve the Merger Agreement, and such other matters as may
properly come before the Meeting or any adjournments thereof.
Pursuant to the Merger Agreement: (i) immediately prior to the Effective Time
of the Merger, all of the capital stock of SBI Interim Bank will be transferred
by Susquehanna to its wholly-owned subsidiary, SBI East; and (ii) Founders will
become a direct, wholly-owned subsidiary of SBI East and an indirect, wholly-
owned subsidiary of Susquehanna by means of a merger of SBI Interim Bank with
and into Founders. Upon the consummation of the Merger, each Founders'
shareholder will receive in exchange for each share of Founders Capital Stock,
the number of shares of Susquehanna Common Stock determined by the Exchange
Ratio set forth in the Merger Agreement, together with a cash payment in lieu of
any fractional share of Susquehanna Common Stock which the Founders' shareholder
would otherwise be entitled to receive. If the average price per share of
Susquehanna Common Stock for a ten business day period ending two days before
the Closing of the Merger is less than $24, Founders will have the right to
terminate the Merger Agreement, and if the average closing price per share of
Susquehanna Common Stock for such ten day period is more than $40, Susquehanna
will have the right to terminate the 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 Closing, and dividing such total by
ten. If the Merger had been closed on the date of this Proxy
Statement/Prospectus, each share of Founders Capital Stock would have been
converted into the right to receive __ share of Susquehanna Common Stock. The
last reported sale price of Susquehanna Common Stock on The Nasdaq Stock Market
on______________, 1997 was $________ per share. Consummation of the Merger is
conditioned upon, among other things, the approval of the Merger Agreement by
the requisite vote of Founders' shareholders.
Voting, Revocation and Solicitation of Proxies
As of ________, 1997, the record date for the determination of Founders'
stockholders entitled to notice of and to vote at the Meeting, there were
136,055 shares of Founders Preferred Stock outstanding and 854,067 shares of
Founders' Common Stock outstanding , being the only classes of Founders stock
outstanding and entitled to vote at the Meeting.
In the election of directors of Founders, the holders of the Founders
Preferred Stock, voting as a separate class, are entitled to elect, by a
majority of the votes cast by preferred stockholders in person or by proxy, one
director to the Founders Board of Directors. Holders of Founders Preferred Stock
are not entitled to vote their shares of Founders Preferred Stock in the
election of any other director of Founders.
Holders of Founders Common Stock are entitled to cumulate their votes for
candidates in the election of directors. In cumulative voting, each share has a
number of votes equal to the number of directors to be elected in the same
election by the holders of Founders Common Stock. All of those votes may be cast
for one candidate or distributed among two or more candidates.
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<PAGE>
Except for the cumulative voting of shares of Founders Common Stock in the
election of directors, each share of Founders Common Stock is entitled to one
vote on each matter to be voted on by holders of Founders Common Stock. Each
share of Founders Preferred Stock is entitled to one vote on each matter to be
voted on by holders of Founders Preferred Stock. Holders of Founders Preferred
Stock vote as a separate class with respect to the election (or removal) of the
one director entitled to be elected by holders of Founders Preferred Stock, have
no vote in the election of other directors, and vote as a separate class with
respect to any proposed amendment to Founders Bylaws or Founders Articles that
would affect the voting rights or other designations, preferences,
qualifications, privileges, limitations, options or rights applicable to the
Founders Preferred Stock. On any other matter submitted to a vote of
stockholders, the holders of Founders Preferred Stock and of Founders Common
Stock vote together.
Shareholders of record on the Record Date, ________, 1997, entitled to cast
at least a majority of the votes which all shareholders of record on the Record
Date are entitled to cast on a particular matter shall constitute a quorum for
the purpose of considering such matter at the 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 Meeting and all
adjournments thereof. Proxies may be revoked by written notice to the Secretary
of Founders, the filing of a later dated proxy prior to a vote being taken on a
particular proposal at the Meeting or by attendance at the Meeting and voting in
person. A written notice revoking a previously executed proxy should be sent to
Founders' Bank, 101 Bryn Mawr Avenue, Bryn Mawr, Pennsylvania 19010 --
Attention: Secretary.
Proxies solicited by the Founders 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 Meeting and, with
respect to the proxies for voting shares of Founders Common Stock, in favor of
the election of the nominees for director listed below. The proxy confers
discretionary authority on the persons named therein to vote with respect to
matters incident to the conduct of the Meeting. If any other business is
presented at the 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: (i) will be treated as shares
present for purposes of determining whether a quorum is present; (ii) with
respect to the proposal to approve the Merger Agreement, will have the same
effect as votes against the proposal; and (iii) will have no effect on the
outcome of voting with respect to any other matter, including the election of
directors.
The cost of soliciting proxies will be borne by Founders. Founders 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 Founders Capital Stock. In addition to solicitations by
mail, directors, officers and regular employees of Founders may solicit proxies
personally or by telegraph, telephone or otherwise, and such persons will not
receive any compensation for doing so.
Principal Security Holders
The persons listed below are the only persons known by the Founders Board of
Directors to be the beneficial owners of more than five percent (5%) of any
class of Founders' outstanding voting stock as of March 14, 1997:
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<TABLE>
<CAPTION>
Amount Percent of
Beneficially Class
Name & Address Title of Class Owned (1) Outstanding
- -------------- --------------- ------------------ -------------
<S> <C> <C> <C>
Harold L. Yoh, Jr. Preferred 89,252 65.60%
1818 Market Street
Phila. PA 19103 Common 31,010 (2)(3) 3.63%
Robin Ledwith, as Preferred 41,089 (4) 30.20%
Trustee
3000 Two Logan Sq. Common 8,217 (2)(5) 0.96%
18th & Arch Sts.
Phila. PA 19103
</TABLE>
(1) For the purposes hereof, the securities "beneficially owned" by an
individual include securities owned by or for, among others, the spouse
and/or minor children of the individual and any other relative who has the
same home as such individual, as well as other securities as to which the
individual 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 disposal of, such
securities). A person is also deemed to be the beneficial owner of any
securities of which he or she has the power to acquire beneficial ownership
within 60 days. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Excludes shares of Founders Common Stock issuable upon conversion of shares
of Founders Preferred Stock. Each share of Founders Preferred Stock is
convertible into one share of Founders Common Stock. If all 136,055 shares
of the outstanding Preferred Stock were converted as of March 14, 1997, the
shares of Founders Common Stock issuable thereon would represent
approximately 13.74% of the then outstanding Founders Common Stock. Mr. Yoh
would beneficially own approximately 12.15% of the then outstanding
Founders Common Stock and Mr. Ledwith, as Trustee, would beneficially own
approximately 4.98% of the then outstanding Founders Common Stock.
(3) Includes 6,000 shares of Founders Common Stock owned by Day & Zimmermann,
Inc., a corporation of which Mr. Yoh is an officer and director and in
which he owns shares constituting a controlling interest.
(4) Includes 36,327 shares of Founders Preferred Stock held by Mr. Ledwith as
trustee of the Yoh Family Trust, and 4,762 shares of Founders Preferred
Stock held by Mr. Ledwith as trustee of the Follman Family Trust. Mr.
Ledwith has sole voting and dispositive power over these shares.
(5) Includes 7,265 shares of Founders Common Stock held by Mr. Ledwith as
trustee of the Yoh Family Trust, and 952 shares of Founders Common Stock
held by Mr. Ledwith as trustee of the Follman Family Trust. Mr. Ledwith has
sole voting and dispositive power over those shares.
Other Matters
The Founders Board of Directors is not aware of any business to come before
the Meeting other than those matters described in this Proxy
Statement/Prospectus. However, if any other matters should properly come before
the 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 and Nominations
Founders Bylaws provide that shareholder proposals or nominations will not
be considered at a meeting of Founders' shareholders unless they are made in
accordance with the requirements set forth therein. More specifically,
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Section 11 of Article I and Section 13 of Article II, as amended, provide that
shareholder proposals or nominations will not be considered at an annual meeting
unless received by the Secretary of Founders on or before the March 31 next
preceding such annual meeting. In addition, the proposal or nomination must
include certain information specified in Founders Bylaws in order to be
considered.
Auditors of Founders
The auditors of Founders is the firm of Beard & Company, Inc., Reading,
Pennsylvania. Representatives of Beard & Company, Inc. are expected to be at the
Meeting and to be available to respond to appropriate questions.
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ELECTION OF DIRECTORS
Election of Directors by Holders of Founders Common Stock
Founders Bylaws, as currently in effect, provide that the Founders Board of
Directors shall consist of not less than five nor more than twenty-five
directors. Within those parameters, the Founders Board takes action fixing the
precise number from time to time. The Founders Board of Directors has fixed the
number of directors at 13 to be elected by the holders of Founders Common Stock.
The persons listed below have been nominated by the Founders Board of
Directors for election by holders of Founders Common Stock to hold office and
serve until the 1998 annual meeting of stockholders and until their successors
have been elected and qualified. All of the persons listed presently are
directors of Founders. The Founders Board of Directors recommends the election
of each of the nominees for director.
The persons named in the accompanying form of proxy for shares of Founders
Common Stock intend to vote the shares covered thereby for the election of the
nominees listed below. No circumstances are currently known which would render
any such nominee unavailable. In the event that any nominee for director shall
not be a candidate for election, discretionary authority is reserved for the
persons named in the enclosed proxy to vote for a substitute nominee chosen by
the Founders Board of Directors, or the Founders Board of Directors may reduce
the number of directors accordingly.
In the event of the acquisition of Founders by Susquehanna, the Founders
Board of Directors would continue with such additions and/or deletions as
Susquehanna may make in its sole discretion.
As previously indicated, holders of Founders Common Stock have cumulative
voting rights in the election of directors. Cumulative voting allows a
shareholder to multiply the number of shares of common stock owned by the number
of directors to be elected in the same election and to cast the entire number of
these votes for one candidate or distribute them in any proportion among as many
nominees as the shareholder desires. Nominees who receive the greatest number of
votes will be elected. Unless instructions to the contrary are indicated on the
proxy, the persons named in the proxy will vote the shares covered by proxies to
elect as many of the nominees as possible. These shares may be voted
cumulatively so that one or more of the nominees may receive fewer votes than
the other nominees (or no votes at all), if such action is considered necessary
or desirable by the proxy holders.
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<PAGE>
Information concerning the nominees for election at the Meeting and
executive officers of Founders is set forth below.
<TABLE>
<CAPTION>
Common Shares % of Common
Age (as of Present Position Beneficially Owned Stock
Name 1/31/97) with Founders as of 3/14/97 (1) Outstanding
<S> <C> <C> <C> <C>
John J. Cunningham, III 54 Chairman of the 12,000 1.41%
Board and
Director (2)
Robert F. Whalen 52 President, Chief 41,416(3) 4.85%
Executive Officer,
Secretary and
Director (2)
Charles E. Dolaway, III 55 Director 13,131(4) 1.54%
Henry Faulkner, III 47 Director 12,000 1.41%
George F. Harlan, III 50 Director 6,000 0.70%
Robert J. Mailey 51 Director 12,000 1.41%
Thomas O. Melvin 42 Director 120 0.01%
Julian V. Miraglia 57 Director 6,000 0.70%
Patrick J. O'Connor 54 Director 8,400 0.98%
Carl A. Posse 68 Director 8,880 1.04%
Anne M. Reimel 64 Director 12,000(5) 1.41%
Philipp J. Walter, Jr. 60 Executive Vice 18,900 2.21%
President and
Director
Martin F. Whalen 55 Director 11,631 1.36%
Nominees & Executive 164,818(3)(6) 19.30%
Officers as a Group
(15 Persons)
</TABLE>
(1) For the purposes hereof, the securities "beneficially owned" by an
individual include securities owned by or for, among others, the spouse
and/or minor children of the individual and any other relative who has the
same home as such individual, as well as other securities as to which the
individual has or shares voting or investment power. A person also is
deemed to be the beneficial owner of any securities of which he or she has
the power to acquire beneficial ownership within 60 days. Beneficial
ownership may be disclaimed as to certain of the securities.
(2) Messrs. Whalen and Cunningham also are directors of Old Lancaster
Corporation, a wholly owned subsidiary of Founders. Mr. Whalen is the
Chairman of the Board, President, Chief Executive Officer and Secretary of
Old Lancaster Corporation.
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<PAGE>
(3) Includes 16,320 shares of Founders Common Stock held by the Founders
Bank Profit-Sharing Plan, of which Mr. R.F. Whalen serves as trustee.
As such trustee, Mr. Whalen has voting and dispositive powers over such
shares.
(4) Stock is owned by a family-owned corporation of which Mr. Dolaway is a
shareholder, a director and the President.
(5) Stock is owned by family partnership.
(6) The shares of Founders Common Stock beneficially owned by Founders'
nominees and executive officers as a group represent 16.65% of the
total number of shares of Founders Common Stock and Founders Preferred
Stock outstanding at March 14, 1997.
Set forth below is the business background of each nominee.
Except where noted below, each nominee has served in the principal
occupations and employment indicated for more than five years and has been
a director of Founders since its inception in 1988.
JOHN J. CUNNINGHAM, III, the Chairman of the Board, is a senior
partner and a member of the Executive Committee of Schnader, Harrison,
Segal & Lewis, a Philadelphia-based law firm. He specializes in commercial
and tax law. Schnader, Harrison, Segal & Lewis performs legal services for
Founders and its affiliates.
CHARLES E. DOLAWAY, III, is President and CEO of Allegheny Iron
and Metal Company, Inc., Philadelphia, Pennsylvania, which is engaged in
recycling ferrous and non-ferrous metals.
HENRY FAULKNER, III, is the Chairman of the Faulkner
organization, which owns and manages automobile dealerships in Pennsylvania
and Delaware. Mr. Faulkner became a director in 1994.
GEORGE F. HARLAN, III, is the President of The Harlan
Corporation, a building and real estate development company.
ROBERT J. MAILEY is President of National Investment Funds, Inc.,
a financial consulting firm, and also President of Westside Holding
Company, a real estate investment company.
THOMAS O. MELVIN is Vice President/Secretary of Joseph P. Melvin
Company, a certified public accounting firm located in Wayne, Pennsylvania.
Mr. Melvin became a director in 1989.
JULIAN V. MIRAGLIA is a merchant banker and also a real estate
developer, having participated in the development, construction and
marketing of many dwelling units in Montgomery and Chester counties. Mr.
Miraglia became a director in 1993.
PATRICK J. O'CONNOR is Vice Chairman and Managing Partner of
Cozen & O'Connor, a Philadelphia-based law firm. He specializes in
commercial litigation. Mr. O'Connor became a director in 1993.
CARL A. POSSE is Chairman of the Board of Posse-Walsh, Inc., a
firm engaged in the business of insurance brokerage and agency and also
employee benefits consulting. Mr. Posse became a director in 1993.
ANNE M. REIMEL is general partner of Reimel Enterprises, a family
real estate holding company.
PHILIPP J. WALTER, JR. is Executive Vice President of Founders.
Mr. Walter joined Founders in 1992 as Executive Vice President and became a
director in 1997.
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<PAGE>
MARTIN F. WHALEN is the owner and President of MW Orthopaedics,
Inc., which distributes total hips, knees, and orthopedic supplies to
hospitals.
ROBERT F. WHALEN is President and Chief Executive Officer of
Founders.
Election of Directors by Holders of Founders Preferred Stock
The holders of Founders Preferred Stock, voting as a separate
class, may at any time elect one person to Founders Board of Directors. In
that event, and assuming no vacancy exists, the Board will increase the
authorized number of directors by one, and the person nominated and elected
by the holders of Founders Preferred Stock would occupy that seat.
Founders has been advised by the holders of Founders Preferred Stock,
however, that they do not presently intend to nominate or elect a director
to the Board at the Meeting, although as indicated they nevertheless have
the right to do so at any time.
Executive Officers Who Are Not Directors
The following information is provided with respect to executive
officers of Founders who do not serve on its Board of Directors. There are
no arrangements or understandings between Founders and any person pursuant
to which any such officers were selected. No executive officer is related
to any other executive officer or director of Founders except that Robert
F. Whalen and Martin F. Whalen are brothers.
Michael S. Woods, age 47, is Senior Vice President - Lending of
Founders. He joined Founders in 1990 as a loan officer, became Vice
President - Lending in 1991, and became Senior Vice President - Lending in
1996.
Robert H. Schultz, age 33, has been employed as Founders'
Controller since 1990. He was appointed Vice President in 1992.
Compensation of Executive Officers
The following table sets forth the cash compensation paid or
accrued by Founders or its subsidiary, as well as certain other
compensation paid or accrued, during each of the last three years, to
Founders' Chief Executive Officer and each other executive officer whose
salary and bonus exceed $100,000 during any such fiscal year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
Name and
Position Year Salary Bonus Other
<S> <C> <C> <C> <C>
Robert F. Whalen, 1996 $126,000 $18,900 $45,178 (1)(2)
President
1995 $123,000 $16,500 $20,252 (2)
1994 $117,418 $1,400 $18,950 (2)
Philipp J. Walter, 1996 $105,000 $20,950 $21,576 (1)
Jr., Executive Vice
President
1995 $102,500 $14,000 $3,688
1994 $96,908 $3,500 $2,976
</TABLE>
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(1) Includes advances by Founders in 1996 of $22,822.77 and $16,933.00 for
the benefit of Messrs. Whalen and Walter, respectively, to pay the
initial annual premium for their purchase of split-dollar insurance
policies on their lives. Founders is not obligated to continue to pay
the annual premiums under these policies unless the Merger occurs.
Founders is entitled to recover the amount so advanced on behalf of
each of them solely out of the death benefit, upon his death, or,
before his death, out of the cash surrender value of his policy in
certain circumstances in connection with termination of his employment
or termination of the policy.
(2) Includes, among other perquisites and benefits provided to Mr. Whalen,
the annual cost to Founders of providing a company car of $10,119 in
1996, $8,820 in 1995, and $9,159 in 1994, and annual country club dues
and assessments of $5,894 in 1996, $5,570 in 1995, and $5,050 in 1994.
Employment Agreements
Mr. Whalen's employment agreement with Founders renews on a
month-to-month basis unless either party gives notice to the other of its
intention not to renew. Under the terms of his agreement, Mr. Whalen is
employed as President and Chief Executive Officer of Founders, and the base
salary presently is $126,000 per year. Mr. Whalen is prohibited from
competing with Founders or soliciting its customers or employees during his
employment with Founders and for one year thereafter. In the event the
Merger is consummated, Mr. Whalen is expected to enter into a new
employment agreement with Founders as described under the caption "APPROVAL
OF THE MERGER--Interests of Certain Persons in the Merger--Employment
Contract for R. F. Whalen" herein.
Mr. Woods entered into a three-year employment contract with
Founders, effective July 1, 1993, which continues to renew on a month-to-
month basis unless either party gives notice of non-renewal to the other.
He is employed as the Senior Vice President - Lending of Founders at a base
salary of $72,000, which is reviewed periodically by Founders' Board of
Directors.
Committees and Meetings of the Board of Directors
The Founders Board of Directors, which held 11 meetings in 1996,
has seven standing committees: Executive Committee, Personnel and
Compensation Committee, Audit Committee, Asset/Liability Committee, New
Business Committee, Nominating Committee, and CRA Committee.
The Executive Committee, whose present members are John J.
Cunningham, III, Thomas O. Melvin, Julian V. Miraglia and Robert F. Whalen,
held 45 meetings in 1996. This Committee may exercise all of the authority
of the Board except for matters expressly reserved by law or otherwise.
The Personnel and Compensation Committee, whose present members
are Charles E. Dolaway, III, Henry Faulkner, III, Carl A. Posse and Robert
F. Whalen, held two meetings in 1996. This Committee reviews compensation
and benefits of officers and others, and recommends appropriate changes to
the Board.
The Audit Committee, whose present members are Henry Faulkner,
III, Thomas O. Melvin, Carl A. Posse, Anne M. Reimel and Martin F. Whalen,
held two meetings in 1996. This Committee provides advice and assistance
regarding accounting, auditing and financial reporting practices of
Founders.
The Asset/Liability Committee, whose present members are Robert
F. Whalen, John J. Cunningham, III, Thomas O. Melvin and Julian V.
Miraglia, held seven meetings in 1996. This Committee establishes
guidelines and provides direction with respect to the management of
Founders' asset/liability mix and net interest spreads.
The New Business Committee, whose present members are Henry
Faulkner, III, Julian V. Miraglia, Patrick J. O'Connor, Carl A. Posse,
Martin F. Whalen and Robert F. Whalen, held one meeting in 1996. This
Committee provides advice and guidance regarding marketing, suitable
product lines, and customer service and development.
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<PAGE>
The Nominating Committee, whose present members are John J.
Cunningham, III and Robert F. Whalen, held one meeting in 1996. This
Committee collects information about candidates for the Board, interviews
them and then nominates them, as appropriate.
The CRA committee, whose present members are Julian V. Miraglia,
Anne M. Reimel and Robert F. Whalen, held three meetings in 1996. This
Committee oversees and monitors Founders' compliance with the Community
Reinvestment Act, and acts as the liaison between the Board and management
in that regard.
Founders pays attendance fees to each director (except those who
are employees of Founders) at a rate of $250 for each Board meeting
attended and $150 for each committee meeting attended. All of the nominees
other than Mr. Walter were directors in 1996 and attended at least 75% of
the Board meetings during 1996. The nominees also attended at least 75% of
the meetings of committees of which they were members during 1996, except
for Messrs. Dolaway, Melvin, O'Connor and M.F. Whalen and Ms. Reimel.
Founders is obligated to provide to the purchasers and present
holders of Founders Preferred Stock representation on Founders Board of
Directors and Executive Committee, or, if their representative is not then
serving as a director of Founders, to appoint their representative as an
advisory or honorary director of Founders with full right to attend, and
participate on a non-voting basis in, all meetings of the Founders Board of
Directors and its Executive Committee. In addition, Founders is obligated
to and has entered into a consulting agreement with their representative,
having a four-year term. The compensation payable by Founders to such
consultant is $15,000 per year. Their representative who is acting as such
consultant also presently is the person selected by them as an advisory
director.
Stock Options
Options to purchase 116,965 shares of Founders Common Stock were
issued in connection with the organization of Founders at an exercise price
of $7.80 per share ("organizer options"), and options to purchase 18,288
shares of Founders Common Stock at the same exercise price per share were
issued by Founders in connection with the sale of the Founders Preferred
Stock on or about October 19, 1993 ("purchaser group options"). The
options included anti-dilution provisions designed to adjust the exercise
price of the options and the number of shares subject to option for certain
events involving Founders' issuance of additional stock, rights or options
to purchase stock, securities which may be converted or exchanged for
stock, and stock dividends. All such options expired on July 18, 1996,
except to the extent previously exercised. In July, 1996, before such
expiration date: (i) organizer options to purchase a total of 39,460
shares of Founders Common Stock were exercised, of which 30,297 shares were
purchased by organizers who are directors and an executive officer of
Founders, and (ii) purchaser group options for the purchase of 5,705 shares
of Founders Common Stock were exercised.
In 1996, Founders Board of Directors approved a non-qualified
stock option plan for Messrs. Whalen and Walter, under which they are
entitled to receive options for up to 10,000 shares of Founders Common
Stock if certain target annual performance levels are achieved. No options
have yet been granted under such plan, and if the Merger is consummated,
the plan will terminate without any grant of options thereunder.
Certain Relationships and Related Party Transactions
Founders has had and intends to have banking and financial
transactions in the ordinary course of business with its directors and
officers and their associates on comparable terms and with similar interest
rates as those prevailing from time to time for other customers of
Founders. Total loans outstanding from Founders at December 31, 1996, to
its officers and directors as a group, members of their immediate families
and companies in which they had an ownership interest of 10% or more was
$2,127,914, or 28.1% of Founders' total capital accounts, or 2.8% of total
outstanding loans. Such loans do not involve more than normal risk of
collectability or present other unfavorable features.
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<PAGE>
During 1996, Founders expensed legal fees of $289,039 to a law
firm in which John J. Cunningham, III, Chairman and a director of Founders,
is a partner. Management believes the fees charged were comparable to fees
that would have been charged by an unrelated firm.
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<PAGE>
APPROVAL OF THE MERGER
The following description of the Merger is not intended to be a
complete description of all material facts regarding the Merger and is
qualified in all respects by reference to the Merger Agreement and the
fairness opinion attached hereto as Appendix B. Founders' shareholders are
urged to read carefully the Merger Agreement and the fairness opinion. For
a summary description of the Merger, see "SUMMARY -- The Merger."
Background of the Merger
During the period from July, 1995 to October, 1995, the Founders
Board of Directors discussed various aspects of Founders' strategic
direction, including whether to remain independent or to combine with, or
sell to, another institution. During this time, Founders received a
solicitation from a much larger bank seeking an indication of Founders'
interest in being acquired, and Founders held very preliminary merger
conversations with another banking institution. As a result of these
discussions, Founders retained the services of a consulting firm to assist
it in developing a strategic plan.
In December of 1995, Founders Board of Directors adopted a
strategic plan which concluded, among other things, that Founders would
remain independent for an indefinite period of time; that Founders would
seek growth of loans and deposits while maintaining high asset quality;
that Founders would require additional capital to support growth within
three years; and that Founders would remain opportunistic to a possible
merger or affiliation with, or acquisition by, another bank of like size or
a much larger institution.
On occasion thereafter, the subject of Founders combining with or
being acquired by another financial institution arose as a result of an
inquiry or solicitation by another financial institution or by a Founders
officer or director. In four such instances in the summer and early fall of
1996, Founders held very preliminary conversations with another financial
institution about the feasibility of acquiring or combining with Founders.
Conversations with three of those institutions did not progress very far,
in two cases because the general parameters of value discussed for
Founders' shares was not sufficiently high as to generate a serious
interest at Founders, and in the third instance because the institution
which initially appeared interested did not pursue the matter. Discussions
ensued with the fourth institution, Susquehanna, beginning in October,
1996, during which Robert F. Whalen and Philipp J. Walter, Jr., Founders'
CEO and Executive Vice President, respectively, explored with Robert S.
Bolinger and Drew K. Hostetter, Susquehanna's CEO and Treasurer,
respectively, whether Founders' affiliation with Susquehanna was feasible
from a financial, business and cultural point of view. During these
meetings, the parties discussed matters affecting such an affiliation,
including the valuation of Founders shares in a stock-for-stock merger
transaction.
At a meeting of Founders Board of Directors held on November 13,
1996, the Board recognized that Founders' strategic plan approved by the
Board within the past year had identified continued independence and
aggressive growth as Founders' primary objectives, but also had stated that
Founders should remain opportunistic to being acquired by or becoming
affiliated with another banking institution. At this meeting, the Board
reviewed a number of potential aspects of a possible affiliation with
Susquehanna in which Founders' shareholders would receive shares of
Susquehanna stock, including: the likelihood that Founders' shareholders
would receive enhanced liquidity and cash dividends on their investment;
the quality of management of Susquehanna; the ability of Founders to
maintain its separate identity and considerable autonomy; and the potential
for earnings growth through revenue generating and cost savings means.
Following considerable discussion of the merits of a transaction with
Susquehanna as outlined at the meeting, the Board determined to move
forward with discussions with Susquehanna and to seek advice and guidance
from a financial advisor. Founders then engaged JMS as financial advisor
in the transaction.
At a meeting of Founders' Board on December 11, 1996, JMS
presented its analysis of the proposed transaction with Susquehanna,
including, among other things, financial and market ratio analyses of
Founders and selected peer banks; stock price and volume charts of
Founders' Common Stock; a discounted earnings analysis of Founders for the
next five years; a summary of Susquehanna's historical financial
performance; financial and market ratio analyses of Susquehanna and
selected peer banks; a review of the price and volume of trading in
Susquehanna Common Stock for
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the past five years; an analysis of mergers and acquisitions of comparable
banks announced since January 1, 1996; an analysis of the proposed pooling-
of-interests merger of Founders and Susquehanna; and JMS's opinion, as of
December 2, 1996, that the proposed exchange ratio of Susquehanna shares
for Founders shares is fair from a financial point of view to Founders'
shareholders. The Founders Board expressed the view that the proposed
transaction should move forward and authorized Messrs. Whalen and Walter,
with guidance and supervision from the Executive Committee of the Board,
to negotiate terms of a definitive merger or affiliation agreement with
Susquehanna.
The Founders Board of Directors met on January 22, 1997, to
consider the terms of the definitive Merger Agreement. At this meeting,
Founders' management and legal counsel detailed the negotiations which had
taken place and the due diligence activities conducted by Founders and
Susquehanna. The Board also considered a letter recently received by Mr.
Whalen from another bank inviting Founders to enter into discussions of a
possible merger. The Board decided not to pursue the expression of
interest by the other bank, because Susquehanna was seen as a superior
strategic partner and the transaction between Founders and Susquehanna was
so far along that the Board did not want to risk losing the Susquehanna
transaction by putting it on hold in order to pursue negotiations with a
third bank. The Board then approved the definitive Merger Agreement with
Susquehanna, directed that it be submitted to a vote of Founders'
shareholders, and recommended that the shareholders of Founders vote for
the approval of the Merger Agreement, subject to the conditions set forth
in the Agreement, including but not limited to the condition that an
updated fairness opinion must be received from JMS within five days before
the mailing of the proxy materials to Founders' shareholders. The
definitive agreement between Founders and Susquehanna was executed on
February 11, 1997, following a short delay attributable to the need for
Susquehanna to reach agreement with Mr. Whalen, Founders' President, upon
terms of an employment contract to take effect at closing, since Mr.
Whalen's entering into such a contract was to be a condition precedent to
Susquehanna's obligations under the Merger Agreement.
Reasons for the Merger and Recommendation of the Founders Board of
Directors
In evaluating the Merger Agreement, the Founders Board of
Directors considered a variety of factors, including: (i) the
consideration being offered to Founders' shareholders in relation to the
market value, book value, tangible book value, earnings per share and
projected earnings per share of Founders; (ii) the historical results of
operations, current financial condition and future prospects of Susquehanna
and Founders; and (iii) the presentation by JMS, Founders' financial
advisor, as to the fairness of the Merger Consideration, from a financial
point of view, to Founders' shareholders. In this regard, the Founders
Board of Directors has received from JMS a written opinion dated December
2, 1996, and updated as of the date of the Proxy Statement/Prospectus that,
as of such date, the Merger Consideration is fair to Founders' shareholders
from a financial point of view. (The updated opinion is attached as
Appendix B hereto; for a summary of the presentation of JMS, see "Opinion
of Financial Advisor" below.) Other factors considered by the Founders
Board of Directors included: (a) the desirability of enhancing the
liquidity of shareholders' investments in Founders and providing cash
dividends to shareholders; (b) the competitive environment for financial
institutions generally; (c) the compatibility of the respective business
management philosophies of Founders and Susquehanna; (d) the ability of
Susquehanna to provide comprehensive financial services to the markets
currently served by Founders; (e) the projected social, legal and economic
effects of the Merger upon Founders, its shareholders and other corporate
constituencies, including employees, suppliers and customers in the
communities in which it does business; (f) the financial terms of other
recent business combinations in the local financial services industry; 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 Founders. The Founders Board of Directors
determined, in light of the above factors and such other factors as it
considered appropriate, that the terms of the Merger are fair to, and in
the best interests of, Founders and its shareholders.
THE FOUNDERS BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN
THE BEST INTERESTS OF FOUNDERS' SHAREHOLDERS AND RECOMMENDS THAT FOUNDERS'
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
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Vote Required
The affirmative vote of holders of sixty-six and two-thirds
percent (66 2/3%) of the outstanding shares of Founders Capital Stock
entitled to vote at the Meeting is required to approve the Merger
Agreement. Founders' directors and executive officers are expected to vote
substantially all of the 164,818 shares of Founders Common Stock
beneficially held by them, representing 19.30% of the Founders Common Stock
and 16.65% of the Founders Capital Stock, respectively, outstanding as of
March 14, 1997, "FOR" approval of the Merger Agreement and the transactions
contemplated thereby.
Opinion of Financial Advisor
Founders has retained JMS to render a fairness opinion in
connection with the Merger. JMS has rendered opinions that, based upon and
subject to the various considerations understood, as of December 2, 1996,
and as of the date of this Proxy Statement/Prospectus, the Merger is fair,
from a financial point of view, to the holders of Founders' securities.
The full text of JMS's 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 B to this Proxy Statement/Prospectus, is incorporated herein by
reference, and should be read in its entirety in connection with this Proxy
Statement/Prospectus. The summary of the opinion of JMS set forth herein
is qualified in its entirety by reference to the full text of such opinion
attached as Appendix B to this Proxy Statement/Prospectus. JMS's opinion
is directed to the Founders Board of Directors and addresses only the
Exchange Ratio.
JMS was selected to render an opinion based upon its
qualifications, expertise and experience. JMS has knowledge of, and
experience with, the Pennsylvania banking market and banking organizations
operating in that market and was selected by Founders 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 Merger, and the decision with respect to the
Exchange Ratio was determined by the Founders Board of Directors in the
process of its negotiations with Susquehanna. JMS delivered a written
opinion ("Preliminary Opinion") to the Founders Board stating that, as of
December 2, 1996, the consideration to be received by holders of Founders'
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 ("Proxy Opinion"), is attached as
Appendix B to this Proxy Statement/Prospectus. No limitations were imposed
by the Founders Board of Directors upon JMS with respect to the
investigations made or procedures followed by JMS 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 Founders and Susquehanna; (ii) reviewed the Merger Agreement; (iii)
reviewed the Proxy Statement/Prospectus; (iv) reviewed and analyzed the
stock market performance of Founders and Susquehanna; (v) studied and
analyzed the operations, historical financial statements and future
prospects of Founders; (vi) considered the terms and conditions of the
proposed Merger between Founders and Susquehanna as compared with the terms
and conditions of comparable bank mergers and acquisitions; (vii) met to
discuss with various senior officers of Founders and Susquehanna the
foregoing as well as other matters it believed relevant to its opinion; and
(viii) conducted such other financial analyses, studies and investigations
as were deemed appropriate.
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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 Founders'
financial forecasts reviewed by JMS in rendering its opinion, JMS assumed
that such financial forecasts were reasonably prepared on a basis
reflecting the best currently available estimates and judgments of the
management of Founders as to the future financial performance of Founders.
JMS did not make an independent evaluation or appraisal of the assets
(including loans) or liabilities of Founders 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 losses set
forth in the balance sheets of Founders 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 Exchange
Ratio to be paid in the 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 Founders' and Susquehanna's control. Any estimates contained in
JMS's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates.
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 Founders
with those of a peer group of selected banks and bank holding companies
located in Maryland, New Jersey and Pennsylvania with assets less than $250
million as of the most recent financial period publicly available.
Financial, operating and stock market data, ratios and multiples
compared in the analysis of the Founders' 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 12 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 located in Maryland, New Jersey and Pennsylvania with
assets between $1.7 billion and $10 billion as of the most recent financial
period publicly available.
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 12 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 less than $250
million which were announced since January 1, 1996, and compared the
multiples of book value, tangible book value and latest 12 months' earnings
for the 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 considered
only those transactions announced in Delaware,
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Maryland, New Jersey and Pennsylvania ("Regional") and the third
classification reviewed transactions where the sellers had tangible capital
less than 10.0%, return on average assets less than 1.0%, a return on
average equity of less than 10.0% and nonperforming assets as a percentage
of assets of less than 1.0% ("Performance"). However, no company or
transaction used in any of the analyses is identical to Founders 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 Founders could produce on a
stand-alone basis over a five year period under different assumptions, if
Founders performed in accordance with various earnings growth forecasts.
JMS also estimated the terminal value for Founders Common Stock after the
five year period by applying a range of earnings multiples from 10 to 14
times Founders' terminal year earnings. The range of multiples used
reflected a variety of scenarios regarding the growth and profitability
prospects of Founders. 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 Founders Common Stock.
Pro Forma Merger Analysis
JMS analyzed, using projections, and discussed with managements
of Founders and Susquehanna, certain pro forma effects resulting from the
Merger based on the proposed Exchange Ratio. The analysis examined the
projected impact (including management's estimates of transaction related
savings) on earnings per share and book value per share of Susquehanna.
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
Exchange Ratio, as set forth in the Merger Agreement, is fair, from a
financial point of view, to holders of Founders' 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.
JMS's Proxy Opinion was based solely upon the information
available to it and the economic, market and other circumstances as they
existed as of the date 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 Merger, no restrictions will be imposed on
Founders or Susquehanna that would have a material adverse effect on the
contemplated benefits of the Merger. JMS also assumed that there would not
occur any change in applicable law or regulation that would cause a
material adverse change in the prospects or operations of Susquehanna after
the Merger.
Pursuant to the terms of the engagement letter dated November 21,
1996, Founders paid JMS $35,000 upon the issuance of its Preliminary
Opinion in connection with the Merger and agreed to reimburse JMS for its
reasonable
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out-of-pocket expenses. Whether or not the Merger is consummated, Founders
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 B to this Proxy
Statement/Prospectus. Founders' shareholders are urged to read the Proxy
Opinion in its entirety. JMS's Proxy Opinion is directed only to the
consideration to be received by Founders' shareholders in the Merger and
does not constitute a recommendation to any holder of Founders' securities
as to how such security holder should vote at the 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 B TO THIS PROXY
STATEMENT/PROSPECTUS.
Dissenters' Rights
General
Pursuant to the BCL, any holder of Founders Capital Stock has the
right to dissent from the Merger and to obtain payment of the "fair value"
of such holder's Founders Capital Stock, in the event that the Merger is
consummated.
Any shareholder of Founders who contemplates exercising a
holder's right to dissent is urged to read carefully the provisions of
Subchapter D of Chapter 15 of the BCL attached to this Joint Proxy
Statement/Prospectus as Appendix C. The following is a summary of the
steps to be taken if the right to dissent is to be exercised, and should be
read in connection with the full text Subchapter D of Chapter 15 of the
BCL. Each step must be taken in the indicated order and in strict
compliance with the applicable provisions of the statute in order to
perfect dissenters' rights. The failure of any holder of Founders Capital
Stock to comply with the aforesaid steps will result in the holder
receiving the consideration contemplated by the Merger Agreement in the
event that the Merger is consummated. See "THE MERGER -- Terms of the
Merger -- Merger Consideration."
Any written notice or demand which is required in connection with
the exercise of dissenters' rights, whether before or after the Effective
Time, must be sent to Founders' Bank, at 101 Bryn Mawr Avenue, Bryn Mawr,
Pennsylvania 19010, Attention: Secretary.
Fair Value
The term "fair value" means the value of a share of Founders
Capital Stock immediately before consummation of the Merger taking into
account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the Merger.
Notice of Intention to Dissent
A Founders' shareholder who wishes to dissent must file with
Founders, prior to the vote of shareholders on the Merger at the Meeting, a
written notice of intention to demand payment of the fair value of such
holder's share of Founders Capital Stock if the Merger is effected, must
effect no change in the beneficial ownership of his or her Founders Capital
Stock from the date of such notice through the Effective Time, and must
refrain from voting his or her Founders Capital Stock for approval of the
Merger Agreement. Neither a proxy nor a vote against approval of the
Merger will constitute the necessary written notice of intention to
dissent.
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Notice to Demand Payment
If the Merger Agreement is approved by the required vote of
holders of Founders Capital Stock, Founders will mail a notice to all
dissenters who gave due notice of intention to demand payment and who
refrained from voting for approval of the Merger Agreement. The notice
will state where and when a written demand for payment must be sent and
certificates for Founders Capital Stock must be deposited in order to
obtain payment, and will include a form for demanding payment and a copy of
Subchapter D of Chapter 15 of the BCL. The time set for receipt of the
demand for payment and deposit of stock certificates will be not less than
30 days from the date of mailing of the notice.
Failure to Comply with Notice to Demand Payment, etc.
A holder of Founders Capital Stock who fails to timely demand
payment or fails to timely deposit his or her Founders' share certificates,
as required by Founders notice, will forfeit his or her dissenters' rights
and such holder will receive shares of Susquehanna Common Stock determined
in conformity with the Exchange Ratio.
Payment of Fair Value of Shares
Promptly after the Effective Time, or upon timely receipt of
demand for payment if the Merger already has been consummated, Founders
will either remit to dissenters who have made demand and have deposited
their stock certificates the amount that Founders estimates to be the fair
value of the Founders Capital Stock or give written notice that no such
remittance is being made. The remittance or notice will be accompanied by:
(i) a closing balance sheet and statement of income of Founders for a
fiscal year ending not more than 16 months before the date of remittance or
notice together with the latest available interim financial statements;
(ii) a statement of Founders' estimate of the fair value of the Founders
Capital Stock; and (iii) a notice of the right of the dissenter to demand
supplemental payment under the BCL accompanied by a copy of Subchapter D of
Chapter 15 of the BCL.
Estimate by Dissenter of Fair Value of Shares
If a dissenter believes that the amount stated or remitted by
Founders is less than the fair value of the Founders Capital Stock, a
dissenter may send to Founders his or her own estimate of the fair value of
the Founders Capital Stock, which shall be deemed to be a demand for
payment of the amount of the deficiency. If Founders remits payment of its
estimated value of a dissenter's Founders Capital Stock and the dissenter
does not file his or her own estimate within 30 days after the mailing by
Founders of its remittance, the dissenter will be entitled to no more than
the amount remitted to him or her by Founders.
Valuation Proceedings
If any demands for payment remain unsettled within 60 days after
the latest to occur of: (i) the Effective Time; (ii) timely receipt by
Founders of any demands for payment; or (iii) timely receipt by Founders of
any estimates by dissenters of the fair value, Founders may file in the
Court of Common Pleas of Montgomery County (the "Court") an application
requesting that the fair value of the Founders Capital Stock be determined
by the Court. In such case, all dissenters, wherever residing, whose
demands have not been settled, shall be made parties to the proceeding as
in an action against their shares, and a copy of the application shall be
served on each such dissenter.
If Founders were to fail to file such an application, then any
dissenter, on behalf of all dissenters who have made a demand and who have
not settled their claim against Founders, may file an application in the
name of Founders at any time within the 30-day period after the expiration
of the 60-day period and request that the fair value be determined by the
Court. The fair value determined by the Court may, but need not, equal the
dissenters' estimates of fair value. If no dissenter files such an
application, then each dissenter entitled to do so shall be paid Founders'
estimates of the fair value of the Founders Capital Stock and no more, and
may bring an action to recover any amount not previously remitted, plus
interest at a rate the Court finds fair and equitable.
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Founders intends to negotiate in good faith with any dissenting
shareholders. If after negotiation a claim cannot be settled, then
Founders intends to file an application requesting that the fair value of
the Founders Capital Stock be determined by the Court.
Costs and Expenses
The costs and expenses of any valuation proceedings in the Court,
including the reasonable compensation and expenses of any appraiser
appointed by the Court to recommend a decision on the issue of fair value,
will be determined by the Court and assessed against Founders except that
any part of the costs and expenses may be apportioned and assessed by the
Court against all or any of the dissenters who are parties and whose action
in demanding supplemental payment the Court finds to be dilatory, obdurate,
arbitrary, vexatious or in bad faith.
Terms of the Merger
The description of the Merger Agreement set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and incorporated by reference herein. Shareholders
are urged to read carefully the Merger Agreement.
Effect of the Merger
Pursuant to the Merger Agreement, SBI Interim Bank will merge
with and into Founders, with Founders as the surviving entity, and becoming
a direct wholly-owned subsidiary of SBI East and an indirect wholly-owned
subsidiary of Susquehanna. The name of the Surviving Bank will be
"Founders' Bank."
Exchange Ratio
Pursuant to the Merger Agreement, the outstanding shares of
Founders Capital Stock will be exchanged for shares of Susquehanna Common
Stock according to the Exchange Ratio set forth in the Merger Agreement.
This number may be adjusted subject to conditions set forth in the Merger
Agreement.
The number of shares of Susquehanna Common Stock to be issued to
holders of Founders Capital Stock will be determined by the 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 Merger.
In general, the fraction of a share of Susquehanna Common Stock to be
issued for each share of Founders Capital Stock will range from .377 if the
average closing price over such period is $40 per share, to .476 if the
average closing price during such period is $24 per share. See Schedule 1.2
to the Merger Agreement attached as Appendix A hereto for the applicable
Exchange Ratio within such range. If the average closing price over such
period is less than $24 per share, Founders will have the right to
terminate the Merger Agreement, and if Founders does not exercise such
right, the applicable Exchange Ratio will be .476. If the average closing
price is greater than $40 per share, Susquehanna will have the right to
terminate the Merger Agreement, and if Susquehanna does not exercise such
right, the applicable Exchange Ratio will be .377. Additionally, both
Founders and Susquehanna will have the right to terminate the Merger
Agreement if the Merger is not consummated by July 30, 1997. Nonetheless,
Founders and Susquehanna have the right to extend the time for Closing
beyond July 30, 1997 through an amendment to the Merger Agreement which
must be executed by all the parties.
As of the Effective Time, each share of Founders Capital Stock
held by Susquehanna (other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted) and all shares of Founders
Capital Stock owned by Founders as treasury stock will be canceled, and no
exchange or payment will be made with respect thereto.
The shares of common stock of SBI Interim Bank issued and
outstanding immediately prior to the Effective Time shall remain
outstanding and unchanged after the Merger, and shall thereafter constitute
all of the issued
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and outstanding shares of the capital stock of the Surviving Bank. At such
time, all of the shares of the Surviving Bank will be owned by SBI East and
all of the shares of SBI East will be owned by Susquehanna.
If prior to the Effective Time, 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 Exchange
Ratio.
Fractional Shares
No fractional shares of Susquehanna Common Stock will be issued.
Susquehanna will furnish to any holder of Founders Capital 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 Merger
Agreement.
Representations and Warranties
The representations and warranties of Susquehanna and Founders
are set forth in Article III of the 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 Merger Agreement. Founders has
made additional representations as to the non-existence of any contract
which would be breached by the 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 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 Merger Agreement; the
truthfulness and completeness of all filings made by Susquehanna with the
Commission in connection with the Merger Agreement and the transactions
contemplated by it except for information relating to Founders; the good
standing and adequate capitalization of SBI Interim Bank; 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. At Closing, Susquehanna and Founders must each
present to the other certificates evidencing the continued accuracy of the
representations and warranties.
Covenants
The Merger Agreement also contains certain affirmative and
negative covenants of all of the parties. Founders 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
Founders 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 Meeting; (iv) subject to the fiduciary duties of the Founders
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 Merger Agreement; and (v) it will furnish to
Susquehanna a list of all persons known to be affiliates of Founders 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
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of the shares of Susquehanna Common Stock received pursuant to the 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 Merger,
Founders is required to provide Susquehanna and its representatives with
reasonable access to its books, records, employees, properties and such
other information as Susquehanna may reasonably request and to provide
Susquehanna with copies of is financial statements periodically.
Susquehanna is required to provide Founders 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 Merger
Founders and Susquehanna have agreed to cooperate with each
other in completing the transactions described in the 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 Merger Agreement not to be true or correct in all material
respects.
Pursuant to the Merger Agreement, Founders has agreed to carry on
its business in the usual, regular and ordinary course of business,
consistent with past practices and to maintain and preserve intact its
business organization, assets, leases, properties, advantageous business
relationships and other items and to use its reasonable efforts to retain
the services of its officers and key employees and to refrain from taking
any action which, to its knowledge, could materially delay or adversely
affect Founders in general or its ability to obtain any approvals, consents
or waivers of any governmental authorities necessary for the consummation
of the Merger.
In addition, during the period pending the Merger, Founders has
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; (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 Merger
Agreement; (vii) increasing in any manner the compensation or fringe
benefits of any of its employees in excess of 3%, 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 articles of
incorporation or its bylaws except as expressly contemplated by the 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 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 Merger Agreement or that is
reasonably likely to have a material adverse effect on Susquehanna, on a
consolidated basis.
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Conditions Precedent
In addition to shareholder approval by Founders' shareholders,
the 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
Banking Department, 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 or Founders 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 Merger and the transactions described in the 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 Merger
Agreement; (iii) no enactment, entry, 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
Merger; (iv) all litigation which would have a material adverse effect on
Founders' consolidated operations, shall have been concluded on terms
satisfactory to Susquehanna and Founders; (v) the shares of Susquehanna
Common Stock to be issued in the Merger shall have been authorized to be
listed on The Nasdaq Stock Market; (vi) a ruling from the Internal Revenue
Service ("IRS"), or an opinion of counsel to Susquehanna, shall have been
received with respect to certain tax matters; (vii) Founders shall have
received an updated opinion from JMS, dated as of the date of this Proxy
Statement/Prospectus, to the effect that the Merger Consideration is fair
to Founders' shareholders from a financial point of view; (viii) the 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 Founders or such other accounting Firm
as is acceptable to the parties concerning the results of the performance
of certain agreed-upon procedures involving the financial affairs and
condition of Founders; and (x) there shall not have occurred any change in
the financial condition, properties, assets, business or results of
operation of Founders, 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 Effective Time, any provision of the 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 Merger
Consideration or otherwise have the effect of prejudicing the Founders'
shareholders' interest in the Merger Consideration following the Meeting.
Closing; Effective Time; Termination
The Merger Agreement provides that the Closing will occur on such
date, following three business days notice to Founders, as shall be agreed
upon by all parties, which date shall not be later than the 30th 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 Merger; and (iii) all shareholder approvals required
by the parties have been received. Immediately following the Closing, and
provided the Merger Agreement has not been terminated or abandoned in
accordance with the terms thereof, Founders and SBI Interim Bank will
request that the Banking Department cause articles of merger to be
delivered and properly filed with the Department of State. The Merger, and
the transactions described in the Merger Agreement , will become effective
at 12:01 a.m. on the business day following the Closing. The presentation
of the certificate for acceptance and filing is subject to the rights of
the Susquehanna Board of Directors and the Founders Board of Directors to
terminate the Merger Agreement under certain circumstances.
The Merger Agreement is terminable, whether before or after its
approval by the shareholders of Founders, and if so terminated the
transactions contemplated in the Merger Agreement would then be abandoned,
at any time prior to the Effective Time: (i) by mutual written consent of
Susquehanna and Founders, if the Board of
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Directors of each so determines by majority vote of the members of the
entire Board; (ii) by Founders in the event (a) of a material breach by
Susquehanna of any representation, warranty, covenant or agreement
contained in the Merger Agreement which is not cured or not curable within
30 days after written notice of such breach is given to Susquehanna by
Founders, or (b) by written notice to Susquehanna that any condition
precedent to Founders' obligations as set forth in Article V of the Merger
Agreement has not been met or waived by Founders at such time as such
condition can no longer be satisfied, or (c) the Founders Board of
Directors fails to make, withdraws or modifies or changes its favorable
recommendation to the shareholders or (d) the Founders Board of Directors
recommends to the shareholders of Founders that an Acquisition Proposal (as
defined in the Merger Agreement) is likely to be more favorable, from a
financial point of view, to the shareholders of Founders than the Merger;
(iii) by Susquehanna in the event (a) of a material breach by Founders of
any representation, warranty, covenant or agreement contained in the Merger
Agreement which is not cured or not curable within 30 days after written
notice of such breach is given to Founders by Susquehanna, or (b) that any
condition precedent to Susquehanna's obligations as set forth in Article V
of the Merger Agreement has not been met or waived by Susquehanna at such
time as such condition can no longer be satisfied; (iv) by Founders if the
average closing price per share of Susquehanna Common Stock before the
Closing is less than $24, and by Susquehanna if the average closing price
per share of Susquehanna Common Stock before Closing is greater than $40,
in each case by giving notice of the exercise of such election to the other
within one business day following the determination of the average closing
price per share of Susquehanna Common Stock before the Closing; or (v) by
Susquehanna or Founders if the Merger is not consummated by July 30, 1997,
unless the failure to so consummate by such time is due to the breach of
any representation, warranty or covenant contained in the Merger Agreement
by the party seeking to terminate; provided, however, that such date may be
extended by the written agreement of the parties.
Expenses; Remedies Upon Termination
In general, Founders and Susquehanna have agreed to bear all
expenses incurred by them in connection with the 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. Any termination of the Merger
Agreement shall be without cost, expense or liability on the part of any
party to the other parties, except that: (i) if one party terminates the
Merger Agreement in the event of a material breach by the other party of
any representation, warranty or covenant contained in the agreement, and
if, but only if, such breach is caused by the willful misconduct or gross
negligence of the breaching party, then the breaching party shall be liable
to the non-breaching party for all of the latter's out-of-pocket costs and
expenses, including but not limited to reasonable legal, accounting and
investment banking fees and expenses, incurred by the non-breaching party
in entering into and carrying out the Merger Agreement; and (ii) so long as
Susquehanna shall not have breached its obligations under the Merger
Agreement, if the Merger Agreement is terminated by Founders because the
Founders Board of Directors recommends to the shareholders of Founders that
an Acquisition Proposal is likely to be more favorable, from a financial
point of view, than the proposed Merger, or if the Founders Board of
Directors fails to make, withdraws or modifies or changes its favorable
recommendation to Founders' shareholders to approve the transactions
described in the Merger Agreement other than because of a material adverse
change in Susquehanna, then Founders shall pay Susquehanna a fee of
$500,000.
Exchange of Stock Certificates
At the Effective Time, without any further action on the part of
holders of shares of Founders Capital Stock, each share of Founders Capital
Stock that is issued and outstanding at the Effective Time (other than:
(i) shares the holders of which (each a "Dissenting Shareholder") are
exercising appraisal rights pursuant to the BCL (the "Dissenters' Shares"),
if any; and (ii) 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 Exchange Ratio. As of the Effective Time, 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.
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Within five business days after the Effective Time, Susquehanna
shall cause to be sent to each person holding shares of Founders Capital
Stock transmittal materials and instructions for surrendering their
certificates for Founders Capital 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 Effective Time but prior to the exchange of certificates, each former
shareholder of Founders 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 Founders Capital Stock (without interest)
less any taxes which may have been imposed or paid thereon.
After the Effective Time, there shall not be any more transfers
on the stock transfer books of Founders of shares of Founders Capital
Stock. To the extent permitted by law, in the event that any certificates
representing shares of Founders Capital Stock have not been surrendered for
exchange on or before the second anniversary of the Effective Time,
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 Founders Capital 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 Founders
The Merger is subject to the approval of the Federal Reserve
Board under the Bank Holding Company Act of 1956, as amended. An
application for approval of the acquisition of Founders will be submitted
by Susquehanna to the Federal Reserve Bank of Philadelphia, acting on
delegated authority from the Federal Reserve Board, in ____________, 1997.
In reviewing the application, the Federal Reserve Board considers the
financial and managerial resources of Susquehanna and Founders, the effect
of the transaction on competition in the markets served by Susquehanna and
Founders, the convenience and needs of the public and, among other things,
Susquehanna's and Founders' 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 Banking Department under the Pennsylvania
Banking Code of 1965, as amended (the "Banking Code"), must also be
obtained before the Merger may be consummated. The Banking Code requires
the Banking Department to consider the public interests served by the
Merger and the financial resources of Susquehanna, Founders and the
resulting institution. An application will be submitted to the Banking
Department in____________, 1997. There is no reason to believe that the
application will not be approved in the ordinary course.
The 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 Merger, and
there can be no assurance that all such regulatory approvals will be
obtained and, if the 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 Merger
Agreement. There can likewise be no assurance that the U.S. Department of
Justice or state Attorney General will not challenge the Merger or, if such
challenge is made, as to the result thereof.
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Interests of Certain Persons in the Merger
Certain members of Founders' management and the Founders Board of
Directors may be deemed to have interests in the Merger in addition to
their interests, if any, as shareholders of Founders generally.
Employee Benefit Plans
Subsequent to the Merger, Susquehanna may, but is not obligated
to employ any or all individuals serving as officers or employees of
Founders immediately prior to the Merger. Notwithstanding the foregoing,
Susquehanna will enter into an employment agreement with Robert F. Whalen.
It is a condition to employment by Susquehanna or Founders after the Merger
that each existing officer or employee of Founders will be required to
cancel all existing employment contracts and understandings with Founders
without accepting any of the severance or other benefits that may be
payable thereunder.
Each person who is employed by Founders prior to the Effective
Time and who remains an employee following the Effective Time 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 Effective
Time. 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 Founders for purposes of eligibility and
vesting, but not benefit accrual, under Susquehanna's plans. In addition,
the split-dollar policies for Robert F. Whalen and Philipp J. Walter, Jr.,
shall be continued by Susquehanna or a Susquehanna subsidiary, pursuant to
which contributions will be continued until age 65 for Mr. Whalen and to
age 70 for Mr. Walter, unless their employment is terminated prior thereto
due to death, cause or their voluntary quit.
Founders has agreed to take all action necessary to cease the
participation or accrual of benefits as of the Effective Time by each
participant in any employee benefit plans of Founders and to terminate such
plans, other than 401(k) plans unless otherwise instructed by Susquehanna.
At the sole discretion of Susquehanna, any Founders' 401(k) plan may be
merged with Susquehanna's 401(k) plan effective at the Effective Time.
Employment Contract for R. F. Whalen
Upon consummation of the Merger, Founders and Robert F. Whalen
will enter into an employment agreement pursuant to which Mr. Whalen will
continue his employment with Founders as one of its principal executive
officers. The term of the employment agreement will be for three years,
and will automatically be extended as of the last day of February of
each year for an additional year unless Mr. Whalen is provided with notice
of non-renewal as specified in the agreement. Mr. Whalen's base salary
under the agreement will be $126,000 during the first year of the
agreement and may be increased thereafter in an amount either mutually
agreed upon by the parties or by a fraction based upon the consumer price
index. Under the employment agreement, Mr. Whalen will be prohibited from:
(i) competing with Founders or its customers during his employment with
Founders and for one year thereafter; and (ii) soliciting Founders'
customers or employees during his employment and for two years thereafter.
Management and Operations Following the Merger
Under the terms of the Merger Agreement, following the Merger, at
the Effective Time, the directors and officers of Founders immediately
prior to the Effective Time shall be and become the directors and officers
of the Surviving Bank with such additions or deletions as Susquehanna, in
its sole discretion, may determine.
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Accounting Treatment of the Merger
The 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 Merger, Susquehanna is to receive a
letter from its independent certified public accountants, Coopers & Lybrand
L.L.P., that the Merger will be treated as a pooling-of-interests. In
order to preserve the intended accounting treatment of the Merger as a
pooling-of-interests, the Merger Agreement also requires as a condition to
the obligations of Susquehanna and SBI Interim Bank under the Merger
Agreement that each person deemed to be an "affiliate" of Founders enter
into an agreement not to sell shares of Susquehanna Common Stock acquired
in the Merger until financial results covering at least 30 days of post-
Merger combined operations have been published.
Income Tax Consequences of the Merger
The following is a general discussion of the anticipated federal
income tax consequences of the Merger. Susquehanna and Founders believe
that for federal income tax purposes: (i) the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and Founders 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 Founders or
Susquehanna by reason of the Merger; (iii) except for cash received in
lieu of fractional shares, no income, gain or loss generally will be
recognized by Founders' shareholders on the exchange of their shares of
Founders Capital Stock for shares of Susquehanna Common Stock; (iv) the
basis of the Susquehanna Common Stock to be received by the Founders'
shareholders generally will be, in each instance, the same as the basis of
the Founders Capital Stock surrendered in exchange therefor; (v) the
holding period of the Susquehanna Common Stock to be received by the
shareholders of Founders generally will include the period during which the
Founders Capital Stock surrendered in exchange therefor has been held,
provided that the Founders Capital Stock surrendered is held as a capital
asset on the date of the exchange pursuant to the Merger; and (vi) the
payment of cash to the Founders' 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 Merger are
conditioned upon receipt of a ruling from the IRS or an opinion of counsel
substantially to the effect that the federal income tax consequences of the
Merger are as summarized above. Unlike a ruling from the IRS, an opinion
of counsel would have no binding effect on the IRS. Such ruling or opinion
would not deal with all of the tax considerations that may be relevant to
particular Founders' 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 MERGER, WITHOUT CONSIDERATION OF THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH FOUNDERS' SHAREHOLDER'S
SITUATION. EACH FOUNDERS' 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 MERGER AND/OR ANY SALE OF SUSQUEHANNA COMMON STOCK
RECEIVED IN THE MERGER.
RESALE RESTRICTIONS
The shares of Susquehanna Common Stock issuable in connection
with the Merger have been registered under the Securities Act, but such
registration does not cover resales by shareholders of Founders who may be
deemed to control, be controlled by or be under common control with
Founders or Susquehanna at the time of or after the Merger
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and who therefore may be deemed "affiliates" of Founders 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 Merger 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 Founders will notify those persons whom they
believe may be such affiliates. Susquehanna is under no obligation to
register any shares acquired by affiliates of Founders in connection with
the Merger.
The Merger Agreement requires as a condition to the Merger that
each such affiliate of Founders enter into an agreement not to sell shares
of Susquehanna Common Stock acquired in the Merger 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
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 primary activity consists of owning and supervising its seven
commercial banks, its three savings bank subsidiaries and its two other
nonbank subsidiaries. These subsidiaries are engaged in providing banking,
savings and loan and bank-related services in central and southcentral
Pennsylvania, principally in Franklin, Lancaster, Northumberland, Snyder,
York and Lycoming Counties, in northwestern and central Maryland,
principally in Allegheny and Washington Counties, and the City of Baltimore
and its surrounding suburbs and the Counties of Cecil, Harford, Wicomico
and Worcester, and in southern New Jersey, principally in Camden,
Burlington and Gloucester Counties. 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 115 depository offices in
Pennsylvania, Maryland and New Jersey. As of December 31, 1996, Susquehanna
had consolidated total assets in excess of 3.3 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 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 acquired Equity National Bank, Atco,
New Jersey and Farmers National Bank, Mullica Hill, New Jersey in the first
quarter of 1997. Through these acquisitions, Susquehanna established 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 15
years.
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General
Susquehanna is authorized to issue 32,000,000 shares of
Susquehanna Common Stock, par value $2 per share, and 5,000,000 shares of
preferred stock, without par value ("Susquehanna Preferred Stock").
As of December 31, 1996, Susquehanna had outstanding 13,181,020
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, 1996, an aggregate of
$43,016,000 was available for the payment of dividends to Susquehanna.
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 BCL, including Subchapters 25E, F, G and H of the BCL.
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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 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.
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 the Susquehanna Articles and the
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
17,334,362 shares of authorized but unissued shares of Susquehanna Common
Stock. Following the Merger, Susquehanna would have approximately
16,902,174 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
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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.
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% 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 Merger, holders of Founders Common
Stock will become shareholders of Susquehanna. The BCL, Founders Articles
and Founders Bylaws presently govern Founders' shareholders' rights. After
the Merger, the BCL, the Susquehanna Articles and the Susquehanna Bylaws
will govern their rights. Certain differences arise from differences
between such articles and bylaws. The following discussion is not intended
to be a complete statement of all differences affecting the rights of
shareholders, but to summarize material differences. This discussion is
wholly qualified by reference to applicable Pennsylvania corporate laws,
Founders Articles, Founders Bylaws, the Susquehanna Articles and the
Susquehanna Bylaws. See "INCORPORATION OF DOCUMENTS BY REFERENCE" and
"AVAILABLE INFORMATION."
Dividends
Pennsylvania law generally permits a corporation 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.
As a holding company, the ability of Susquehanna to pay dividends
is largely dependent upon its receipt of dividends from subsidiary
depository institutions. Payment of dividends by these subsidiaries is
subject to several regulatory restrictions. For a summary of these
regulatory considerations, see "REGULATIONS AFFECTING DIVIDENDS."
Classified Board of Directors
The BCL permits a corporation's board of directors to be divided
into various classes serving staggered terms of office. The Susquehanna
Bylaws provide that it divide its Board 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
Founders Bylaws provide that its entire Board of Directors is elected at
the annual meeting of the Founders' shareholders, each member to serve a
term expiring at the next annual meeting.
Number of Directors
The Susquehanna Bylaws establish the minimum number of directors
at five and provide that the Board will determine the number of directors
forming the entire Board by resolution. 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.
The Founders Bylaws establish the minimum and maximum number of
directors at five and 25, respectively. Founders Board of Directors
determines the exact number of directors, but cannot increase the number of
directors by more than two in any one year. Currently the Founders' Board
consists of 13 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 that a shareholder give such notice not less than 14 days nor more
than 50 days before a meeting or within seven days of notice of the meeting
if Susquehanna provides less than 21 days notice of the meeting.
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Under the Founders Bylaws, a shareholder who intends to nominate
or cause to have nominated any candidate for election to the Board must
notify the Secretary of Founders in writing by March 31 next preceding the
date of such meeting. The Founders Bylaws also require the shareholder to
disclose in the notice 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.
In each election of directors, Founders' shareholders have the
right to vote their shares on a cumulative basis. The Founders Articles
provide that in the election of directors, every shareholder of Founders
Common Stock entitled to vote will have the right to multiply the number of
votes to which he or she is entitled by the total number of directors to be
elected by the holders of Founders Common Stock, and such shareholder may
cast the whole number of such votes for one candidate or may distribute
them among two or more candidates.
Removal of Directors
Except where the holders of Susquehanna 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.
Founders' directors may declare vacant the office of a director
if he or she is declared of unsound mind by an order of court, or convicted
of a felony, or for any other proper cause; if he or she does not accept
office within 60 days after notice of his or her election; or if he or she
fails to attend regular Board meetings for six consecutive months without
excuse. The Founders' shareholders may remove the Board of Directors or an
individual director without assigning cause "in the manner provided by
law," except that if less than all Founders' directors serving on the
Founders Board of Directors are to be removed, then no one Founders
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 Founders Board of Directors.
Filling Vacancies on the Board of Directors
In the case of Susquehanna and Founders, a majority of their
respective directors in office may fill vacancies and newly created
directorships. Any 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 Founders' director so
chosen will hold office for a term expiring at the next meeting of
Founders' shareholders at which directors are elected.
Call of Special Shareholders' Meeting
Special meetings of Susquehanna and Founders' shareholders may be
called by their respective president or Board of Directors or upon the
written request of the holders of not less than one-fifth of their
respective shares entitled to vote at the meeting. Any request for a
special meeting of Susquehanna shareholders must state a proper purpose for
the meeting. If Founders' shareholders request a special meeting, such
request must be made in writing, be delivered to the Secretary and state
the purpose of the meeting; the Secretary must call such meeting not less
than 10 days nor more than 60 days after receipt of the notice.
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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 10 days prior written notice. Susquehanna
shareholders must be given 10 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.
Founders' shareholders must be given written notice at least five
days before the date of the meeting, unless a greater period of time is
required by law in a particular case. As explained above, 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 10 days prior written notice.
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.
A majority of the shares of outstanding Founders' shares of 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, those present may adjourn the meeting. If a meeting for the
election of directors is adjourned twice for lack of a quorum, those
present at the second of the adjourned meetings shall constitute a quorum
for the election.
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 Founders Bylaws, any shareholder proposal to be
considered at an annual meeting shall be stated in writing and filed with
the Secretary no later than March 31 next preceding the date of the annual
meeting. The shareholder's proposal must contain certain information.
Action Without Meeting
Susquehanna shareholders may take action without a meeting by
unanimous written consent.
With regard to Founders, any action which may be taken at a
shareholders' meeting may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by all shareholders who
would be entitled to vote at a meeting for such purpose is filed with the
Secretary.
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Dissenters' Rights
Under the BCL, 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). Accordingly, Susquehanna shareholders are not afforded
dissenters' rights; because Founders' shares are held by fewer than 2,000
shareholders and are not listed on a national securities exchange,
Founders' shareholders are entitled to dissenters' rights in this
transaction. 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 (but does not apply to Founders), 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.
Preemptive Rights
Holders of Susquehanna Common Stock and Founders' Common Stock do
not have preemptive rights. Holders of shares of Founders Preferred Stock
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 Founders Bylaws do
contain a provision relieving its directors from liability for monetary
damages for any action taken or an failure to take action.
Indemnification
The BCL provides 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, the corporation
is required to indemnify directors, officers or other agents 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, 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 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 Founders Bylaws provide indemnification of directors
and officers and advancement of their expenses to the extent otherwise
permitted by law. The Founders Bylaws provide that such indemnification of
its directors and officers is automatic, and does not require any
determination that the indemnification is proper, except in instances where
a court has determined that the act or failure to act giving rise to
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the claim for indemnification constituted wilful misconduct or
recklessness. Founders may, at the discretion and to the extent determined
by its directors, indemnify its employees, agents and other representatives
and may advance their expenses.
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 Susquehanna Articles, Susquehanna maintains on behalf of its
directors and officers insurance protection against certain liabilities
arising out of their service in such capabilities. Founders also maintains
on behalf of its directors and officers insurance protection against
certain liabilities arising out of their service in such capacities.
State Anti-Takeover Law Provisions
Susquehanna and Founders are subject to various statutory "anti-
takeover" provisions of the BCL. However, since Founders does not have a
class of securities registered under the Exchange Act, such provisions do
not presently apply to it. The BCL "anti-takeover" provisions applicable
to Susquehanna have been summarized above. See "DESCRIPTION OF SUSQUEHANNA
CAPITAL STOCK -- Pennsylvania Anti-Takeover Law Provisions."
Pursuant to 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 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.
Subchapter 25F of the BCL 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.
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, Susquehanna has charter provisions which restrict business
combinations with significant shareholders.
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 11 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
corporation's articles or other corporate action to provide mandatory
special treatment for specified groups of nonconsenting shareholders.
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The BCL 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. 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; 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% 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 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 Founders Articles and Founders Bylaws contain no
anti-takeover provisions.
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Amendment of 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).
The Founders Articles contain no provisions regarding amendments
to the same, except that no amendment to the Founders Articles or Bylaws
may be made which is inconsistent with the rights of the holders of
Founders Preferred Stock set forth in the Articles, without an affirmative
vote of both a majority of the holders of Founders Common Stock entitled to
vote thereon and a majority of the holders of the outstanding shares of
Founders Preferred Stock, voting as a separate class.
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 Founders Bylaws may be altered, amended, added to or repealed
by a majority of Founders' directors, subject to the right of the Founders'
shareholders to change such action and subject to the provision of
Founders' Articles, described above, concerning amendments which are
inconsistent with the rights of holders of Founders Preferred Stock set
forth in its Articles. The directors may not, however, make or alter any
bylaw provision fixing their qualifications, classification or term of
office.
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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 March 1,
1997, there were 14,645,335 shares outstanding and approximately 6,221
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
four quarters of calendar 1996, calendar 1995 and calendar 1994. Also set
forth below are the cash dividends declared during such periods.
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ------------------ -------------------
Dividend
Market Dividends Market s 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 $26.50 - 30.63 $.29 $23.25 - 28.25 $ .27 $23.50 - 24.25 $.25
4th Quarter $29.00 - 35.75 $.30 $26.00 - 30.25 $ .29 $21.25 - 24.75 $.27
</TABLE>
The last sale price on February 10, 1997, the last trading day
before the announcement of the Merger, was $36.125 per share.
Founders
There is no established trading market for Founders Capital Stock
and there has been only very limited trading in Founders Capital Stock.
Management of Founders is aware of certain transfers of Founders Capital
Stock over the past two calendar years at per share prices ranging from
$______ to $_______, and of two transactions that occurred in 1997, prior
to the announcement of the Merger, at prices per share of $9 1/2 and $12
11/16, respectively. The sale price of Founders Capital Stock on January
15, 1997, the most recent date before February 10, 1997 on which a sale
occurred, was $12 11/16. This price should not be considered indicative of
the current market price of Founders Capital Stock.
Founders has not previously paid any cash dividends.
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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 five 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 that 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.
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.
Under Maryland law, dividends may be paid to Susquehanna by its
Maryland state-chartered bank subsidiary out of undivided profits, with the
approval of the Maryland Bank Commissioner, from surplus in excess of 100%
of its required capital stock. If, however, the surplus of a Maryland bank
is less than 100% of its required capital stock, cash dividends may not be
paid in excess of 90% of net earnings. Stock dividends may be paid so long
as: (i) surplus is at least 20% of the increased capital stock; and (ii)
remaining surplus is sufficient to cover all losses.
In accordance with the above regulatory restrictions, each of
Susquehanna's banking subsidiaries has the ability to pay dividends and at
December 31, 1996, $43,016,000 was available for the payment of dividends
to Susquehanna.
Founders
Founders' declaration and payment of cash dividends is subject to
various restrictions set forth in the Pennsylvania Banking Code, the
Federal Reserve Act and the Federal Deposit Insurance Act.
Founders is subject to certain restrictions under Pennsylvania
law relating to the declaration and payment of cash dividends. The Banking
Code provides that dividends may be declared and paid only from accumulated
net earnings (undivided profits) and may be paid in cash or property other
than in Founders' own shares. Where surplus is less than 50% of the amount
of Founders' capital (defined as par value multiplied by the number of
shares outstanding), no dividend may be paid or declared without the prior
approval of the Banking Department until surplus is equal to 50% of the
total amount of capital. Where surplus is equal to or greater than 50% but
less than 100% of capital, until such time as surplus equals capital, prior
to the declaration of a dividend Founders' must transfer to surplus an
amount that is at least 10% of its net earnings for the period since the
end of the last fiscal year or any shorter period since the declaration of
a dividend. Additionally, the Banking Department has the power to issue
orders prohibiting the payment of dividends where such payment is deemed to
be an unsafe or unsound banking practice.
Under the Federal Reserve Act, if a member bank has sustained
losses equal to or exceeding its undivided profits then on hand, no
dividend shall be paid, and no dividends can ever be paid in an amount
greater than such bank's net profits less losses and bad debts. Cash
dividends must be approved by the Federal Reserve Board if the total of all
such dividends declared by a member bank in any calendar year, including
the proposed cash dividend, exceeds the total of the bank's net profits for
that year plus its retained net profits from the preceding two years less
any required transfers to surplus or to a fund for the retirement of
preferred stock. Under the Federal Reserve Act, the Federal Reserve Board
has the power to prohibit the payment of cash dividends by a member bank if
it determines that such a payment would be an unsafe or unsound banking
practice.
The Federal Deposit Insurance Act generally prohibits all
payments of dividends by a bank that is in default of any assessment to the
FDIC.
In accordance with the regulatory restrictions discussed above,
as of December 31, 1996, Founders had approximately $242,000 available for
the payment of dividends to its shareholders. The Merger Agreement
prohibits Founders from declaring, paying or setting aside any dividend or
other distribution in respect of the Founders Capital Stock.
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BUSINESS OF FOUNDERS
General
Founders is a commercial bank, chartered under Pennsylvania law,
which commenced operations on July 18, 1988. Founders provides retail and
commercial banking services primarily in the Philadelphia suburbs and
currently operates three offices which are located at 101 Bryn Mawr Avenue,
Bryn Mawr, PA 19010, 15 East Gay Street, West Chester, PA 19380 and 100
South Orange Street, Media, PA 19063. The Bryn Mawr office is Founders'
main office. Founders' telephone number is (610) 525-8500.
As of December 31, 1996, Founders had assets of $103,203,000,
total deposits of $88,515,000 and total shareholders' equity of $7,573,000.
Founders offers a broad range of commercial banking services to
businesses and individuals, and focuses on the banking and credit needs of
local small to medium sized businesses, professionals and individual
customers. As part of that focus, Founders seeks to practice "relationship
banking" which emphasizes two related strategies. First, it seeks to
establish consumer relationships over a broad range of banking and
financial services rather than establishing relationships based only on a
single selected service. Second, Founders seeks to provide banking and
financial services on a personal basis, tailored to the specific needs of
the customers, through both senior management's personal knowledge of the
customer's business and financial situation, and through the direct
participation of senior management in structuring and customizing Founders'
services to meet the customer's requirements. Founders believes that
"relationship banking" provides it with the ability to be flexible and
creative in serving the needs of its customers and results in a more
stable, long-term customer base.
Services
Credit services, offered predominantly to small and medium sized
businesses and their owners, include lines of credit, term loans, mortgage
loans, revolving credit lines and letters of credit. As described above,
generally Founders extends loans to existing customers or to qualified
persons who are not otherwise customers of Founders in order to seek other
banking relationships with such persons. In addition, during the past
three years, Founders has made indirect automobile loans to individuals
referred to Founders by the dealerships. In most of these instances,
Founders generally does not seek to establish other banking relationships
with these borrowers. Founders also offers Merchant Credit Card services
and consumer credit services, including personal credit lines, credit
cards, automobile loans, and home equity lines of credit and loans.
Deposit services include a full range of commercial and personal
deposit services including checking accounts, NOW accounts, money market
accounts, certificates of deposit, telephone transfer, and automatic teller
services via the MAC inter-bank automated teller system.
Regulation
The earnings of Founders are affected by the policies of
regulatory authorities, including, the Federal Reserve Board and the
Federal Deposit Insurance Corporation ("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.
Founders 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,
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as well as the rate of interest earned and paid, and are expected to affect
Founders' operations in the future. The effect of such policies and
regulations upon the future business and earnings of Founders cannot be
predicted.
The Federal Deposit Insurance Corporation Improvement Act of 1991
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 institutions
include depository institutions that meet the required minimum level for
each capital measure. Undercapitalized institutions represent 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, Founders is considered well capitalized.
Under the Community Reinvestment Act, as amended ("CRA"), as
implemented by regulations of the Federal Reserve Board, 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 types of products and services that
it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the Federal Reserve Board 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 Federal Reserve Board 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 1996 Founders received a satisfactory rating.
Competition
Founders' principal market is in Montgomery, Chester and Delaware
Counties, Pennsylvania. In this area, Founders competes primarily with
other banks, savings and loan associations, mutual savings banks and credit
unions, as well as brokerage firms and insurance companies. Founders 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 Founders 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.
In consumer transactions, which typically involve loans in
amounts substantially less than Founders' lending limit, Founders' believes
it is able to compete on a substantially equal basis with larger financial
institutions. In commercial loan transactions, Founders' lending limit to
a single customer of approximately $1,378,000 enables Founders to compete
effectively for the credit needs of small businesses. This lending limit
is, however, considerably below that of various competing institutions,
which makes it difficult, and in some cases impossible, for Founders to
compete effectively where the amount of the loan or financing required is
in excess of this amount. In competing with other banks, as well as
savings and loan associations and other financial institutions, Founders
seeks to provide personalized services through officers' and directors'
knowledge of Founders' primary service area and customers, and through
efforts to understand fully the financial situation of relatively small
borrowers. The size of such borrowers, in the opinion of Founders'
management, often inhibits close attention to their needs by larger
institutions.
The business of Founders is not dependent upon any single
customer and the loss of any single customer or any few customers would not
have a material adverse impact upon Founders.
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Employees
At December 31, 1996, Founders had 32 full-time employees and one
part-time employee. Founders believes that its relations with its
employees are good.
Litigation
Founders' is not involved in any legal proceedings that are
material to its financial condition.
Properties
Founders' leases space for its main office located at 101 Bryn
Mawr Avenue, Bryn Mawr, Pennsylvania, which as an area of approximately
7,000 square feet. The lease expires in August, 1999. Founders' office is
located in a building known as the Founders' Bank Building, which is owned
by a partnership in which Founders, through its wholly-owned subsidiary, is
a partner. For additional information about this lease, see footnote 12 to
Founders' Financial Statements at page F-1 attached hereto.
Founders also leases space for its branch offices located in West
Chester, Pennsylvania, and in Media, Pennsylvania. The West Chester branch
is located at 15 East Gay Street, West Chester, Pennsylvania, and has an
area of approximately 3,500 square feet. The lease has a five year term,
beginning May, 1996. The Media branch is located at 100 South Orange
Street, Media, Pennsylvania, and has an area of approximately 3,500 square
feet. The lease has a five year term, beginning February, 1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF FOUNDERS
The following pages of this report present management's discussion and
analysis of the consolidated financial condition and results of operation
of Founders and its wholly-owned subsidiary, Old Lancaster Corporation.
This discussion and analysis should be read in conjunction with the
consolidated financial statements of Founders, including the related notes
thereto, contained herein.
Results of Operations
Summary of 1996 Compared to 1995
Founders' net income for the year ended December 31, 1996 was
$319,000 which compared to the $605,000 earned in 1995, represents a
$286,000 or 47.3% decrease. On a per share basis, net income was $0.33 in
1996 vs. $0.64 in 1995, while the return on average equity fell to 4.48%
from 9.31% in 1995.
The performance level for the year ended December 31, 1996, was
influenced by two major factors: first, the significant growth in Founders'
loan portfolio and, second the increase in other expenses. With respect to
the first factor, Founders' loan portfolio increased $23,579,000 or 46.1%
in 1996 and was funded primarily by certificates of deposit and borrowings.
This increase in the net interest-earning assets of the bank greatly
contributed to an increase in Founders' net interest income of $492,000, an
increase of 16.6% over 1995 levels. With respect to the second factor,
other expenses increased by $978,000 or 43.3% in 1996 primarily due to the
opening of Founders' first branch office in West Chester, Pennsylvania,
staffing of a loan production office in Media, Pennsylvania, and expenses
recorded in connection with the proposed merger with Susquehanna.
Net Interest Income - Taxable Equivalent Basis
The major source of operating revenues is net interest income which
rose to a level of $3,457,000 in 1996, which is $492,000 or 16.6% above the
$2,965,000 attained in 1995. The net interest margin, on a tax equivalent
basis, for 1996 fell to 4.24% from the 4.37% attained during 1995.
Net interest income is the income which remains after deducting the
interest expense attributable to the acquisition of the funds required to
support earning assets from total income generated by such 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
changing 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, interest and yields earned or
paid on these assets and liabilities of Founders. For purposes of
calculating interest income on Table 1, tax-exempt interest has been
adjusted using a marginal tax rate of 34% in order to equate the yield on
tax-exempt securities to that of taxable interest rates. Net interest
income as a percentage of net interest income and other income was 93%,
95%, and 91% for the twelve months ended December 31, 1996, 1995, and 1994,
respectively.
Table 2 illustrates that the growth in interest income in 1996 over
1995 was due to volume. The average growth in interest-earning assets of
$16,836,000 in 1996 over 1995, to a large extent, was due to average loan
growth of $14,737,000. As illustrated in Table 1, the tax equivalent yield
on earning assets for 1996 remained constant at the 1995 level of 8.14%.
This stability in the tax equivalent yield on interest earning assets was
maintained despite the decrease in the yield on total loans from 9.35% in
1995 to 8.86% in 1996 which is attributable to the decrease in the
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prime rate in 1996, a proportionately higher volume of lower yielding
indirect automobile loans and the competitive environment for commercial
loans. The investment yields rose from a 5.90% average return in 1995 to
6.55% in 1996.
Table 2 illustrates that the growth in interest expense in 1996 over
1995 was also due to volume. The average funding costs rose in 1996 to
4.65% from 4.62% in 1995. The rise in the average funding cost is due
mainly to the increased reliance on higher cost certificates of deposit and
borrowings. The significant rise in interest cost was due to volume used to
fund the growth in the loan portfolio.
Founders will be focusing on sustained growth not only in its loan
portfolio, but also in low cost funding sources. Fluctuations in the net
interest margin occur because it is not possible to exactly match the
repricing of Founders' assets and liabilities. 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
Founders' provision for loan losses is based upon management's
quarterly loan portfolio review. The purpose of the review, among other
things, 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 it
serves.
Commercial and real estate loans are rated by loan officers and,
periodically, by loan review personnel. Consumer and residential real
estate loans are generally reviewed in the aggregate as they are of
relatively small dollar size and homogeneous in nature.
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, all criticized loans are given a specific allocation
based on the lowest quality loan rating assigned by loan officers, loan
review or regulatory authorities.
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 Founders'
market area, which consists of Chester, Delaware and Montgomery Counties in
southeastern Pennsylvania.
Determining the level of the allowance for possible loan losses at
any given time is difficult, particularly during deteriorating or uncertain
economic periods. Management must make estimates using assumptions and
information which is often subjective and subject to change. 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, 1996.
As illustrated in Table 3, the provision for loan losses was $50,000 for
1996 compared to $61,000 in 1995. Net charge-offs, as seen in Table 3,
were $8,000 for 1996 compared with a net recovery of $287,000 in 1995. As
a result, the allowance for loan losses at December 31, 1996, was 1.77% of
period-end loans, or $1,326,000, compared with 2.51% or $1,284,000 at
December 31, 1995. The allowance for loan losses as a percentage of non-
performing loans decreased from 571% at December 31, 1995, to 389% at
December 31, 1996.
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Should the economic climate no longer continue to improve or should
it 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 increase in the provision.
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.
It is the policy of Founders not to renegotiate the terms of a loan
simply because of its delinquency status. A loan is transferred to non-
accrual status if it is not in the process of collection and is delinquent
in payment of either principal or interest beyond 90 days. Interest income
of $3,000 and $0 was received on non-performing loans in 1996 and 1995,
respectively. Interest income which would have been recorded on these
loans in 1996 and 1995 under the original terms was $37,000 and $29,000,
respectively. At December 31, 1996, Founders had no outstanding
commitments to advance additional funds with respect to these non-
performing loans.
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. 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, 1996 and 1995 were $341,000 and $225,000,
respectively.
Real estate acquired through foreclosure is carried at fair value
minus estimated costs to sell at the time of foreclosure. 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.
There were no loans at December 31, 1996 with principal and/or
interest delinquent 90 days or more which were still accruing interest,
down from $61,000 at December 31, 1995. Although the economy seems to
continue to improve, softness in some areas may adversely affect certain
borrowers and may cause additional loans to become past due beyond 89 days
or to be placed on non-accrual status because of uncertainty of receiving
full payment of either principal or interest on these loans.
Potential problem loans consist of loans which are performing, but
for which potential credit problems have caused Founders' to place them on
its internally monitored loan list. At December 31, 1996, such loans, not
included in Table 4, amounted to $2,663,000. Depending upon the state of
the economy and the impact thereon as to these borrowers, as well as future
events such as regulatory examination assessment, these loans and others
not currently so identified could be classified as non-performing assets in
the future.
Other Income
Non-interest income, recorded as other income, consists of service
charges on deposit accounts; mortgage referral fees; fees received for
travelers' check sales and money orders; fees for trust referrals; gains
and losses on security transactions; and other miscellaneous income. Other
income as a percentage of net interest income and other income was 7%, 5%,
and 9% for 1996, 1995, and 1994, respectively.
Non-interest income increased $96,000 or 58.2% in 1996 over 1995.
Service charges on deposit accounts were up $20,000 or 16.3%, reflecting
the opening of the West Chester branch office and higher account volumes.
All other income exceeded 1995 results by $76,000, primarily due to the
$49,000 decrease in actual realized losses on the sale of securities
available for sale.
-65-
<PAGE>
Other Expenses
Non-interest expenses are categorized into seven main groupings:
salaries and wages; employee benefits, which include fringe benefits and
employment taxes; occupancy expenses, which include depreciation, rents,
maintenance, utilities, and insurance; equipment expenses, which include
depreciation, rents and maintenance; marketing and advertising; FDIC
insurance premiums on deposits; and other operating expenses (described in
Table 5) incurred in the operation of Founders' business.
Along with normal recurring increases, the opening of a branch
office in June of 1996 in West Chester, Pennsylvania, the staffing of a
loan production office in Media, Pennsylvania, and merger-related expenses,
were major influences on the growth of these expenses from 1995 to 1996.
The salary and employee benefits expenses rose by $369,000 or 33.4% from
1995 to 1996, occupancy and equipment expenses were higher by $85,000 or
34.7%, marketing and advertising increased $43,000 or 50.6%, while other
operating expenses increased $549,000 or 73.1%. Offsetting these increases
was a decline in FDIC insurance premiums of $69,000 which resulted from a
reduction in the Bank assessment to the statutory minimum of $2,000 in
1996.
Other operating expenses (see Table 5) increased $549,000 or 73.1%
from 1995 to 1996. Legal and professional fees increased $147,000 from 1995
to 1996, $115,000 of which increase is attributable to legal and consultant
costs in connection with the anticipated merger with Susquehanna. The
category of "All other" increased by $303,000 in 1996 over 1995, mainly due
to loan processing expenses. Loan processing expenses increased $181,000 in
1996 compared to 1995 due to $130,000 of expenses incurred relating to one
of the Bank's nonperforming loans in addition to a general increase in
costs related to the increased size of the loan portfolio.
Income Taxes
Founders' effective tax rate for 1996 was 26.04% compared to 25.40%
in 1995. This increase was primarily due to the non-deductibility of
expenses related to the proposed merger with Susquehanna.
Founders 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, net of the valuation allowance, recognized at December
31, 1996, will be realized in future tax returns..
Financial Condition
Investment Securities
Generally accepted accounting principles require 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. Securities identified as "trading account securities" are marked-to-
market with the change recorded in the income statement.
In December of 1995, Founders' classified all of its investment
securities as "available-for-sale" and has continued to record all
subsequent investment security purchases as "available-for-sale". The
upward movement in interest rates between December 31, 1995, and December
31, 1996, has caused the total equity of Founders' to be negatively
impacted by $86,000 as the "unrealized losses on available-for-sale
securities, net of taxes," increased from $201,000 to $287,000.
-66-
<PAGE>
Presently, Founders does not engage in trading activity, but does
engage in active portfolio management. In order to provide Founders with
maximum flexibility with regards to its investment portfolio, Founders has
designated all of its securities as "available-for-sale" (see Table 6).
Investment strategies employed by Founders address liquidity, capital
adequacy, and net interest margin considerations. Table 7 illustrates the
maturities of these security portfolios and the weighted averaged yields
based upon amortized costs. Yields are shown on a tax equivalent basis
assuming a 34% federal income tax rate. At December 31, 1996, Founders 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. Loan growth for 1996, was 46.1%, or $23,579,000.
Commercial, real estate mortgage and consumer loans increased $8,952,000,
$5,974,000 and $7,709,000, respectively. As noted in Table 8, Founders'
loan portfolio contains no significant concentrations other than geographic
as most of their loan customers are located in southeastern Pennsylvania.
Founders' 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.
Table 9 represents the maturity of commercial, financial, and
agricultural loans as well as real estate construction loans at December
31, 1996. These loans, with maturities after 1997, have fixed rate pricing.
Deposits
Founders' deposit base is consumer-oriented, consisting of time
deposits, primarily certificates of deposit with various terms; interest-
bearing demand accounts; savings accounts; and demand deposits. The average
amounts of deposits by type are summarized in Table 11. Table 12 presents a
breakdown of maturities of time deposits of $100,000 or more as of December
31, 1996.
On November 15, 1989, Founders entered into a depository
relationship with a local business. The agreement provides for the business
to maintain accounts at Founders with an aggregate minimum balance of $5
million in exchange for Founders providing certain financial services such
as escrow agent duties and wire transfer services. The agreement is
renewable annually. At December 31, 1996 and 1995, this local business had
deposits of approximately $12.9 million and $16.1 million with Founders,
representing 15% and 24% of the total deposits, respectively.
Asset/Liability Management
Liquidity and interest rate sensitivity are related but distinctly
different from one another. The maintenance of adequate liquidity -
Founders' ability to meet the cash requirements of its customers and other
financial commitments - is a fundamental aspect of Founders'
asset/liability management strategy. Founders' attempts to diversify its
funding sources - deposit accounts and purchased funds using a mix of
short-term and long-term maturities - 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 Founders'
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 $588,000 at December 31, 1996. These
maturing investments represent 2.4% of total investment securities. Short-
term investments amounted to $224,000 and represent additional sources of
liquidity. Moreover, all of Founders' investments are classified
"available-for-sale" (see Table 6).
-67-
<PAGE>
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, Founders 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 occurs at varying intervals.
Founders 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.
Table 13 illustrates Founders' estimated interest rate sensitivity
and periodic and cumulative gap positions as calculated at December 31,
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. Founders' has had and will into the foreseeable future experience a
negative gap position (liability sensitive).
Capital Adequacy
Risk-based capital ratios, based upon guidelines adopted by bank
regulators in 1989, focus on 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-weighted categories. To supplement the risk-based capital ratios,
the regulators issued a minimum leverage ratio guideline (Tier 1 capital as
a percentage of quarterly 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 which does not exceed
1.25% of risk-adjusted assets.
The maintenance of a strong capital base is an important aspect of
Founders' philosophy. Founders is required to have minimum Tier 1 and total
capital ratios of 4.00% and 8.00%, respectively, and a minimum Tier 1
leverage ratio of 4%. Founders' actual Tier 1 and total capital ratios at
December 31, 1996 were 9.22% and 10.48%, respectively, and its leverage
ratio was 7.90%. Therefore, Founders' has leverage and risk-weighted ratios
in excess of regulatory minimums and is considered "well-capitalized" under
regulatory guidelines.
-68-
<PAGE>
Founders' Bank and subsidiary
<TABLE>
<CAPTION>
TABLE 1 - DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY
Interest Rates and Interest Differential - Tax Equivalent Basis
- ---------------------------------------------------------------------------------------------------------------------------------
Dollars in thousands 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
Average Average Average
ASSETS Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-term investments $ 1,148 $ 61 5.31% $721 $42 5.83% $3,015 $ 148 4.91%
Investment securities:
Taxable 19,131 1,182 6.18 22,932 1,352 5.90 29,545 1,428 4.83
Tax-advantaged 5,509 431 7.83 36 3 8.33 0 0 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities 24,640 1,613 6.55 22,968 1,355 5.90 29,545 1,428 4.83
Loans (net of unearned income):
Taxable 58,887 5,215 8.86 44,150 4,128 9.35 32,757 2,789 8.51
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 84,675 $6,889 8.14% 67,839 $5,525 8.14% 65,317 $4,365 6.68%
=================================================================================================================================
Allowance for loan losses (1,334) (1,161) (848)
All other non-earning assets 4,203 3,464 4,019
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $87,544 $70,142 $68,488
=================================================================================================================================
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Deposits:
Interest-bearing demand $32,451 $ 1,276 3.93% $28,642 $ 1,151 4.02% $31,906 $925 2.90%
Savings 3,218 65 2.02 3,268 69 2.11 3,611 81 2.24
Time 27,871 1,539 5.52 20,428 1,155 5.65 15,082 615 4.08
Short-term borrowings 6,068 334 5.50 3,018 184 6.10 5,063 198 3.91
Long-term debt 1,361 86 6.31 0 0 0.00 0 0 0.00
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 70,969 $3,300 4.65% 55,356 $2,559 4.62% 55,662 $1,819 3.27%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits 8,710 7,536 6,636
Other liabilities 734 750 329
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 80,413 63,642 62,627
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 7,131 6,500 5,861
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities & equity $87,544 $70,142 $68,488
=================================================================================================================================
Net interest income/yield on
average earning assets $3,589 4.24% $2,966 4.37% $2,546 3.90%
=================================================================================================================================
</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 34%.
-69-
<PAGE>
Founders' Bank and subsidiary
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
TABLE 2 - CHANGES IN NET INTEREST INCOME - TAX EQUIVALENT BASIS
- --------------------------------------------------------------------------------------------------------------------------------
1996 Versus 1995 1995 Versus 1994
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
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Other short-term investments $23 ($4) $19 ($130) $ 24 ($106)
Investment securities:
Taxable (233) 63 (170) (355) 279 (76)
Tax-advantaged 428 0 428 3 0 3
- --------------------------------------------------------------------------------------------------------------------------------
Total investment securities 195 63 258 (352) 279 (73)
Loans (net of unearned income):
Taxable 1,315 (228) 1,087 1,044 295 1,339
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $1,533 ($169) $1,364 $562 $598 $1,160
================================================================================================================================
INTEREST EXPENSE
Deposits:
Interest-bearing demand $150 ($25) $125 ($103) $329 $226
Savings (1) (3) (4) (7) (5) (12)
Time 412 (28) 384 258 282 540
Short-term borrowings 170 (20) 150 (99) 85 (14)
Long-term debt 86 0 86 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $817 ($76) $741 $49 $691 $740
================================================================================================================================
Net interest margin $716 ($93) $623 $513 ($93) $420
================================================================================================================================
</TABLE>
Changes 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.
-70-
<PAGE>
Founders' Bank and subsidiary
TABLE 3 - PROVISION AND ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994 1993 1992
------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, January 1 $ 1,284 $ 936 $ 740 $ 812 $ 641
Additions to provision for loan losses
charged to operations 50 61 152 261 318
Loans charged off during the year:
Commercial, financial, and agricultural 5 3 0 463 0
Real estate - mortgage 0 8 0 44 147
Consumer 14 0 0 1 0
--------------------------------------------------------------
Total charge-offs 19 11 0 508 147
--------------------------------------------------------------
Recoveries of loans previously charged-off:
Commercial, financial, and agricultural 4 298 24 23 0
Real estate - mortgage 0 0 20 152 0
Consumer 7 0 0 0 0
--------------------------------------------------------------
Total recoveries 11 298 44 175 0
--------------------------------------------------------------
Net charge-offs/(recoveries) 8 (287) (44) 333 147
--------------------------------------------------------------
Allowance for loan losses, December 31 $ 1,326 $ 1,284 $ 936 $ 740 $ 812
==============================================================
Average loans outstanding $58,887 $44,150 $32,757 $32,544 $31,424
Period end loans 74,726 51,147 38,986 31,957 34,427
Net charge-offs as a percentage of average loans 0.01% -0.65% -0.13% 1.02% 0.47%
Allowance as a percentage of period-end loans 1.77 2.51 2.40 2.32 2.36
Founders' Bank and subsidiary
</TABLE>
-71-
<PAGE>
Founders' Bank and subsidiary
<TABLE>
<CAPTION>
TABLE 4 - NON-PERFORMING ASSETS
(In thousands) 1996 1995 1994 1993 1992
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Loans contractually past due
90 days and still accruing $0 $61 $0 $0 $0
==================================================================================
Non-performing assets:
Nonaccrual loans:
Commercial, financial, and
agricultural $341 $225 $238 $225 $721
Real estate - mortgage 0 0 0 0 240
Other real estate owned 0 0 59 59 452
----------------------------------------------------------------------------------
Total non-performing assets $341 $225 $297 $284 $1,413
==================================================================================
Total non-performing assets as a
percentage of period-end loans and
other real estate owned 0.46% 0.44% 0.76% 0.89% 4.05%
</TABLE>
TABLE 5 - ANALYSIS OF OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
For the years ended December 31
Dollars in thousands 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Audits and examinations $49 $45 $57
Communications 56 43 32
Directors' fees 21 0 0
Legal and professional 176 29 28
Outside services 218 192 214
Taxes, other than income 61 56 53
Postage 34 30 27
Stationery and supplies 61 35 36
All other 624 321 268
- ---------------------------------------------------------------------------------------------------------------
Total $1,300 $751 $715
===============================================================================================================
</TABLE>
-72-
<PAGE>
<TABLE>
<CAPTION>
Founders' Bank and subsidiary
- --------------------------------------------------------------------------------------------------------------
TABLE 6 - Carrying Value of Investment Securities
- --------------------------------------------------------------------------------------------------------------
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
Available- Held-to- Available- Held-to- Available- Held-to-
(Dollars in thousands) for-Sale Maturity for-Sale Maturity for-Sale Maturity
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury $989 $ -- $4,997 $ -- $995 $1,987
U.S. Government agencies 5,873 -- -- -- -- --
State and municipal 5,832 -- 1,303 -- -- --
Other securities 60 -- 131 -- 229 --
Mortgage-backed securities 10,161 -- 13,907 -- 14,788 6,595
Equity securities 1,201 -- 661 -- 530 --
- --------------------------------------------------------------------------------------------------------------
Total investment securities $24,116 $ -- $20,999 $ -- $16,542 $8,582
==============================================================================================================
</TABLE>
-73-
<PAGE>
Founders' Bank and subsidiary
TABLE 7 - INVESTMENT SECURITIES
The following table shows the maturities of investment securities at fair
value and amortized cost as of December 31, 1996, and the weighted average
yields of such securities. Yields are shown on a tax equivalent basis, assuming
a 34% federal income tax rate.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
-------------------------------------------------------------------------------------
(In thousands) After 1 After 5 Years Available-
Within but Within but Within After For-Sale
1 Year 5 Years 10 Years 10 Total
-------- ------------ ------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury
Fair value............. $--- $989 $--- $--- $989
Amortized cost......... --- 997 --- --- 997
Yield.................. ---% 5.4% ---% ---% 5.4%
U.S. Government agencies........
Fair value............. $--- $2,976 $2,897 $--- $5,873
Amortized cost......... --- 3,000 3,000 --- 6,000
Yield.................. ---% 6.8% 6.6% ---% 6.7%
State & municipals
Fair value............. $--- $--- $--- $5,832 $5,832
Amortized cost......... --- --- --- 5,905 5,905
Yield.................. ---% ---% ---% 7.8% 7.8%
----- -----
Corporate debt securities
Fair value............. $--- $60 $--- $--- $60
Amortized cost......... --- 61 --- --- 61
Yield.................. ---% 4.5% ---% ---% 4.5%
Mortgage-backed securities
Fair value............. $588 $750 $1,949 $6,874 $10,161
Amortized cost......... 588 763 1,986 7,050 10,387
Yield.................. 4.6% 5.0% 5.0% 6.3% 5.8%
Equity securities
Fair value............. $1,201
Amortized cost......... 1,201
Yield.................. 6.0%
TOTAL SECURITIES
Fair value............. $588 $4,775 $4,846 $12,706 $24,116
Amortized cost......... 588 4,821 4,986 12,955 24,551
Yield.................. 4.6% 6.2% 6.0% 5.9% 5.9%
</TABLE>
-74-
<PAGE>
<TABLE>
<CAPTION>
Founders' Bank and subsidiary
- ----------------------------------------------------------------------------
TABLE 8 - LOAN PORTFOLIO
- ----------------------------------------------------------------------------
At December 31 1996 1995
- ----------------------------------------------------------------------------
Percentage Percentage
of Loans to of Loans to
Dollars in thousands Amount Total Loans Amount Total Loans
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and $26,492 35.5% $17,540 34.3%
agricultural
Real estate - construction 5,791 7.7% 4,847 9.5%
Real estate - mortgage 26,463 35.4% 20,489 40.0%
Consumer 15,980 21.4% 8,271 16.2%
- ----------------------------------------------------------------------------
TOTAL $74,726 100.0% $51,147 100.0%
============================================================================
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
At December 31 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of Loans to of Loans to of Loans to
Dollars in thousands Amount Total Loans Amount Total Loans Amount Total Loans
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial, and $10,920 28.0% $13,957 43.7% $13,221 38.4%
agricultural
Real estate - construction 4,707 12.1% 1,706 5.3% 3,490 10.1%
Real estate - mortgage 17,173 44.0% 15,365 48.1% 16,587 48.2%
Consumer 6,186 15.9% 929 2.9% 1,129 3.3%
- --------------------------------------------------------------------------------------------------------------
TOTAL $38,986 100.0% $31,957 100.0% $34,427 100.0%
==============================================================================================================
</TABLE>
-75-
<PAGE>
Founders' Bank and subsidiary
- --------------------------------------------------------------------------------
TABLE 9 - LOAN MATURITY AND INTEREST SENSITIVITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
At December 31
- ---------------------------------------------------------------------------------------------------------
Under One One to Five Over Five
Maturity Year Years Years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial, and agricultural $20,673 $4,432 $1,387 $26,492
Real estate - construction 5,134 657 0 5,791
- ---------------------------------------------------------------------------------------------------------
$25,807 $5,089 $1,387 $32,283
=========================================================================================================
Rate sensitivity of loans with maturities greater than 1 year: Variable rate $0
Fixed rate 6,476
- ---------------------------------------------------------------------------------------------------------
$6,476
=========================================================================================================
</TABLE>
TABLE 10 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
- --------------------------------------------------------------------------------
At December 31
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $181 $132 $119 $177 $384
Real estate - construction 56 23 74 83 110
Real estate - mortgage 321 273 249 264 227
Consumer 77 42 45 37 14
Unallocated 691 814 449 179 77
- ---------------------------------------------------------------------------------------------
TOTAL $1,326 $1,284 $936 $740 $812
=============================================================================================
</TABLE>
-76-
<PAGE>
Founders' Bank and subsidiary
- --------------------------------------------------------------------------------
TABLE 11 - AVERAGE DEPOSIT BALANCES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
Year ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Demand deposits $8,710 $7,536 $6,636
Interest-bearing demand deposits 32,451 28,642 31,906
Savings deposits 3,218 3,268 3,611
Time deposits 27,871 20,428 15,082
- ------------------------------------------------------------------------------------------
Total $72,250 $59,874 $57,235
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 12 - DEPOSIT MATURITY
------------------------------------------------------------------
(Dollars in thousands)
------------------------------------------------------------------
Maturity of time deposits of $100 or more at
December 31, 1996
------------------------------------------------------------------
<S> <C>
Three months or less $1,586
Over three months through six months 1,551
Over six months through twelve months 3,072
Over twelve months 2,325
------------------------------------------------------------------
Total $8,534
==================================================================
</TABLE>
-77-
<PAGE>
Founders' Bank and subsidiary
TABLE 13 - INTEREST RATE SENSITIVITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
At December 31, 1996 1-90 90-180 180-365 1 year
(Dollars in thousands) days days days or more TOTAL
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Short-term investments $224 $224
Investments $588 $23,528 24,116
Loans, net of unearned income* 33,901 $1,517 3,211 35,756 74,385
- ------------------------------------------------------------------------------------------------------------
Total $34,125 $1,517 $3,799 $59,284 $98,725
============================================================================================================
LIABILITIES
Interest-bearing demand $38,939 $38,939
Savings 2,823 2,823
Time 6,835 $6,062 $6,560 $8,458 27,915
Time in denominations of $100 or more 1,586 1,551 3,073 2,324 8,534
Short-term borrowings 3,000 3,000
Long-term debt 3,000 3,000
- ------------------------------------------------------------------------------------------------------------
Total $53,183 $7,613 $9,633 $13,782 $84,211
============================================================================================================
INTEREST SENSITIVITY GAP:
Periodic ($19,058) ($6,096) ($5,834) $45,502
Cumulative (25,154) (30,988) 14,514
Cumulative gap as a percentage of interest
earning assets -19.3% -25.5% -31.4% 14.7%
</TABLE>
* Does not include nonaccrual loans.
-78-
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following tables set forth certain pro forma combined condensed
financial information of Susquehanna giving effect to the Merger as of January
1, 1996, accounted for as a pooling-of-interests.
The information in the following tables is not necessarily indicative of
the results that would have been achieved had such transaction been consummated
on such dates and should not be construed as representative of future
operations. Such information is subject to the assumptions set forth in the
notes to these Unaudited Pro Forma Financial Statements and to the Susquehanna
Pro Forma Schedules appearing elsewhere herein. The information presented should
be read in conjunction with such notes, with the Susquehanna Pro Forma Schedules
and with the historical financial statements, including the notes thereto, of
Susquehanna and Founders incorporated by reference or appearing elsewhere in
this Proxy Statement/Prospectus.
Pro Forma Combined Condensed Balance Sheet
as of December 31, 1996
The following unaudited pro forma combined condensed balance sheet combines
the historical consolidated balance sheets of Susquehanna restated to include
the historical balance sheets of ATCORP, Inc. and Farmers Banc Corp. ("1997
Acquisitions"), and Founders as of December 31, 1996 assuming the Merger was
effective on such date and was accounted for as a pooling-of-interests. For more
information regarding the adjustments made for such transaction, see the
Footnotes to Pro Forma Combined Condensed Balance Sheet on page 84 of this Proxy
Statement/Prospectus.
-79-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of December 31, 1996
Unaudited
($ in thousands)
Founders
Susquehanna 1997 ---------------------------------------- Pro Forma
ASSETS As Reported Acquisitions As Reported Pro Forma Combined
------------ ----------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Cash & due from banks $ 98,519 $ 8,328 $ 3,556 $ 110,403
Other short-term investments 96,107 7,137 224 103,468
Investment securities 561,601 97,169 24,116 682,886
Loans, net of unearned income 2,173,081 176,695 74,726 2,424,502
Less: Allowance for loan losses 31,941 1,859 1,326 2,842,633
----------------------------------- ---------------------------------------- --------------
Net loans 2,141,140 174,836 73,400 2,389,376
Premises & equipment, net 38,548 5,383 564 44,495
Other assets 102,536 4,130 1,343 108,009
----------------------------------- ---------------------------------------- --------------
TOTAL ASSETS $3,038,451 $296,983 $103,203 $0 $3,438,637
=================================== ======================================== ==============
LIABILITIES
Deposits $2,493,504 $260,614 $ 88,515 $2,842,633
Short-term borrowings 94,150 6,500 3,000 103,650
Long-term debt 115,368 5,000 3,000 123,368
Other liabilities 42,749 4,093 1,115 47,957
--------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,745,771 276,207 95,630 3,117,608
EQUITY
Preferred stock 272 (272)[A] 0
Common stock 26,403 2,928 1,708 (1,708)[A] 30,195
864 [B]
Surplus 78,529 6,636 5,638 (5,638)[A] 91,919
6,754 [B]
Retained earnings 186,785 11,273 242 198,300
Unrealized gains and (losses) for
available-for-sale securities,
net of tax 1,118 (61) (287) 770
Less: Treasury stock at cost 155 155
------------ ----------------- ---------------------------------------- --------------
TOTAL EQUITY 292,680 20,776 7,573 0 321,029
------------ ----------------- ---------------------------------------- --------------
TOTAL LIABILITIES & EQUITY $3,038,451 $296,983 $103,203 $0 $3,438,637
============ ================= ======================================== ==============
</TABLE>
See footnotes to combined condensed balance sheet on page 84.
-80-
<PAGE>
Pro Forma Combined Condensed Statement
of Income for the Year Ended December 31, 1996
The following unaudited pro forma combined condensed statement of income
includes the historical consolidated income statement of Susquehanna for the
year ended December 31, 1996 restated to include the historical operations of
Fairfax, as well as ATCORP, Inc. and Farmers Banc Corp. (referred to as the 1997
Acquisitions), as if those mergers had been effective January 1, 1996. This
statement also includes Founders for the fiscal year ended December 31, 1996 on
the assumption that the Merger had been effective at January 1, 1996, both
individually and combined.
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1996
($ in thousands) Unaudited
Susquehanna Fairfax 1997 Pro Forma Susquehanna Founders Pro Forma Pro Forma
As Reported Pro Forma Acquisitions Adjustments Pro Forma As Reported Adjustments Combined
------------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $231,835 $3,017 $21,355 $256,207 $6,757 $262,964
Interest expense 103,138 1,900 9,915 114,953 3,300 118,253
-----------------------------------------------------------------------------------------------------------
Net interest income 128,697 1,117 11,440 0 141,254 3,457 0 144,711
Provision for loan and
lease losses 4,599 502 208 5,309 50 5,359
-----------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan and
leases losses 124,098 615 11,232 0 135,945 3,407 0 139,352
Other income 21,344 488 817 22,649 261 22,910
Other expense:
Salaries and benefits 50,311 615 4,796 55,722 1,476 57,198
Occupancy and equipment 11,652 93 1,559 13,304 330 13,634
Other 38,853 (8) 3,395 (1,145)[5] 41,095 1,430 (115)[5] 42,410
-----------------------------------------------------------------------------------------------------------
Income before income taxes 44,626 403 2,299 1,145 48,473 432 115 49,020
Applicable taxes 14,650 268 799 15,717 113 15,830
-----------------------------------------------------------------------------------------------------------
Net income from operations $ 29,976 $ 135 $ 1,500 $1,145 $ 32,756 $ 319 $ 115 $ 33,190
===========================================================================================================
Earnings per share $2.28 $2.24 $0.33 $2.20
Average shares outstanding 13,161 2[1] 1,464 [2] 14,627 965 (965)[3] 15,059
432 [4]
===========================================================================================================
</TABLE>
See footnotes to combined condensed statements of income on page 84.
-81-
<PAGE>
Pro Forma Combined Condensed Statement of Income for
the Years Ended December 31, 1995 and 1994
The following unaudited pro forma combined condensed statements of
income combine the historical consolidated income statements of Susquehanna
restated to include the historical operations of the 1997 Acquisitions, as if
those mergers took place on January 1, 1994, for the years ended December 31,
1995 and 1994 and of Founders for the fiscal years ended December 31, 1995 and
1994 on the assumption that the Merger had been effective as of January 1, 1995
and 1994, respectively.
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1995
($ in thousands) Unaudited
Susquehanna 1997 Susquehanna Founders Pro Forma Pro Forma
As Reported Acquisitions Pro Forma As Reported Adjustments Combined
------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income $189,827 $16,723 $206,550 $5,524 $212,074
Interest expense 82,618 7,226 89,884 2,559 92,403
-------------------------------------------------------------------------------------------
Net interest income 107,209 9,497 116,706 2,965 0 119,671
Provision for loan and
lease losses 4,994 170 5,164 61 5,225
-------------------------------------------------------------------------------------------
Net interest income after
provision for loan and
leases losses 102,215 9,327 111,542 2,904 0 114,446
Other income 16,080 1,056 17,136 165 17,301
Other expense:
Salaries and benefits 42,235 3,835 46,070 1,106 47,176
Occupancy and equipment 9,755 1,185 10,940 245 11,185
Other 28,921 2,385 31,306 907 32,213
-------------------------------------------------------------------------------------------
Income before income taxes 37,384 2,978 40,362 811 0 41,173
Applicable taxes 11,367 743 12,110 206 12,316
-------------------------------------------------------------------------------------------
Net income from operations $ 26,017 $ 2,235 $ 28,252 $ 605 $0 $ 28,857
===========================================================================================
Earnings per share $2.23 $2.15 $0.64 $2.13
Average shares outstanding 11,674 1,464[2] 13,138 944 (944)[3] 13,570
432 [4]
</TABLE>
See footnotes to combined condensed statements of income on page 84.
- -------------------------------------------------------------------
-82-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the year ended December 31, 1994
($ in thousands) Unaudited
Susquehanna 1997 Susquehanna Founders Pro Forma Pro Forma
As Reported Acquisitions Pro Forma As Reported Adjustments Combined
------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income $150,633 $13,404 $164,037 $4,365 $ 168,402
Interest expense 56,488 4,635 61,123 1,819 62,942
----------------------------------------------------------------------------------------
Net interest income 94,145 8,769 102,914 2,546 0 105,460
Provision for loan and
lease losses 3,987 260 4,247 152 4,399
----------------------------------------------------------------------------------------
Net interest income after
provision for loan and
leases losses 90,158 8,509 98,667 2,394 0 101,061
Other income 15,098 1,029 16,127 251 16,378
Other expense:
Salaries and benefits 36,227 3,390 39,617 948 40,565
Occupancy and equipment 8,774 1,058 9,832 224 10,056
Other 27,709 2,322 30,031 886 30,917
----------------------------------------------------------------------------------------
Income before income taxes 32,546 2,768 35,314 587 0 35,901
Applicable taxes 9,718 769 10,487 34 10,521
----------------------------------------------------------------------------------------
Net income from operations $ 22,828 $ 1,999 $ 24,827 $ 553 $0 $ 25,380
========================================================================================
Earnings per share $1.96 $1.90 $0.60 $1.88
Average shares outstanding 11,634 1,464 [2] 13,098 926 (926)[3] 13,530
432 [4]
</TABLE>
See footnotes to combined condensed statements of income on page 84.
- --------------------------------------------------------------------
-83-
<PAGE>
FOOTNOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEETS
[A] To eliminate Founders Preferred Stock and Founders Common Stock.
[B] To reflect the issuance of 432,188 shares of Susquehanna Common Stock for
all of the outstanding shares of Founders Common Stock and Founders
Preferred Stock.
FOOTNOTES TO PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
[1] To reflect the average effect from the issuance of 195,000 shares of
Susquehanna Common Stock to acquire Fairfax Savings, FSB.
[2] To reflect the issuance of 1,464,000 shares of Susquehanna Common Stock
for all the outstanding shares of ATCORP, Inc. and Farmers Banc Corp.
[3] To eliminate all the outstanding shares of Founders Common Stock and
Founders Preferred Stock.
[4] To reflect the issuance of 432,188 shares of Susquehanna Common Stock for
all the outstanding shares of Founders Common Stock and Founders Preferred
Stock.
[5] To eliminate non-recurring merger related expenses with regard to Founders
and the 1997 Acquisitions.
-84-
<PAGE>
ADJOURNMENT OF THE MEETING
Approval of the Merger Agreement requires the affirmative vote of the
holders of sixty-six and two-thirds percent (66 2/3%) of the outstanding shares
of Founders Capital Stock entitled to vote at the Meeting. If there is an
insufficient number of votes cast in person or by proxy at the Meeting to
approve the Merger Agreement, the Founders Board of Directors intends to adjourn
the Meeting to a later date to permit further solicitation of votes in favor of
the Merger Agreement and the transactions contemplated thereby. The affirmative
vote of a majority of the shares represented and voting at the Meeting is
required in order to approve any such adjournment. The place and date to which
the Meeting would be adjourned would be announced at the Meeting. Under Founders
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 Meeting.
The Founders Board of Directors recommends that shareholders vote "FOR"
the proposal to adjourn the Meeting if necessary to permit further solicitation
of proxies to approve the 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, 1996.
Susquehanna expects to engage Coopers & Lybrand L.L.P. as its independent
accountants for the year ending December 31, 1997.
Founders has engaged Beard & Company, Inc., 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,
1996 and 1995 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996, 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.
Founders
The consolidated balance sheets of Founders as of December 31, 1996 and
1995 and the related consolidated statements of income, stockholders' equity and
cash flows for the years then ended, included in this Proxy
Statement/Prospectus, have been included herein in reliance on the report of
Beard & Company, Inc., independent accountants, given upon the authority of said
firm as experts in accounting and auditing.
LEGAL OPINIONS
The legality of the Susquehanna Common Stock to be issued in connection
with the Merger is being passed upon by Morgan, Lewis & Bockius LLP, Harrisburg,
Pennsylvania, counsel to Susquehanna. Certain legal matters relating to Founders
will be passed upon at the Effective Time by Schnader, Harrison, Segal & Lewis,
Philadelphia, Pennsylvania, counsel to Founders.
-85-
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-2
Consolidated balance sheets, December 31, 1996 and 1995 F-3
Consolidated statements of income for the Years Ended
December 31, 1996 and 1995 F-4
Consolidated statements of stockholders' equity for the Years
Ended December 31, 1996 and 1995 F-5
Consolidated statements of cash flows for the Years Ended
December 31m 1996 and 1995 F-6
Notes to consolidated financial statements F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Founders' Bank
Bryn Mawr, Pennsylvania
We have audited the accompanying consolidated balance sheets of Founders'
Bank and its wholly-owned subsidiary, Old Lancaster Corporation, as of December
31, 1996 and 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the 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 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 Founders'
Bank and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Beard & Company, Inc.
Reading, Pennsylvania
January 31, 1997, except for Note 16 as to which the date is
February 11, 1997
F-2
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
December 31, 1996 1995
- ------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 3,555,936 $ 4,230,526
Interest bearing deposits in banks 224,027 141,713
--------------------------------
Total cash and cash equivalents 3,779,963 4,372,239
Securities available for sale 24,116,077 20,999,212
Loans receivable, net of allowance for
loan losses 1996 $ 1,326,516; 1995
$ 1,284,460 73,399,575 49,862,517
Premises and equipment, net 563,998 203,311
Accrued interest receivable and other
assets 1,343,707 1,070,249
--------------------------------
Total assets $ 103,203,320 $ 76,507,528
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing $ 10,304,063 $ 7,656,888
Demand, interest bearing 38,938,979 34,347,225
Savings 2,823,330 2,740,235
Time, $100,000 and over 8,533,637 3,474,565
Time, other 27,914,898 18,152,325
--------------------------------
88,514,907 66,371,238
Securities sold under agreements to
repurchase 3,000,000 -
Other borrowed funds - 2,250,000
Long-term debt 3,000,000 -
Accrued interest payable and other
liabilities 1,114,937 897,700
--------------------------------
Total liabilities 95,629,844 69,518,938
--------------------------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $2.00
per share; authorized, issued and
outstanding 136,055 shares 272,110 272,110
Common stock, par value $2.00 per share;
authorized 1,863,945 shares;
issued and outstanding 1996 854,067
shares; 1995 651,412 shares 1,708,134 1,302,824
Surplus 5,637,772 5,690,820
Retained earnings (deficit) 242,675 (76,567)
Net unrealized depreciation
on securities available for
sale, net of taxes (287,215) (200,597)
--------------------------------
Total stockholders' equity 7,573,476 6,988,590
--------------------------------
Total liabilities and
stockholders' equity $ 103,203,320 $ 76,507,528
================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------
Years Ended December 31, 1996 1995
- ---------------------------------------------------------------------
Interest income:
<S> <C> <C>
Loans receivable, including fees $ 5,214,974 $ 4,128,136
Securities:
Taxable 1,242,919 1,394,304
Tax-exempt 299,459 1,842
-----------------------------
Total interest income 6,757,352 5,524,282
-----------------------------
Interest expense:
Deposits 2,880,243 2,374,959
Borrowed funds:
Short-term 333,961 184,317
Long-term 85,845 -
-----------------------------
Total interest expense 3,300,049 2,559,276
-----------------------------
Net interest income 3,457,303 2,965,006
Provision for loan losses 50,400 60,960
-----------------------------
Net interest income after
provision for loan losses 3,406,903 2,904,046
-----------------------------
Other income:
Service fees 261,522 215,074
Net realized loss on sale of
securities available for sale (1,000) (49,739)
-----------------------------
Total other income 260,522 165,335
-----------------------------
Other expenses:
Salaries and wages 1,220,989 935,678
Employee benefits 254,514 170,723
Occupancy 153,413 122,241
Equipment 176,783 122,956
Marketing and advertising 127,941 85,186
Federal deposit insurance premiums 2,000 70,745
Other operating expenses 1,300,143 750,843
-----------------------------
Total other expenses 3,235,783 2,258,372
-----------------------------
Income before income taxes 431,642 811,009
Federal income taxes 112,400 206,000
-----------------------------
Net income $ 319,242 $ 605,009
=============================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
(Depreciation)
Capital Stock Retained On Securities
--------------------------
Preferred Common Earnings Available
Stock Stock Surplus (Deficit) For Sale Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 272,110 $ 1,302,824 $ 5,690,820 $ (681,576) $ (391,699) $ 6,192,479
Net income - - - 605,009 - 605,009
Net change in unrealized
(depreciation) on securities
available for sale, net of taxes - - - - 191,102 191,102
--------------------------------------------------------------------------------------
Balance, December 31, 1995 272,110 1,302,824 5,690,820 (76,567) (200,597) 6,988,590
Net income - - - 319,242 - 319,242
6-for-5 stock split in the
form of a 20% stock dividend and
cash paid in lieu of fractional shares - 314,980 (315,005) - - (25)
Common stock issued under stock option
plans - 90,330 261,957 - - 352,287
Net change in unrealized (depreciation)
on securities available for sale,
net of taxes - - - - (86,618) (86,618)
--------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 272,110 $ 1,708,134 $ 5,637,772 $ 242,675 $ (287,215) $ 7,573,476
======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 319,242 $ 605,009
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 50,400 60,960
Provision for depreciation 132,295 81,110
Net amortization of 118,165 151,382
securities premiums and discounts
Deferred income taxes (69,364) (29,054)
Net realized loss on sale of
securities 1,000 49,739
(Increase) in accrued interest
receivable and other assets (159,491) (101,370)
Increase in accrued interest
payable and other liabilities 217,237 441,773
---------------------------------
Net cash provided by
operating activities 609,484 1,259,549
---------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available
for sale (15,200,844) (4,428,836)
Proceeds from maturities of
and principal repayments on
securities available for sale 9,834,593 3,729,857
Proceeds from maturities of and
principal repayments on
securities held to maturity - 1,052,748
Proceeds from sales of securities
available for sale 1,999,000 3,859,470
Net increase in loans receivable (23,587,458) (11,874,321)
Purchases of bank premises and
equipment (492,982) (76,441)
---------------------------------
Net cash used in investing
activities (27,447,691) (7,737,523)
---------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand and savings
deposits 7,322,024 2,289,349
Net increase in time deposits 14,821,645 2,998,338
Net increase in securities sold under
agreements to repurchase 3,000,000 -
Net increase (decrease) in other
borrowed funds (2,250,000) 2,150,000
Proceeds from issuance of long-term
debt 3,000,000 -
Net proceeds from issuance of common
stock under stock option plans 352,287 -
Cash paid in lieu of fractional shares (25) -
---------------------------------
Net cash provided by financing
activities 26,245,931 7,437,687
---------------------------------
Increase (decrease) in cash and
cash equivalents (592,276) 959,713
Cash and cash equivalents:
Beginning 4,372,239 3,412,526
---------------------------------
Ending $ 3,779,963 $ 4,372,239
=================================
Cash payments for:
Interest $ 3,073,689 $ 2,293,573
=================================
Income taxes $ 490,500 $ 43,954
=================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation:
The consolidated financial statements include the accounts of Founders' Bank
(the Bank) and its wholly-owned subsidiary, Old Lancaster Corporation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Nature of operations:
The Bank operates under a state bank charter and provides full banking
services. As a state bank, the Bank is subject to regulation of the
Pennsylvania Department of Banking and the Federal Reserve Bank. The area
served by the Bank is principally Montgomery, Delaware and Chester Counties of
Pennsylvania.
Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and interest-bearing demand deposits.
Securities:
Securities classified as available for sale are those debt securities that the
Bank intends to hold for an indefinite period of time, but not necessarily to
maturity and equity securities. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Bank's assets
and liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair value.
Unrealized appreciation and depreciation are reported as increases or decreases
in stockholders' equity, net of the related deferred tax effect. Realized gains
or losses, determined on the basis of the cost of specific securities sold, are
included in earnings. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity. Equity securities are
principally comprised of stock in the Federal Home Loan Bank and Federal Reserve
Bank.
Securities classified as held to maturity are those debt securities the Bank
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, over their contractual lives.
Management determines the appropriate classification of debt securities at the
time of purchase and re-evaluates such designation as of each balance sheet
date.
Loans receivable:
Loans generally are stated at their outstanding unpaid principal balances, net
of an allowance for loan losses and any deferred fees or costs. Interest income
is accrued on the unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and recognized as an adjustment
of the yield (interest income) of the related loans. The Bank is generally
amortizing these amounts over the contractual life of the loan.
F-7
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans receivable (continued):
A loan is generally considered impaired when it is probable the Bank will be
unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. The accrual of interest is
generally discontinued when the contractual payment of principal or interest has
become 90 days past due or management has serious doubts about further
collectibility of principal or interest, even though the loan is currently
performing. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is placed on
nonaccrual status, unpaid interest credited to income in the current year is
reversed and unpaid interest accrued in prior years is charged against the
allowance for loan losses. Interest received on nonaccrual loans generally is
either applied against principal or reported as interest income, according to
management's judgment as to the collectibility of principal. Generally, loans
are restored to accrual status when the obligation is brought current, has
performed in accordance with the contractual terms for a reasonable period of
time and the ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through provisions for loan losses
charged against income. Loans deemed to be uncollectible are charged against
the allowance for loan losses, and subsequent recoveries, if any, are credited
to the allowance.
The allowance for loan losses related to impaired loans that are identified for
evaluation is based on discounted cash flows using the loan's initial effective
interest rate or the fair value, less selling costs, of the collateral for
certain collateral dependent loans. By the time a loan becomes probable of
foreclosure, it has been charged down to fair value, less estimated costs to
sell.
The allowance for loan losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated value of any
underlying collateral, composition of the loan portfolio, current economic
conditions and other relevant factors. This evaluation is inherently subjective
as it requires material estimates that may be susceptible to significant change.
Premises and equipment:
Leasehold improvements and furniture and equipment are stated at cost less
accumulated depreciation. Depreciation is computed principally on the straight-
line method over the estimated useful lives of the related assets.
Profit-sharing plan:
The Bank has a defined contribution profit-sharing plan for those employees who
meet the eligibility requirements as set forth in the plan. Substantially all
of the Bank's full-time employees are covered by the plan. The amount of the
annual contribution to the plan is at the discretion of the Bank's Board of
Directors. The amount charged to expense was $ 24,409 and $ 9,927 for the years
ended December 31, 1996 and 1995 respectively.
Advertising:
The Bank follows the policy of charging the production cost of advertising to
expense as incurred.
F-8
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for temporary differences and operating loss and tax
credit carryforwards, and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of the
deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted through the provision for income taxes for the
effects of changes in tax laws and rates on the date of enactment.
The Bank's income tax expense differs from the tax which would result from
applying the statutory tax rates to pre-tax income primarily due to tax
exempt interest income, travel and entertainment, non-deductible merger
costs and the change in the valuation allowance on deferred tax assets.
The Bank and its subsidiary file a consolidated federal income tax return.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit and
letters of credit. Such financial instruments are recorded in the
consolidated financial statements when they are funded.
2
- --------------------------------------------------------------------------------
SECURITIES
The amortized cost and fair value of securities at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
December 31, 1996:
U.S. Treasury and agency securities $ 6,997,063 $ - $ (135,363) $ 6,861,700
State and political subdivisions 5,904,565 2,051 (74,194) 5,832,422
Mortgage-backed securities 10,388,141 1,456 (228,479) 10,161,118
Asset-backed securities 60,781 - (644) 60,137
Equity securities 1,200,700 - - 1,200,700
-----------------------------------------------------------------------
$ 24,551,250 $ 3,507 $ (438,680) $ 24,116,077
=======================================================================
December 31, 1995:
U.S. Treasury securities $ 4,999,292 $ - $ (2,292) $ 4,997,000
State and political subdivisions 1,298,697 3,937 (7) 1,302,627
Mortgage-backed securities 14,211,185 2,095 (305,890) 13,907,390
Asset-backed securities 132,890 - (1,795) 131,095
Equity securities 661,100 - - 661,100
-----------------------------------------------------------------------
$ 21,303,164 $ 6,032 $ (309,984) $ 20,999,212
=======================================================================
</TABLE>
F-9
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
In December 1995, the Bank reevaluated the appropriateness of all securities
held and transferred $ 7,389,258 of securities from held to maturity to
available for sale in accordance with the "Guide to Implementation of Statement
No. 115" issued by the FASB. The securities were transferred at their fair value
on the date of transfer which was $ 43,833 less than the amortized cost of the
securities. The transfer represented the Bank's entire securities held to
maturity portfolio at the date of transfer.
The amortized cost and fair value of securities as of December 31, 1996, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because the securities may be called or prepaid with or
without prepayment penalties.
<TABLE>
<CAPTION>
Available For Sale
-------------------------------
Amortized Cost Fair Value
-------------------------------
<S> <C> <C>
Due from one to five years $ 3,997,063 $ 3,965,600
Due from five to ten years 3,000,000 2,896,100
Due after ten years 5,904,565 5,832,422
Mortgage-backed securities 10,388,141 10,161,118
Asset-backed securities 60,781 60,137
Equity securities 1,200,700 1,200,700
-------------------------------
$ 24,551,250 $ 24,116,077
===============================
</TABLE>
Gross losses of $ 1,000 and $ 49,739 were realized on sales of securities
available for sale in 1996 and 1995 respectively.
Securities with an amortized cost of $ 3,000,000 and $ 1,250,000 at December 31,
1996 and 1995 respectively were pledged as collateral to secure public deposits
and for other purposes as required or permitted by law.
F-10
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
The composition of net loans receivable was as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------------------
Real estate loans:
<S> <C> <C>
Commercial mortgage $ 20,322,971 $ 15,268,149
Personal mortgage 931,199 799,196
Construction and land
development 5,790,755 4,847,144
-------------------------------
27,044,925 20,914,489
-------------------------------
Commercial loans:
Term 11,108,833 8,657,521
Demand 6,406,204 5,400,107
Credit lines 8,421,572 3,613,510
-------------------------------
25,936,609 17,671,138
-------------------------------
Consumer loans:
Installment 17,713,803 9,072,122
Credit lines 4,089,913 3,586,489
-------------------------------
21,803,716 12,658,611
-------------------------------
Net deferred loan origination fees (59,159) (97,261)
Allowance for loan losses (1,326,516) (1,284,460)
-------------------------------
$ 73,399,575 $ 49,862,517
===============================
Changes in the allowance for loan
losses were as follows:
Years Ended December 31,
1996 1995
-------------------------------
Balance, beginning $ 1,284,460 $ 936,466
Provision for loan losses 50,400 60,960
Recoveries 10,776 298,568
Loans charged off (19,120) (11,534)
-------------------------------
Balance, ending $ 1,326,516 $ 1,284,460
===============================
</TABLE>
F-11
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The recorded investment in impaired loans, not requiring an allowance for loan
losses, was $ 340,970 and $ -0- at December 31, 1996 and 1995 respectively. The
recorded investment in impaired loans requiring an allowance for loan losses was
$ -0- and $ 224,525 at December 31, 1996 and 1995 respectively. At December 31,
1995, the related allowance for loan losses associated with those loans was $
44,905. For the years ended December 31, 1996 and 1995, the average recorded
investment in these impaired loans was $ 340,970 and $ 224,525 and the interest
income recognized on these impaired loans was $ 3,528 and $ -0- respectively.
4
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
Components of bank premises and equipment were as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------------
<S> <C> <C>
Leasehold improvements $ 421,668 $ 233,635
Bank furniture and equipment 921,090 636,282
--------------------------
1,342,758 869,917
Less accumulated depreciation 778,760 666,606
--------------------------
$ 563,998 $ 203,311
==========================
</TABLE>
Certain bank facilities and equipment are leased under various operating leases.
Rental expense for these leases was approximately $ 151,100 and $ 121,943
respectively for the years ended December 31, 1996 and 1995. Future minimum
rental commitments under noncancellable leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 232,533
1998 240,203
1999 199,302
2000 116,106
2001 93,183
Thereafter 6,681
------------
$ 888,008
============
</TABLE>
F-12
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
- --------------------------------------------------------------------------------
TIME DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 25,666,182
1998 2,025,010
1999 271,851
2000 378,369
2001 8,107,123
---------------
$ 36,448,535
===============
</TABLE>
6
- --------------------------------------------------------------------------------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------
<S> <C> <C>
Average balance during the year $ 5,527,241 $ 986,301
Average interest rate during the year 5.50% 5.81%
Maximum month-end balance during the $ 12,000,000 $ 3,000,000
year
</TABLE>
Securities sold under agreements to repurchase generally mature within seven
days from the transaction date. The securities underlying the agreements were
under the Bank's control.
7
- --------------------------------------------------------------------------------
OTHER BORROWED FUNDS AND LONG-TERM DEBT
The Bank has a line of credit commitment from the Federal Home Loan Bank (FHLB)
of Pittsburgh whereby it can borrow up to $ 1,897,000 at December 31, 1996.
Borrowings under this line of credit, which expires on March 25, 1997, were
$ -0-and $ 2,250,000 at December 31, 1996 and 1995 respectively, with interest
payable at a variable rate.
Long-term debt consisted of an advance from the Federal Home Loan Bank of
Pittsburgh bearing interest at 6.33% and which matures July 2001. All advances
from the FHLB are collateralized by certain qualifying assets of the Bank.
F-13
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
- --------------------------------------------------------------------------------
INCOME TAXES
The provision for federal income taxes consisted of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
---------------------------
<S> <C> <C>
Current $ 181,760 $ 235,054
Deferred (69,360) (29,054)
---------------------------
$ 112,400 $ 206,000
===========================
Net deferred tax assets consisted of
the following:
<CAPTION>
December 31,
1996 1995
---------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 252,030 $ 234,894
Deferred loan fees 9,483 12,644
Furniture and equipment 20,491 15,780
Unrealized depreciation on securities 147,958 103,354
available for sale
---------------------------
429,962 366,672
Less valuation allowance 147,929 157,908
---------------------------
Total deferred tax assets, 282,033 208,764
net of valuation allowance
Deferred tax liability, partnership 3,761 44,456
equity
---------------------------
Net deferred tax assets $ 278,272 $ 164,308
===========================
</TABLE>
9
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCK
Each share of preferred stock can be converted into one share of common stock in
the event certain conditions are met, as defined in the Bank's Articles of
Incorporation.
F-14
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
- --------------------------------------------------------------------------------
STOCK OPTIONS
Options to purchase 116,965 shares of common stock in the Bank were issued in
connection with the organization of the Bank at an exercise price of $ 7.80 per
share ("organizer options"), and options to purchase 18,288 shares of common
stock in the Bank were issued in connection with the sale of preferred stock in
the Bank, on October 19, 1993, at the same exercise price per share as applied
under the organizer options ("purchaser group options"). Included in the
options were anti-dilution provisions designed to adjust the exercise price of
the options and the number of shares purchasable under the options for certain
events involving the Bank's issuance of additional stock, rights or options to
purchase stock, securities which may be converted or exchanged for stock and
stock dividends. In addition, the options give the option holders certain
rights with respect to liquidating dividends, subdivisions or combinations of
stock and any reorganization, reclassification, consolidation, merger or sale of
the Bank. Both the organizer and purchaser group options expired in July 1996.
In March 1996, the Board of Directors approved a non-qualified stock option plan
for certain executives of the Bank. Under this non-qualified plan, the
executives are entitled to receive up to 10,000 options to purchase shares of
the Bank's common stock, provided certain target performance levels have been
achieved. During 1996, no options were granted under the non-qualified stock
option plan.
Stock option transactions under the plans were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
---------------------------
<S> <C> <C>
Options outstanding at beginning of year 135,253 135,253
Options exercised at $ 7.80 per share (45,165) -
Options forfeited (90,088) -
---------------------------
Options outstanding at end of year - 135,253
===========================
</TABLE>
11
- --------------------------------------------------------------------------------
REGULATORY MATTERS
The Bank is required to maintain average cash reserve balances in vault cash or
with the Federal Reserve Bank. The total of those reserve balances was
approximately $ 399,000 and $ 386,000 at December 31, 1996 and 1995
respectively.
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
F-15
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
- --------------------------------------------------------------------------------
REGULATORY MATTERS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets, and of Tier 1 capital to average assets. Management believes,
as of December 31, 1996, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Reserve
Bank categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------------
Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk weighted assets) $ 8,929,192 10.48% $ 6,816,177 8.00% $ 8,520,221 10.00%
Tier I capital (to risk weighted
assets) 7,860,691 9.22 3,410,282 4.00 5,115,424 6.00
Tier I capital (to average assets) 7,860,691 7.90 3,980,102 4.00 4,975,127 5.00
As of December 31, 1995:
Total capital (to risk weighted assets) $ 7,927,884 13.54% $ 4,684,126 8.00% $ 5,855,158 10.00
Tier I capital (to risk weighted
assets) 7,189,187 12.28 2,341,755 4.00 3,512,632 6.00
Tier I capital (to average assets) 7,189,187 9.67 2,973,811 4.00 3,717,263 5.00
</TABLE>
Under the Pennsylvania Business Corporation Law, the Bank may pay dividends only
if it is solvent and would not be rendered insolvent by the dividend payment and
only to the extent of unrestricted and unreserved earned (and, under some
circumstances, capital) surplus, as defined. There are also restrictions set
forth in the Pennsylvania Banking Code of 1965 (the "Banking Code") and in the
Federal Deposit Insurance Act concerning the payment of dividends by the Bank.
Under the Banking Code, no dividends may be paid except from "accumulated net
earnings" (generally retained earnings).
12
- --------------------------------------------------------------------------------
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS, PRINCIPAL STOCKHOLDERS AND
OTHER RELATED PARTIES
Old Lancaster Associates is a partnership which owns the building in which the
Bank's offices are located. The Bank's wholly-owned subsidiary, Old Lancaster
Corporation, is a partner in Old Lancaster Associates and has a 16-2/3% equity
interest therein. During the first quarter of 1994, the Bank contributed
$ 120,000 to the capital of Old Lancaster Corporation which, in turn, advanced
such sum to Old Lancaster Associates. This amount represented Old Lancaster
Corporation's pro rata share (16-2/3%) of amounts required in order for Old
Lancaster Associates to meet its cash flow needs, including a $ 400,000
reduction in Old Lancaster Associates' mortgage debt and approximately $ 220,000
for capital improvements to the building.
F-16
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
- --------------------------------------------------------------------------------
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS, PRINCIPAL STOCKHOLDERS AND
OTHER RELATED PARTIES (CONTINUED)
The mortgage indebtedness of Old Lancaster Associates is approximately
$ 4,486,500 at December 31, 1996. The Bank's indirect cash investment, through
Old Lancaster Corporation, in Old Lancaster Associates presently is $ 406,444,
which includes an initial investment of $ 290,000 and the $ 120,000 additional
advance described in the preceding paragraph, net of repayments on the advance
of $ 3,556. Principal and interest repayments from Old Lancaster Associates of
approximately $ 48,000 are in arrears as of January 31, 1997. In addition, all
partners in Old Lancaster Associates jointly and severally guarantee $ 340,000
of the mortgage debt, and the Bank has guaranteed Old Lancaster Corporation's
obligation in that regard. The mortgagee's recourse to the partners of Old
Lancaster Associates and to the Bank for payment of the existing mortgage debt
is limited to the guaranteed portion, or $ 340,000 in the aggregate.
The Bank has entered into an operating lease for office space with Old Lancaster
Associates which commenced September 1989. The annual rental is $ 129,100 and
future minimum lease payments are $ 344,265. Rental expense under this lease,
including certain operating costs, was $ 123,929 and $ 121,943 for the years
ended December 31, 1996 and 1995 respectively.
The Bank has had banking transactions in the ordinary course of business with
its executive officers, directors, principal stockholders and their related
interests on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others. The aggregate
dollar amount of loans to such related parties was $ 2,127,914 and $ 1,651,558
at December 31, 1996 and 1995 respectively. During 1996, $ 1,652,497 of new
loans were made and repayments totaled $ 1,176,141.
As of December 31, 1996 and 1995, the Bank had an outstanding letter of credit
of $ -0- and $ 47,620 respectively to a director of the Bank. In addition, the
Bank was committed, as of December 31, 1996 and 1995, to advance $ 200,292 and
$ 169,483 respectively on real estate and $ 100,860 and $ 131,339 respectively
on other commercial credit lines to certain directors and officers of the Bank
and companies with which they are associated.
During each of the years ended December 31, 1996 and 1995, the Bank expensed
legal fees of $ 289,039 and $ 59,661 respectively to a law firm in which a
director of the Bank is a partner. Management believes the fees charged were
comparable to fees that would have been charged by an unrelated firm.
13
- --------------------------------------------------------------------------------
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 fluctuation in interest rates. These financial
instruments include commitments to extend credit and letters of credit. Those
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and letters
of credit is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
F-17
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
A summary of the Bank's financial instrument commitments at December 31, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------
<S> <C> <C>
Commitments to extend credit $ 16,596,727 $ 10,643,403
Outstanding letters of credit 1,821,809 1,489,004
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation. Collateral held varies but may include personal or
commercial real estate, accounts receivable, inventory and equipment.
Outstanding letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers. The Bank holds collateral supporting those
commitments for which collateral is deemed necessary.
14
- --------------------------------------------------------------------------------
CONCENTRATIONS OF CREDIT AND DEPOSIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in Montgomery, Delaware and Chester Counties of Pennsylvania.
The concentrations of credit by type of loan are set forth in Note 3. Although
the Bank has a diversified loan portfolio, its debtors' ability to honor their
contracts is influenced by the region's economy. The Bank generally requires
loan-to-value ratios on real estate loans of 75%. General collateral
requirements on loans are determined on a case-by-case basis based on
management's credit evaluations of the respective borrowers.
On November 15, 1989, the Bank entered into a depository agreement with a local
business. This agreement provides for the business to maintain five active
deposit accounts at the Bank with an aggregate minimum balance in these accounts
of $ 5.0 million. In exchange, the Bank will provide certain financial services
to the business, such as escrow agent duties, wire transfer services and the
purchase and sale of U.S. government securities. The agreement is renewable
annually. At December 31, 1996 and 1995, this local business had deposits of
approximately $ 12.9 million and $ 16.1 million with the Bank, representing 15%
and 24% of total deposits respectively.
F-18
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
- --------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the Bank's
financial instruments; however, there are inherent weaknesses in any estimation
technique. Therefore, for substantially all financial instruments, the fair
value estimates herein are not necessarily indicative of the amounts the Bank
could have realized in a sales transaction on the dates indicated. The
estimated fair value amounts have been measured as of their respective year
ends, and have not been reevaluated or updated for purposes of these
consolidated financial statements subsequent to those respective dates. As
such, the estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at each
year end.
The following information should not be interpreted as an estimate of the fair
value of the entire Bank since a fair value calculation is only provided for a
limited portion of the Bank's assets. Due to a wide range of valuation
techniques and the degree of subjectivity used in making the estimates,
comparisons between the Bank's disclosures and those of other companies may not
be meaningful. The following methods and assumptions were used to estimate the
fair values of the Bank's financial instruments at December 31, 1996 and 1995:
Financial instruments valued at carrying value:
The carrying amounts of cash and cash equivalents approximate their
fair value. The carrying amounts of securities sold under agreements to
repurchase and other borrowed funds maturing within 90 days approximate
their fair values. The carrying amounts of accrued interest approximate
their fair values.
Securities:
Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
Loans receivable:
For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
values. The fair values for fixed rate loans are estimated using discounted
cash flow analyses using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality.
Deposit liabilities:
The fair values disclosed for demand, savings and interest-bearing
demand deposits are, by definition, equal to the amount payable on demand
at the reporting date. Fair values for fixed rate certificates of deposit
are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates with similar
expected maturities.
Long-term debt:
The estimated fair value was determined using a discounted cash flow
analysis, based on current market rates of similar maturity debt securities
to discount cash flows.
Off-balance sheet instruments:
The fair value of commitments to extend credit and for outstanding
letters of credit is estimated using the fees currently charged to enter
similar agreements.
F-19
<PAGE>
FOUNDERS' BANK
AND ITS WHOLLY-OWNED SUBSIDIARY,
OLD LANCASTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
- --------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
A summary of the estimated fair values of the Bank's financial instruments at
December 31, 1996 and 1995 were follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------------------------------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 3,779,963 $ 3,779,963 $ 4,372,239 $ 4,372,239
Securities 24,116,077 24,116,077 20,999,212 20,999,212
Loans, net of allowance 73,399,575 73,349,925 49,862,517 49,922,256
Accrued interest receivable 731,095 731,095 458,954 458,954
Financial liabilities:
Deposits 88,514,907 88,539,705 66,371,238 66,370,135
Securities sold under
agreement to repurchase 3,000,000 3,000,000 - -
Other borrowed funds - - 2,250,000 2,250,000
Long-term debt 3,000,000 3,074,400 - -
Accrued interest payable 799,840 799,840 573,480 573,480
Off-balance sheet financial instruments:
Commitments to extend credit - - - -
Standby letters of credit - - - -
</TABLE>
16
- --------------------------------------------------------------------------------
MERGER AGREEMENT
On February 11, 1997, the Bank entered into an Agreement to merge with
Susquehanna Bancshares, Inc. (SBI) of Lititz, PA. Under the terms of the
Agreement, which is subject to stockholder and regulatory approvals, all 990,122
issued and outstanding shares of common and preferred stock of the Bank would be
exchanged for newly issued common stock of SBI at an exchange multiple that
equates the market value of SBI common stock to two times the Bank's book value
at September 30, 1996 ($ 7,484,000) as long as SBI's common stock market price
is between $ 34.00 and $ 40.00 per share for the period which determines the
closing price. The effective date of the merger is expected to occur in the
third quarter of 1997.
F-20
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APPENDIX A
MERGER AGREEMENT
<PAGE>
================================================================================
AGREEMENT AND PLAN OF AFFILIATION
DATED AS OF THE 11th DAY OF FEBRUARY, 1997
BY AND AMONG
SUSQUEHANNA BANCSHARES, INC.,
SUSQUEHANNA INTERIM BANK
AND
FOUNDERS' BANK
================================================================================
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TABLE OF CONTENTS
<TABLE>
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Page(s)
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<S> <C>
ARTICLE I THE PLAN OF MERGER..................................................... 1
SECTION 1.1 The Merger; Closing; Effective Time............................ 1
SECTION 1.2 Effect on Outstanding Shares................................... 2
SECTION 1.3 Surrender and Exchange of Bank Certificates.................... 2
SECTION 1.4 Dissenters' Rights............................................. 3
SECTION 1.5 Other Matters.................................................. 3
SECTION 1.6 Bank Options................................................... 4
ARTICLE II CONDUCT PENDING THE MERGER...................................... 4
SECTION 2.1 Conduct of Bank's Businesses Prior to the Effective Time....... 4
SECTION 2.2 Forbearance by Bank............................................ 4
SECTION 2.3 Cooperation.................................................... 5
SECTION 2.4 Conduct of SBI's Business Prior to the Effective Time.......... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES....................................... 5
SECTION 3.1 Representations and Warranties of Bank......................... 5
SECTION 3.2 Representations and Warranties of SBI and its Material
Subsidiaries................................................... 15
ARTICLE IV COVENANTS............................................................. 20
SECTION 4.1 Acquisition Proposals.......................................... 20
SECTION 4.2 Securities Registration and Disclosure......................... 21
SECTION 4.3 Employees...................................................... 21
SECTION 4.4 Access and Information......................................... 22
SECTION 4.5 Certain Filings, Consents and Arrangements..................... 23
SECTION 4.6 Takeover Statutes.............................................. 23
SECTION 4.7 Additional Agreements.......................................... 24
SECTION 4.8 Publicity...................................................... 24
SECTION 4.9 Meeting........................................................ 24
SECTION 4.10 Notification of Certain Matters............................... 24
SECTION 4.11 Insurance..................................................... 24
SECTION 4.12 Dividends..................................................... 24
ARTICLE V CONDITIONS TO CONSUMMATION............................................. 24
SECTION 5.1 Conditions to Closing.......................................... 24
SECTION 5.2 Conditions to Obligations of SBI and Interim Bank.............. 26
SECTION 5.3 Conditions to the Obligations of Bank.......................... 27
ARTICLE VI TERMINATION........................................................... 27
SECTION 6.1 Termination.................................................... 27
SECTION 6.2 Effect of Termination.......................................... 28
SECTION 6.3 Expenses....................................................... 28
ARTICLE VII OTHER MATTERS........................................................ 29
SECTION 7.1 Certain Defined Terms.......................................... 29
SECTION 7.2 Survival....................................................... 32
SECTION 7.3 Parties in Interest............................................ 32
SECTION 7.4 Waiver and Amendment........................................... 32
</TABLE>
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<TABLE>
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SECTION 7.5 Counterparts................................................... 32
SECTION 7.6 Governing Law.................................................. 32
SECTION 7.7 Expenses....................................................... 32
SECTION 7.8 Notices........................................................ 32
SECTION 7.9 Entire Agreement; Etc.......................................... 33
</TABLE>
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AGREEMENT AND PLAN OF AFFILIATION dated as of the 11th day of February,
1997 (this "Plan" or this "Agreement"), is entered into by and among Susquehanna
Bancshares, Inc., a Pennsylvania corporation ("SBI"), Susquehanna Interim Bank,
a Pennsylvania state chartered bank ("Interim Bank"), and Founders' Bank, also a
Pennsylvania state chartered bank ("Bank").
RECITALS:
WHEREAS, SBI is a multi-state, multi-institution bank holding company;
and
WHEREAS, Interim Bank will be a wholly-owned bank subsidiary of SBI
created solely for the purpose of facilitating the transactions described in
this Agreement; and
WHEREAS, Bank is an independent financial institution with a strong
record of performance; and
WHEREAS, the boards of directors of SBI and Bank have each determined
that it is in the best interest of their respective shareholders for SBI to
acquire Bank by means of a merger of Interim Bank with and into Bank (the
"Merger") as a result of which Bank will become a wholly-owned subsidiary of
SBI, 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
WHEREAS, Bank 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)(1)(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; Closing; Effective Time.
-----------------------------------
(a) Subject to the terms and conditions of this Agreement and in
accordance with the applicable laws of the Commonwealth of Pennsylvania, at the
Effective Time (as defined in Section 1.1(c)), Interim Bank shall be merged with
and into Bank and the separate corporate existence of Interim Bank shall
thereupon cease. Bank shall be the surviving bank in the Merger (sometimes
hereinafter referred to as the "Surviving Bank") and shall continue to be
governed by the laws of the Commonwealth of Pennsylvania and shall continue to
be a Pennsylvania state chartered commercial bank, and the separate corporate
existence of Bank with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. The name of the Surviving
Bank shall be "Founders' Bank." The Merger shall have the effects specified in
the Pennsylvania Banking Code of 1965, as amended ("Banking Code") and the
Pennsylvania Business Corporation Law of 1988, as amended ("PBCL").
(b) The closing of the Merger (the "Closing") shall take place at such
place and time and on such date (but not after July 30, 1997), following three
(3) business days' notice to Bank, as shall be agreed upon by all parties, which
date shall not be later than the 30th 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 Merger and (iii) all
shareholder approvals required by the parties hereunder are received.
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(c) Immediately following the Closing, and provided that this Agreement
has not been terminated or abandoned pursuant to Article VI hereof, Interim Bank
and Bank will request that the Pennsylvania Department of Banking ("Banking
Department") cause the articles of merger (the "Articles of Merger") to be
delivered and properly filed with the Department of State of the Commonwealth of
Pennsylvania (the "Department of State"). The Merger shall become effective at
the time specified by the Department of Banking in its transmittal to the
Department of State, which at the request of SBI, shall be at 12:01 a.m. on the
business day following the Closing (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 articles of incorporation and bylaws of
Interim Bank in effect immediately prior to the Effective Time shall be the
articles of incorporation and bylaws of the Surviving Bank. At the Effective
Time, the directors and officers of Bank immediately prior to the Effective Time
shall be and become the directors and officers of the Surviving Bank with such
additions or deletions as SBI, in its sole discretion, may determine.
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 $2.00 per share, of Bank (the "Bank Common Stock") and
each share of convertible preferred stock, par value $2.00 per share, of Bank
(the "Bank Preferred Stock") (collectively, the "Bank Capital 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 PBCL (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 Bank shareholder and, collectively, to all Bank
shareholders is the "Merger Consideration"). As of the Effective Time, each
share of Bank Capital 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 canceled and retired and cease to exist, and no exchange or
payment shall be made with respect thereto.
(b) The shares of common stock of Interim Bank 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 Bank.
(c) If prior to the Effective Time, the number of outstanding shares of
SBI Common Stock shall have been increased or decreased through a
reclassification, stock dividend, stock split or reverse stock split, or other
similar change, appropriate adjustment shall be made to the Exchange Ratio.
SECTION 1.3 Surrender and Exchange of Bank 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 Bank Capital Stock transmittal materials and instructions
for surrendering certificates for Bank Capital 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 Bank Capital 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 Closing Price, as defined in Section 7.1, per share of SBI Common
Stock as determined in conformity with Schedule 1.2.
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(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 Bank Capital Stock have been converted
under this Agreement, but no former holder of Bank Capital 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 Bank or SBI of shares of Bank Capital Stock. If Old
Certificates are presented for transfer after the Effective Time, they shall be
canceled and 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 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 Bank Capital 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 Bank Capital Stock for any property delivered to a public
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
Certificate, SBI will issue in exchange for such lost, stolen or destroyed Old
Certificate, the shares of SBI Common Stock into which such Old Certificates has
been converted pursuant to this Agreement.
SECTION 1.4 Dissenters' Rights. In accordance with the provisions of
------------------
Sections 1607 and 1222 of the Banking Code and Section 1571 of the PBCL, the
Bank shareholders are entitled to exercise dissenters rights.
SECTION 1.5 Other Matters.
-------------
(a) 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 Interim Bank
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<PAGE>
as a constituent corporation in the Merger by written notice to Bank so long as
the exercise of this right does not materially, adversely affect the interests
of the Bank shareholders or cause a material delay in consummation of the
transactions contemplated herein. SBI shall also have the right to cause
Interim Bank or such substitute to be the Surviving Bank of the Merger described
at Section 1.1(a), 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
Bank or cause a material delay in, or otherwise adversely affect, consummation
of the transactions contemplated herein; if such right is exercised, this
Agreement shall be deemed to be modified to accord such change.
(b) Immediately prior to or at the Effective Time, all of the capital
stock of Interim Bank will be transferred by SBI to its wholly owned subsidiary,
Susquehanna Bancshares East, Inc. ("SBI East"), with the effect that after the
Effective Time, the Surviving Corporation will be a direct, wholly owned
subsidiary of SBI East and an indirect, wholly owned subsidiary of SBI.
(c) Subject to Section 5.3, 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 such other transaction shall not materially,
adversely affect the parties' ability to consummate the Merger or cause a
material delay in, or otherwise adversely affect, consummation of the
transactions contemplated herein.
SECTION 1.6 Bank Options. There are no options to acquire Bank Capital
------------
Stock ("Bank Options") outstanding on the date hereof and there will be no Bank
Options outstanding at the Effective Time. From and after the date of this
Agreement, no Bank Options of any kind shall be granted by Bank, or any of its
respective subsidiaries, under any benefit plan described at Annex 3.1(m) or
otherwise.
ARTICLE II
CONDUCT PENDING THE MERGER
SECTION 2.1 Conduct of Bank'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, Bank shall (and the word "it" in this
Article II refers to Bank and each subsidiary of Bank) (i) conduct its business
in the usual, regular and ordinary course consistent with past practice, (ii)
use reasonable efforts to maintain and preserve intact in all material respects
its business organization, assets, leases, properties, employees and
advantageous business relationships and use its reasonable efforts to retain the
services of its officers and key employees, and (iii) not knowingly take any
action that is reasonably likely to have a Material Adverse Effect (as defined
in Section 7.1 hereof) on Bank.
SECTION 2.2 Forbearance by Bank. During the period from the date of
-------------------
this Agreement to the Effective Time, Bank shall not, without the prior written
consent of SBI:
(a) other than in the ordinary course of business consistent with past
practice in all material respects, (i) make any advance or loan, (ii) incur any
indebtedness for borrowed money, except in replacement of existing or maturing
debt, or (iii) assume, guarantee, endorse or otherwise as an accommodation
become responsible for, the obligations of any other individual, corporation or
other person;
(b) adjust, split, combine or reclassify any capital stock; make, declare
or pay any dividend other than the regular quarterly dividend referred to in
Section 4.12 or make any distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock (except upon
conversion of Bank Preferred 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 (other than upon conversion of Bank
Preferred Stock or in connection with the exercise of options granted pursuant
to the Bank Stock Option Plan) or any right to acquire, or securities evidencing
a right to convert into or acquire any shares of its capital stock;
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(c) other than in the ordinary course of business, consistent with past
practice and pursuant to policies, if any, currently in effect, (i) sell,
transfer, mortgage, encumber or otherwise dispose of any of its properties,
leasehold interests or assets which are material to Bank or its subsidiaries, to
any individual, corporation or other entity, (ii) cancel, release or assign any
indebtedness of any such person, or (iii) assign 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 or individual increases in compensation in the
ordinary course of business consistent with past practice not in excess of 3%,
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;
(e) amend its articles of incorporation, or its bylaws, 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
(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. Bank shall cooperate with SBI and SBI shall
-----------
cooperate with Bank in completing the transactions contemplated hereby and each
shall not knowingly take, or cause to be taken, or knowingly 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 Bank, 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 or permit its subsidiaries (as hereinafter
defined) to take any action 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 Bank. Bank represents and
--------------------------------------
warrants to SBI (and the word "it" in this Article III refers to Bank and each
subsidiary of Bank), that, except as specifically disclosed in the Annex of
disclosure schedules included herewith, to the best of its knowledge:
(a) Corporate Organization and Qualification. Bank 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 Bank 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 Bank and its
subsidiaries, taken as a whole. Bank is a Pennsylvania state chartered bank and
is a member of the Federal Reserve System. Bank has the requisite corporate and
other power and authority (including all federal, state, local and foreign
governmental authorizations) to carry on its businesses as now being conducted
and to own its properties and assets. Bank has made available to SBI
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a complete and correct copy of the articles of incorporation and bylaws of Bank
and such articles and bylaws are in full force and effect as of the date hereof.
(b) Authorized Capital. The authorized capital stock of Bank consists of
1,863,945 shares of Bank Common Stock, of which approximately 854,067 shares of
Bank Common Stock were issued and outstanding as of the date of this Agreement,
and 136,055 shares of Bank Preferred Stock, all of which are issued and
outstanding as of the date of this Agreement. All of the outstanding shares of
capital stock of Bank have been duly authorized and are validly issued, fully
paid and nonassessable. Bank does not have any shares of capital stock
reserved for issuance except pursuant to the conversion privileges of the Bank
Preferred Stock. Bank does not have any outstanding bonds, debentures, notes or
other obligations the holders of which have the right to vote (or, except for
the Bank Preferred Stock, convertible into or exercisable for securities having
the right to vote) with shareholders on any matter. The outstanding shares of
capital stock of Bank 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 Bank. After the Effective Time
neither SBI nor Interim Bank 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 Bank are as 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 Bank, free and clear of
all liens, security interests and encumbrances. All such subsidiaries are
organized under Pennsylvania 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 Bank's articles of incorporation
or bylaws cast by all holders of Bank Capital Stock (without any minority, class
or series voting requirement), and, subject to the regulatory approvals
specified in Section 5.1(b) hereof, Bank 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 Bank contemplated hereby. This Agreement has been duly and
validly executed and delivered by Bank and constitutes the valid and binding
obligations of Bank, enforceable against Bank 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 contemplated
hereby 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, (ii) a breach
or violation of, or a default under Bank's articles of incorporation or bylaws,
(iii) a breach of any duty owed by Bank to any person holding an interest in
Bank, 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 (other than as contemplated by
Section 4.3) 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; 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
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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.
(f) Reports.
i. Bank's consolidated statement of financial condition as of and
for the year ended December 31, 1995, and as of and for the nine-month period
ended September 30, 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 Bank and its
subsidiary as of its date and each of the consolidated statements of income and
stockholders' 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, stockholders' equity and cash flows, as the case may
be, of Bank and its subsidiary for the periods set forth therein (subject, in
the case of unaudited interim statements, to 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 Banking Department, (B) the Federal Deposit
Insurance Corporation (the "FDIC"), (C) the Board of Governors of the Federal
Reserve System (the "Board"), and (D) any other regulatory authority
(collectively, the "Bank 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 Bank 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.
(g) Absence of Certain Changes or Events. Except as set forth in Annex
3.1(g), 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, 1992. 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
Bank, 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.
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(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
(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
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 is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of, federal or state
governmental authorities, including, without limitation, the Bank Regulatory
Agencies, charged with the supervision or regulation of financial or depository
institutions or engaged in the insurance of bank deposits nor has it been
advised by any Bank Regulatory Agency that such body 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 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 (the "SEC");
(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 a transaction of the nature contemplated by 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 contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by 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 Bank or committing to dispose of some
or all of the capital stock or substantially all of the assets of Bank; or
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(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 insurance, severance and other employee incentive and welfare
contracts and plans, and all trust agreements related thereto, that it maintains
or to which it contributes for 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; it 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 Employee Plan is subject to Title IV of ERISA and there is
no "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
Bank under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate").
iii. 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.
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") is covered by a
favorable opinion 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; it is not aware of any circumstances likely to result in
revocation of any such favorable opinion; 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. No Qualified Plan is an "employee stock ownership plan" (as
defined in Section 4975(e)(7) of the Code).
vi. 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.
vii. There is no pending or threatened litigation, administrative
action or proceeding relating to any Employee Plan other than routine claims for
benefits.
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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,
and it does not have any obligations for retiree health and life benefits under
any Employee Plan except as required to be maintained by the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA").
ix. Except a disclosed in Annex 3.1(m), the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby will not result in any payment or series of payments by Bank 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.
x. Except as disclosed in Annex 3.1(m), all required
annual reports have been filed timely 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, and (E) the most recent opinion letter issued by
the IRS if such Employee Plan is a Qualified Plan.
(n) Title to Assets. Except as disclosed in Annex 3.1(n), 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 Bank 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.
(q) Environmental Matters.
i. Except as disclosed in Annex 3.1(q):
(A) It, its Participation Facilities and its Loan
Properties (each as defined at subparagraph (ii) 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 Bank
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or any of its subsidiaries taken as a whole. There are no Participation
Facilities or other real estate owned ("OEO") located in the States of New
Jersey, California, Connecticut, Rhode Island, Vermont, Massachusetts, New
Hampshire, or Maine.
(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
for properties owned or leased by it and for its Participation Facilities are
listed in Annex 3.1(q)(B), and any thereof 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.
(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 Bank and any of 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)(D) or (C).
(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, under or
adjacent to the properties, and buildings thereon) do not contain any Hazardous
Material other than as permitted under applicable Environmental Law (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
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Law. 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 Law.
(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 date of
Closing.
(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) 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, as to which property all representations in this Section
3.1(q) are given to the best knowledge, without inquiry, and where required by
the context, include 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 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 detrimental to human health or safety or to the
environment, currently 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,
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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
Bank's consolidated statement of financial condition as of December 31, 1995
was, and the allowance for loan and lease losses shown on Bank's consolidated
statement of financial condition for periods ending after the date of this
Agreement and before the Closing Date will be, in the opinion of management of
Bank, adequate, as of the date thereof, under generally accepted accounting
principles applicable to commercial banks 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," "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 OEO 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 Applicable. The provisions of Chapter 25
of the PBCL relating to protection of shareholders do not apply to Bank, this
Agreement, the Merger and the transactions contemplated hereby.
(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
(the "Exchange Act")) 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 all 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 contemplated
hereby and thereby and (c) directed that the Agreement be submitted for
consideration by its shareholders at the Bank 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 its shareholders pursuant to this Agreement, as
of December 2, 1996, is fair to such holders from a financial point of view.
(z) INTENTIONALLY OMITTED.
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(aa) Fidelity Bonds. Since at least January 1, 1994, Bank 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, 1994, the aggregate amount of all potential claims under such bonds
has not exceeded $10,000 and Bank is not aware of any facts which would
reasonably form the basis of a claim under such bonds. It has no 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), in all material respects: (i) 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, and (ii)
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 Bank. Since January 1, 1993, and except as shown on
Annex 3.1(cc), in the aggregate, the loans by Bank have been lawfully made,
constitute valid debts of the obligors, have been incurred in the ordinary
course of business (other than in connection with loans to subsidiaries), are
subject to the terms of payment as shall have been agreed upon between Bank and
each customer and Bank 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 November 30, 1996, has been delivered to
SBI. No part of the amount collectible under any loan is contingent upon
performance by Bank of any obligation and no agreement for participation, in
which Bank 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 debts, except as expressly
disclosed in Annex 3.1(cc). Except as disclosed in Annex 3.1(cc), Bank does not
know of any pending, threatened or expected actions in connection with any
material loans or commitments presently or previously made by Bank relating to
claims based on theories of "lenders' liability" or any other basis.
(dd) Regulatory Compliance - Banking Department. Bank is in compliance
in all material respects with the applicable rules and regulations of the
Banking Department, except as noted in Annex 3.1(dd) and except where the
failure to comply would not have a Material Adverse Effect on Bank.
(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, Bank was in
compliance with the minimum capital requirements applicable to a Pennsylvania
chartered commercial bank, 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, Bank
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, Bank 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 appropriate regulatory
authorities that it is in "default" or "in danger of default" (as those terms
are defined in FIRREA Sections 204(x)(1) and (2)).
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(kk) INTENTIONALLY OMITTED.
(ll) INTENTIONALLY OMITTED.
(mm) Assessments Fully Paid. All payments, fees and charges assessed
by appropriate state and federal agencies against Bank, and due on or prior to
the date of this Agreement, have been paid in full. Bank's assessment category
with the FDIC is 1A.
(nn) Annual Reports and Financial Statements. Bank has delivered to
SBI (i) Bank's Annual Report for Bank's fiscal year ended December 31, 1995,
containing consolidated balance sheets of Bank at December 31, 1995 and December
31, 1994 and consolidated statements of earnings, changes in shareholders'
equity and cash flows of Bank for the three years ended December 31, 1995, 1994
and 1993 and such financial statements have been certified by independent public
accountants, and (ii) Bank's Quarterly Reports for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996 containing unaudited consolidated
balance sheets of Bank as at such dates and unaudited consolidated statements of
earnings and cash flows of Bank for the three, six and nine-month periods
reflected therein. All such reports (collectively, the "Bank Reports") (i)
comply in all material respects with the requirements of the rules and
regulations of the Board, (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 Bank with the Board or any regulatory agency in connection with this
Agreement, or the transactions contemplated hereby 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
Bank is responsible for filing with the Board or any regulatory agency in
connection with the Merger will comply as to form in all material respects with
the requirements of applicable law.
(oo) Proxy Statement/Prospectus, Etc. Except for information relating
to SBI and its subsidiaries and pro forma financial information reflecting the
combined operations of SBI and Bank, 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
defined hereinafter at Section 4.2) is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of Bank or at the date of the
Bank Shareholders' Meeting to consider this Agreement nor (ii) any other
documents to be filed by Bank with the FDIC or any regulatory agency in
connection with this Agreement, or the transactions contemplated hereby 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 Bank (and the word "it" in this
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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, or will own at
Closing, directly or indirectly, all of the outstanding shares of capital stock
of Interim Bank and SBI East. SBI has made available to Bank complete and
correct copies of the articles of incorporation and bylaws of SBI and will make
available to Bank complete and correct copies of the articles of incorporation
and bylaws of Interim Bank and the charter and bylaws of SBI East; such articles
and bylaws of SBI are in full force and effect as of the date hereof.
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(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 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 contemplated hereby. 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 Section
1571(b) of the PBCL, SBI Common Stock is held of record by more than 2,000
shareholders. 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
13,181,020 shares are issued and outstanding (an additional 20,303 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 herein
contemplated will be reserved by SBI for such purpose. Except as disclosed in
SBI's Proxy Statement for its 1996 Annual Meetings, 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 SBI.
(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 at 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, the Savings Bank
Subsidiaries, SBI East and Susquehanna Bancshares South, Inc. are all of the
subsidiaries which are material to SBI and its subsidiaries, taken as a whole,
and are the "Material Subsidiaries." All of the issued and outstanding shares of
capital stock of SBI East and Susquehanna Bancshares South, Inc. are duly and
validly authorized and issued, and are owned directly by SBI free and clear of
any liens, security interests, encumbrances, restrictions on transfer or other
rights of any third party with respect thereto. 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
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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 Interim Bank does not, and the consummation of the
transactions contemplated hereby by SBI and Interim Bank 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 Interim Bank (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, (ii) a breach or violation of, or a default under, SBI's
or Interim Bank's certificate or articles of incorporation or bylaws 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 authorities referred to
in Section 5.1(b), (ii) the approval of shareholders referred to in Section
3.2(b), (iii) the approval of SBI as the sole shareholder of Interim Bank; and
(iv) 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.
(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 30
June, 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 is advisable and in the best
interests of it and its shareholders, and (b) approved this Agreement and the
transactions contemplated hereby.
(h) Interim Bank.
i. Interim Bank is a commercial bank in organization under
the laws of the Commonwealth of Pennsylvania. At Closing, all of the outstanding
shares of capital stock of Interim Bank will be validly issued, fully paid and
nonassessable and owned directly by SBI free and clear of any lien, charge or
other encumbrance. Interim Bank possesses no assets nor is subject to any
liabilities and will not acquire assets or incur liabilities prior to the
Effective Time. Interim Bank will not engage in any activities other than in
connection with the consummation of the Merger or as expressly contemplated by
this Agreement.
ii. All of the authorized capital stock of Interim Bank will
consist solely of 100 shares of common stock, $.01 par value per share.
iii. SBI will, as the sole shareholder of Interim Bank, vote to
approve this Agreement and the Merger.
(i) SBI Reports. SBI has furnished to Bank true and complete copies
of (i) all of its annual reports on Form 10-K filed with the SEC since January
1, 1994 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
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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 Bank 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) Financial Reports. Each of SBI and its subsidiaries 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 Office of
the Comptroller of the Currency (the "OCC"), (D) the SEC, (E) the OTS, (F) the
Banking Department, or (G) the Maryland Banking Commissioner (the regulatory
agencies listed at (A) through (G) are, collectively, 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 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 consolidated balance sheets as of
December 31, 1995 and September 30, 1996 previously provided to Bank and each
consolidated balance sheet provided after the date hereof to Bank (including in
each case any related notes and schedules) fairly presents or will fairly
present SBI and its subsidiaries' financial position as of the dates thereof 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 SBI and its
subsidiaries 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 September 30, 1996,
neither SBI nor any of its Material Subsidiaries has 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 SBI or any of its
subsidiaries which, individually or in the aggregate, has had, or might
reasonably be expected to result in, a Material Adverse Effect on SBI and its
subsidiaries, taken as a whole.
(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 contemplated hereby.
(o) Registration Statement, Etc. Except for information relating to
Bank, 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 Bank or at the
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date of the Bank Shareholders' 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
contemplated thereby 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 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 is subject to any order
or directive by, or is a recipient of any extraordinary supervisory letter from,
or has adopted any board resolutions at the request of, federal or state
governmental authorities, including, without limitation, any of 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 Law.
(t) Taxes. SBI's federal income tax returns have been examined and
closed or otherwise closed by operation of law through December 31, 1992. 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 extensions 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
its knowledge, threatened with respect to any taxes that could result in a
determination that would have a Material Adverse Effect on SBI and its
subsidiaries, taken as a whole. 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
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accordance with generally accepted accounting principles). It has not executed
an extension or waiver of any statute of limitations or the assessment or
collection of any tax due that is currently in effect.
(u) Agreements. 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 SBI.
(v) Regulatory Compliance--State Banking Departments. SBI and its
state-chartered bank subsidiaries are in compliance in all material respects
with the applicable rules and regulations of the Banking Department, in the case
of Farmers First Bank, and the Maryland Banking Commission, in the case of
Farmers & Merchants Bank and Trust, the Material Subsidiaries which are national
banks are in compliance in all material respects with applicable rules and
regulations of the Office of the Comptroller of the Currency and the Material
Subsidiaries which are federally chartered thrifts are in compliance in all
material respects with applicable rules and regulations of the OTS, except where
the failure to comply would not have a Material Adverse Effect on SBI and its
subsidiaries, taken as a whole.
(w) Capital Compliance. As of December 31, 1996, SBI and its Material
Subsidiaries were in compliance with the minimum capital requirements applicable
to them under state and federal laws, including as to leverage ratio
requirements, tangible capital requirements and risk-based capital requirements.
(x) Assessments Fully Paid. All payments, fees and charges assessed by
appropriate state and federal agencies against SBI and its Material
Subsidiaries, and due on or prior to the date of this Agreement, have been paid
in full.
(y) Regulatory Compliance--FDIC. Except where the failure to comply
would not have a Material Adverse Effect on SBI and its subsidiaries, taken as a
whole, SBI and its Material Subsidiaries are 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.
ARTICLE IV
COVENANTS
SECTION 4.1 Acquisition Proposals. Bank 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 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, Bank (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. Bank 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. Bank 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 undertaken by each of them in
this Section 4.1. Bank agrees 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.
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SECTION 4.2 Securities Registration and Disclosure. Bank shall
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cooperate with SBI in the preparation, in accordance with the requirements of
the proxy rules under the Exchange Act and the rules and regulations of the
Board, 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 a registration statement for the
registration of the shares of SBI Common Stock to be issued pursuant hereto (the
"Registration Statement"), and Bank will file with the Board 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 Bank shall furnish SBI all information concerning Bank and
its shareholders as SBI may reasonably request in connection with any such
action. Bank on a timely basis shall request Janney Montgomery Scott, Inc. for
an update to its opinion to the effect that the Merger consideration is fair to
Bank's shareholders from a financial point of view (dated as of a date no later
than the date the Proxy Statement/Prospectus is mailed to the Bank Shareholders)
and SBI shall cooperate with Bank in such process.
At least five (5) business days prior to its filing with the SEC, SBI
shall provide a copy of the Registration Statement to Bank 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 or the Board relating to the Registration Statement, the Proxy
Statement/Prospectus or any amendment or supplement thereto, and SBI will advise
Bank 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.
Bank will take appropriate action to call the Bank Shareholders' 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 Bank), to consider approval of this Agreement and, except to the
extent legally required for the discharge by Bank'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, will use its best efforts to secure such approval. In connection
with the Bank Shareholders' Meeting, Bank will duly solicit, in compliance with
the proxy rules of the FDIC, 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 Bank Shareholders' Meeting the
Proxy Statement/Prospectus shall conform to the requirements of Sections 3.1(oo)
and 3.2(o) hereof.
Bank will furnish to SBI a list of all persons known to Bank who at the
date of the Bank Shareholders' Meeting may be deemed to be "affiliates" of Bank
within the meaning of Rule 145 under the Securities Act. Bank 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.
---------
(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 Bank,
Bank or other affiliates of SBI immediately following the Effective Time, any
persons who are officers and employees of Bank immediately before the Effective
Time. Notwithstanding the foregoing, SBI will enter into an employment
agreement with Robert Whalen in the form attached as Schedule 4.3 hereto. It
shall be a condition to employment by SBI or any of its affiliates that any
former officer or employee of Bank
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agrees to cancel any existing employment contract, agreement or understanding
between him or herself and Bank, 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 Bank prior to the Effective Time who
remains an employee of the Surviving Bank, Bank or 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 Bank or Bank 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 Bank for purposes of eligibility and
vesting, but not benefit accrual, under SBI's Plans. In addition, the split-
dollar policies for Robert Whalen and Phillip Walter shall be continued by SBI
or an SBI subsidiary, pursuant to which contributions will be continued until
age sixty-five (65) for Mr. Whalen, and to age seventy (70) for Mr. Walter,
unless their employment is terminated prior thereto due to death, cause (as
defined in employment agreements referred to above) or their voluntary quit.
(c) Bank 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 Bank prior to the Effective Time in each Employee Plan
(as defined in Section 3.1(m)), including timely notice to all participants
under Section 204(h) of ERISA, if applicable, 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") and other
than those specified in Annex 4.3(c), effective as of the Effective Time;
provided that SBI may, in its sole discretion, give notice to Bank not less than
twenty (20) days (sixty-one (61) days in the case of any employment contract or
other employee plan which by its terms requires thirty (30) or more days'
advance notice of termination) 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). 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 Bank 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, Bank 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 or Section 3.1 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 and Section 3.1 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 Bank (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, Bank shall provide to SBI within
forty-five (45) days of the end of each calendar quarter consolidated financial
statements (including a balance sheet and income
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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 Bank 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 Bank 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 Bank its annual report on Form 10-K as
filed with the SEC.
iii. SBI will deliver to Bank, 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 Bank the portions which describe the transactions (including any
financial information or pro forma financial information of, or including, Bank)
contemplated 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 Bank 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 Bank with
copies of the foregoing in the form filed with the SEC or otherwise distributed
to shareholders.
v. SBI will promptly notify Bank of any material changes to
the SBI Benefit Plans.
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.
Bank shall cooperate with SBI in connection therewith, including without
limitation furnishing all information concerning Bank as may be reasonably
requested by SBI in connection with any such action. SBI shall use all
reasonable efforts to provide, five (5) days prior to submission, Bank with
copies of all material applications, notices, petitions or other filings or
submissions prepared by SBI in connection with consummation of the Merger. Any
comments timely received by SBI from Bank 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 Bank
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 contemplated by this Agreement and SBI
will keep Bank apprised of the status of matters relating to completion of the
transactions contemplated hereby. SBI shall promptly furnish Bank with copies
of applications to any governmental authority in respect of the transactions
contemplated hereby.
SECTION 4.6 Takeover Statutes. No "fair price," "moratorium," or other
-----------------
form of anti-takeover statute or regulation or any similar provision of Bank's
articles of incorporation are applicable to the transactions contemplated by
this Agreement and, if any such statute, regulation or provisions shall become
applicable to the transactions contemplated by this Agreement, Bank and the
members of its board of directors shall grant such approvals
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and take such actions as are necessary so that the transactions contemplated
hereby and thereby may be consummated as promptly as practicable on the terms
contemplated hereby and thereby and otherwise act to eliminate or minimize the
effects of such statute or regulation or provision on the transactions
contemplated hereby and thereby.
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 contemplated by 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. INTENTIONALLY OMITTED.
---------
SECTION 4.9 Meeting. INTENTIONALLY OMITTED.
-------
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 taken as a whole 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. Bank shall use its best efforts to retain no
---------
less than the level of insurance coverage presently held by it as of the date
hereof.
SECTION 4.12 Dividends. Bank shall not declare, pay or set aside any
---------
dividend or other distribution in respect of its capital stock.
ARTICLE V
CONDITIONS TO CONSUMMATION
SECTION 5.1 Conditions to Closing. The respective obligations of the
---------------------
parties to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following conditions:
(a) The Agreement and the transactions contemplated hereby shall have
been approved by the requisite vote of the shareholders of Bank and SBI (if
applicable) in accordance with applicable law.
(b) All of the required approvals, consents or waivers of governmental
authorities with respect to this Agreement (including the Merger) and the
transactions contemplated hereby including, without limitation, the approvals,
notices to, consents or waivers of (i) the Board, and (ii) the Banking
Department (together with the Bank Regulatory Agencies and the SBI Regulatory
Agencies, 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) shall have expired; and the parties shall have procured all other
regulatory approvals, consents or waivers of governmental authorities 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 or Bank (after giving effect to the transaction
contemplated hereby); provided, however, that no approval, consent or waiver
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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 contemplated by 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, or any other transaction contemplated
by 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 seeking to prevent consummation of the transactions contemplated hereby.
(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, or any other transaction contemplated by 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 L.L.P. 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 Bank, 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 Bank entitled
to receive such shares.
(h) SBI and Bank shall have received a ruling from the IRS or an
opinion of Morgan, Lewis & Bockius LLP, counsel to SBI and Interim Bank, to the
effect that:
i. The Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code and Bank and SBI 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 Bank 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 Bank who receive solely
SBI Common Stock upon the exchange of their shares of Bank Capital Stock for
shares of SBI Common Stock;
iv. The basis of the SBI Common Stock to be received by the
Bank shareholders will be, in each instance, the same as the basis of the Bank
Capital Stock surrendered in exchange therefor;
v. The holding period of the SBI Common Stock received by a
Bank shareholder receiving SBI Common Stock will include the period during which
the Bank Capital Stock surrendered in exchange therefor was held; and
vi. Cash received by a Bank 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
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<PAGE>
share interest of SBI Common Stock which he would otherwise be entitled to
receive and will qualify as capital gain or loss.
In case a ruling from the IRS is sought, Bank 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 Bank, be
necessary or advisable to obtain such ruling.
(i) All litigation pending against Bank which, individually or in the
aggregate, would have a Material Adverse Effect on Bank's consolidated
operations, shall have been settled or otherwise resolved on terms satisfactory
to SBI and Bank.
(j) INTENTIONALLY OMITTED.
SECTION 5.2 Conditions to Obligations of SBI and Interim Bank. The
-------------------------------------------------
obligations of SBI and Interim Bank to effect the Merger 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 Bank contained in
this Agreement shall be true and correct in all material respects as of the
Closing 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);
Bank shall have performed each of its covenants and agreements, which are
material to its operations and prospects, contained in this Agreement; and SBI
and Interim Bank shall have received certificates signed by the Chief Executive
Officer and the Controller of the Bank, dated the Closing Date, to the foregoing
effect.
(b) Beard & Company, Inc., or such other accounting firm as is
acceptable to the parties, shall have furnished to SBI an "agreed upon
procedures" letter, dated the Closing Date, in form and substance satisfactory
to SBI to the effect that, based upon a procedure performed with respect to the
financial condition of Bank 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 Bank, (b) inquiries
made by them of officers and other employees of Bank and 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 more than five (5) days prior to the date of such
letter, there was any change in the capitalization of Bank on a consolidated
basis, or (B) any material adjustments would be required 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
Closing Date, from Schnader Harrison Segal & Lewis (or Schnader Harrison Segal &
Lewis LLP), counsel to Bank, substantially in the form attached hereto as
Exhibit A.
(d) There shall not have occurred any change in the financial
condition, properties, assets, liabilities (including contingent liabilities),
business or results of operation of Bank which, individually or in the
aggregate, has had or might reasonably be expected to result in a Material
Adverse Effect on Bank 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 or thrift
industries.
(e) SBI shall have received from each of the persons identified by
Bank pursuant to Section 4.2 hereof an executed counterpart of an affiliate's
agreement in the form contemplated by such Section.
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<PAGE>
(f) Except as otherwise provided in this Agreement, prior to Closing
all issued and outstanding options, warrants or rights to acquire Bank Common
Stock or any capital stock of Bank shall have been cancelled, other than the
conversion privileges, preemptive rights and other rights of holders of Bank
Preferred Stock which will terminate at the Effective Time. No compensation or
other rights will be payable or exchangeable in the Merger in respect of any
such rights which remain unexercised at the Effective Time.
SECTION 5.3 Conditions to the Obligations of Bank. The obligations of
-------------------------------------
Bank to effect the Merger 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 Closing 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 Bank
shall have received certificates signed by the President or Vice President and
Secretary of SBI, dated the Closing Date, to the foregoing effect.
(b) Bank shall have received an opinion dated as of the Closing Date,
from Morgan, Lewis & Bockius LLP, Harrisburg, Pennsylvania, counsel to SBI and
Interim Bank, substantially in the form attached hereto as Exhibit B.
(c) There shall not have occurred any change in the financial
condition, properties, assets, liabilities (including contingent liabilities),
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 other than such changes resulting from (i) change in banking laws or
regulations or (ii) changes in generally accepted accounting principles, or
interpretations thereof, that affect the banking or thrift industries.
(d) Bank 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 Bank shareholders in connection with the
Merger and not subsequently withdrawn, to the effect that the Merger
Consideration is fair to Bank'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) No transaction or event involving SBI or any subsidiary of SBI
shall have occurred or be pending which would result in a change in the nature
of the securities as the same are described in SBI Articles of Incorporation as
in effect on the date of this Agreement or in the issuer of the securities to be
issued in the Merger to holders of Bank Capital Stock or which would result in
SBI's ceasing to own any Material Subsidiary.
ARTICLE VI
TERMINATION
SECTION 6.1 Termination. This Agreement may be terminated, and the
-----------
Merger abandoned, prior to the Effective Date, either before or after its
approval by the shareholders of Bank:
(a) by the mutual, written consent of Bank 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 Bank 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 Bank, (ii) by
written notice to SBI that any
A-27
<PAGE>
condition precedent to Bank's obligations as set forth in Article V of this
Agreement has not been met or waived by Bank at such time as such condition can
no longer be satisfied, (iii) the board of directors of Bank fails to make,
withdraws or modifies or changes the favorable recommendation described at
Section 4.2, or (iv) the board of directors of Bank recommends to the
stockholders of Bank that an Acquisition Proposal is likely to be more
favorable, from a financial point of view, to the stockholders of Bank than the
Merger;
(c) by SBI by written notice to the other parties, in the event (i) of
a material breach by Bank 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 Bank 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 Bank by written notice to the other, in the event that
the Merger is not consummated by 30 July, 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 Bank, whether before or after approval of the Merger by the
Founders' shareholders, by giving written notice of such election to Susquehanna
within one (1) business day following determination of the Average Closing Price
per share of SBI Common Stock before Closing if such Average Closing Price is
less than $24.00 per share, provided, however, that if the Average Closing Price
is less than $24.00 per share and Bank fails to exercise its termination rights
hereunder, the Exchange Ratio shall be .476; and (ii) by Susquehanna, whether
before or after approval of the Merger by the Founders' shareholders, by giving
written notice of such election to Bank within one (1) business day following
determination of the Average Closing Price per share of SBI Common Stock before
Closing if such Average Closing Price is greater than $40.00 per share,
provided, however, that if the Average Closing Price is greater than $40.00 per
share and Susquehanna fails to exercise its termination rights hereunder, the
Exchange Ratio shall be .377.
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), 6.1(d) or 6.1(e) hereof shall be without cost, expense or
liability on the part of any party to the others. Any termination of this
Agreement pursuant to clause (iii) of Section 6.1(b) shall be without cost,
expense or liability on the part of Bank to any other party, if the board of
directors of Bank failed to make, withdrew, modified or changed its favorable
recommendation described in Section 4.2 as a result of a material adverse change
in SBI's financial condition, properties, assets, liabilities (including
contingent liabilities), business or results of operations, or failed to make
such favorable recommendation due to its financial advisor's failure to update
its fairness opinion as contemplated by Section 4.2. 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 Bank pursuant to clause (iv) of Section 6.1(b)
hereof, or pursuant to clause (iii) of Section 6.1(b) other than as a result of
a material adverse change in SBI's financial condition, properties, assets,
liabilities (including contingent liabilities), business or results of
operations and other than as a result of the failure of Bank's financial advisor
to update its fairness opinion as contemplated by Section 4.2, Bank 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 Bank 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 Bank for all or a
substantial portion of the fee set forth in this Section 6.3, Bank shall pay to
SBI all costs and expenses (including reasonable attorneys' fees) incurred by
SBI in connection with such suit.
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<PAGE>
ARTICLE VII
OTHER MATTERS
SECTION 7.1 Certain Defined Terms. As used in the Agreement, the
---------------------
following terms shall have the meanings indicated:
"Acquisition Proposal" shall be defined as at Section 4.1.
"Articles of Merger" shall be defined as at Section 1.1(c).
"Average Closing Price" means the average closing price per share of SBI
Common Stock as determined in Conformity with Schedule 1.2; and shall be defined
as at Section 1.3(b).
"Bank" or "Surviving Bank" is Founders' Bank, a Pennsylvania State
chartered bank, and shall be defined as at Section 1.1(a).
"Bank Capital Stock" shall be defined as at Section 1.2(a).
"Bank Common Stock" shall be defined as at Section 1.2(a).
"Bank Options" and "Bank Stock Option Plans" shall be defined as at
Section 1.6; and identified on Annex 3.1(m).
"Bank Preferred Stock" shall be defined as at Section 1.2(a).
"Bank Regulatory Agencies" shall be defined as at Section 3.1(f)(ii).
"Bank Reports" shall be defined as at Section 3.1(nn).
"Bank Subsidiaries" shall be defined as at Section 3.2(d).
"Banking Code" is the Pennsylvania Banking Code of 1965, as amended and
defined as at Section 1.1(a).
"Banking Department" is the Pennsylvania Department of Banking and
defined as at Section 1.1(c).
"Board" is the Board of Governors of the Federal Reserve System and shall
be defined as at Section 3.1(f)(ii).
"COBRA" is the Consolidated Omnibus Budget Reconciliation Act of 1985 and
shall be defined as at Section 3.1(m)(xiii).
"Closing" shall be defined as at Section 1.1(b).
"Code" is Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended.
"Continued Employee" shall be defined as at Section 4.3(b).
"corporate affiliate" shall mean, with respect to a person, any other
corporation controlling, controlled by, or under common control with, such
person.
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<PAGE>
"Department of State" is the Pennsylvania Department of State and shall
be defined as at Section 1.1(c).
"Dissenters' Rights" shall be defined as at Section 1.4.
"Dissenters' Shares" shall be defined as at Section 1.2(a).
"Dissenting Stockholder" shall be defined as at Section 1.2(a).
"ERISA" is the Employee Retirement Income Security Act and defined as at
Section 3.1(m)(i).
"ERISA Affiliate" shall be defined as at Section 3.1(m)(ii).
"Effective Date" is the day in which the Effective Time for the Merger
occurs and shall be defined as at Section 1.1(c).
"Effective Time" is at 12:01 a.m. on the business day following the
Closing and defined as at Section 1.1(c).
"Employee 401(k) Plan" shall be defined as at Section 4.3(c).
"Environmental Condition" shall be defined as at Section 3(q)(J).
"Environmental Laws" shall be defined as at Section 3.1(q)(M)(ii).
"Environmental Permits" shall be defined as at Section 3(q)(B) and
identified on Annex 3.1(q)B.
"Exchange Act" is the Securities Exchange Act of 1934 and defined as at
Section 3.1(t).
"Exchange Ratio" shall be described on Schedule 1.2 hereof.
"FDIC" is the Federal Deposit Insurance Corporation and shall be defined
as at Section 3.1(f)(ii).
"Filing Date" shall be defined as at Section 5.1(g).
"Hazardous Material" shall be defined as at Section 3(q)(M)(ii).
"IRS" is the Internal Revenue Service and shall be defined as at Section
3.1(m)(vii).
"Interim Bank" shall be Susquehanna Interim Bank, a Pennsylvania
chartered bank.
"Loan Properties" shall be defined as at Section 3.1(q)(ii) and
identified on Annex 3.1(q).
"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, liabilities (including
contingent liabilities), business or results of operations of such person and
its subsidiaries and corporate affiliates, 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 Bank, receipt of a
CAMEL rating in connection with a safety and soundness examination which is
lower than the rating given to Bank in connection with the safety and soundness
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examination most recently reported prior to the date of this Agreement shall be
deemed to have a "Material Adverse Effect" on Bank.
"Material Subsidiaries" shall be defined as at Section 3.2(d).
"Merger" shall be the acquisition by Susquehanna Bancshares, Inc. of
Founders' Bank by means of a merger with and into Susquehanna Interim Bank.
"Merger Consideration" shall be determined on the basis of the Exchange
Ratio set forth at Schedule 1.2 hereof, and shall be defined as at Section
1.2(a).
"OCC" is the Office of the Comptroller of the Currency and defined as at
Section 3.2(k).
"OEO" is other real estate owned and shall be defined as at Section
3.1(q)(A).
"OTS" is the Office of Thrift Supervision and shall be defined as at
Section 3.2(d).
"Old Certificates" shall be defined as at Section 1.3(a).
"Participation Facilities" shall be defined as at Section 3.1(q)(ii) and
identified on Annex 3.1(q).
"Pension Plan" is an employee benefit plan subject to Title IV of ERISA
and shall be defined as at Section 3.1(m)(ii).
"person" includes an individual, corporation, partnership, association,
trust or unincorporated organization.
"Plan" or "Agreement" shall be this Agreement and Plan of Affiliation
dated as of the 11th day of February, 1997 by and Among Susquehanna Bancshares,
Inc., Susquehanna Interim Bank and Founders' Bank.
"Properties" shall be defined as at Section 3.1(q)(i)(K).
"Qualified Plan" shall be defined as at Section 3.1(m)(vi).
"Registration Statement" shall be defined as at Section 4.2.
"Regulatory Agencies" shall be defined as at Section 5.1(b).
"SBI" shall be Susquehanna Bancshares, Inc., a Pennsylvania Corporation
and a multi-state, multi-institutional bank holding Company.
"SBI Benefit Plans" shall be defined as at Section 3.2(j).
"SBI Common Stock" shall be defined as at Section 1.2(a).
"SBI East" is Susquehanna Bancshares East, Inc. and shall be defined as
at Section 1.5(b).
"SBI Plans" shall be defined as at Section 4.3(b).
"SBI Regulatory Agencies" shall be defined as at Section 3.2(k).
"SEC" is the Securities and Exchange Commission and shall be defined as
at Section 3.1(i)(A).
A-31
<PAGE>
"Savings Bank Subsidiaries" shall be defined as at Section 3.2(d).
"Securities Act" is the Securities Act of 1933, as amended, and shall be
defined as at Section 1.3(e).
"subsidiary" with respect to a person, means any other person controlled
by such person.
"Unclaimed Shares" shall be defined as at Section 1.3(e).
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.
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 Bank shareholders' interest in the
Merger Consideration following the Bank 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 contemplated hereby; 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 contemplated hereby 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.
A-32
<PAGE>
If to Bank, to:
Founders' Bank
101 Bryn Mawr Avenue
Bryn Mawr, PA 19010
Attention: Robert F. Whalen, President
With copies to:
Schnader Harrison Segal & Lewis
1600 Market Street
Philadelphia, PA 19103-4252
Attention: David S. Petkun, Esquire
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
If to Interim Bank, to:
Susquehanna Interim Bank
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
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 contemplated hereby 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
A-33
<PAGE>
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 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:
SUSQUEHANNA INTERIM BANK
By: /s/ Robert S. Bolinger
------------------------------
Title:
FOUNDERS' BANK
By: /s/ Robert F. Whalen
------------------------------
Title:
A-34
<PAGE>
SCHEDULE 1.2
Exchange Provisions
-------------------
A-1
<PAGE>
SCHEDULE 1.2
Exchange Ratio
All outstanding shares of Founders' Bank will be exchanged for shares of SBI
Common Stock in conformity with the following schedule.
<TABLE>
<CAPTION>
If the average price per share of Then the following number of The applicable exchange rate used to
- -- ----
SBI Common Stock is: shares of SBI Common Stock will determine
be exchanged for all of the the number of shares of SBI Common Stock
outstanding shares of Founders' exchanged (the "Exchange Ratio")
Capital Stock
<S> <C> <C>
24.000 471,298 0.476
24.125 470,308 0.475
24.250 469,318 0.474
24.375 468,328 0.473
24.500 467,338 0.472
24.625 466,347 0.471
24.750 465,357 0.470
24.875 464,367 0.469
25.000 463,377 0.468
25.125 462,387 0.467
25.250 461,397 0.466
25.375 460,407 0.465
25.500 459,417 0.464
25.625 458,426 0.463
25.750 457,436 0.462
25.875 456,446 0.461
26.000 455,456 0.460
26.125 454,466 0.459
26.250 453,476 0.458
26.375 452,486 0.457
26.500 451,496 0.456
26.625 450,505 0.455
26.750 449,515 0.454
26.875 448,525 0.453
27.000 447,535 0.452
27.125 446,545 0.451
27.250 445,555 0.450
27.375 444,565 0.449
27.500 443,575 0.448
</TABLE>
A-II
<PAGE>
<TABLE>
<CAPTION>
If the average price per share of Then the following number of Exchange Ratio
- -- ----
SBI Common Stock is: shares of SBI Common Stock will
be exchanged for all of the
outstanding shares of Founders'
Capital Stock
<S> <C> <C>
27.625 442,584 0.447
27.750 441,594 0.446
27.875 440,604 0.445
28.000 439,614) 0.444)
- ) )
- ) )
- ) )
34.000 ) )
34.125 438,129 0.443
34.250 436,644 0.441
34.375 435,159 0.440
34.500 433,674 0.438
34.625 432,188 0.436
34.750 430,703 0.435
34.875 429,218 0.434
35.000 427,733 0.432
35.125 426,248 0.431
35.250 424,763 0.429
35.375 423,277 0.427
35.500 421,792 0.426
35.625 420,307 0.425
35.750 418,822 0.423
35.875 417,336 0.421
36.000 415,851 0.420
36.125 414,366 0.418
36.250 412,881 0.417
36.375 411,396 0.416
36.500 409,911 0.414
36.625 408,425 0.412
36.750 406,940 0.411
36.875 405,455 0.410
37.000 403,970 0.408
37.125 402,609 0.407
37.250 401,247 0.405
37.375 399,886 0.404
37.500 398,524 0.402
37.625 397,163 0.401
</TABLE>
A-III
<PAGE>
<TABLE>
<CAPTION>
If the average price per share of Then the following number of Exchange Ratio
- -- ----
SBI Common Stock is: shares of SBI Common Stock will
be exchanged for all of the
outstanding shares of Founders'
Capital Stock
<S> <C> <C>
37.750 395,801 0.400
37.875 394,440 0.398
38.000 393,078 0.397
38.125 391,840 0.396
38.250 390,603 0.394
38.375 389,365 0.393
38.500 388,128 0.392
38.625 386,890 0.391
38.750 385,652 0.389
38.875 384,415 0.388
39.000 383,177 0.387
39.125 381,939 0.386
39.250 380,702 0.385
39.375 379,464 0.383
39.500 378,227 0.382
39.625 376,989 0.381
39.750 375,751 0.379
39.875 374,514 0.378
40.000 373,276 0.377
</TABLE>
The Average Price Per Share of SBI Common Stock 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 on the second business day
preceding the date set for Closing, pursuant to Section 1.1 of the Agreement,
and dividing such total by 10.
A-IV
<PAGE>
APPENDIX B
OPINION OF JANNEY MONTGOMERY SCOTT INC.
<PAGE>
APPENDIX B
March 31, 1997
FORM OF FAIRNESS OPINION
The Board of Directors
Founders' Bank
101 Bryn Mawr Avenue
Bryn Mawr, PA 19010
Members of the Board:
Founders' Bank ("Founders' ") and Susquehanna Bancshares, Inc. ("Susquehanna")
have entered into a Merger Agreement providing for the merger of Founders' with
and into Susquehanna ("Merger"). The proposed consideration is outlined in the
Merger Agreement dated February 11, 1997. You have asked our opinion as of the
date hereof, whether the Exchange Ratio pursuant to the Merger Agreement is
fair, from a financial point of view, to the shareholders of Founders'.
Pursuant to the Merger Agreement, the terms provide for the exchange of
Susquehanna Common Stock for all issued and outstanding Capital Stock of
Founders' 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
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 Founders' or
Susquehanna for our own account or for the accounts of our customers. We are
familiar with Founders', having consulted with Founders' from time to time, and
are acting as financial advisor to Founders' in rendering this opinion. We were
not involved in negotiations between Founders' and Susquehanna leading to the
Merger. We have received a fee from Founders' for rendering this opinion.
In rendering our opinion, we have, among other things:
(a) reviewed the historical financial performances, current financial positions
and general prospects of Founders' and Susquehanna;
(b) considered the proposed financial terms of the Merger and have examined the
projected consequences of the Merger with respect to, among other things,
market value, earnings and book value per share of Founders' Common Stock;
(c) to the extent deemed relevant, analyzed selected public information of
certain other banks and bank holding companies and compared Founders' and
Susquehanna from a financial point of view to these other banks and bank
holding companies;
(d) reviewed the historical market price ranges and trading volume of Common
Stock of Founders' and Susquehanna;
B-1
<PAGE>
(e) compared the terms of the Merger with the terms of certain other comparable
transactions to the extent information concerning such acquisitions was
publicly available;
(f) reviewed the Merger Agreement; and
(g) performed such other analyses and examinations as we deemed necessary. We
have also had conversations with various senior officers of Founders' 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 Founders' and Susquehanna or publicly available and we have
not independently verified such information. We have relied upon the
management of Founders' 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 Founders' 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 Founders' shareholders upon consummation of the Merger. In
addition, we express no recommendation as to how the shareholders of Founders'
should vote at the shareholders' meeting held in connection with the Merger.
On the basis of and subject to the foregoing, we are of the opinion that as of
the date hereof, the Exchange Ratio pursuant to the Merger Agreement is fair,
from a financial point of view, to the shareholders of Founders'.
Very truly yours,
JANNEY MONTGOMERY SCOTT INC.
B-2
<PAGE>
APPENDIX C
DISSENTERS' RIGHTS PROVISIONS
<PAGE>
APPENDIX C
PROVISIONS OF
PENNSYLVANIA BUSINESS CORPORATION LAW RELATING TO
DISSENTERS' RIGHTS OF SHAREHOLDERS
----------------------------------
15 Pa. C.S.A. Sections 1571 through 1580, inclusive.
(S) 1571. Application and effect of subchapter
(a) General rule.-Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedures).
(b) Exceptions.-
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
C-1
<PAGE>
shall not have the right to obtain payment of the fair value of any such shares
under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not
converted solely into shares of the acquiring, surviving, new or other
corporation or solely into such shares and money in lieu of fractional
shares.
(ii) Shares of any preferred or special class unless the
articles, the plan or the terms of the transaction entitle all
shareholders of the class to vote thereon and require for the adoption
of the plan or the effectuation of the transaction the affirmative
vote of a majority of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section
1906(c) (relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the liabilities
of the other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(c) Grant of optional dissenters rights.-The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall have
dissenters rights in connection with any corporate action or other transaction
that would otherwise not entitle such shareholders to dissenters rights.
(d) Notice of dissenters rights.-Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.-The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.-This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.-See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S) 1572. Definitions
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
C-2
<PAGE>
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for the purposes of
this subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"Interest." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all the
circumstances, taking into account all relevant factors, including the average
rate currently paid by the corporation on its principal bank loans.
(S) 1573. Record and beneficial holders and owners
(a) Record holders of shares.-A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that
event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares.-A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
(S) 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed
corporate action shall constitute the written notice required by this section.
(S) 1575. Notice to demand payment
(a) General rule.-If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action
is to be taken without a vote of shareholders, the corporation shall
C-3
<PAGE>
send to all shareholders who are entitled to dissent and demand payment of the
fair value of their shares a notice of the adoption of the plan or other
corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.-The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
(S) 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act.-A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.-If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.-The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S) 1577. Release of restrictions or payment for shares
(a) Failure to effectuate corporate action.-Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice of demand payment.-When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
(c) Payment of fair value of shares.-Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
C-4
<PAGE>
(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year ending not
more than 16 months before the date of remittance or notice together with
the latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.AIf the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those that the original dissenter had after
making demand for payment of their fair value.
(S) 1578. Estimate by dissenter of fair value of shares
(a) General rule.-If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) Effect or failure to file estimate.-Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
(S) 1579. Valuation proceedings generally
(a) General rule.-Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating
to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
(b) Mandatory joinder of dissenters.-All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided
C-5
<PAGE>
or prescribed by or pursuant to 42 Pa.C.S. Ch. 53 (relating to bases of
jurisdiction and interstate and international procedure)./1/
(c) Jurisdiction of the court.-The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.-Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.-If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the corporation
may do so in the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an application
within the 30-day period, each dissenter entitled to file an application shall
be paid the corporation's estimate of the fair value of the shares and no more,
and may bring an action to recover any amount not previously remitted.
(S) 1580. Costs and expenses of valuation proceedings
(a) General rule.-The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578 (relating
to estimate by dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.-Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided in this subchapter.
(c) Award of fees for benefits to other dissenters.-If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
- ----------------------------------
/1/ 42 Pa.C.S.A. (S) 5301 et. seq.
C-6
<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 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 11th Day of
February, 1997, By and Among Susquehanna Bancshares, Inc., Susquehanna
Interim Bank and Founders' Bank.
3.1* Articles of Incorporation of Susquehanna Bancshares, Inc.
(1)(Attachment E)
3.2* By-laws of Susquehanna Bancshares, Inc. (1)(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 Beard & Company, Inc. regarding Founders' Bank.
23.4** Consent of Janney Montgomery Scott Inc. regarding Founders' Bank.
23.5** Consent of KPMG Peat Marwick LLP regarding Atlanfed Bancorp, Inc.
24.1** Powers of Attorney (included on the signature page).
99.1** Form of Founders' Bank Proxy.
__________________
* Filed previously.
** Filed herewith.
(1) 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:
II-2
<PAGE>
(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 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.
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<PAGE>
(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 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Lititz, Pennsylvania on March 31, 1997.
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 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 Executive March 31, 1997
- ---------------------- Officer and a Director
ROBERT S. BOLINGER
/s/ Drew K. Hostetter Treasurer (Principal Financial March 31, 1997
- ---------------------- and Accounting Officer)
DREW K. HOSTETTER
/s/ Richard M. Cloney Vice President, Secretary and March 31, 1997
- ---------------------- a Director
RICHARD M. CLONEY
/s/ John M. Denlinger Director March 31, 1997
- ----------------------
JOHN M. DENLINGER
/s/ Henry H. Gibbel Director March 31, 1997
- ----------------------
HENRY H. GIBBEL
/s/ Richard E. Funke Director March 31, 1997
- ----------------------
RICHARD E. FUNKE
Director ___________, 1997
- ----------------------
GEORGE J. MORGAN
</TABLE>
S-1
<PAGE>
<TABLE>
<S> <C> <C>
/s/ James G. Apple Director March 31, 1997
- --------------------------
JAMES G. APPLE
Director ___________, 1997
- --------------------------
EDWARD W. HELFRICK
/s/ Roger V. Wiest Director March 26, 1997
- --------------------------
ROGER V. WIEST
/s/ Marley R. Gross Director March 31, 1997
- --------------------------
MARLEY R. GROSS
/s/ T. Max Hall Director March 31, 1997
- --------------------------
T. MAX HALL
Director ___________, 1997
- --------------------------
RAYMOND M. O'CONNELL
/s/ C. William Hetzer, Jr. Director March 31, 1997
- --------------------------
C. WILLIAM HETZER, JR.
Director ___________, 1997
- --------------------------
ROBERT C. REYMER, JR.
/s/ Robert S. Bolinger Attorney-in-Fact March 31, 1997
- --------------------------
ROBERT S. BOLINGER
/s/ Richard M. Cloney Attorney-in-Fact March 31, 1997
- --------------------------
RICHARD M. CLONEY
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
2.1** Agreement and Plan of Affiliation, Dated as of the 11th Day of
February, 1997, By and Among Susquehanna Bancshares, Inc., Susquehanna
Interim Bank and Founders' Bank.
3.1* Articles of Incorporation of Susquehanna Bancshares, Inc.
(1)(Attachment E)
3.2* By-laws of Susquehanna Bancshares, Inc. (1)(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 Beard & Company, Inc. regarding Founders' Bank.
23.4** Consent of Janney Montgomery Scott Inc. regarding Founders' Bank.
23.5** Consent of KPMG Peat Marwick LLP regarding Atlanfed Bancorp, Inc.
24.1** Powers of Attorney (included on the signature page).
99.1** Form of Founders' Bank Proxy.
- -----------
* Filed previously.
** Filed herewith.
(1) 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 A to the Proxy Statement/Prospectus
<PAGE>
EXHIBIT 4.1
<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.
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 by
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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<PAGE>
"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).
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.
(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
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<PAGE>
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.
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 or
otherwise,
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<PAGE>
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 who so surrendered or
transferred their shares to the court of the appropriate per-share amount
received from the controlling person or group.
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(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 interested
shareholder whose share acquisition date is prior to the effective date of such
amendment.
(3) Of a corporation:
(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
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(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).
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:
(2) that, individually or with or through any of its affiliates or
associates, has:
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(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.
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.
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
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(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 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
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
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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);
(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.
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 person." A person who makes or proposes to make a control-share
acquisition. Two or more persons acting in concert, whether 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 1/3 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).
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 person should be
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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.
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.
(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.
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
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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 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.
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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 identity 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.
(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
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corporation at its principal executive office, an amendment to the information
statement fully explaining such material change.
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).
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.
Subchapter H.
Disgorgement by Certain Controlling Shareholders
Following Attempts to Acquire Control
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
(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
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<PAGE>
(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 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
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<PAGE>
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.
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.
(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
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<PAGE>
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).
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:
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<PAGE>
(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.
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.
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.
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<PAGE>
EXHIBIT 5.1
<PAGE>
MORGAN, LEWIS & BOCKIUS LLP
ONE COMMERCE SQUARE
417 WALNUT STREET
HARRISBURG, PA 17101-1904
717-237-4000
FAX: 717-237-4004
[FORM OF OPINION OF COUNSEL]
________________, 1997
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
"Merger") of Susquehanna Interim Bank, a direct wholly-owned subsidiary of
Susquehanna Bancshares East, Inc. and an indirect, wholly-owned subsidiary of
the Company, with and into Founders' Bank, a Pennsylvania state-chartered bank
("Founders'") pursuant to the terms and conditions of the Agreement and Plan of
Affiliation by and between the Company, Susquehanna Interim Bank and Founders'
(the "Merger Agreement"), dated as of February 11, 1997; and (ii) 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 471,298 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 Merger Agreement
(the "Merger Agreements") is contingent upon the requisite approval of the
Merger Agreement by the shareholders of Founders'. 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.
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 Merger Agreement, the Shares will be validly issued, fully
paid and nonassessable.
<PAGE>
Susquehanna Bancshares, Inc.
__________________, 1997
Page 2
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 23.1
<PAGE>
Included in Exhibit 5.1
<PAGE>
EXHIBIT 23.2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of Susquehanna Bancshares, Inc. on Form S-4 of our report dated January 22,
1997, on our audits of the consolidated financial statements of Susquehanna
Bancshares, Inc., as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995, and 1994. We also consent to the references to our
firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
One South Market Square
Harrisburg, Pennsylvania
March 31, 1997
<PAGE>
EXHIBIT 23.3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Registration Statement (Form S-4) and
the related Proxy Statement/Prospectus of Susquehanna Bancshares, Inc. of our
report, dated January 31, 1997, except for Note 16 as to which the date is
February 11, 1997 included in this Registration Statement and related
Proxy/Prospectus, relating to the consolidated financial statements of Founders'
Bank and subsidiary, and to the reference to our Firm under the caption
"Experts" in the Prospectus.
/s/ BEARD & COMPANY, INC.
Reading, Pennsylvania
March 31, 1997
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF JANNEY MONTGOMERY SCOTT INC.
We hereby consent to the use of our opinion dated ________________________
to the Board of Directors of Founders' Bank 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 Founders' Bank with and 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.
/s/ JANNEY MONTGOMERY SCOTT INC.
March 28, 1997
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Susquehanna Bancshares, Inc.
Lititz, Pennsylvania
We consent to the use of our report dated May 5, 1995 related to the
consolidated statements of income, stockholders' equity and cash flows of
Atlanfed Bancorp, Inc. incorporated herein by reference to the Susquehanna
Bancshares, Inc. Form S-4 dated March 31, 1997.
/s/ KPMG PEAT MARWICK LLP
Baltimore, Maryland
March 27, 1997
<PAGE>
Exhibit 23.5
--------------
<PAGE>
EXHIBIT 99.1
<PAGE>
FOUNDERS' BANK
PREFERRED STOCK REVOCABLE PROXY
(Solicited on Behalf of the Board of Directors)
--------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD __________, 1997
The undersigned, hereby revoking any proxy previously given, hereby
constitutes and appoints John J. Cunningham, III and Robert F. Whalen and each
or any of them, as proxies of the undersigned, with full power of substitution,
to vote all of the shares of Founders' Bank that the undersigned would be
entitled to vote, if personally present, at the Annual Meeting of Stockholders
of Founders' Bank to be held at the Bank, 101 Bryn Mawr Avenue, Bryn Mawr,
Pennsylvania, on _________, ______, 1997, at ____ .m., and at any adjournment
thereof, in the manner indicated herein and in accordance with the judgment of
said proxies on any other business that may come before the Annual Meeting, all
as set forth in the Notice of Annual Meeting and accompanying proxy statement,
receipt of which the undersigned hereby acknowledges. This proxy may be revoked
at any time prior to its exercise.
1. Approval of the Agreement and Plan of Affiliation dated as of the 11th day
of February, 1997 (the "Merger Agreement") by and among Susquehanna
Bancshares, Inc., Susquehanna Interim Bank and Founders' Bank, and the
transactions contemplated thereby.
[ ] For [ ] Against [ ] Abstain
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 Meeting to constitute a quorum or to approve or disapprove the
Merger Agreement.
[ ] For [ ] Against [ ] Abstain
The Board of Directors recommends a vote "FOR" each of the listed items.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED (A) AS DIRECTED HEREIN
OR, IF NO DIRECTION IS GIVEN, "FOR" ITEMS 1 AND 2 AND (B) AS SAID PROXIES DEEM
ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(Signature) _________________________________
Number of Shares
held of record as of (Signature) _______________________
___________, 1997 shown
on label affixed below Dated: ___________________________, 1997
Please date and sign by or on behalf
of the stockholder shown on the label.
When shares are held jointly, each holder
should sign. When signing as attorney,
executor, administrator, trustee or
guardian, please give full title as such.
PLEASE VOTE, SIGN, If a corporation, please sign in full
DATE AND RETURN THIS corporate name by President or other
PROXY PROMPTLY USING authorized officer. If a partnership,
THE ENCLOSED ENVELOPE please sign in partnership name by
authorized person.
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<PAGE>
FOUNDERS' BANK
COMMON STOCK REVOCABLE PROXY
(Solicited on Behalf of the Board of Directors)
-------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD __________, 1997
The undersigned, hereby revoking any proxy previously given, hereby
constitutes and appoints John J. Cunningham, III and Robert F. Whalen and each
or any of them, as proxies of the undersigned, with full power of substitution,
to vote all of the shares of Founders' Bank that the undersigned would be
entitled to vote, if personally present, at the Annual Meeting of Stockholders
of Founders' Bank to be held at the Bank, 101 Bryn Mawr Avenue, Bryn Mawr,
Pennsylvania, on _________, ______, 1997, at ____ .m., and at any adjournment
thereof, in the manner indicated herein and in accordance with the judgment of
said proxies on any other business that may come before the Annual Meeting, all
as set forth in the Notice of Annual Meeting and accompanying proxy statement,
receipt of which the undersigned hereby acknowledges. This proxy may be revoked
at any time prior to its exercise.
1. ELECTION OF DIRECTORS
Nominees
John J. Cunningham, III Robert J. Mailey Anne M. Reimel
Charles E. Dolaway, III Thomas O. Melvin Phillip J. Walter, Jr.
Henry Faulkner, III Julian V. Miraglia Martin F. Whalen
George F. Harlan, III Patrick J. O'Connor Robert F. Whalen
Carl A. Posse
[ ] For all nominees listed above, except as marked to the
contrary by crossing out the name of particular nominee(s).
Instructions: To withhold authority to vote for an
------------
individual nominee, cross out the name of that nominee above.
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
2. Approval of the Agreement and Plan of Affiliation dated as of the 11th day
of February, 1997 (the "Merger Agreement") by and among Susquehanna
Bancshares, Inc., Susquehanna Interim Bank and Founders' Bank, and the
transactions contemplated thereby.
[ ] For [ ] Against [ ] Abstain
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<PAGE>
3. Adjournment of the Meeting to a later date, if necessary to permit further
solicitation of proxies in the event there are not sufficient votes at the
time of the Meeting to constitute a quorum or to approve or disapprove the
Merger Agreement.
[ ] For [ ] Against [ ] Abstain
The Board of Directors recommends a vote "FOR" each of the listed items.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED (A) AS DIRECTED HEREIN
OR, IF NO DIRECTION IS GIVEN, "FOR" THE NOMINEES FOR DIRECTORS LISTED ABOVE IN
ITEM 1 AND "FOR" ITEMS 2 AND 3 AND (B) AS SAID PROXIES DEEM ADVISABLE ON SUCH
OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
(Signature) _________________________________
Number of Shares
held of record as of (Signature) _______________________
___________, 1997 shown
on label affixed below Dated: ___________________________, 1997
Please date and sign by or on behalf
of the stockholder shown on the label.
When shares are held jointly, each holder
should sign. When signing as attorney,
executor, administrator, trustee or guardian,
please give full title as such. If a
PLEASE VOTE, SIGN, corporation, please sign in full corporate
DATE AND RETURN THIS name by President or other authorized
PROXY PROMPTLY USING officer. If a partnership, please sign in
THE ENCLOSED ENVELOPE partnership name by authorized person.
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