<PAGE> 1
As filed with the Securities and Exchange Commission on February __, 2000
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
HARLEYSVILLE NATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 6711
------------------------------- ----------------------------
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
23-2210237
------------------------------------
(I.R.S. Employer Identification No.)
HARLEYSVILLE NATIONAL CORPORATION
Post Office Box 195
483 Main Street
Harleysville, Pennsylvania 19438
(215) 256-8851
--------------------------------------------
(Address, including ZIP Code, and telephone
number, including area code, of registrant's
principal executive offices)
With a Copy to:
Dean H. Dusinberre, Esquire
RHOADS & SINON LLP
One South Market Square
P.O. Box 1146
Harrisburg, PA 17108-1146
(717) 231-6618
--------------------------------------------
Walter E. Daller, Jr.
President and Chief Executive Officer
HARLEYSVILLE NATIONAL CORPORATION
Post Office Box 195
483 Main Street
(215) 256-8851 Harleysville, Pennsylvania 19438
--------------------------------------------
(Name, address, including ZIP Code, and
telephone number, including area
code, of agent for service)
With a Copy to:
Nicholas Bybel, Jr., Esquire
B. Tyler Lincoln, Esquire
SHUMAKER WILLIAMS, P.C.
P. O. Box 88
Harrisburg, Pennsylvania 17108
(717) 763-1121
--------------------------------------------
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to to be Offering Price Aggregate Registration
be Registered Registered(1) Per Share Offering Price(2) Fee
------------- ------------- --------- ----------------- ---
<S> <C> <C> <C> <C>
Common Stock,
par value 919,972 $29.25 $26,909,181.00 $7,104.02
$1.00 per share
</TABLE>
(1) Based on maximum number of shares of Registrant's Common Stock that may be
issued in connection with the proposed transaction. In accordance with Rule
416, this Registration Statement shall also register any additional shares
of Registrant's common stock that may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar transactions as
provided by the Agreement relating to the transaction.
(2) Shares to be issued in the merger (as defined herein) computed in
accordance with Rule 457(f)(1), solely for the purpose of calculating the
registration fee, at January 25, 2000, 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.
PROXY/STATEMENT PROSPECTUS
<PAGE> 2
HARLEYSVILLE NATIONAL CORPORATION
Prospectus for 919,972 Shares Common Stock
Trading Symbol: HNBC
CITIZENS BANK AND TRUST COMPANY
PROXY STATEMENT
The Board of Directors provides this proxy statement/prospectus to you
in connection with the solicitation of proxies to be used at a special meeting
of shareholders to be held at 10:00 a.m., on Friday, April 7, 2000, at the main
office of the bank, 372 Delaware Avenue, Palmerton, Pennsylvania 18071. At the
meeting, you will be asked to vote on the merger of Citizens Bank and Trust
Company into Citizens National Bank, a subsidiary of Harleysville National
Corporation.
If the merger takes place, shareholders of Citizens Bank and Trust
Company will receive 166 shares of common stock of Harleysville National
Corporation for each share of Citizens Bank and Trust Company capital stock they
own. Harleysville common stock is quoted on the National Market System of the
NASDAQ. On January 18, 2000, the closing price of Harleysville common stock was
$30.00, making the trading value of 166 shares of Harleysville common stock
$4,980.00.
Neither the Securities and Exchange Commission, the Office of the
Comptroller of the Currency, the Federal Deposit Insurance Corporation, the
Board of Governors of the Federal Reserve System nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this proxy statement/prospectus. Any representation to
the contrary is a criminal offense.
The shares of Harleysville National Corporation common stock offered in
this proxy statement/prospectus are not savings accounts, deposits, or other
obligations of a bank or savings association and are not insured by the FDIC or
any other governmental agency.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS FEBRUARY 14, 2000, AND WAS FIRST
MAILED TO SHAREHOLDERS ON OR ABOUT FEBRUARY 14, 2000.
<PAGE> 3
This proxy statement/prospectus incorporates important business and
financial information about Harleysville National Corporation that is not
included or delivered with this document. This information is available without
charge to shareholders of Citizens Bank and Trust Company. Please direct
requests for this information to JoAnn M. Bynon, Secretary, Harleysville
National Corporation, 483 Main Street, Harleysville, Pennsylvania 19438,
telephone number (215) 256-8851. In order to ensure timely delivery of the
documents in advance of the meeting, you should make your request no later than
April 1, 2000.
We have not authorized any person to give any information or to make
any representation not contained in this proxy statement/prospectus, and if
given or made, you should not rely on any such information or representation as
having been authorized. This proxy statement/prospectus does not constitute an
offer to any person to exchange or sell, or a solicitation from any person of an
offer to exchange or purchase, the securities offered by this proxy
statement/prospectus, or the solicitation of a proxy from any person, in any
jurisdiction in which it is unlawful to make such an offer or solicitation.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY ..................................................... 1
The Meeting ........................................ 1
Citizens Bank and Trust Company. ................... 1
Harleysville National Corporation .................. 1
The Merger ......................................... 3
Material Conditions of the Merger .................. 3
Comparison of Shareholder Rights ................... 3
Federal Income Tax Consequences of the Merger ...... 4
Accounting Treatment ............................... 4
Dissenters' Rights ................................. 4
Required Vote ...................................... 5
Regulatory Approvals ............................... 5
Management and Operations Following the Merger ..... 5
Opinion of Financial Advisor ....................... 5
Recommendation of the Board of Directors ........... 6
FORWARD-LOOKING STATEMENTS .................................. 7
COMPARATIVE PER SHARE DATA .................................. 8
General ............................................ 8
Market Value of Securities and Pro Forma
Per Share Information ............................ 10
SELECTED FINANCIAL DATA ..................................... 12
THE MEETING ................................................. 17
General ............................................ 17
Record Date, Quorum, Required Vote ................. 17
Voting, Revocation and Solicitation of Proxies ..... 17
Voting Securities and Securities Ownership ......... 19
APPROVAL OF THE MERGER ...................................... 19
Background of the Merger, Reasons and Recommendation
of the Board of Directors ........................ 19
OPINION OF FINANCIAL ADVISOR ................................ 23
INFORMATION ABOUT THE MERGER ................................ 30
Dissenters' Rights ................................. 30
Terms of the Merger ................................ 31
Business Pending the Merger ........................ 32
Material Contracts ................................. 34
Conditions, Amendment and Termination .............. 34
Effective Date ..................................... 35
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Management and Operations Following the Merger ..... 36
Federal Income Tax Consequences .................... 36
Accounting Treatment ............................... 37
Restriction on Resale of Stock Held by Affiliates .. 38
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Shares Owned by Management and the Board............ 39
Directors and Officers Insurance ................... 39
Directors .......................................... 40
Benefits ........................................... 40
Harleysville Directors and Officers. ............... 40
COMPARATIVE STOCK PRICES AND DIVIDENDS AND
RELATED SHAREHOLDER MATTERS .............................. 41
Harleysville Common Stock .......................... 41
Citizens Capital Stock ............................. 42
INFORMATION ABOUT HARLEYSVILLE NATIONAL CORPORATION ......... 44
Incorporation of Certain Documents by Reference .... 44
Acquisitions by Harleysville National
Corporation ..................................... 45
Loans .............................................. 46
DESCRIPTION OF HARLEYSVILLE NATIONAL CORPORATION
COMMON STOCK .............................................. 47
Dividends .......................................... 47
Liquidation ........................................ 47
Dividend Reinvestment Plan ......................... 48
Antitakeover Provisions ............................ 48
INDEMNIFICATION ............................................. 50
COMPARISON OF SHAREHOLDER RIGHTS ............................ 51
INFORMATION ABOUT CITIZENS BANK AND TRUST COMPANY. .......... 54
Description of Business and Property ............... 54
Competition ........................................ 55
Employees .......................................... 55
Legal Proceedings .................................. 55
Dividends .......................................... 56
Principal Owners of Citizens Capital Stock ......... 56
Ownership of Citizens Capital Stock by
Executive Officers and Directors ................ 57
CITIZENS BANK AND TRUST COMPANY MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.. 59
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
EXPERTS ..................................................... 73
LEGAL OPINIONS .............................................. 73
OTHER MATTERS ............................................... 73
WHERE YOU CAN FIND MORE INFORMATION ......................... 73
</TABLE>
CITIZENS BANK AND TRUST CO.--INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTARY FINANCIAL INFORMATION
ANNEXES
Annex A - Agreement and Plan of Reorganization
Annex B - Tax Opinion of Grant Thornton LLP
Annex C - Statute Regarding Dissenters' Rights
Annex D - Tucker Anthony Cleary Gull Fairness Opinion
<PAGE> 7
SUMMARY
This summary of the transaction does not contain all of the information
in the proxy statement/prospectus. It is a summary of the most significant
aspects of the merger transaction. The remainder of the proxy
statement/prospectus and the attached Annexes contain more detailed information
about the transaction. We urge you to read the entire proxy
statement/prospectus, including the Annexes, in order to understand the merger
transaction.
THE MEETING
The Board of Directors of Citizens Bank and Trust Company has called a
special meeting of shareholders for Friday, April 7, 2000, at 10:00 a.m. at the
main office of the bank, 372 Delaware Avenue, Palmerton, Pennsylvania 18071.
Only shareholders of record at the close of business on February 11, 2000, will
be able to attend and vote at the meeting. The main purpose of the meeting is to
vote on the merger of Citizens Bank and Trust Company with Citizens National
Bank, a subsidiary of Harleysville National Corporation, a bank holding company
located in Harleysville, Montgomery County, Pennsylvania. If we complete the
merger, shareholders will receive 166 shares of Harleysville National
Corporation common stock in exchange for each share of Citizens capital stock
they hold.
CITIZENS BANK AND TRUST COMPANY
Citizens Bank and Trust Company is a Pennsylvania banking institution
chartered on December 28, 1928, upon the consolidation of Citizens' Bank of
Palmerton, PA and Palmerton State Bank. Citizens' principal executive offices
are located at its main banking office, 372 Delaware Avenue, Palmerton,
Pennsylvania 18071. Citizens conducts business through three offices, including
the main office in Palmerton. Citizens' telephone number is (610) 826-2457. The
bank's deposits are insured by the FDIC. As a full-service commercial bank,
Citizens offers checking, savings and time deposits and commercial, consumer and
mortgage loans and trust and fiduciary services. As of September 30, 1999,
Citizens had total assets of approximately $132,287,000.
HARLEYSVILLE NATIONAL CORPORATION
Harleysville National Corporation is a Pennsylvania business
corporation and a registered bank holding company. Its principal offices are
located at 483 Main Street, P.O. Box 195, Harleysville, Pennsylvania 19438.
Harleysville's telephone number is (215) 256-8851. Harleysville became a bank
holding company in 1982. Through its subsidiaries, Harleysville engages in
general commercial and retail banking services. Harleysville has three national
banking association subsidiaries.
1
<PAGE> 8
- The Harleysville National Bank and Trust Company:
- Principal offices at the same location as Harleysville National
Corporation
- Operates 23 banking offices in Bucks County, Chester County, and
Montgomery County, Pennsylvania.
- Citizens National Bank:
- Presently an indirect subsidiary of Harleysville National
Corporation and a direct subsidiary of Harleysville National
Corporation North, Inc., a Pennsylvania corporation, but
Harleysville is in the process of liquidating Harleysville North
- Principal offices located at:
13-15 West Ridge Street
P.O. Box 128 Lansford,
Pennsylvania, 18232
- Operates 8 banking offices in Carbon County, Lehigh County,
Northampton County, Schuylkill County and Wayne County,
Pennsylvania.
- Security National Bank:
- Principal offices located at:
One Security Place
Pottstown, Pennsylvania 19464
- Operates four banking offices in Montgomery County,
Pennsylvania
As of September 30, 1999, Harleysville had consolidated total assets of
approximately $1,615,218,000.
2
<PAGE> 9
THE MERGER
The proposed merger provides that Citizens Bank and Trust Company will
merge into Citizens National Bank. Citizens Bank and Trust Company will cease to
exist when the merger is complete. Upon the completion of the liquidation of
Harleysville North, Citizens National Bank will continue operations after the
merger, as a direct subsidiary of Harleysville. The location of the principal
office of Citizens National Bank will remain at 13-15 West Ridge Street,
Lansford, Pennsylvania 18232. Shareholders of Harleysville will continue to own
Harleysville common stock after the merger. Shareholders of Citizens Bank and
Trust Company will receive 166 shares of Harleysville common stock in exchange
for each share of Citizens Bank and Trust Company capital stock they hold, and
become shareholders of Harleysville.
We attach a copy of the merger agreement as Annex A to this proxy
statement/ prospectus. Please read the agreement carefully.
MATERIAL CONDITIONS OF THE MERGER
The merger is subject to various conditions, including, among others,
approval by:
- Citizens Bank and Trust Company shareholders; and
- Certain banking regulatory agencies.
There are other conditions to the transaction contained in the merger
agreement. These conditions include that the merger qualify for a certain type
of accounting treatment. In the event that the accounting condition is not met,
the transaction may not close and the parties may not complete the merger. See
"APPROVAL OF THE MERGER--Accounting Treatment."
Harleysville National Corporation and Citizens Bank and Trust Company
may agree to amend the agreement. After the shareholders vote, no amendment can
affect the number of shares to be received by Citizens' shareholders without the
shareholders' approval. If the merger does not occur by September 30, 2000, the
agreement may terminate, unless extended by the mutual agreement of the parties.
See "APPROVAL OF THE MERGER--Business Pending the Merger."
COMPARISON OF SHAREHOLDER RIGHTS
On the day the merger is completed, the shareholders of Citizens will
become shareholders of Harleysville. Citizens is a Pennsylvania chartered bank
and trust company. Harleysville is a Pennsylvania business corporation. After
the merger, Pennsylvania corporate
3
<PAGE> 10
law as well as the articles of incorporation and bylaws of Harleysville will
govern the rights of the former shareholders of Citizens. Differences exist in
the rights of shareholders of Citizens and of Harleysville. These differences
are due, in part, to the differences in the articles of incorporation and bylaws
of the entities as well as the differences in Pennsylvania corporate law and
Pennsylvania banking law. See "COMPARISON OF SHAREHOLDER RIGHTS" for disclosure
of the material differences in shareholder rights.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Citizens and Harleysville structured the transaction to qualify as a
tax-free reorganization under the Internal Revenue Code of 1986. Under the
Internal Revenue Code, Citizens' shareholders will not recognize taxable gain or
loss upon the receipt of Harleysville common stock in exchange for Citizens
capital stock. Grant Thornton, LLP will provide an opinion, prior to the
completion of the merger, confirming these and certain other federal income tax
consequences of the merger. In addition, Grant Thornton has issued an opinion,
dated the date of this proxy statement/prospectus, attached for your review as
Annex B. You should consult with your own tax advisers regarding the tax
consequences of the merger in your particular circumstances. See, "APPROVAL OF
THE MERGER -- Federal Income Tax Consequences."
ACCOUNTING TREATMENT
Citizens and Harleysville intend to account for the transaction as a
pooling of interests for financial reporting purposes. This means that we will
treat the companies as if they had always been combined for accounting and
financial reporting purposes.
DISSENTERS' RIGHTS
Shareholders of Citizens are entitled to exercise dissenters' rights,
assuming the proposed merger is consummated, in accordance with Section 215a of
the National Bank Act, 12 U.S.C. Section 215a. The parties may terminate the
proposed merger if Citizens' shareholders exercise dissenters' rights with
respect to 277 or more shares of Citizens capital stock.
If you do not follow the procedures in the statutory provisions of the
law, you may lose your dissenters' rights with respect to the merger. If you
sign and return your proxy without voting instructions, your proxy will be voted
in favor of the merger and you will lose any dissenters' rights that you have. A
copy of the applicable sections of the law is attached to this proxy
statement/prospectus as Annex C. We urge you to read carefully "APPROVAL OF THE
MERGER--Dissenters' Rights" and Annex C to this proxy statement/prospectus.
4
<PAGE> 11
REQUIRED VOTE
In order for the merger to occur, the shareholders of Citizens Bank and
Trust Company must approve the agreement. By approving the agreement,
shareholders are approving the merger. Approval of the merger requires the
affirmative vote of at least two-thirds (66.7%) of Citizens' outstanding
capital stock. On this date, the directors and officers of Citizens and persons
or entities that they control own 3,114 shares of Citizens capital stock, or
56.2% of the outstanding shares. Citizens expects them to vote these shares
"FOR" approval of the merger.
Each share entitled to vote at the meeting is entitled to one vote. At
least a majority of the total number of shares of capital stock outstanding as
of February 11, 2000, will be necessary to have a quorum at the meeting. A
quorum is necessary so that actions taken at the meeting are valid. In addition
to voting to approve the merger, you may also be asked to vote on other matters
that may properly come before the meeting or any adjournments of the meeting.
REGULATORY APPROVALS
The parties must file applications or notices to approve the merger
with certain banking regulatory agencies. These agencies are the Board of
Governors of the Federal Reserve System, the Office of the Comptroller of the
Currency and the Pennsylvania Department of Banking.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Following the merger, the Board of Directors of Harleysville will be
the same persons who serve on the Board of Directors immediately before the
merger and James A. Wimmer. Harleysville will appoint Mr. Wimmer to its Board of
Directors to serve as a Class C Director. Subject to regulatory approval,
Citizens National Bank will appoint Mr. Wimmer and Linda P. Wimmer to its Board
of Directors. Mr. Wimmer currently is Chairman, President and a Director of
Citizens Bank and Trust Company. Mrs. Wimmer currently is a Director of
Citizens.
OPINION OF FINANCIAL ADVISOR
Citizens' Board of Directors asked Tucker Anthony Cleary Gull, its
investment banking firm located at 2101 Oregon Pike, Lancaster, Pennsylvania
17601, to provide investment banking services in the merger. These services
included providing an opinion that the value of the Harleysville common stock to
be received by shareholders in the merger is fair, from a financial point of
view. The Board of Directors considered and approved the terms of the merger,
including the financial terms. Tucker Anthony did not approve the financial or
other terms of the merger. In writing its opinion Tucker Anthony considered
various factors, including Citizens' and Harleysville's operating results,
current financial condition and perceived future prospects.
5
<PAGE> 12
We recommend that you read the Tucker Anthony opinion, which is attached to this
proxy statement/prospectus as Annex D. You should read the opinion in its
entirety and pay particular attention to the assumptions made and other matters
considered by Tucker Anthony in rendering its opinion. See "APPROVAL OF THE
MERGER--Opinion of Financial Advisor."
Citizens has agreed to pay Tucker Anthony a fee of 1.00% of the
aggregate consideration to be paid in the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS
Citizens' Board of Directors believes that the merger is in the best
interests of shareholders. The Board of Directors recommends that you vote "FOR"
approval of the merger.
6
<PAGE> 13
FORWARD - LOOKING STATEMENTS
This proxy statement/prospectus contains and incorporates certain
statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements include statements regarding intent, belief or current expectations
about matters (including statements as to "beliefs," "expectations,"
"anticipations," "intentions" or similar words) that may or may not occur in the
future. Forward-looking statements are also statements that are not statements
of historical fact. Forward-looking statements are subject to risks,
uncertainties and assumptions. These include:
- The risks that projected trends for the continued growth of
the business of Harleysville will not occur;
- The risks that the combined companies will not realize
anticipated revenues, profitability and cost savings; and
- Other risks and uncertainties.
If one or more of these risks or uncertainties occur or if the underlying
assumptions prove incorrect, actual results, performance or achievements in 2000
and beyond could differ materially from those expressed in, or implied by, the
forward-looking statements.
This proxy statement/prospectus incorporates important business and
financial information about Harleysville that is not included or delivered with
this document. This information is available, without charge, to shareholders of
Citizens. Please direct requests for this information to JoAnn M. Bynon,
Harleysville National Corporation, 483 Main Street, Harleysville, Pennsylvania,
telephone number (215) 256-8851. In order to ensure timely delivery of the
documents in advance of the meeting, you should make your request no later than
April 1, 2000.
7
<PAGE> 14
COMPARATIVE PER SHARE DATA
GENERAL
We summarize below the per share information for Harleysville and
Citizens Bank and Trust Company on a historical, pro forma combined and
equivalent basis. You should read this information in conjunction with
Harleysville's historical financial statements and the related notes contained
in the annual and quarterly reports and other documents filed by Harleysville
with the Commission. See "AVAILABLE INFORMATION." The Harleysville proforma
information gives effect to the merger, accounted for as pooling of interests,
assuming that 166 shares of Harleysville common stock are issued for each
outstanding share of Citizens' capital stock. Citizens' equivalent share amounts
are calculated by multiplying the pro forma basic and diluted earnings per
share, historical per share dividend and historical shareholders' equity by the
exchange ratio of 166 shares of Harleysville common stock so that the per share
amounts equal the respective values for one share of Citizens capital stock. Do
not rely on the pro forma information as indicative of the historical results
that we would have had if we had been combined or of the future results that we
will experience after the merger. Pro forma information does not include any
expense savings anticipated as a result of the merger or any one time merger
related expenses.
8
<PAGE> 15
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended As of and for the
September 30, Years Ended December 31,
-------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BOOK VALUE PER COMMON
SHARE:
Historical:
Harleysville 16.36 17.12 17.38 15.65 14.65 13.63 12.78
Citizens Bank and Trust 3,186.03 3,341.45 3,333.98 3,178.13 3,004.74 2,889.87 2,456.14
Pro Forma:
Pro forma per share of
Harleysville Common Stock 16.65 17.45 17.67 16.06 15.07 14.11 13.06
Equivalent pro forma
per share of
Citizens Bank and Trust 2,764.12 2,897.25 2,933.90 2,665.53 2,501.43 2,342.23 2,167.53
CASH DIVIDENDS PAID
PER COMMON SHARE:
Historical:
Harleysville 0.75 0.70 0.95 0.86 0.76 0.67 0.52
Citizens Bank and Trust 120.00 105.00 140.00 100.00 80.00 63.00 59.00
Pro Forma:
Pro forma per share of
Harleysville Common Stock 0.75 0.67 0.91 0.81 0.70 0.61 0.48
Equivalent pro forma
per share of
Citizens Bank and Trust 124.41 110.51 151.39 134.23 116.70 102.00 79.63
INCOME FROM CONTINUING OPERATIONS
PER COMMON SHARE:
Basic
Historical:
Harleysville 2.13 1.84 2.44 2.24 1.94 1.71 1.55
Citizens Bank and Trust 187.20 193.07 257.31 231.06 213.71 232.97 249.86
Pro Forma:
Pro forma per share of
Harleysville Common Stock 2.03 1.77 2.35 2.14 1.87 1.67 1.55
Equivalent pro forma
per share of
Citizens Bank and Trust 337.07 293.86 389.85 355.93 309.95 277.78 256.67
Diluted
Historical:
Harleysville 2.13 1.84 2.44 2.24 1.94 1.70 1.52
Citizens Bank and Trust 187.20 193.07 257.31 231.06 213.71 232.97 249.86
Pro Forma:
Pro forma per share of
Harleysville Common Stock 2.03 1.77 2.35 2.14 1.87 1.67 1.52
Equivalent pro forma
per share of
Citizens Bank and Trust 336.58 293.84 390.10 355.65 310.42 276.71 252.04
</TABLE>
9
<PAGE> 16
MARKET VALUE OF SECURITIES AND PRO FORMA PRICE PER SHARE INFORMATION
Citizens capital stock trades on a very limited basis in privately
negotiated transactions. Consequently, the stock prices in the table below may
not reflect fair market value. The last sale of Citizens capital stock with
respect to which Citizens was a party before public announcement of the
agreement and related merger was the purchase of 14 shares at $4,250 per share
on January 27, 1999.
The last reported sale of Harleysville common stock before public
announcement of the agreement and related merger was a trade of 100 shares at
$31.94 per share on December 28, 1999. On December 28, 1999, the per share
closing price for Harleysville common stock was $31.94 as reported by the
NASDAQ. On December 31, 1999, the closing sale price of Harleysville common
stock was $32.50, making the value of 166 shares of Citizens capital stock equal
to $5,395, if the merger had taken place on that date.
The pro forma equivalent price per share of common stock for each
company for December 31, 1999, has been calculated as if:
- The merger had taken place on December 31; and
- Shares of Citizens capital stock were exchanged for
Harleysville common stock at a rate of one share of Citizens
stock for 166 shares of Harleysville common stock.
The pro forma equivalent per share closing bid and asked quotations as
of December 31, 1999, for each share of Citizens capital stock are $5,375 and
$5,395. The pro forma equivalent per share closing bid and asked quotations for
Citizens and Harleysville on December 31, 1999, are in the table, below.
10
<PAGE> 17
COMPARATIVE STOCK PRICES
(as of December 31, 1999)
<TABLE>
<CAPTION>
Pro Forma
Historical Equivalent
Price Price
Per Share Per Share
--------- ---------
<S> <C> <C>
Harleysville National Corporation Common Stock
December 31, 1999 Bid $ 32.38 n/a
December 31, 1999 Asked $ 32.50 n/a
Citizens Bank and Trust Company Capital Stock
January 27, 1999(a) Bid $4,250.00 $ 5,375.08
January 27, 1999(a) Asked NONE $ 5,395.00
</TABLE>
(a) The sales price reported involved a transaction pursuant to a
repurchase program adopted by Citizens' Board of Directors. Citizens
does not have the ability to monitor, and in fact does not monitor,
the sales price of its capital stock in transactions to which it is
not a party.
You should obtain current market quotations for Harleysville common
stock because the market price of the stock may fluctuate between the date of
this document and the date on which the merger is completed, and thereafter. You
can get these quotations from a newspaper, on the internet or by calling your
broker. Because the number of shares of Harleysville common stock that Citizens
shareholders will receive is fixed and because the market price of Harleysville
common stock may fluctuate, the value of the shares of Harleysville common stock
that Citizens shareholders will receive may increase or decrease before the
merger is completed. See, "INFORMATION ABOUT THE MERGER - Terms of the Merger."
11
<PAGE> 18
SELECTED FINANCIAL DATA
We provide the following financial information to aid you in your
analysis of the financial aspects of the merger. These tables contain certain
selected historical consolidated summary financial data, for the periods and as
of the dates indicated, for Harleysville National Corporation and for Citizens
Bank and Trust Company. This data is derived from, should be read in conjunction
with, and is qualified by the consolidated financial statements of Harleysville
and the financial statements of Citizens, including the notes to those financial
statements, incorporated by reference or appearing elsewhere in this proxy
statement/prospectus. Interim unaudited data for the nine month periods ended
September 30, 1999, and 1998 reflects, in the opinion of Harleysville's and
Citizens' managements, all adjustments necessary for a fair presentation of the
data. Results for the periods ended September 30, 1999, and 1998 are not
necessarily indicative of results that may be expected for any other periods or
for the fiscal years as a whole. In addition, the pro forma data is not
necessarily indicative of results that would have been achieved had the parties
consummated the transaction and should not be construed as representative of
future operations.
12
<PAGE> 19
HARLEYSVILLE NATIONAL CORPORATION
SELECTED FINANCIAL DATA
(In Thousands)
<TABLE>
<CAPTION>
Unaudited
September 30, December 31****
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME & EXPENSE
Interest income $77,599 $69,131 $93,492 $85,827 $78,926 $73,500 $62,881
Interest expense 33,444 29,506 40,238 36,086 33,011 30,804 22,891
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income 44,155 39,625 53,254 49,741 45,915 42,696 39,990
Loan loss provision 1,430 1,680 2,230 2,590 2,197 2,242 2,665
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after loss
provision 42,725 37,945 51,024 47,151 43,718 40,454 37,325
Noninterest income 7,236 7,083 10,008 7,591 5,311 4,737 4,867
Noninterest expenses 27,648 25,450 35,409 30,626 27,842 26,186 25,267
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes 22,313 19,578 25,623 24,116 21,187 19,005 16,925
Income taxes 5,414 5,023 6,316 6,473 5,920 5,646 5,035
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 16,899 $ 14,555 $ 19,307 $ 17,643 $ 15,267 $ 13,359 $ 11,890
========== ========== ========== ========== ========== ========== ==========
PER SHARE:
Basic $ 2.13 $ 1.84 $ 2.44 $ 2.24 $ 1.94 $ 1.71 $ 1.55
Diluted 2.13 1.84 2.44 2.24 1.94 1.70 1.52
Cash dividends paid 0.75 0.70 0.95 0.86 0.76 0.67 0.52
Weighted average number of common
shares:
Basic 7,913,004 7,900,124 7,902,962 7,878,752 7,867,103 7,822,843 7,663,363
Diluted 7,926,053 7,900,606 7,918,337 7,885,847 7,890,970 7,856,667 7,822,460
Book Value 16.36 17.12 17.38 15.65 14.65 13.63 12.78
AVERAGE BALANCE SHEET TOTALS:
Total Assets $1,470,376 $1,255,570 $1,284,706 $1,146,573 $1,046,915 $ 959,068 $ 892,749
Investment Securities and
Money Market Investments 455,797 374,604 391,044 325,341 290,124 257,853 266,258
Loans (Net of Unearned Income) 949,377 827,135 839,102 763,000 704,032 651,955 580,241
Deposits 1,142,844 1,023,514 1,037,039 940,738 881,859 818,995 795,429
Borrowings 169,667 83,843 97,232 71,067 46,814 37,084 8,349
Shareholders' Equity 130,724 122,982 124,684 111,306 98,515 87,926 79,783
BALANCE SHEET AT PERIOD END:
Total Assets $1,615,218 $1,337,883 $1,412,090 $1,188,267 $1,095,967 $1,005,859 $ 926,686
Investment & Money Market
Investments 486,421 415,299 449,091 329,662 300,061 279,186 237,528
Loans (Net of Unearned Income) 1,029,624 864,929 900,310 798,306 737,094 675,240 636,922
Deposits 1,195,789 1,058,760 1,104,316 982,529 909,746 855,816 801,113
Borrowings 262,595 122,639 148,978 64,138 59,521 39,451 35,332
Shareholders' equity 129,460 129,042 130,952 117,646 104,793 92,860 79,892
</TABLE>
13
<PAGE> 20
<TABLE>
<CAPTION>
Unaudited
September 30, December 31****
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS:
Return on average assets
(annualized) 1.53% 1.55% 1.50% 1.54% 1.46% 1.39% 1.33%
Return on average shareholders
equity 17.24% 15.78% 15.48% 15.85% 15.50% 15.19% 14.90%
Leverage (assets divided by
shareholders' equity) 12.48X 10.37X 10.78X 10.10X 10.45X 10.83X 11.60X
Average total loans as a percentage
of average deposits 83% 81% 81% 81% 80% 80% 73%
Interest income/Average Earning
Assets* 7.76% 8.05% 7.75% 7.95% 8.17% 8.28% 7.60%
Interest expense/Average Dep. &
Borrowings 3.40% 3.55% 3.55% 3.57% 3.55% 3.60% 2.85%
Net interest income/Average Earn
Assets* 4.59% 4.78% 4.48% 4.67% 4.85% 4.78% 5.06%
SELECTED ASSET QUALITY RATIOS:
Nonperforming Assets/Total loans &
OREO 0.52% 0.62% 0.60% 0.73% 1.09% 1.95% 1.08%
Nonperforming Loans/Total Loans 0.50% 0.49% 0.48% 0.58% 0.92% 1.75% 0.84%
Net Charge-offs/Average loans 0.08% 0.10% 0.13% 0.16% 0.19% 0.07% 0.10%
Loan Loss Reserve/Total loans 1.39% 1.56% 1.52% 1.58% 1.52% 1.53% 1.35%
Loan Loss Reserve/Nonperforming
loans 276.56% 323.25% 320.31% 271.09% 164.95% 87.61% 160.36%
</TABLE>
* Tax Equivalent Basis
**For the purposes of this analysis, nonperforming loans include nonaccruing
loans and troubled debt restructured loans.
***For the purposes of this analysis, nonperforming assets include nonaccruing
loans, net assets in foreclosure and troubled debt restructured loans.
****The December 31 figures have been restated to reflect the acquisition of
Northern Lehigh Bancorp during 1999.
14
<PAGE> 21
CITIZENS BANK AND TRUST COMPANY
SELECTED FINANCIAL DATA
(In Thousands)
<TABLE>
<CAPTION>
Unaudited
September 30, December 31****
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME & EXPENSE
Interest income $ 6,091 6,411 $ 8,513 $ 8,287 $ 7,849 $ 7,584 $ 7,151
Interest expense 2,830 3,122 4,133 3,904 3,647 3,510 2,881
-------- -------- -------- -------- -------- -------- --------
Net interest income 3,261 3,289 4,380 4,383 4,202 4,074 4,270
Loan loss provision 39 44 58 62 81 77 63
-------- -------- -------- -------- -------- -------- --------
Net interest income after loss
provision 3,222 3,245 4,322 4,321 4,121 3,997 4,207
Noninterest income 362 362 511 371 355 340 363
Noninterest expenses 2,457 2,233 3,037 2,896 2,808 2,544 2,697
-------- -------- -------- -------- -------- -------- --------
Income before income taxes 1,127 1,374 1,796 1,796 1,668 1,793 1,873
Income taxes 89 282 345 410 386 395 374
-------- -------- -------- -------- -------- -------- --------
Net income $ 1,038 $ 1,092 $ 1,451 $ 1,386 $ 1,282 $ 1,398 $ 1,499
======== ======== ======== ======== ======== ======== ========
PER SHARE:
Basic $ 187.20 $ 193.07 $ 257.31 $ 231.06 $ 213.71 $ 232.97 $ 249.86
Diluted 187.20 193.07 257.31 231.06 213.71 232.97 249.86
Cash dividends paid 120.00 105.00 140.00 100.00 80.00 63.00 59.00
Weighted average number of common
shares:
Basic 5,545 5,656 5,638 6,000 6,000 6,000 6,000
Diluted 5,545 5,656 5,638 6,000 6,000 6,000 6,000
Book Value 3,186.03 3,341.45 3,333.98 3,178.13 3,004.74 2,889.87 2,456.14
AVERAGE BALANCE SHEET TOTALS:
Total Assets $129,982 $129,035 $129,066 $124,580 $118,531 $114,116 $113,025
Investment Securities and
Money Market Investments 66,839 68,913 68,504 66,885 64,007 66,557 70,056
Loans (Net of Unearned Income) 57,678 55,199 55,656 52,891 49,997 43,408 38,460
Deposits 108,651 107,905 107,783 104,571 98,874 96,529 96,630
Borrowings 1,974 1,968 2,184 501 0 0 0
Shareholders' Equity 18,130 17,960 17,975 18,452 17,676 16,697 15,638
BALANCE SHEET AT PERIOD END:
Total Assets $132,287 $131,314 $129,359 $125,176 $122,005 $114,901 $110,869
Investment & Money Market
Investments 65,932 69,099 66,736 64,561 65,179 64,190 64,207
Loans (Net of Unearned Income) 57,841 57,053 57,097 54,596 51,597 45,718 40,394
Deposits 109,300 106,875 107,010 104,724 102,974 96,603 95,313
Borrowings 4,012 4,487 2,650 262 0 0 0
Shareholders' equity 17,657 18,662 18,620 19,068 18,028 17,339 14,737
</TABLE>
15
<PAGE> 22
<TABLE>
<CAPTION>
Unaudited
September 30, December 31****
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS:
Return on average assets (annualized) 1.06% 1.13% 1.12% 1.11% 1.08% 1.23% 1.33%
Return on average shareholders equity 7.63% 8.11% 8.07% 7.51% 7.25% 8.37% 9.59%
Leverage (assets divided
by shareholders' equity) 7.49X 7.04X 6.95X 6.56X 6.77X 6.63X 7.52X
Average total loans as a percentage
of average deposits 53% 51% 52% 51% 51% 45% 40%
Interest income/Average Earning
Assets* 6.93% 7.18% 7.15% 7.14% 7.07% 7.14% 6.90%
Interest expense/Average Dep. &
Borrowings 3.41% 3.79% 3.76% 3.72% 3.69% 3.64% 2.98%
Net interest income/Average Earn.
Assets* 3.90% 3.81% 3.82% 3.88% 3.87% 3.95% 4.25%
SELECTED ASSET QUALITY RATIOS:
Nonperforming Assets/Total loans &
OREO 0.00% 0.05% 0.08% 0.03% 0.04% 0.11% 0.08%
Nonperforming Loans/Total Loans 0.00% 0.01% 0.00% 0.00% 0.00% 0.00% 0.02%
Net Charge-offs/Average loans -0.01% 0.03% 0.06% 0.01% 0.06% 0.02% -0.01%
Loan Loss Reserve/Total loans 1.01% 0.95% 0.95% 0.95% 0.89% 0.89% 0.83%
Loan Loss Reserve/Nonperforming loans N/A 6787.50% N/A N/A N/A N/A 3370.00%
</TABLE>
*Tax Equivalent Basis
**Citizens Bank & Trust Company did not have nonperforming loans during the
periods noted with a N/A
***For the purposes of this analysis, nonperforming loans include nonaccruing
loans and troubled debt restructured loans
****For the purposes of this analysis, nonperforming assets include nonaccruing
loans, net assets in foreclosure and troubled restructured debt
16
<PAGE> 23
THE MEETING
GENERAL
The Board of Directors provides this proxy statement/prospectus to
Citizen's shareholders for a meeting that will be held at the main office of the
bank, 372 Delaware Avenue, Palmerton, Pennsylvania 18071, on Friday, April 7,
2000, at 10:00 a.m.
At the meeting, Citizen's shareholders will consider and vote on:
Approval and adoption of the agreement that provides for the
merger; and
Other matters that properly come before the meeting or any
adjournments of the meeting.
If shareholders approve the merger, Citizens Bank and Trust Company
will merge into Citizens National Bank, a subsidiary of Harleysville National
Corporation. When the merger is completed, Citizens Bank and Trust Company will
cease to exist and its shareholders will receive 166 shares of Harleysville
common stock in exchange for each share of capital stock that they hold. A vote
for approval of the agreement is a vote for the approval of the merger of
Citizens Bank and Trust Company into Citizens National Bank and for the exchange
of Citizens Bank and Trust Company capital stock for Harleysville common stock.
RECORD DATE, QUORUM, REQUIRED VOTE
You can vote at the meeting if you owned Citizens capital stock at the
close of business on the record date, February 11, 2000. As of that date, there
were 5,542 shares of Citizens capital stock outstanding and entitled to vote.
At least a majority of the total number of shares of Citizens Bank and
Trust Company capital stock outstanding on February 11, 2000 is required for a
quorum at the meeting. These shares may be represented by a shareholder in
person or by completing and returning the enclosed proxy.
To complete the merger, at least two-thirds (66.7%) of the outstanding
shares of Citizens must vote to approve the merger.
VOTING, REVOCATION AND SOLICITATION OF PROXIES
If you execute a proxy, you can revoke it at any time until after the
vote on the merger. Unless revoked, shares represented by proxies will be voted
at the meeting and at all adjournments or postponements of the meeting. Your
attendance at the meeting will not revoke your proxy. Proxies may be revoked by:
17
<PAGE> 24
Delivery of a notice of revocation or of a later-dated proxy to
Thomas K. Thomas, Secretary, Citizens Bank and Trust Company, 372
Delaware Avenue, Palmerton, Pennsylvania 18071; or
Your attendance at the meeting and your notification to the
Secretary that you wish to vote your shares in person.
If a quorum is not present at the beginning of the meeting, the Board
of Directors of Citizens intends to adjourn the meeting to another place and
time without further notice to the shareholders. If for any other reason the
Board of Directors believes additional time should be allowed to obtain proxies,
the Board may adjourn the meeting with a vote of a majority of the shares
outstanding. If the Board proposes to adjourn the meeting, the persons named in
the enclosed proxy will vote all shares for which they have voting authority in
favor of the adjournment.
The proxyholders will vote signed and returned proxies as instructed by
the shareholders. If no instructions are indicated, the proxyholders will vote
the proxies in favor of the merger and in favor of adjournment, if necessary. A
proxy also gives the persons named as proxyholders the right to vote on other
matters incidental to the conduct of the meeting. Although the Board of
Directors knows of no other business to be presented at the meeting, if any
other matters are properly brought before the meeting, any proxy given by you
will be voted in accordance with the recommendations of the Board of Directors
of Citizens. Proxies marked as abstentions will not be counted as votes cast.
Shares held by brokerage companies or in street names that 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:
Will be treated as shares present for purposes of determining
whether a quorum is present; and
Will have the same effect as a vote against the merger.
In connection with the solicitation of proxies, Citizens will:
Bear the cost of soliciting proxies;
Reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable expenses; and
If it so decides, solicit proxies personally or by telegraph or
telephone.
18
<PAGE> 25
VOTING SECURITIES AND SECURITIES OWNERSHIP
Only those shareholders whose ownership appears on the shareholder
record of Citizens Bank and Trust Company on the record date are entitled to
vote at the meeting. Each share of Citizens' capital stock is entitled to one
vote. On February 14, 2000, there were 6,000 shares of capital stock authorized
and 5,542 shares of capital stock outstanding. Capital stock is Citizens' only
issued and outstanding class of stock. Except as shown on the table on page 56,
Citizens' Board of Directors is not aware of any individual, entity or group
that owns more than 10% of Citizens' capital stock.
APPROVAL OF THE MERGER
In this section we describe the material terms and provisions of the
proposed merger. A copy of the agreement that provides for the merger is
attached to this proxy statement/prospectus as Annex A. This is only a
discussion of material terms of the merger and we qualify it in its entirety by
reference to the full text of the agreement. We urge all shareholders to read
the merger agreement.
The agreement provides that:
- Citizens Bank and Trust Company will be merged into Citizens
National Bank; and
You, as a shareholder of Citizens Bank and Trust Company, will
receive 166 shares of Harleysville common stock for each share of
Citizens capital stock that you own when the merger is completed.
Citizens Bank and Trust Company will cease to exist. Citizens National
Bank will be a subsidiary of Harleysville National Corporation. The Office of
the Comptroller of the Currency and the Federal Deposit Insurance Corporation
will continue to regulate Citizens National Bank.
The Board of Directors has unanimously approved and adopted the
agreement and the merger and believes the merger is in the best interests of
Citizens, its shareholders and other constituencies. The Board of Directors of
Citizens Bank and Trust Company unanimously recommends that shareholders vote
"FOR" the agreement and related merger:
BACKGROUND OF THE MERGER, REASONS AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Background of the Merger
For many years the operating philosophy of the Citizens Board of
Directors has been to increase profitability while operating as an independent
community focused bank. In recent years this has become more difficult due to
increasingly competitive forces. Opportunities for Citizens
19
<PAGE> 26
to increase profitability by shifting assets from lower yielding portfolio
investments to higher yielding loans has been limited because of economic and
demographic conditions in its traditional market areas. At the same time, the
expenses of continuing investments in upgrading and improving technology and the
need for additional financial services and products to keep pace with
competition, combined with its more limited economies of scale, place additional
pressures on Citizen's profitability.
For some time James A. Wimmer, Citizen's Chairman and President, has
met periodically with representatives of Tucker Anthony Cleary Gull (formerly
Hopper Solliday & Co.) to discuss trends in the banking industry and the
strategic implications for Citizens. Due in large part to the circumstances
described in the preceding paragraph, Mr. Wimmer invited representatives of
Tucker Anthony to meet with the Citizens Board of Directors in March 1999. At
that time Tucker Anthony made a presentation regarding banking industry trends,
merger and acquisition activity in the banking industry and various strategic
options available to Citizens. Among the strategic options discussed was the
possibility that Citizens combine with another larger banking organization that
would have the size, financial and managerial resources, services and markets
capable of building long-term value for Citizens shareholders.
At a May 1999 meeting of the Citizens Board of Directors, Tucker
Anthony was authorized to contact five banking institutions that Tucker Anthony
and the Board of Directors believed might have an interest in a business
combination with Citizens. Four of the five institutions expressed interest and,
in June 1999, each was provided with a confidential offering memorandum prepared
by Tucker Anthony describing Citizens.
In July 1999, two written, non-binding indications of interest were
received by Tucker Anthony in response to the confidential offering memorandums
it distributed. Tucker Anthony reviewed both of the indications of interest with
the Citizens Board of Directors at a meeting on August 4, 1999. Legal counsel
also reviewed with the Board of Directors their fiduciary duties under current
law. The Board of Directors directed Tucker Anthony to ask both parties to
consider increasing the amount of consideration proposed in their respective
indications of interest and both did so. Consequently, both parties were invited
to make presentations to the Citizens Board of Directors and both did so on
August 25, 1999.
After the presentations, the Board of Directors discussed the two
presentations, the pricing, structure and other proposals contained in the
respective indications of interest, the markets in which each of the parties
currently competes and the anticipated implications for Citizens' employees,
customers and communities if a business combination with each party were
consummated. In addition, Tucker Anthony compared and assessed the fairness of
the pricing proposals contained in the two indications of interest and compared
the financial condition, earnings and stock performance of the two parties.
During September 1999, Tucker Anthony continued to explore with both
parties a possible business combination with Citizens.
20
<PAGE> 27
On October 6, 1999, Mr. Wimmer, Terry D. Eckert, a Citizen's Director,
a representative of Tucker Anthony and a representative from Citizen's
independent public accounting firm met with members of Harleysville's senior
management team to further discuss the possibility of a business combination
between Citizens and Harleysville. Immediately following that meeting, the
Citizens Board of Directors authorized Mr. Wimmer and Mr. Eckert, together with
legal counsel, the independent public accountants and Tucker Anthony, to enter
into detailed negotiations with Harleysville as to a business combination
between Citizens and Harleysville and to conduct due diligence with regard to
Harleysville and to permit Harleysville to conduct due diligence with regard to
Citizens. At that time, Tucker Anthony was directed to inform the other
institution that had expressed interest that Citizens was not interested in
further pursuing a business combination with that institution.
Following the October 6, 1999 meeting, Mr. Wimmer and Mr. Eckert,
together with legal counsel, the independent public accountants and Tucker
Anthony, entered into detailed negotiations regarding the pricing, structure and
other issues associated with a business combination in which Citizens would
merge with Citizens National Bank, a subsidiary of Harleysville, and Citizens
shareholders would receive shares of Harleysville common stock in exchange for
their shares of Citizens capital stock. During this period, which included due
diligence investigations conducted by both parties, two face to face sessions
and numerous telephone conferences and correspondences, the exchange ratio for
the combination as well as other issues were determined on the basis of
arms-length negotiations. Other important elements of the negotiation included
representation of Citizens on the Harleysville and Citizens National Bank Boards
of Directors, dividends and treatment of Citizens employees. This negotiation
process resulted in the merger agreement attached hereto as Annex A.
On December 28, 1999, the Board of Directors met to consider the merger
agreement. Tucker Anthony presented its written opinion as to the fairness of
the consideration provided to Citizens shareholders in connection with the
merger transaction with Harleysville. Legal counsel to Citizens conducted a
detailed review of the merger agreement and again reviewed with the Board of
Directors their fiduciary duties under current law. After discussion, the
Citizens Board unanimously approved the merger agreement and the merger
transaction with Harleysville as being in the best interests of Citizens, its
shareholders and other constituencies. The merger agreement was executed
immediately following the meeting.
Reasons for the Merger
At its meeting on December 28, 1999, the Citizens Board of Directors
unanimously determined that the terms of the merger agreement and the merger
transaction with Harleysville were in the best interests of Citizens, its
shareholders and other constituencies. In making this determination, the Board
concluded, among other things, that the merger transaction with Harleysville was
superior to the other alternatives available to Citizens and to the prospects of
continuing to operate Citizens as an independent community focused bank.
21
<PAGE> 28
In the course of reaching its decision to approve the agreement, the
Citizens Board of Directors consulted with Tucker Anthony, its legal counsel and
independent certified public accountants. The Board considered, among other
things, the factors described above and the following:
- The opinion of Tucker Anthony that the consideration to be
received by Citizens' shareholders was fair from a financial
point of view;
- The Board's familiarity with and review of Citizens' business
prospects and financial condition, including its future prospects
were it to remain independent;
- The pressures of competition and the ability of Citizens,
considering its limited economies of scale, to increase
profitability while continuing to operate as an independent
community focused bank;
- A determination that a business combination with Harleysville
would expand Citizens' lending capabilities and significantly
increase the range of financial products and services available
to Citizens' customers;
- The prices, multiples of earnings per share and premiums over
book value and market value paid in recent acquisitions of banks;
- The earnings, financial condition and future prospects of
Harleysville;
- The historical market prices for shares of Harleysville common
stock and historical price to earnings and price to book value
trading multiples for such shares;
- The substantially greater liquidity of Harleysville common stock,
which is publicly traded, compared to the relatively illiquid
market for Citizens capital stock;
- Harleysville's agreement that James A. Wimmer, Citizens' Chairman
and President, would be appointed to the Harleysville Board of
Directors and that Mr. Wimmer and Linda P. Wimmer, his wife and a
Director of Citizens, would be appointed to the Citizens National
Bank Board of Directors;
- The business and prospects of Harleysville, including its prior
experience acquiring banks, its existing presence in Citizens'
traditional market areas, the economic vitality of the other
market areas served by Harleysville and the opportunities
presented by customer demand in those market areas;
- The experience of Harleysville's senior management team;
22
<PAGE> 29
- The benefits of a tax-free to Citizens shareholders; and
- The alternative of Citizens remaining as an independent community
focused bank or combining with other potential merger partners,
as compared to the effect of Citizens combining with Harleysville
and the determination that the merger transaction with
Harleysville presented the best opportunity for maximizing
long-term shareholder value and serving Citizens' other
constituencies including, without limitation, its customers and
the communities in which it is located.
We do not intend the foregoing discussion of the information and
factors considered by the Citizens Board of Directors to be exhaustive but we
believe it includes all material factors considered by the Citizens Board of
Directors. In reaching its decision to approve and recommend the merger, the
Citizens Board of Directors did not assign any relative or specific weights to
the foregoing factors and individual Directors may have given differing weights
to different factors. After deliberating with respect to the merger transaction
with Harleysville, considering, among other things, the matters discussed above
and the opinion of Tucker Anthony referred to above, the Citizens Board of
Directors unanimously approved and adopted the merger agreement and the merger
transaction with Harleysville.
Recommendation of the Board of Directors
The Board of Directors of Citizens believes that the terms of the
merger are fair to and in the best interests of Citizens, its shareholders and
other constituencies, and has approved the Agreement. The Board of Directors of
Citizens unanimously recommends that the shareholders of Citizens approve the
merger agreement.
OPINION OF FINANCIAL ADVISOR
General. Pursuant to the engagement letter dated May 22, 1999, the
Citizens Bank and Trust Company Board of Directors retained Tucker Anthony to
render financial advisory and investment banking services to Citizens in
connection with the possible sale of Citizens to another financial institution.
Tucker Anthony has no other material relationship Citizens.
Tucker Anthony is a regional investment banking firm and as a customary
part of its investment banking business is engaged in the valuation of bank and
bank holding company securities in connection with mergers, acquisitions,
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for various other purposes. As a specialist in
the securities of financial institutions, Tucker Anthony has experience in, and
knowledge of, the valuation of banking enterprises. The Citizens Board of
Directors selected Tucker Anthony on the basis of Tucker Anthony's ability to
evaluate the fairness of the merger from a financial point of view, its
qualifications, its previous experience and its reputation in the banking and
investment communities. Tucker Anthony has acted exclusively for the Citizens
23
<PAGE> 30
Board of Directors in rendering its fairness opinion and will receive a fee from
Citizens for its services.
Tucker Anthony has rendered a written opinion to the Citizens Board of
Directors, dated as of the date of this joint proxy statement/prospectus, to the
effect that, as of such date, the merger consideration is fair, from a financial
point of view, to the shareholders of Citizens. The full text of the Tucker
Anthony opinion is attached as Annex D to this proxy statement/prospectus and is
incorporated herein by reference. We urge Citizens shareholders to read the
Tucker Anthony opinion in its entirety for a description of the procedures
followed, assumptions made, matters considered, and qualifications and
limitations of Tucker Anthony's review. We qualify the following summary of the
opinion in its entirety by reference to the full text of the opinion. The merger
consideration was determined by negotiation between Harleysville and Citizens
and was not determined by Tucker Anthony. See "APPROVAL OF THE
MERGER--Background of the Merger."
The Tucker Anthony opinion is directed only to the merger consideration
and is not a recommendation to any Citizens shareholder on how to vote at the
special meeting.
In rendering its opinion, Tucker Anthony reviewed, among other things:
- Citizens' audited financial statements and related financial
information for years ended December 31, 1994 through December
31, 1998 and Citizens' quarterly financial statements for the
periods ending March 31, 1999, June 30, 1999 and September 30,
1999;
- Harleysville's Annual Reports on Form 10-K and related financial
information for years ended December 31, 1994 through December
31, 1998 and Quarterly Reports on Form 10-Q for the periods
ending March 31, 1999, June 30, 1999 and September 30, 1999;
- certain information concerning the respective businesses,
operations, regulatory condition and prospects of Harleysville
and Citizens, including financial forecasts, relating to the
business, earnings, assets and prospects of Harleysville and
Citizens, furnished to Tucker Anthony by Harleysville and
Citizens, which Tucker Anthony discussed with members of senior
management of Harleysville and Citizens;
- historical market prices and trading activity for the
Harleysville common stock and Citizens capital stock and similar
data for certain publicly traded companies which Tucker Anthony
deemed to be relevant;
- the results of operations of Harleysville and Citizens and
similar data for certain companies which Tucker Anthony deemed to
be relevant;
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- the financial terms of the merger contemplated by the agreement
and the financial terms of certain other mergers and acquisitions
which Tucker Anthony deemed to be relevant;
- the pro forma impact of the merger on the earnings and book value
per share, consolidated capitalization and certain balance sheet
and profitability ratios of Harleysville;
- the agreement; and
- such other matters as Tucker Anthony deemed necessary.
Tucker Anthony met with certain members of senior management and other
representatives of Harleysville and Citizens to discuss the foregoing as well as
other matters Tucker Anthony deemed relevant. Tucker Anthony considered
financial and other factors as it deemed appropriate under the circumstances and
took into account its assessment of general economic, market and financial
conditions, and its experience in similar transactions, as well as its
experience in securities valuation and its knowledge of the banking industry
generally. Tucker Anthony's opinions are necessarily based upon conditions as
they existed and could be evaluated on the respective dates thereof and the
information made available to Tucker Anthony through the respective dates
thereof.
Tucker Anthony 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 the
financial forecasts reviewed by Tucker Anthony in rendering its opinion, Tucker
Anthony assumed that the financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Citizens and Harleysville as to the future financial performance
of Citizens and Harleysville. Tucker Anthony did not make any independent
evaluation or appraisals of the assets or liabilities of Harleysville nor was it
furnished with any such appraisals. Tucker Anthony also assumed, without
independent verification, that the aggregate allowances for loan losses for
Citizens and Harleysville were adequate.
The summary set forth below does not purport to be a complete
description of the analyses performed by Tucker Anthony in connection with the
merger. The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore, the
opinion is not readily susceptible to summary description. Tucker Anthony
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying the opinion. No one of the analyses performed by
Tucker Anthony was assigned a greater significance with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond
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Citizens' or Harleysville's control. The analyses performed by Tucker Anthony
are not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by the analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
Transaction Summary. Tucker Anthony reviewed with the Citizens Board of
Directors the key financial terms of the proposed merger, including the expected
method of accounting, the exchange ratio, the share price of Harleysville as of
December 14, 1999, the resulting indicated value per share of Citizens capital
stock in the merger and the resulting indicated aggregate consideration to be
paid in the merger:
- The proposed method of accounting for the merger was a
pooling-of-interests in a tax-free exchange;
- The indicated value was $5,374.25 per share of Citizens capital
stock, determined by multiplying the exchange ratio by the
closing price on the NASDAQ National Market of Harleysville
common stock on December 14, 1999;
- The indicated aggregate consideration to be paid in the merger
was $29.8 million based on 5,542 fully diluted shares of Citizens
capital stock outstanding; and
- The $5,374.25 per share value represented 169% of Citizens'
fully-diluted book value per share as of September 30, 1999 and a
multiple of 21.3 times Citizens' net income for the twelve months
ended September 30, 1999.
Contribution Analysis. Tucker Anthony reviewed the contribution made by
each of Citizens and Harleysville to various balance sheet items and net income
of the combined company at the proposed exchange ratio based on balance sheet
data at September 30, 1999 and trailing twelve months earnings as of September
30, 1999. This analysis showed that:
- Citizens shareholders would own approximately 10.4% of the
aggregate shares outstanding of the combined company;
- Citizens was contributing 7.6% of total assets of the combined
company;
- Citizens was contributing 5.3% of total loans of the combined
company;
- Citizens was contributing 8.4% of total deposits of the combined
company;
- Citizens was contributing 12.0% of shareholders' equity of the
combined company; and
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- Citizens was contributing 6.0% of net income of the combined
company.
Summary Comparison of Selected Institutions - Citizens. Tucker Anthony
compared selected balance sheet data, asset quality, capitalization and
profitability ratios and market statistics using financial data at or for the
twelve months ended September 30, 1999 and market data as of December 14, 1999
for Citizens and market data as of December 14, 1999 for a group of Pennsylvania
banks and bank holding companies consisting of ten institutions with total
assets between $118.9 million and $192.2 million. The analysis included, but was
not limited to, the following ratios: loans/deposits, equity/assets,
non-performing assets/total assets, allowance for loan losses/ non-performing
assets, net interest margin, efficiency ratio, return on average assets, return
on average equity, price/earnings, price/book and dividend yield. For purposes
of this analysis, non-performing assets include non-accrual loans, restructured
loans, other real estate owned and loans 90 days past due but still accruing.
The calculation of net interest margin in this analysis does not include an
adjustment for tax-equivalent yield on tax-free securities. The analysis showed
that:
- Citizens' loans/deposits ratio was 52.9% versus the peer group
median of 75.3%;
- Citizens' equity/assets ratio was 13.35% versus the peer group
median of 9.07%;
- Citizens' ratio of non-performing assets to total assets was
0.23% versus the peer group median of 0.65%;
- Citizens' allowance for loan losses/non-performing assets ratio
was 195.3% versus the peer group median of 94.8%;
- Citizens' net interest margin was 3.50% versus the peer group
median of 3.77%;
- Citizens' efficiency ratio was 68.22% versus the peer group
median of 58.44%; and
- Citizens' return on average assets and return on average equity
were 1.08% and 7.68% versus the peer group medians of 1.16% and
11.24%, respectively.
Summary Comparison of Selected Institutions - Harleysville. Tucker
Anthony compared selected balance sheet data, asset quality, capitalization and
profitability ratios and market statistics using financial data at or for the
twelve months ended September 30, 1999 and market data as of December 14, 1999
for Harleysville and market data as of December 14, 1999 for a group of New
Jersey, New York, Pennsylvania, Ohio and Virginia banks and bank holding
companies consisting of 13 institutions with total assets between $807.1 million
and $2.2 billion (the "Harleysville Peer Group"). The analysis included, but was
not limited to, the following ratios: loans/deposits, equity/assets,
non-performing assets/total assets, allowance for loan losses/ non-performing
assets, net interest margin, efficiency ratio, return on average assets, return
on
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average equity, price/earnings, price/book and dividend yield. For purposes of
this analysis, non-performing assets include non-accrual loans, restructured
loans, other real estate owned and loans 90 days past due but still accruing.
The analysis showed that:
- Harleysville's loans/deposits ratio was 86.1% versus the peer
group median of 88.4%;
- Harleysville's equity/assets ratio was 8.02% versus the peer
group median of 7.20%;
- Harleysville's ratio of non-performing assets to total assets was
0.48% versus the peer group median of 0.52%;
- Harleysville's allowance for loan losses/non-performing assets
ratio was 184.7% versus the peer group median of 161.7%;
- Harleysville's net interest margin was 4.59% versus the peer
group median of 4.34%;
- Harleysville's efficiency ratio was 55.27% versus the peer group
median of 56.68%;
- Harleysville's return on average assets and return on average
equity were 1.53% and 17.24% versus the peer group medians of
0.94% and 11.61%;
- Harleysville's price/earnings and price/book ratios were 11.6x
and 197.9% versus the peer group medians of 13.5x and 181.3%;
- Harleysville's dividend yield was 3.52% versus the peer group
median of 3.12%.
Summary of Selected Bank Merger and Acquisition Transactions. Tucker
Anthony compared the ratios of price/book, price/trailing 12 months earnings,
book/book, and price/deposits for the merger to the average and median ratios
for a group of 20 bank merger transactions announced since January 1, 1995. The
selected transactions involved the acquisition of profitable commercial banks
and bank holding companies headquartered in Maryland, New Jersey, New York,
Ohio, Pennsylvania and West Virginia in which the target company's equity/asset
ratio exceeded 10% and asset size was less than $250 million. This analysis
showed that:
- The merger consideration represented 168.7% of Citizens'
fully-diluted book value versus a median and average of 199.2%
and 204.6% for the selected transactions;
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- The merger consideration represented a price/trailing 12 months
earnings ratio of 21.3x compared to a median and average of 20.0x
and 21.3x for the selected transactions;
- The merger consideration represented a book/book ratio of 86.8%
compared to a median and average of 103.2% and 105.7% for
selected transactions; and
- The merger consideration represented a price/deposits ratio of
27.3% compared to a median and average of 28.8% and 32.3% for the
selected transactions.
No company or transaction used in the above analysis as a comparison is
identical to Citizens, Harleysville or the contemplated transaction.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex consideration and judgments concerning differences
in financial and operating characteristics of the companies and other factors
that could affect the public trading value of the companies to which they are
being compared. The ranges of valuations resulting from any particular analysis
described above should not be taken to be Tucker Anthony's view of the actual
value of Citizens or Harleysville. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given more weight than any other analyses.
In performing its analyses, Tucker Anthony made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Citizens or
Harleysville. The analyses performed by Tucker Anthony are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by the analyses. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. In addition, as described above, Tucker
Anthony's opinion and presentation to the Citizens Board is just one of many
factors taken into consideration by the Citizens Board.
Citizens agreed to pay Tucker Anthony a fee of 1.00% of the aggregate
consideration to be paid in the merger and a retainer fee of $5,000. Citizens
paid Tucker Anthony $20,000 upon delivery of Tucker Anthony's written fairness
opinion on December 28, 1999. The balance of the fee is due upon consummation of
the merger. Both the retainer fee and the $20,000 payment will be credited
towards the fee due upon closing. Tucker Anthony will be reimbursed for
reasonable out-of-pocket expenses incurred on behalf of Citizens. Citizens has
agreed to indemnify Tucker Anthony against certain liabilities.
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INFORMATION ABOUT THE MERGER
DISSENTERS' RIGHTS
Section 215a of Title 12, United States Code (12 U.S.C. Section 215a)
provides that any Citizens shareholder who wishes to exercise dissenters' rights
with respect to the proposed merger must either:
- vote against the proposed merger; or
- file a written notice prior to or at the special meeting convened
to vote on the merger, stating that he or she dissents from the
merger. The written notice should be addressed to:
James A. Wimmer, Chairman and President
Citizens Bank and Trust Company
372 Delaware Avenue
Post Office Box 196
Palmerton, Pennsylvania 18071-0196
In addition, a shareholder who wishes to exercise dissenters' rights must make a
written request for payment to Harleysville, accompanied by the surrender of his
or her Citizens capital stock certificates before 30 days after the effective
date of the merger. The written request and surrender should be sent to:
Jo Ann M. Bynon, Secretary
Harleysville National Corporation
483 Main Street
Harleysville, Pennsylvania 19438.
Dissenting shareholders who fail to follow the procedure specified in this
paragraph will lose their dissenters' rights.
After the effective date of the merger, any dissenting shareholder who
complies with the procedures described in the preceding paragraph will be
entitled to receive the value of the surrendered shares of Citizens capital
stock, determined as of the effective date of the merger. An appraisal committee
of three people will determine the value of the capital stock. Qualifying
dissenting shareholders will choose one member of the appraisal committee by
majority vote. The Citizens Board of Directors will name one member of the
committee. The two members of the committee will select the third member. Any
two members of the appraisal committee may agree on the valuation of the shares.
If the appraisal committee's evaluation is not satisfactory to any
qualifying dissenting shareholder, the shareholder may appeal to the Office of
the Comptroller of the Currency, within 5 days after receipt of notice of the
evaluation. The Comptroller of the Currency will make a binding and final
reappraisal as to the value of the shares held by the shareholder. If within 90
days from the effective date of the merger:
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- one or more appraisal committee members have not been selected
for any reason; or
- the appraisal committee is not able to agree by a vote of two or
more members, on the value of the shares held by qualifying
dissenting shareholders,
the Comptroller of the Currency, on the request of any interested party, will
make a binding and final appraisal of the value of the shares. Harleysville will
pay the expenses of the Comptroller of the Currency for its reappraisal or
appraisal.
This discussion is only a summary of the rights and obligations of a
dissenting shareholder. We qualify the discussion by reference to the provisions
of Section 215a of Title 12 of the United States Code, which we attach as Annex
C to this prospectus/proxy statement. Please read it carefully. If you fail to
follow the procedures in the statute you will lose your right to dissent. You
may wish to consult legal counsel if you are considering a possible exercise of
dissenters' rights.
TERMS OF THE MERGER
We discuss the material terms of merger below. Our description is not
complete. We qualify the discussion in its entirety by reference to the
agreement, a copy of which we attach as Annex A and incorporate by reference in
this proxy statement/prospectus. We urge you to read the agreement.
Effect of the Merger
Citizens Bank and Trust Company will merge into Citizens National Bank.
Citizens Bank and Trust Company will cease to exist. Citizens National Bank will
be the surviving institution.
Exchange of Shares
On the day of the merger, each outstanding share of Citizens Bank and
Trust Company capital stock will become the right to receive 166 shares of
Harleysville common stock, subject to adjustment for stock dividends, stock
splits and similar transactions.
Citizens shareholders should recognize that the market price of the
Harleysville common stock may fluctuate between the date of this proxy
statement/prospectus and the effective date of the merger. Because the number of
shares of Harleysville common stock to be received by Citizens shareholders in
the merger is fixed, the value of those shares on the effective date of the
merger may be more than or less than the value of those shares on the date of
this proxy statement/prospectus. In effect, by agreeing to a fixed exchange
ratio, the Citizens Board of Directors agreed to accept, as of December 28,
1999, the date of the merger agreement, the economic risks of being a
Harleysville shareholder.
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Harleysville and Citizens anticipate that the merger will occur during
the second quarter of 2000, assuming no difficulties are encountered in
obtaining the required regulatory approvals and shareholder approval, and all
other conditions to closing are satisfied without unexpected delay. If for any
reason, however, the merger does not occur by September 30, 2000, and the
parties have not agreed otherwise prior to that date, either party may terminate
the agreement. See, "Business Pending the Merger--Conditions, Amendment and
Termination"for a discussion of the various termination provisions.
Following the merger, former shareholders of Citizens will be required
to surrender their Citizens capital stock certificates to Harleysville's
transfer agent, American Stock Transfer and Trust Company, who will act as
exchange agent for the transaction. Each shareholder will receive detailed
instructions concerning the procedure for surrendering the certificates. Upon
proper surrender of stock certificates, each former shareholder of Citizens will
receive a stock certificate representing the number of shares of Harleysville
common stock into which the shares of Citizens were converted. Shareholders of
Citizens should not surrender their Citizens stock certificates for exchange
until they receive written instructions to do so.
Following the merger and until properly requested and surrendered, each
Citizens stock certificate will be deemed for all corporate purposes to
represent the number of whole shares of Harleysville common stock that the
holder would be entitled to receive upon its surrender. However, Harleysville,
at its option, may withhold dividends payable after the merger to any former
shareholder of Citizens who has received written instructions from Harleysville
but has not surrendered their Citizens stock certificates. Any dividends
withheld will be paid without interest to any former shareholder of Citizens
upon the proper surrender of their Citizens stock certificates.
Citizens shareholders must surrender all Citizens stock certificates to
American Stock Transfer within two years after the merger. In the event that any
former shareholder does not properly surrender his or her certificates within
that time, Harleysville may sell the shares of Harleysville common stock that
would otherwise have been issued and hold the net proceeds of the sale, together
with any previously accrued and unpaid dividends, in a non-interest bearing
account for the shareholder's benefit. After the sale, the former shareholder's
sole right is to collect the net proceeds and accumulated dividends. Subject to
laws of escheat, the net proceeds, cash and accumulated dividends will be paid
to the former shareholder of Citizens, without interest, upon proper surrender
of their Citizens stock certificates.
BUSINESS PENDING THE MERGER
Citizens has agreed to conduct its business in the usual, regular and
ordinary course, consistent with prudent business judgment, pending the merger.
Among other things, Citizens will:
Not amend its Articles of Incorporation or Bylaws;
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Not declare, set aside or pay any dividend or make
any other distribution in respect of its stock,
except that, as provided in Section 4.9 of the
agreement, Citizens may pay regular cash dividends in
amount not in excess of $40.00 per share in a manner
consistent with Citizens' prior practices, provided
that, if the date of the merger would entitle
Citizens shareholders to a quarterly cash dividend
for the respective quarter from Citizens and
subsequently from Harleysville, then Citizens shall
not pay a dividend in that quarter;
Not authorize, purchase, issue or sell any shares of
capital stock or any other equity or debt securities
convertible into Citizens' capital stock;
Not change the presently outstanding number of shares
or effect any capitalization, reclassification, stock
dividend, stock split or like change in
capitalization;
Not enter into or substantially modify (except as may
be required by applicable law) any pension,
retirement, stock option, stock warrant, stock
purchase, stock appreciation right, savings, profit
sharing, deferred compensation, severance,
consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, or plan or
arrangement, or any trust agreement related thereto,
in respect to any of their directors, officers, or
other employees except that Citizens may pay
retention bonuses, in an aggregate amount not to
exceed $40,000, to current employees, which retention
bonuses will be paid prior to the date of the merger;
Not make any loan or other credit facility commitment
in excess of $150,000 (including without limitation,
lines of credit and letters of credit) to any
affiliate or compromise, expand, renew or modify any
such outstanding commitment;
Not enter into any swap or similar commitment,
agreement or arrangement that is not consistent with
past practice and that increases the credit or
interest rate risk over the levels existing at
December 31, 1998;
Not enter into any derivative, cap or floor or
similar commitment, agreement or arrangement, except
in the ordinary course of business and consistent
with past practices;
Not enter into any participation arrangements or
approvals of extensions of credit in excess of
$350,000, or renew, expand or modify any outstanding
participation arrangements or approvals; and
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Not sell, exchange or otherwise dispose of any
investment securities or loans that are held for
sale, prior to scheduled maturity and other than
pursuant to policies agreed upon from time to time by
the parties.
MATERIAL CONTRACTS
There have been no material contracts or other transactions between
Citizens and Harleysville since signing the agreement, nor have there been any
material contracts, arrangements, relationships or transactions between Citizens
and Harleysville during the past five years, other than in connection with the
agreement and as described in this proxy statement/prospectus.
CONDITIONS, AMENDMENT AND TERMINATION
The obligations of Harleysville and Citizens to complete the merger are
subject to a number of conditions and contingencies. These are stated in the
agreement. The most significant of these conditions include:
Approval by the shareholders of Citizens;
Approval by, notice to or consent of the Board of
Governors of the Federal Reserve System, the Office
of the Comptroller of the Currency and the
Pennsylvania Department of Banking;
Receipt of an opinion of Grant Thornton, LLP
concerning certain federal income tax consequences
relating to the merger;
Continued effectiveness of the registration statement
containing the proxy statement/prospectus;
Determination that the merger can be accounted for as
a pooling of interests for financial reporting
purposes;
Determination of compliance with all applicable
federal and state securities and antitrust laws; and
Exercise by dissenting shareholders of dissenters'
rights with respect to no more than 5% of the bank's
capital stock.
In connection with the regulatory approvals, Harleysville will file:
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- A Notice with respect to the transaction with the Board of
Governors of the Federal Reserve System, pursuant to Section
3(a)(3) of the Bank Holding Company Act;
- An Application for Merger with the Office of the Comptroller of
the Currency; and
- An Application with the Pennsylvania Department of Banking,
pursuant to Section 115 of the Pennsylvania Banking Code,
including a Notice relating to the merger.
Any term or condition of the agreement may be waived by the party that
would benefit from the term at any time before the merger, whether before or
after the approval of the agreement by Citizens' shareholders. However, the
parties may not adopt a change in the amount of consideration to be received by
Citizens shareholders unless the shareholders of Citizens approve the change. In
addition, if the parties waive the requirement that a tax opinion be delivered
at closing and the tax consequences to the Citizens shareholders are material,
Citizens would send revised materials to shareholders and solicit their
approval.
The agreement may be terminated at any time before the merger, whether
before or after its approval and adoption by the shareholders of Citizens by:
Agreement of all of the parties;
Unilateral action by each of the parties in the event of a
material breach by the other party of any representation,
warranty or covenant not cured or curable within 30 days after
written notice or any condition precedent to the terminating
party's obligation to consummate the merger is not satisfied
through no fault of the terminating party;
By either party in the event of a failure to consummate the
merger by September 30, 2000; or
- By Harleysville, if under circumstances described in Section
7.1(e) of the agreement, Citizens is involved in a merger or
other transaction with any other party or another party makes an
offer or a proposal to acquire 20% of Citizens capital stock.
EFFECTIVE DATE
The agreement provides that the merger will occur within 20 days after
receipt of all required approvals and the expiration of any required regulatory
waiting periods.
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MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
The Board of Directors of Harleysville, following the merger, will
include the same persons who are members of the Board of Directors immediately
before the merger, each of whom will serve until his or her successor is elected
or appointed and qualified. In addition, Harleysville's Board of Directors will
appoint James A. Wimmer, Chairman, President and a Director of Citizens, to the
Harleysville Board of Directors to serve until his successor is elected or
appointed and qualified. Harleysville also will appoint Mr. Wimmer and Linda P.
Wimmer, who are husband and wife, to the Citizens National Bank Board of
Directors and will nominate and recommend them for election at each successive
election, as long as Mr. Wimmer remains a member of the Harleysville Board. This
may give them an interest in the transaction in addition to their interest as
shareholders. The Board of Directors was aware of these factors and considered
them, among other matters, in approving the agreement and the transactions
contemplated by the agreement.
As of December 28, 1999, the directors and executive officers of
Citizens beneficially owned 3,114 shares of Citizens capital stock and the
directors and executive officers of Harleysville beneficially owned 710 shares
of Citizens capital stock.
Mr. Wimmer, as a Director of Harleysville, will receive the same fees
and benefits as other members of the Harleysville Board. The directors of
Harleysville receive a fee of $425 for each board meeting attended, an annual
retainer of $7,000, and a fee of $310 for each committee meeting attended. All
together, as of September 30, 1999, the Board of Directors of Harleysville
received $146,377.50. In 1999, Mr. Wimmer received total compensation from
Citizens of $61,965, which included $10,440 as an annual fee to directors
$35,248 paid in salary and bonus as President and $16,277 for legal services
rendered as solicitor to Citizens.
Harleysville also maintains a Deferred Compensation Plan for its
directors. In the past, certain directors elected to defer, with interest, all
or part of their compensation for future distribution. Under the terms of the
plan, benefits can be paid out to the respective directors over a ten-year
period. Should the director die before age 70 or before receiving all of the
benefits, those benefits would be paid to his or her beneficiary until age 70 or
for 10 years, whichever is later. The plan is considered an unfunded plan that
is subject to substantial risk of forfeiture and the director is not considered
vested pursuant to the plan.
The directors and officers of Harleysville and its subsidiaries have no
special interest in the merger, other than in their capacity as shareholders of
Harleysville, and will not receive any special consideration or compensation in
connection with its consummation.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the anticipated material federal
income tax consequences of the merger, if the merger were to take place on the
date of this proxy statement/prospectus. This is only a general description. We
attach the opinion of Grant Thornton LLP, independent, certified public
accountants for Harleysville, as to the income tax
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consequences of the merger as Annex B. We recommend you read the opinion.
However, the opinion does not consider the particular facts and circumstances of
your situation. We recommend that you consult your own tax advisors as to
particular facts and circumstances that may be unique to you and not common to
shareholders as a whole, and also as to any estate, gift, state, local or
foreign tax consequences arising out of the transactions and/or any sale of
Harleysville common stock received in the merger. We do not anticipate that the
law will change before completion of the merger.
The following is a summary of the opinion of Grant Thornton LLP:
- the merger will constitute a tax-free reorganization for U.S.
federal income tax purposes;
- neither Citizens National Bank and Trust Company, Citizens
National Bank nor Harleysville will recognize any gain or loss by
reason of the merger;
- except for cash received in lieu of fractional shares, Citizens
shareholders will not recognize gain or loss on the exchange of
their shares of Citizens capital stock for shares of Harleysville
common stock;
- the basis and holding period of the Harleysville common stock
received by the Citizens shareholders generally will be, in each
instance, the same as the basis and holding period of the
Citizens National Bank and Trust Company capital stock
surrendered in exchange provided that the Citizens capital stock
surrendered is held as a capital asset on the date of the
exchange; and
- payment of cash to the Citizens shareholders instead of their
fractional share interests of Harleysville common stock generally
will qualify as capital gain or loss because the cash will be
treated as a distribution in full payment in exchange for the
fractional share interest of Harleysville common stock that the
shareholder would otherwise be entitled to receive.
The obligations of the parties to close the transaction are
conditioned upon receipt of a ruling from the Internal Revenue Service or an
opinion of Grant Thornton substantially to the effect that the federal income
tax consequences of the merger are as summarized in this section. Unlike a
ruling from the IRS, Grant Thornton's opinion would have no binding effect on
the IRS. The ruling or opinion will not deal with all the tax considerations
that may be relevant to particular Citizens shareholders, such as shareholders
who are dealers in securities, foreign persons, tax exempt entities or the
impact of the alternative minimum tax. The ruling or opinion will not address
any state, local or foreign tax considerations.
ACCOUNTING TREATMENT
The agreement contemplates that the merger will be treated as a
pooling of interests for financial accounting and reporting purposes. Under this
accounting method, the assets and
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liabilities of Citizens Bank and Trust Company will be combined with Citizens
National Bank at their historical recorded bases. Results of operations of
Harleysville will include the results of both companies for the entire fiscal
year in which the merger occurs. The reported balance sheet amounts and results
of operations of the separate banks for the prior periods will be combined,
reclassified and conformed, as appropriate, to reflect the combined financial
position and results of operations for Harleysville.
If Harleysville would be required to purchase more than 10% of the
outstanding shares of Citizens capital stock for cash due to the exercise of
dissenters' rights by Citizens shareholders, or if other conditions arise that
would prevent the merger from being treated as a pooling of interests for
financial accounting purposes, Harleysville has the right to terminate the
agreement and to cancel the merger.
RESTRICTION ON RESALE OF STOCK HELD BY AFFILIATES
The shares of Harleysville common stock to be issued upon completion of
the merger have been registered with the Commission under the Securities Act.
Following the merger, these shares may be freely resold or otherwise transferred
by all former shareholders of Citizens, except those former shareholders who are
deemed "affiliates" of Citizens, within the meaning of Commission Rules 144 and
145. In general terms, any person who is an executive officer, director or 10%
shareholder of Citizens at the time of the meeting may be deemed to be an
affiliate of Citizens for purposes of Commission Rules 144 and 145. This proxy
statement/prospectus does not cover resales of shares of Harleysville common
stock to be issued to affiliates of Citizens in connection with the transaction.
Harleysville common stock received by persons who are deemed to be
affiliates of Citizens may be resold only:
In compliance with the provisions of Commission Rule 145(d);
In compliance with the provisions of another applicable exemption
from the registration requirements of the Securities Act; or
Pursuant to an effective registration statement filed with the
Commission.
In general terms, Commission Rule 145(d) permits an affiliate of Citizens to
sell shares of Harleysville common stock he or she received in ordinary
brokerage transactions subject to certain limitations on the number of shares
that may be sold in any consecutive three month period.
The ability of affiliates to resell shares of Harleysville common stock
received in the transaction under Rule 144 or Rule 145, is subject to
Harleysville's having satisfied its Exchange Act reporting requirements for
specified periods prior to the time of sale. Affiliates are also permitted to
resell Harleysville common stock received in the transaction pursuant to an
effective
38
<PAGE> 45
registration statement under the Securities Act or another available exemption
from the Securities Act regulations and requirements. This proxy
statement/prospectus does not cover any resales of Harleysville common stock
received by persons who may be deemed to be affiliates of Harleysville or
Citizens.
Each person who may be an affiliate of Citizens is required, prior to
the closing, to provide Harleysville with a letter agreeing to abide by the
limitations imposed by the Commission regarding the sale or other disposition of
the shares of Harleysville common stock that the shareholders will receive in
the merger.
In addition, a requirement of pooling-of-interests accounting treatment
of the merger is that an affiliate of Citizens may not, as a general rule and
subject to an exception in a case of certain de minimis sales:
Sell any shares of Citizens capital stock during the 30-day
period immediately preceding the day of the merger; or
Sell any shares of Harleysville common stock received by him or
her in exchange for his or her shares of Citizens capital stock
until after the publication of financial results covering at
least 30 days of post-merger combined operations.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management and of the Board of Directors of Citizens
may be deemed to have interests in the merger in addition to their interests, if
any, in Citizens capital stock. The Citizens Board of Directors was aware of
these factors and considered them, among other matters, in approving the merger
agreement.
SHARES OWNED BY MANAGEMENT AND THE BOARD
As of the record date, the directors and officers of Citizens
beneficially own approximately 3,114 shares (56.2%) of Citizens capital stock.
DIRECTORS AND OFFICERS INSURANCE
Harleysville has agreed, in the merger agreement, to maintain a
Director and Officer Liability Insurance Tail Policy for the directors and
officers of Citizens for a period of six (6) years after the date the merger is
completed. Such policy shall include conditions and terms the same as or
substantially comparable to the Directors and Officer Liability Policy of
Citizens on the date of the merger agreement.
39
<PAGE> 46
DIRECTORS
In the merger agreement, Harleysville has agreed that, immediately
after completion of the merger, James A. Wimmer, President, Chairman and a
Director of Citizens, will be appointed to the Board of Directors of
Harleysville. In addition, Harleysville has agreed that James A. Wimmer and
Linda P. Wimmer, his wife and a Director of Citizens, shall be appointed to the
Board of Directors of Citizens National Bank. In their capacities as Directors,
Mr. Wimmer and Mrs. Wimmer will receive the same fees and benefits as other
members of the Harleysville and/or Citizens National Bank Boards of Directors.
BENEFITS
Citizens National Bank has agreed to pay health insurance premiums for
Citizens Bank and Trust Company retirees and directors for three years from the
day of the merger, up to an aggregate of $46,408 per year.
HARLEYSVILLE DIRECTORS AND OFFICERS
The directors and officers of Harleysville and its subsidiaries have no
special interest in the merger, other than in their capacity as shareholders of
Harleysville. The directors and officers of Harleysville and its subsidiaries
will not receive any special consideration or compensation in connection with
the completion of the merger.
40
<PAGE> 47
COMPARATIVE STOCK PRICES AND DIVIDENDS
AND RELATED SHAREHOLDER MATTERS
HARLEYSVILLE COMMON STOCK
Harleysville common stock is quoted on the National Market System of
NASDAQ under the symbol "HNBC." The table below shows, for the periods
indicated, the high and low bid quotations for Harleysville common stock as
reported on NASDAQ, and cash dividends paid per share. The quotations in the
table represent quotations between dealers, do not include retail markups,
markdowns or commissions, and may not represent actual transactions. All
information has been adjusted for stock dividends and splits throughout the
periods.
<TABLE>
<CAPTION>
Cash Dividends
1999 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $38.09 $31.50 $0.24
Second Quarter $35.00 $32.38 $0.25
Third Quarter $35.25 $33.09 $0.26
Fourth Quarter $33.88 $31.50 $0.32
</TABLE>
<TABLE>
<CAPTION>
Cash Dividends
1998 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $41.43 $37.14 $0.23
Second Quarter $41.37 $38.15 $0.23
Third Quarter $40.84 $32.86 $0.24
Fourth Quarter $39.52 $30.95 $0.25
</TABLE>
<TABLE>
<CAPTION>
Cash Dividends
1997 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $26.08 $22.00 $0.20
Second Quarter $30.48 $24.27 $0.20
Third Quarter $36.90 $29.76 $0.22
Fourth Quarter $40.00 $34.76 $0.24
</TABLE>
41
<PAGE> 48
On January 25, 2000, the closing price for Harleysville common stock,
as reported on NASDAQ was $29.25. As of December 31, 1999, Harleysville common
stock was held by 3,057 holders of record. Harleysville has in the past paid
regular quarterly cash dividends to its shareholders on or about March 31, June
30, September 30, and December 31, of each year.
CITIZENS CAPITAL STOCK
There is no established public trading market for Citizens capital
stock. Citizens has historically traded on a very limited basis in privately
negotiated transactions. Citizens does not have the ability to monitor the sales
price of its capital stock in transactions to which it is not a party. The last
transaction in which Citizens was a party was the purchase by Citizens of 14
shares at a price of $4,250 per share on January 27, 1999. Citizens has in the
past paid regular quarterly dividends to its shareholders on or about March 1,
June 1, September 1 and December 1, of each year.
The sales reported below reflect purchases by Citizens of its own
capital stock pursuant to a repurchase program adopted by the Board of
Directors. The tables below do not reflect any transactions of which Directors
or Officers of Citizens may have individual personal knowledge of virtue of
their status as private parties to the transactions in their individual
capacities.
<TABLE>
<CAPTION>
Cash Dividends
1999 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $4,250.00 $4,250.00 $40.00
Second Quarter - - $40.00
Third Quarter - - $40.00
Fourth Quarter - - $40.00
</TABLE>
<TABLE>
<CAPTION>
Cash Dividends
1998 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter $3,178.00 $3,170.00 $30.00
Second Quarter $3,250.00 $3,178.00 $30.00
Third Quarter - - $40.00
Fourth Quarter - - $40.00
</TABLE>
42
<PAGE> 49
<TABLE>
<CAPTION>
Cash Dividends
1997 High Low Paid Per Share
- ---- ---- --- --------------
<S> <C> <C> <C>
First Quarter - -
Second Quarter - - $30.00
Third Quarter - - $30.00
Fourth Quarter - - $30.00*
</TABLE>
* In addition, a special dividend of $10.00 per share was paid December 1, 1997.
As of December 31, 1999, Citizens capital stock was held by
approximately 123 holders of record.
43
<PAGE> 50
INFORMATION ABOUT HARLEYSVILLE NATIONAL CORPORATION
Through its subsidiaries, Harleysville National Corporation engages in
the general commercial and retail banking business. Harleysville's financial
institution subsidiaries operate 35 banking offices in Bucks County, Carbon
County, Chester County, Lehigh County, Montgomery County, Northampton County,
Schuylkill County and Wayne County, Pennsylvania. As of September 30, 1999,
Harleysville National Corporation had consolidated total assets of approximately
$1,615,218,000. The banking subsidiaries operate under the primary supervision
of the Office of the Comptroller of the Currency. The Harleysville National Bank
and Trust Company and Citizens National Bank are also authorized to engage in
trust activities.
As a registered bank holding company, Harleysville National Corporation
is subject to regulation under the Bank Holding Company Act of 1956, as amended,
and the rules and regulations of the Board of Governors of the Federal Reserve
System. Under applicable Board of Governors of the Federal Reserve System
policies, a bank holding company is expected to act as a source of financial
strength to each of its subsidiary banks and to commit resources to support each
subsidiary bank in circumstances when it might not do so absent such a policy.
Harleysville's principal executive offices are located in Harleysville,
Pennsylvania. As of December 31, 1999, Harleysville and its three subsidiary
banks had in the aggregate approximately 517 full-time equivalent employees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents previously filed by Harleysville with the Commission
are incorporated by reference into this proxy statement/prospectus as follows:
Harleysville's Proxy Statement on Schedule 14A for the Annual
Meeting of Shareholders on April 13, 1999 filed with the
Commission on March 8, 1999;
Harleysville's Annual Report on Form 10-K for the year ended
December 31, 1998 filed with the Commission on March 29, 1999;
Harleysville's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 filed with the Commission on May 14,
1999;
Harleysville's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 filed with the Commission on August 12,
1999;
Harleysville's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 filed with the Commission on November
12, 1999; and
44
<PAGE> 51
- Harleysville's Current Report on Form 8-K filed with the
Commission on January 22, 1999;
- Harleysville's Current Report on Form 8-K filed with the
Commission on March 25, 1999;
- Harleysville's Current Report on Form 8-K filed with the
Commission on January 10, 2000; and
- Description of Harleysville's common stock that appears in
Harleysville's prospectus filed with the Commission on
November 12, 1998, which forms a part of Harleysville's
Registration Statement No. 333-67201 on Form S-4, and as
amended on November 20, 1998 and December 7, 1998, and
Harleysville's Report on Form 10-C, filed with the Commission
on March 1, 1996.
Harleysville incorporates by reference all documents it files pursuant
to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the date of
this proxy statement/prospectus and prior to the merger, into this proxy
statement/prospectus. The incorporated documents are deemed a part of the proxy
statement/prospectus from the date of filing of each document. Any statement
contained in a document incorporated by reference is deemed to be modified or
superseded for purposes of this proxy statement/prospectus to the extent that a
statement contained herein or in any subsequently filed document that is also
incorporated by reference herein modifies or supersedes the statement. Any
statement so modified or superseded should not be deemed, except as so modified
or superseded, to constitute a part of this proxy statement/prospectus. You
should read all information appearing in this proxy statement/prospectus in
conjunction with the information, financial statements (including notes thereto)
appearing in the documents incorporated herein by reference, except to the
extent stated in this paragraph. All the information in this proxy
statement/prospectus is qualified in its entirety by the information in those
documents.
ACQUISITIONS BY HARLEYSVILLE NATIONAL CORPORATION
Harleysville was incorporated in June 1982. On January 1, 1983,
Harleysville National Corporation became the parent bank holding company of The
Harleysville National Bank and Trust Company, a wholly-owned subsidiary of
Harleysville National Corporation. On February 13, 1991, Harleysville National
Corporation acquired all of the outstanding common stock of The Citizens
National Bank of Lansford. On June 1, 1992, the Corporation acquired all of the
outstanding stock of Summit Hill Trust Company. On September 25, 1992, Summit
Hill merged into and is now operating as a branch office of The Citizens
National Bank of Lansford. On July 1, 1994, Harleysville National Corporation
acquired all of the outstanding stock of Security National Bank. On March 1,
1996, Harleysville National Corporation acquired all of the outstanding common
stock of Farmers & Merchants Bank (Honesdale, P.A.). Farmers &
45
<PAGE> 52
Merchants Bank was merged into The Citizens National Bank of Lansford and is now
operating as a branch office of The Citizens National Bank of Lansford.
On January 20, 1999, Harleysville acquired Northern Lehigh Bancorp,
Inc., parent company of Citizens National Bank of Slatington. The transaction
was accounted for as a pooling-of-interests. Northern Lehigh shareholders
received 3.57 shares of Harleysville common stock for each share of Northern
Lehigh common stock. The acquisition was effected by the merger of Northern
Lehigh Bancorp, Inc. with Harleysville National Corporation North, Inc., a bank
holding company and wholly owned subsidiary of Harleysville National
Corporation. Citizens National Bank of Slatington merged with and into The
Citizens National Bank of Lansford, a national banking association and wholly
owned subsidiary of Harleysville National Corporation North, Inc., under the
name "Citizens National Bank." Harleysville is in the process of liquidating
Harleysville North. After completion of the proposed merger Citizens National
Bank will be a direct subsidiary of Harleysville.
On March 17, 1997, Harleysville National Corporation Financial Company
was incorporated as a Delaware corporation. Harleysville National Corporation
Financial Company's principal business function is to expand the investment
opportunities of Harleysville National Corporation.
Harleysville National Corporation is primarily a bank holding company
which provides financial services through its three bank subsidiaries. Since
commencing operations, Harleysville National Corporation's business has
consisted primarily of managing its subsidiary banks, and its principal source
of income has been dividends paid by the banks. Harleysville National
Corporation is registered as a bank holding company under the Bank Holding
Company Act of 1956.
LOANS
Harleysville, through its subsidiaries, grants loans and makes other
credit available to the general public. These extensions of credit are
structured to meet the varying needs of businesses, individuals, and
institutional customers and include mortgages, lines of credit, term loans,
leases and letters of credit. This activity comprises a major source of revenue
for Harleysville's subsidiaries and it also exposes Harleysville and its
subsidiaries to potential losses upon borrower default. In order to minimize the
occurrence of loss, Harleysville's subsidiaries follow strict loan underwriting
and risk weighing policies. While collateral continues to play an important part
in lending decisions, primary emphasis is placed upon borrowers' underlying
ability to pay. Harleysville's subsidiaries confine their lending activity to
customers who live or are based in their respective market areas. By limiting
lending activities to a specific geographic area, the staff of each subsidiary
becomes more knowledgeable about local market conditions and can thereby make
better credit risk assessments and consequently more prudent lending decisions.
Harleysville believes that this local knowledge, when combined with prudent
underwriting standards, overcomes the risks associated with the geographic
concentration of loans.
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<PAGE> 53
DESCRIPTION OF HARLEYSVILLE NATIONAL CORPORATION COMMON
STOCK
Harleysville National Corporation is authorized to issue 30,000,000
shares of Harleysville National Corporation common stock of which 7,915,130
shares were issued and outstanding as of December 31, 1999. Harleysville also
has 3,000,000 shares of blank check preferred stock authorized for issuance. No
preferred stock is outstanding as of January 30, 2000.
DIVIDENDS
The holders of Harleysville common stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of legally
available funds. Harleysville has historically paid quarterly cash dividends to
its shareholders on or about March 31, June 30, September 30, and December 31,
of each year.
The ability of Harleysville to pay dividends to its shareholders is
dependent primarily upon the earnings and financial condition of The
Harleysville National Bank and Trust Company, Citizens National Bank and
Security National Bank. Harleysville expects to obtain funds for the payment of
dividends on Harleysville stock, for the foreseeable future, primarily from
dividends paid by its subsidiaries. These dividends are subject to certain
statutory limitations.
Under applicable federal laws, the dividends that Harleysville's
banking subsidiaries may pay without prior regulatory approval are subject to
certain prescribed limitations. Because Harleysville's banking subsidiaries are
national banks, the approval of the Office of the Comptroller of the Currency is
required under federal law if the total of all dividends declared during any
calendar year exceed the total of the net profits of the respective bank for the
year, combined with its retained net profits, for the two preceding years. In
addition to the foregoing statutory restrictions on dividends, the Office of the
Comptroller of the Currency also has general authority to prohibit a national
bank from engaging in an unsafe or unsound banking practice. The Office of the
Comptroller of the Currency could consider a bank's payment of a dividend,
depending upon the financial condition of the bank involved and other factors,
to be an unsafe or unsound practice.
Harleysville paid cash dividends of $.95 per share in 1998, and paid
cash dividends of $1.07 per share in 1999.
LIQUIDATION
In the event of liquidation, dissolution or winding up of Harleysville,
Harleysville's shareholders are entitled to share ratably in all assets
remaining after payment of liabilities,
47
<PAGE> 54
subject to prior distribution rights of Harleysville preferred stock, if any,
then outstanding. On January 30, 2000, no shares of Harleysville preferred stock
were issued or outstanding.
DIVIDEND REINVESTMENT PLAN
Harleysville has a Dividend Reinvestment and Stock Purchase Plan.
Shareholders of Harleysville may elect to participate in the plan. The plan is
administered by American Stock Transfer and Trust Company, as plan agent. Under
the plan, dividends payable to participating shareholders are paid to the plan
agent and are used to purchase, on behalf of the participating shareholders,
additional shares of Harleysville common stock either in the market or from
Harleysville's authorized but unissued shares. Participating shareholders may
make additional voluntary cash payments that are also used by the plan agent to
purchase additional shares of stock. Shares of Harleysville common stock held
for the account of participating shareholders and are voted by the plan agent as
instructed by each participating shareholder.
ANTITAKEOVER PROVISIONS
The Pennsylvania Business Corporation Law of 1988 and Harleysville's
amended Articles of Incorporation and amended Bylaws provide numerous provisions
that may be deemed to be antitakeover in nature, both as to purpose and effect.
There are four major antitakeover provisions under Pennsylvania law relating to
corporations that have their securities registered with the Commission under
Section 12 of the Securities Act.
The overall effect of the various provisions described below might be
to deter a tender offer or other proposal that a majority of the shareholders
may view to be in their best interest. Such an offer might include a substantial
premium over the market price of Harleysville's common stock. In addition, these
provisions may have the effect of assisting Harleysville's current management in
retaining its position and placing it in a better position to resist changes
that shareholders may want to make if dissatisfied with the conduct of
Harleysville's business.
Two of these provisions have the effect of eliminating the rights of
the shareholders of registered corporations to:
Call a special meeting of shareholders; and
Propose an amendment to the Articles of Incorporation.
These provisions may prevent shareholders from calling a special meeting for the
purpose of considering a merger, consolidation or other corporate combination
that does not have the approval of a majority of the members of Harleysville's
Board of Directors. These provisions may have the effect of making Harleysville
less attractive as a potential takeover candidate by depriving shareholders of
the opportunity to initiate special meetings at which a possible business
combination might be proposed. Antitakeover provisions may provide a greater
time
48
<PAGE> 55
for consideration of any shareholder proposal to the extent that the proposal
must be deferred until the next annual meeting of shareholders.
Also, when made, shareholder proposals must comply with certain notice
requirements and proxy solicitation rules. These requirements do not affect the
calling of a special meeting by the Chairman of the Board or by a majority of
the members of the Board of Directors or of its Executive Committee if, in their
judgment, there are matters to be acted upon that are in the best interests of
Harleysville and its shareholders.
Harleysville's Articles of Incorporation and amended Bylaws contain a
number of additional provisions that may be antitakeover in purpose and effect.
These provisions include:
Authorization of 30,000,000 shares of common stock and
3,000,000 shares of preferred stock;
Lack of preemptive rights for shareholders to subscribe to
purchase additional shares of stock on a pro rata basis;
The necessity for the affirmative vote of the holders of 80%
of Harleysville's common stock to approve an amendment to
Harleysville's Bylaws or to change an amendment to its Bylaws
that was approved by the Board of Directors; and
The necessity for the affirmative vote of the holders of 80%
of Harleysville's common stock to approve a merger,
consolidation, liquidation, or sale of substantially all
assets unless the transaction has received prior approval of
at least 75% of all members of the Board of Directors, in
which case, a majority of the outstanding shares of common
stock is required for approval.
These provisions could give the holders of a minority of Harleysville's
outstanding shares a veto power over any merger, consolidation, dissolution or
liquidation of Harleysville, the sale of all or substantially all of its assets
or an amendment to its Bylaws unless 75% of all members of the Board of
Directors and a majority of the shareholders believe that the transaction is
desirable and beneficial. Without these provisions in Harleysville's Articles of
Incorporation and Bylaws, the affirmative vote of at least a majority of
Harleysville's common stock outstanding and entitled to vote would be required
to approve any merger, consolidation, dissolution, liquidation, the sale of all
of its assets or an amendment to the Bylaws.
Provisions for a classified or staggered board are included in
Harleysville's amended Bylaws. A classified board has the effect of moderating
the pace of any change in control of the Board of Directors by extending the
time required to elect a majority of the directors to at least two successive
annual meetings. However, this extension of time may also tend to discourage a
tender offer or takeover bid. In addition, a classified board makes it more
difficult for a majority
49
<PAGE> 56
of the shareholders to promptly change the composition of the board of directors
even though they consider a prompt change desirable.
Harleysville's amended Articles of Incorporation contain an additional
antitakeover provision that enables the Board of Directors to oppose a tender
offer on the basis of factors other than the short term economic benefit to
shareholders. Based on the Board's responsibilities to certain constituent
groups, including Harleysville's subsidiaries and the communities they serve,
the Board may consider factors such as:
- The impact the acquisition of Harleysville would have on the
community;
- The effect of the acquisition upon shareholders, employees,
depositors, suppliers and customers; and
- The reputation and business practices of the tender offeror.
INDEMNIFICATION
Harleysville's Bylaws provide for indemnification of its directors,
officers, employees and agents to the fullest extent permitted under the laws of
the Commonwealth of Pennsylvania, provided that the person seeking
indemnification acted in good faith, in a manner he or she reasonably believed
to be in the best interest of the corporation, and without willful misconduct or
recklessness.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Harleysville,
Harleysville has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
50
<PAGE> 57
COMPARISON OF SHAREHOLDER RIGHTS
After the merger, the shareholders of Citizens will become shareholders
of Harleysville. There are certain differences in the rights of shareholders of
these two companies and the differences in the laws that govern the two
companies. The most significant of these differences are those relating to
antitakeover protection and public registration. The Harleysville common stock
is registered under the Securities Exchange Act of 1934 and is traded on the
NASDAQ National Market System, while Citizens capital stock is not registered
under the Securities Exchange Act of 1934, and is traded on a limited basis in
privately negotiated transactions.
The Bylaws of Harleysville provide for a classified Board of Directors
under which there are four classes of directors and, accordingly, one-fourth of
the directors are elected each year for a term of four years. The Citizens Board
of Directors is not classified. All the directors are elected each year. The
classification of the Board of Directors of a company makes it more difficult
for the shareholders of the company to change a majority of the directors, even
when a majority of the shareholders may desire such a change. It would normally
take three annual meetings of Harleysville National Corporation's shareholders
in order to replace a majority of Harleysville National Corporation's directors,
whereas it would take one annual meeting of Citizens' shareholders to replace a
majority of Citizens' Board of Directors.
In addition to classification of the Board of Directors, the Articles
of Incorporation and Bylaws of Harleysville include a number of provisions that
are intended to protect the shareholders but that may be considered to be
antitakeover in nature and may serve to entrench the current management of
Harleysville National Corporation. See "DESCRIPTION OF HARLEYSVILLE NATIONAL
CORPORATION COMMON STOCK--Antitakeover Provisions."
Harleysville common stock, unlike Citizens capital stock, is registered
with the Commission under Section 12(g) of the Exchange Act. As a result,
Harleysville is subject to the periodic reporting, proxy solicitation and
insider trading requirements of the Exchange Act, which do not apply to
Citizens. Pursuant to these requirements, Harleysville makes available to
shareholders, potential investors and the general public a significant amount of
information regarding Harleysville in the form of proxy statements, periodic
reports and other Commission filings. In addition, directors, executive officers
and beneficial shareholders of more than 10% of the issued and outstanding
shares of Harleysville National Corporation common stock are subject to the
insider trading reporting requirements and short-swing profit recapture
provisions of Section 16 of the Exchange Act.
We summarize material differences between Citizens capital stock and
Harleysville common stock and the rights of their respective holders, as of
January 30, 1999, are summarized in the following table:
51
<PAGE> 58
<TABLE>
<CAPTION>
CITIZENS BANK AND TRUST COMPANY HARLEYSVILLE NATIONAL CORPORATION
------------------------------- ---------------------------------
<S> <C> <C>
Title Capital Stock, $50.00 par value per share Common stock, $1.00 par value per share
Shares Authorized 6,000 30,000,000
Shares Issued and Outstanding 5,542
Preferred Stock None authorized 3,000,000 shares authorized, none issued
Preemptive Rights None None
Voting: Election of Directors Cumulative Non-cumulative
Classification of Board of Directors None Board of Directors divided into 4 classes
with 4 year terms; approximately 1/4 of
directors elected each year
Voting: Other Matters One vote for each share owned of record One vote for each share owned of record
Mergers, Consolidations, Liquidations Two-thirds (66.7%) of all shares entitled Approval by a vote of 80% of outstanding
Sales of Substantially All Assets to vote shares of common stock. If such
transaction has received prior approval
of at least 75% of all members of the
Board of Directors, then a majority of
the outstanding shares of common stock
would be required
Special Shareholder Meetings Upon request by the Chairman of the Upon request by the Chairman of the
Board of Directors, the President, the Board, President, the Executive Vice
Board of Directors, or by shareholders President, if any, or a majority of the
entitled to cast 1/5 of the votes that all Board of Directors, or by its Executive
shareholders are entitled to cast at a Committee.
particular meeting
Authorization to Issue Shares Approval by Board of Directors to issue Approval by a majority vote of the Board
authorized but unissued shares of Directors
Repurchase of Additional Shares Stock can be repurchased upon approval Stock can be repurchased up to the extent
by a majority of the Board of Directors of unrestricted or unreserved undivided
and prior approval of the FDIC and the profits and as much of its unrestricted
Department of Banking, if, after surplus as has been made available for
repurchase, surplus would be at least equal such purpose by the prior affirmative vote
to capital and capital accounts adequate to of shareholders; stock cannot be
support anticipated deposit volume repurchased when Harleysville National
Corporation is insolvent or would be
made insolvent by the purchase; and no
more than 10 percent of the outstanding
shares can be repurchased in any twelve
(12) month period without prior
regulatory approval; and provisions of
the Securities Act restrict the timing,
nature and amount of repurchases.
Stock Incentive Plan None Yes
</TABLE>
52
<PAGE> 59
<TABLE>
<S> <C> <C>
Dissenters' Rights Yes Yes
Dividend Reinvestment Plan None Yes
Market No established public trading market. Listed for quotation on National Market
Limited trading in privately negotiated System of NASDAQ
transactions
Registered Under Exchange Act No Yes
</TABLE>
53
<PAGE> 60
INFORMATION ABOUT CITIZENS BANK AND TRUST COMPANY
DESCRIPTION OF BUSINESS AND PROPERTY
Citizens Bank and Trust Company was chartered on December 28, 1928 as a
result of the consolidation of The Citizens Bank of Palmerton, PA and Palmerton
State Bank. Citizens is a Pennsylvania bank and trust company, subject to
regulation by the Pennsylvania Department of Banking and the FDIC. The bank's
deposits are insured by the FDIC. Citizens' principal executive offices are
located in its main office at 372 Delaware Avenue, Palmerton, Pennsylvania
18071.
Below is a schedule of all Citizens' properties. The main office is
owned by Citizens and the Kresgeville and Walnutport branches are leased by
Citizens. The Kresgeville lease expires February 28, 2009 with no available
renewal. The Walnutport lease expires February 28, 2006, with two automatic
renewals at the option of Citizens of ten and five years.
<TABLE>
<CAPTION>
Name of Bank Office
or Facility Address Date Acquired
----------- ------- -------------
<S> <C> <C>
Main Office 372 Delaware Avenue 1935
Palmerton, PA 18071
Kresgeville Branch Route 209 Leased
Kresgeville, PA 18333
Walnutport Branch Route 145 Leased
Walnutport, PA 18088
</TABLE>
Citizens is a full service commercial bank that offers a large range of
commercial and retail banking services to its customers, including personal and
business checking, NOW accounts, money market accounts, savings accounts, IRA
accounts, and certificates of deposit. The bank also offers installment loans,
home equity loans, lines of credit, letters of credit, revolving credit, term
loans and commercial mortgage loans, as well as residential and commercial
construction loans.
In addition, Citizens provides safe deposit boxes, traveler checks,
money orders, wire transfers of funds, lock box collections and direct deposits
of social security and payroll checks. The bank also provides credit card
processing services to local merchants and retailers and is a member of the
"MAC" system and provides customers with access to this automated teller machine
network.
In the event that loan requests may exceed Citizens' lending limit to
any one customer, Citizens seeks to arrange such loans on a participation basis
with other financial institutions. The offering or continuation of the
enumerated services is periodically evaluated.
54
<PAGE> 61
Citizens' trust department offers a full range of personal and
corporate trust services. It administers and provides investment management
services for estates, trusts, agency accounts and employee benefit plans.
COMPETITION
Citizens competes with other commercial banks and savings and loan
associations, most of which are larger than Citizens. The bank also competes
with major regional banking and financial institutions headquartered elsewhere.
Citizens generates the overwhelming majority of its deposit and loan volume
within its primary service area which includes southern Carbon County, western
Monroe County and the northern tiers of Lehigh and Northampton Counties,
Pennsylvania.
As of June 1998, Citizens ranked fourth in terms of total deposits in
Carbon County with 10.25%, tenth in Monroe County with 2.18% and twenty-fifth in
Northampton County with .13%. Citizens considers its major competition in its
primary area to include First National Bank of Palmerton, Keystone Savings
Association, Citizens National Bank, East Stroudsburg Savings Association and
Nazareth National Bank, as well as larger institutions such as First Union
National Bank, Mellon Bank and PNC Bank.
The primary service area constitutes the community delineated for
Citizens' Community Reinvestment Act Statement which states the bank intends to
meet the credit needs of the entire local community. It is Citizens' policy to
evaluate all applications for credit without regard to the applicant's race,
color, creed, sex, age or marital status.
The primary service area includes a wide variety of residential
neighborhoods, commercial businesses, retail stores, industrial complexes and
service institutions, as well as a large number of established businesses and a
substantial employment base.
EMPLOYEES
As of December 31, 1999, Citizens had 43.25 full-time equivalent
employees.
LEGAL PROCEEDINGS
The nature of Citizens' business generates a certain amount of
litigation involving matters in the ordinary course of business. In the opinion
of Citizens management, there are no proceedings pending to which Citizens is a
party or to which its property is subject, that, if determined adversely to
Citizens, would be material to Citizens' undivided profits or financial
condition, nor are there any proceedings pending, other than ordinary routine
litigation, incident to Citizens' business. In addition, no material proceedings
are pending or are known to be threatened or contemplated against Citizens by
government authorities or others.
55
<PAGE> 62
DIVIDENDS
Citizens' shareholders are entitled to receive the dividends when, as
and if declared by the Board of Directors out of legally available funds.
Citizens has historically paid quarterly cash dividends to its shareholders on
or about March 1, June 1, September 1 and December 1 of each year.
Under the Pennsylvania Banking Code of 1965, as amended, Citizens'
Board of Directors may declare and pay dividends out of the Bank's accumulated
net earnings. As of September 30, 1999, Citizens had approximately $12,323,000
available for the payment of dividends. The agreement permits Citizens to make
normal dividend payments to its shareholders, consistent with past practice,
prior to the day of the merger. Citizens paid cash dividends of $140 per share
in 1998, and $160 per share in 1999.
PRINCIPAL OWNERS OF CITIZENS CAPITAL STOCK
The following table shows, as of February 11, 2000, the name and
address of each person who owns of record or who is known by the Citizens Board
of Directors to own more than 5% of Citizens outstanding capital stock, the
number of shares beneficially owned by the person and the percentage of the
Citizens outstanding capital stock so owned.
We determined beneficial ownership by applying Commission Rule 13d-3,
which states that a person should be credited with the ownership of any stock
that he or she, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise has or shares:
Voting power, which includes the power to vote or to direct
the voting of the stock, or
Investment power, which includes the power to dispose or
direct the disposition of the stock, or has the right to
acquire beneficial ownership within 60 days after February 11,
2000, the record date of the meeting.
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C>
James A. Wimmer 1,548(a) 27.9%
1412 Hampton Road
Allentown, PA 18104
Linda P. Wimmer 1,548(a) 27.9%
1412 Hampton Road
Allentown, PA 18104
</TABLE>
56
<PAGE> 63
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Beneficial Owner Beneficially Owned Percent of Class
<S> <C> <C>
Richard W. Webb 824 14.9%
887 East Princeton Avenue
Palmerton, PA 18071
Irmgard M. James 620 11.2%
288 Harvard Avenue
Palmerton, PA 18071
CEDE & Co. 290 5.2%
PO Box 20
Bowling Green Station
New York, NY 10004
</TABLE>
(a) Includes 1,170 shares held by Linda Wimmer individually, 241 shares
held by James A. Wimmer individually, 107 shares jointly held by James
A. and Linda P. Wimmer and 30 shares held by James A.
and Linda P. Wimmer as Trustees.
OWNERSHIP OF CITIZENS CAPITAL STOCK BY EXECUTIVE OFFICERS AND DIRECTORS
The table below shows the amount and percentage of Citizens capital
stock beneficially owned by each director and executive officer, and all
executive officers and directors of Citizens, as a group, as of February 11,
2000.
Unless otherwise indicated in a footnote appearing below the table, all
shares reported in the table below are owned directly by the reporting person.
The number of shares owned by the directors and executive officers is rounded to
the nearest whole share. The percentage of all Citizens stock owned by each
director and executive officer is less than 1% unless otherwise indicated.
<TABLE>
<CAPTION>
Shares Beneficially Owned
------------------------------------------
Name of Beneficial Owner Direct Indirect Percent of Class
------ -------- ----------------
<S> <C> <C> <C>
Terry D. Eckert 82 --- 1.5%
Irmgard M. James 620 --- 11.2%
Richard M. Rahn, Sr. 26 --- ---
Thomas K. Thomas 14 --- ---
Janet Webb -- 824(a) 14.9%
Linda P. Wimmer 1,307(b) 241(c) 27.9%
James A. Wimmer 378(d) 1,170(e) 27.9%
All Officers and Directors
As a Group (7 in number) 3,114 56.2%
</TABLE>
57
<PAGE> 64
(a) Shares held individually by spouse, Richard W. Webb.
(b) Includes 1,170 shares held by Linda P. Wimmer individually, 107 shares
held jointly by James A. or Linda P. Wimmer, and 30 shares held by
James A. and Linda P. Wimmer as Trustees.
(c) Shares held individually by spouse, James A. Wimmer.
(d) Includes 241 shares held by James A. Wimmer individually, 107 shares
held jointly by James A. or Linda P. Wimmer and 30 shares held by James
A. Wimmer and Linda P. Wimmer as Trustees.
(e) Shares held individually by spouse, Linda P. Wimmer.
58
<PAGE> 65
CITIZENS BANK AND TRUST COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On the following pages of this proxy statement/prospectus we present
management's discussion and analysis of the financial condition and results of
operations of Citizens Bank and Trust Company. Management's discussion and
analysis discusses the significant changes in the results of operations, capital
resources and liquidity presented in its accompanying financial statements.
Current performance does not guarantee, assure, or may not be indicative of
similar performance in the future.
The following discussion focuses on and highlights certain information
regarding Citizens. We recommend that you read this discussion in conjunction
with the Financial Statements and related notes appearing elsewhere in this
proxy statement/prospectus.
We caution you not to place undue reliance on forward-looking
statements in this section, they reflect management's analysis only as of this
date. Citizens undertakes no obligation to publicly revise or update these
forward-looking statements to reflect subsequent events or circumstances.
59
<PAGE> 66
Introduction
Citizens net income for the first nine months of 1999 of $1,038,000 was
$54,000 or 4.9% lower than earnings for the same period in 1998 of $1,092,000.
This decrease in net income was due to higher operating expenses partially
offset by lower federal income taxes related to an increase in tax-free income
during 1999. Total assets at September 30, 1999 increased $973,000 or .7%,
compared to September 30, 1998. This increase was the result of a $745,000 rise
in loans and a $1,266,000 growth in cash and cash equivalents, partially offset
by a reduction in investment securities. The increase in assets was funded by a
$2,425,000 increase in deposits and a $1,079,000 rise in other borrowed funds,
and partially offset by a $1,554,000 decrease in securities sold under agreement
to repurchase and a reduction in shareholders' equity. At September 30, 1999,
Citizens asset quality remained high. There were no loans in non-accrual status
and delinquent loans were only .52% of total loans outstanding.
BALANCE SHEET ANALYSIS
The table below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND
INTEREST DIFFERENTIAL:
<TABLE>
<CAPTION>
Period Ended September 30,
----------------------------------------------------------------------------
(Dollars in thousands) 1999 1998
----------------------------------------------------------------------------
Average Average Average Average
ASSETS Balance Rate Interest(3) Balance Rate Interest(3)
------- ---- ----------- ------- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable investments $ 35,808 5.88% $ 2,107 $ 44,722 6.16% $ 2,755
Nontaxable investments (1) 24,770 6.73 1,668 17,985 6.78 1,219
-------- ---- -------- -------- ---- --------
Total investment securities 60,578 6.23 3,775 62,707 6.34 3,974
Loans (1) (2) 57,678 7.89 4,549 55,199 8.32 4,592
Other rate-sensitive assets 6,261 4.83 303 6,206 5.50 341
-------- ---- -------- -------- ---- --------
Total earning assets 124,517 6.93 8,627 124,112 7.18 8,907
Noninterest-earning assets 5,465 - - 4,923 - --
-------- ---- -------- -------- ---- --------
Total assets $129,982 6.64% $ 8,627 $129,035 6.90% $ 8,907
======== ==== ======== ======== ==== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 11,387 - % $ - $ 9,808 - % $ -
Savings 43,259 2.35 1,017 42,471 2.59 1,101
Time 54,005 4.96 2,677 55,626 5.36 2,982
-------- ---- -------- -------- ---- --------
Total 108,651 3.40 3,694 107,905 3.78 4,083
Borrowings and other interest-bearing
liabilities 1,974 4.19 83 1,968 4.70 92
Other liabilities 1,227 - - 1,202 - -
-------- ---- -------- -------- ---- --------
Total liabilities 111,852 3.38 3,777 111,075 3.76 4,175
Shareholders' equity 18,130 - - 17,960 - -
-------- ---- -------- -------- ---- --------
Total liabilities and $129,982 2.91% $ 3,777 $129,035 3.24% $ 4,175
shareholders' equity ======== ==== ======== ======== ==== ========
Average effective rate on interest-bearing
liabilities $ 99,238 3.81% $ 3,777 $100,065 4.17% $ 4,175
======== ==== ======== ======== ==== ========
Interest Income/Earning Assets $124,517 6.93% $ 8,627 $124,112 7.18% $ 8,907
Interest Expense/Earning Assets $124,517 3.03 $ 3,777 $124,112 3.37 $ 4,175
---- ----
Effective Interest Differential 3.90% 3.81%
==== ====
</TABLE>
60
<PAGE> 67
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
(2) Nonaccrual loans have been included in the appropriate average loan balance
category, but interest on non-accrual loans has not been included for purposes
of determining interest income.
(3) September 30, 1999 and 1998 year-to-date interest income and year-to-date
interest expense have been annualized.
BALANCE SHEET ANALYSIS
The table below presents the major asset and liability categories on an
average daily basis for the periods presented, along with interest income and
expense, and key rates and yields.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND
INTEREST DIFFERENTIAL:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
(Dollars in thousands) 1998 1997
------------------------------------------------------------------------
Average Average Average Average
ASSETS Balance Rate Interest Balance Rate Interest
------- ---- -------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Investment securities:
Taxable investments $ 43,089 6.17% $ 2,658 $ 46,800 6.09% $ 2,848
Nontaxable investments (1) 19,083 6.75 1,289 15,254 6.49 991
-------- ---- -------- -------- ---- --------
Total investment securities 62,172 6.35 3,947 62,054 6.19 3,839
Loans (1) (2) 55,656 8.24 4,588 52,891 8.42 4,450
Other rate-sensitive assets 6,332 5.35 339 4,831 5.52 267
-------- ---- -------- -------- ---- --------
Total earning assets 124,160 7.15 8,874 119,776 7.14 8,556
Noninterest-earning assets 4,906 - - 4,804 - -
-------- ---- -------- -------- ---- --------
Total assets $129,066 6.88% $ 8,874 $124,580 6.87% $ 8,556
======== ==== ======== ======== ==== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 10,130 -% $ - $ 9,106 -% $ -
Savings 42,418 2.55 1,081 42,892 2.56 1,097
Time 55,235 5.35 2,953 52,573 5.30 2,784
-------- ---- -------- -------- ---- --------
Total 107,783 3.74 4,034 104,571 3.71 3,881
Borrowings and other interest-bearing
liabilities 2,184 4.52 99 501 4.50 23
Other liabilities 1,124 - - 1,056 - -
-------- ---- -------- -------- ---- --------
Total liabilities 111,091 3.72 4,133 106,128 3.68 3,904
Shareholders' equity 17,975 - - 18,452 - -
-------- ---- -------- -------- ---- --------
Total liabilities and
shareholders' equity $129,066 3.20% $ 4,133 $124,580 3.13% $ 3,904
======== ==== ======== ======== ==== ========
Average effective rate on interest-bearing
liabilities $ 99,837 4.14% $ 4,133 $ 95,966 4.07% $ 3,904
======== ==== ======== ======== ==== ========
Interest Income/Earning Assets $124,160 7.15% $ 8,874 $119,776 7.14% $ 8,556
Interest Expense/Earning Assets $124,160 3.33 $ 4,133 $119,776 3.26 $ 3,904
Effective Interest Differential ---- ----
3.82% 3.88%
==== ====
</TABLE>
61
<PAGE> 68
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
(2) Nonaccrual loans have been included in the appropriate average loan balance
category, but interest on nonaccrual loans has not been included for purposes of
determining interest income.
Interest-Earning Assets and Interest-Bearing Liabilities
Average interest-bearing assets totaled $124,517,000 at September 30,
1999, a $405,000, or .3% increase compared to September 30, 1998. During this
period, the average balance of the loan portfolio increased $2,479,000, or 4.5%
while the average balance of investment securities decreased $2,129,000, or
3.4%. Average earning assets were $124,160,000 at December 31, 1998 and
$119,776,000 at December 31, 1997.
Average interest-bearing liabilities totaled $99,238,000 at September 30,
1999, a decrease of $827,000 or 0.8%, compared to September 30, 1998. This
decrease was due to a $1,621,000 decrease in time deposits, partially offset by
increases to savings deposits and borrowings and other interest-bearing
liabilities of $788,000 and $6,000, respectively. Average interest-bearing
liabilities were $99,837,000 at December 31, 1998 and $95,966,000 at December
31, 1997.
The amortized cost and fair value of investment securities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------
AVAILABLE FOR SALE Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,033 $ 1 $ (2) $ 2,032
Obligations of other U.S.
Governmental agencies
and corporations 19,328 2 (273) 19,057
Corporate and other securities 3,782 1 (115) 3,668
Mortgage-backed securities 9,948 29 (175) 9,802
Obligations of states and
political subdivisions 24,151 74 (702) 23,523
----------------------------------------------
$ 59,242 $ 107 $ (1,267) $ 58,082
Totals ==============================================
</TABLE>
<TABLE>
<CAPTION> SEPTEMBER 30, 1999
------------------
Gross Gross Estimated
HELD TO MATURITY Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $1,296 $ 8 $ (14) $1,290
Corporate and other securities 50 -- -- 50
------------------------------------------
Totals $1,346 $ 8 $ (14) $1,340
===========================================
</TABLE>
62
<PAGE> 69
<TABLE>
<CAPTION> SEPTEMBER 30, 1998
------------------
Gross Gross Estimated
AVAILABLE FOR SALE Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 12,672 $ 174 $ -- $ 12,846
Obligations of other U.S.
Governmental agencies
and corporations 10,642 96 (48) 10,690
Corporate and other securities 2,124 21 (45) 2,100
Mortgage-backed securities 12,183 121 (6) 12,298
Obligations of states and
political subdivisions 20,980 547 (2) 21,525
----------------------------------------------------
Totals $ 58,601 $ 959 $ (101) $ 59,459
====================================================
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
HELD TO MATURITY Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
--------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities $1,755 $ 33 $ (4) $1,784
Corporate and other securities 97 -- (2) 95
--------------------------------------------
Totals $1,852 $ 33 $ (6) $1,879
============================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
AVAILABLE FOR SALE Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,075 $ 85 $ -- $ 8,160
Obligations of other U.S.
Government agencies
and corporations 11,852 46 (17) 11,881
Obligations of states and
political subdivisions 24,576 462 (39) 24,999
Corporate and other securities 1,617 9 (19) 1,607
Mortgage-backed securities 11,579 87 (26) 11,640
Other securities 5 -- -- 5
----------------------------------------------------
Totals $ 57,704 $ 689 $ (101) $58,292
====================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
HELD TO MATURITY Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
------------------------------------------------
<S> <C> <C> <C> <C>
Corporate and other securities $ 97 $ -- $ (3) $ 94
Mortgage-backed securities 1,594 23 (4) 1,613
------------------------------------------------
Totals $ 1,691 $ 23 $ (7) $ 1,707
================================================
</TABLE>
63
<PAGE> 70
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
AVAILABLE FOR SALE Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 12,652 $ 50 $ (2) $ 12,700
Obligations of other U.S.
Government agencies
and corporations 7,982 31 (103) 7,910
Obligations of states and
political subdivisions 14,608 250 (3) 14,855
Corporate and other securities 3,130 3 (49) 3,084
Mortgage-backed securities 19,880 131 (27) 19,984
Other securities 5 -- -- 5
-----------------------------------------------------
Totals $58,257 $465 $(184) $58,538
=====================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
HELD TO MATURITY Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
-------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 220 $ -- $ -- $ 220
Corporate and other securities 129 -- (5) 124
Mortgage-backed securities 2,231 35 (8) 2,258
------------------------------------------------
Totals $ 2,580 $ 35 $ (13) $ 2,602
================================================
</TABLE>
There are no significant concentrations of securities (greater than 10% of
shareholders' equity) in any individual security issuer. The maturity
analysis of investment securities held to maturity, including the weighted
average yield for each category as of September 30, 1999, is as follows:
<TABLE>
<CAPTION>
Under 1 - 5 5 - 10 Over
1 year years years 10 years Total
------ ----- ----- -------- -----
(Dollars in thousands)
Mortgage-backed securities:
<S> <C> <C> <C> <C> <C>
Carrying value $ - $ - $ - $ 1,296 $ 1,296
Weighted average yield 0.00% 0.00% 0.00% 5.66% 5.66%
Weighted average maturity 17 yrs 6 mos
Corporate and other securities:
Carrying value - 50 - - 50
Weighted average yield 0.00% 7.52% 0.00% 0.00% 7.52%
Weighted average maturity 1 yr 10 mos
Total:
Carrying value - 50 - 1,296 1,346
Weighted average yield 0.00% 7.52% 0.00% 5.66% 5.73%
Weighted average maturity 16 yrs 11 mos
</TABLE>
The maturity analysis of securities available for sale, including the
weighted average yield for each category, as of September 30, 1999 is as
follows:
64
<PAGE> 71
<TABLE>
<CAPTION>
Under 1 - 5 5 - 10 Over
(Dollars in thousands) 1 year years years 10 years Total
------ ----- ----- -------- -----
Obligations of other U.S.
U.S. Treasury securities:
<S> <C> <C> <C> <C> <C>
Amortized cost - 2,033 - - 2,033
Weighted average yield 0.00% 5.69% 0.00% 0.00% 5.69%
Weighted average maturity 1 yr 10 mos
Obligations of other U.S.
Government agencies
and corporations:
Amortized cost 3,513 14,013 1,500 302 19,328
Weighted average yield 6.66% 6.27% 6.75% 7.65% 6.40%
Weighted average maturity 2 yrs 8 mos
Corporate and other securities:
Amortized cost - 3,782 - - 3,782
Weighted average yield 0.00% 6.46% 0.00% 0.00% 6.46%
Weighted average maturity 4 yrs 2 mos
Mortgage-backed securities:
Amortized cost 157 2,000 2,608 5,183 9,948
Weighted average yield 7.22% 6.68% 5.97% 6.72% 6.52%
Weighted average maturity 14 yrs 8 mos
Obligations of states and political subdivisions:
Amortized cost 276 1,402 14,100 8,373 24,151
Weighted average yield 7.92% 7.91% 7.42% 7.68% 7.55%
Weighted average maturity 8 yrs 10 mos
Total:
Amortized Cost 3,946 23,230 18,208 13,858 59,242
Weighted average yield 6.77% 6.39% 7.16% 7.32% 6.87%
Weighted average maturity 7 yrs 4 mos
</TABLE>
Weighted average yield is commuted by dividing the annualized interest income,
including the accretion of discounts and the amortization of premiums, by the
carrying value. Tax-exempt securities were adjusted to a tax-equivalent basis
and are based on the federal statutory tax rate of 34%.
Investment Securities
Total securities of $59,428,000 decreased $1,883,000 from September 30,
1998 to September 30, 1999. This decrease was the result of Citizens decreasing
both the available for sale portfolio and the held to maturity portfolios by
$1,377,000 and $506,000, respectively. During the period from September 30, 1998
to September 30, 1999, the bank used the proceeds from both the sale and
maturity of U.S. Treasury securities and mortgage-backed securities to fund the
purchase of higher yielding U.S. Government agency obligations and obligations
of states and political subdivision securities. The September 30, 1999 security
portfolio balance did not change significantly from the December 31, 1998
balance of $59,988,000 and the December 31, 1997 balance of $61,118,000.
The September 30, 1999 federal funds sold balance of $4,375,000 was
slightly lower than the $4,425,000 balance at September 30, 1998. The September
30, 1999 balance was $675,000 lower than the December 31, 1998 balance of
$5,050,000 and $1,575,000 higher than the December 31, 1997 balance of
$2,800,000.
65
<PAGE> 72
Loans
Loans grew $770,000, or 1.3% from $57,313,000 at September 30, 1998 to
$58,083,000 at September 30, 1999. This growth was due to increases in the
commercial and installment portfolios of $588,000 and $403,000, respectively.
These increases were offset by a $221,000 decrease in mortgages. The September
30, 1999 balance was 1.3% higher than the December 31, 1998 balance as a result
of growth in the commercial and installment portfolios. The September 30, 1999
balance was 5.9% higher than the December 31, 1997 balance due to a rise in the
installment and mortgage portfolios.
Major classifications of loans are summarized as follows at September 30, 1999
and 1998, and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
----------------- -----------------
<S> <C> <C> <C> <C>
Commercial $14,205 $13,617 $13,513 $14,624
Installment 24,352 23,949 23,556 23,332
Mortgage 19,526 19,747 20,284 16,882
-------------------- ---------------------
Total 58,083 57,313 57,353 54,838
-------------------- ---------------------
Less:
Unearned net loan fees 242 259 255 238
Unearned discount -- 1 1 4
Allowance for possible loan losses 586 543 540 516
-------------------- ---------------------
828 803 796 758
-------------------- ---------------------
Loans, Net $57,255 $56,510 $56,557 $54,080
==================== ====================
</TABLE>
A loan is generally classified as non-accrual when principal or
interest has consistently been in default for a period of 90 days or more or
because of a deterioration in the financial condition of the borrower or payment
in full of principal or interest is not expected. Delinquent loans past due 90
days or more and still accruing interest are generally well-secured and expected
to be restored to a current status in the near future. The following table
details those loans that were placed on non-accrual status, were accounted for
as troubled debt restructurings or were delinquent 90 days or more and still
accruing interest:
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1999 1998 1998 1997
-------------- -------------
<S> <C> <C> <C> <C>
Nonaccrual loans $ -- $ 8 $ -- $ --
Trouble debt restructurings -- -- -- --
Delinquent loans 300 191 293 337
-------------- -------------
Total $300 $199 $293 $337
============== ==============
</TABLE>
66
<PAGE> 73
ALLOWANCE FOR LOAN
LOSSES
A summary of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
September 30, December 31,
---------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Average loans $ 57,678 $ 55,199 $ 55,656 $ 52,891 49,997 $ 43,408 $ 38,460
===============================================================================================
Allowance, beginning of period $ 540 $ 516 $ 516 $ 457 $ 405 $ 337 $ 272
-----------------------------------------------------------------------------------------------
Loans charged off:
Commercial and industrial -- -- -- -- -- -- --
Installment and other -- -- 17 7 30 1 --
Real estate -- 18 18 -- -- 8 --
Lease financing -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------
Total loans charged off -- 18 35 7 30 9 --
Recoveries:
Commercial and industrial -- -- -- -- -- -- --
Installment and other 6 -- -- 4 1 -- 2
Real estate 1 1 1 -- -- -- --
Lease financing -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------
Total recoveries 7 1 1 4 1 -- 2
------------------------------------------------------------------------------------------------
Net loans charged-off (7) 17 34 3 29 9 (2)
-----------------------------------------------------------------------------------------------
Provision for loan losses 39 44 58 62 81 77 63
-----------------------------------------------------------------------------------------------
Allowance, end of period $ 586 $ 543 $ 540 $ 516 $ 457 $ 405 $ 337
===============================================================================================
Ratio of net charge offs to
average loans outstanding -0.01% 0.03% 0.06% 0.01% 0.06% 0.02% -0.01%
===============================================================================================
</TABLE>
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.
The allowance for loan losses of $586,000 at September 30, 1999 was 1.01%
of loans, compared to 0.95% of loans at September 30, 1998. This increase is due
to Citizens Bank and Trust Company adding $39,000 to the allowance and
recovering $7,000 of loans previously charged off, during the first nine months
of 1999. Citizens Bank and Trust Company did not charge off any loans during the
first nine months of 1999. The $540,000 allowance for possible loan losses at
December 31, 1998 was 0.95% of loans and the $516,000 allowance for loan losses
at December 31, 1997 was also 0.95%.
67
<PAGE> 74
Transactions in the allowance for possible loan losses account for the periods
ending December 31, 1999 and 1998, and the years ended December 31, 1998 and
1997 are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998 1998 1997
------------ ------------
<S> <C> <C> <C> <C>
Beginning balance $540 $516 $516 $457
Provision charged to operations 39 44 58 62
Recovery of loans previously charged off 7 1 1 4
------------ ------------
586 561 575 523
Loans charged off -- 18 35 7
------------ ------------
Ending balance $586 $543 $540 $516
============ ============
</TABLE>
Bank Premises and equipment are summarized as follows at September 30, 1999 and
1998, and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
September 30, December 31,
--------------------- ----------------------
1999 1998 1998 1997
-----------------------------------------------
<S> <C> <C> <C> <C>
Land and buildings $ 1,745 $1,788 $ 1,720 $1,795
Furniture & equipment 235 223 170 465
Computer equipment 356 153 283 344
Computer software 118 35 43 214
Bank-owned vehicles 16 -- -- 11
--------------------- ----------------------
2,470 2,199 2,216 2,829
Less accumulated depreciation 855 691 672 1,421
--------------------- ----------------------
Bank premises and equipment, net $ 1,615 $1,508 $ 1,544 $1,408
===================== ======================
</TABLE>
DEPOSIT STRUCTURE
The following table is a distribution of average balances and average rates
paid on the deposit categories for September 30, 1999 and 1998, and December 31,
1998 and 1997.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998 1998 1997
---------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Rate Amount Rate Amount Rate Amount Rate
-------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing $ 11,387 --% $ 9,808 -- % $ 10,130 -- % $ 9,106 --%
Interest-bearing checking
accounts 12,440 1.90% 11,912 2.09% 12,012 2.08% 12,437 2.10%
Money market accounts 9,939 2.63% 10,542 2.84% 10,322 2.82% 10,701 2.83%
Savings 20,880 2.50% 20,017 2.70% 20,084 2.69% 19,754 2.70%
Time -- under $100,000 47,722 4.93% 47,043 5.30% 47,025 5.29% 44,154 5.26%
Time -- over $100,000 6,283 5.21% 8,583 5.73% 8,210 5.67% 8,419 5.47%
-------- -------- -------- ---------
Total $108,651 $107,905 $107,783 $ 104,571
======== ======== ======== =========
</TABLE>
68
<PAGE> 75
At September 30, 1999, the scheduled maturities of time deposits are as
follows.
<TABLE>
<S> <C>
(Dollars in thousands)
Three months or less $18,284
Over three months to 25,701
twelve months
Over one year through 6,117
three years
Over three years 3,857
-------
Total $53,959
=======
</TABLE>
Total deposits of $109,300,000 at September 30, 1999 were $2,425,000, or
2.3% higher than the September 30, 1998 balance of $106,875,000. This increase
was primarily the result of a $2,273,000 rise in non-interest bearing deposits.
Also during the period, interest-bearing checking accounts grew $1,059,000 and
savings accounts increased $1,040,000. Partially offsetting these rises were
decreases to money market accounts, time deposits under $100,000 and time
deposits over $100,000 of $12,000, $491,000 and $1,444,000, respectively. The
September 30, 1999 balance grew $2,290,000 from the December 31, 1998 balance of
$107,010,000 and $4,576,000 from the December 31, 1997 deposit balance of
$104,724,000.
Deposits are summarized as follows at September 30, 1999 and 1998, and December
31, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in thousands) September 30, December 31,
-----------------------------------------------
1999 1998 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Noninterest-bearing $ 13,105 $ 10,832 $ 10,894 $ 8,833
Interest-bearing checking accounts 13,117 12,058 12,663 11,920
Money market accounts 9,274 9,286 9,704 10,613
Savings 19,845 18,805 19,111 18,272
Time, under $100,000 47,048 47,539 48,254 46,520
Time, over $100,000 6,911 8,355 6,384 8,566
-----------------------------------------------
Total Deposits $109,300 $106,875 $107,010 $104,724
===============================================
</TABLE>
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possible additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted
assets, and of Tier 1 capital to average assets. Management believes, as of
September 30, 1999, that the Bank meets all capital adequacy requirements to
which it is subject.
69
<PAGE> 76
As of September 30, 1999, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are presented in the following
table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
----------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1999:
Total capital (to risk weighted assets) $19,008 29.89% $ 5,088 8.00% $ 6,360 10.00%
Tier 1 capital (to risk weighted assets) $18,422 28.97% $ 2,544 4.00% $ 3,816 6.00%
Tier 1 capital (to average assets) $18,422 13.99% $ 5,268 4.00% $ 6,584 5.00%
AS OF SEPTEMBER 30, 1998:
Total capital (to risk weighted assets) $18,640 31.95% $ 4,667 8.00% $ 5,834 10.00%
Tier 1 capital (to risk weighted assets) $18,097 31.02% $ 2,333 4.00% $ 3,500 6.00%
Tier 1 capital (to average assets) $18,097 13.77% $ 5,256 4.00% $ 6,569 5.00%
AS OF DECEMBER 31, 1998:
Total capital (to risk weighted assets) $18,772 29.25% $ 5,134 8.00% $ 6,417 10.00%
Tier 1 capital (to risk weighted assets) $18,232 28.41% $ 2,567 4.00% $ 3,850 6.00%
Tier 1 capital (to average assets) $18,232 14.12% $ 5,166 4.00% $ 6,458 5.00%
AS OF DECEMBER 31, 1997:
Total capital (to risk weighted assets) $19,399 31.50% $ 4,927 8.00% $ 6,159 10.00%
Tier 1 capital (to risk weighted assets) $18,883 30.66% $ 2,464 4.00% $ 3,695 6.00%
Tier 1 capital (to average assets) $18,883 14.94% $ 5,056 4.00% $ 6,320 5.00%
</TABLE>
Results of Operations
- ---------------------
Net income for the first nine months of 1999 of $1,038,000 was $54,000, or
4.9% below the first nine months of 1998. The basic and diluted earnings per
share for the first nine months of 1999 and 1998 were $187.20 and $193.07,
respectively. This decrease in net income was due to higher operating expenses
and partially offset by lower federal income taxes related to the increase in
tax-free income during 1999. The December 31, 1998 net income of $1,451,000 was
4.7% higher than the December 31, 1997 net income of $1,386,000 and 13.2% higher
than the December 31, 1996 net income of $1,282,000.
The Bank adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although certain
changes in assets and liabilities, such as unrealized gains and losses on
available for sale securities, are reported as a separate component of the
equity section of the balance sheet, such items, along with net income, are
components of
70
<PAGE> 77
comprehensive income. The adoption of SFAS No. 130 had no effect on the Bank's
net income or stockholders' equity. Comprehensive income for the first nine
months of 1999 was a net loss of $115,000, compared to net income of $1,472,000
for the first nine months of 1998. Comprehensive income for December 31, 1998,
1997 and 1996 was $1,654,000, $1,640,000 and $1,395,000, respectively.
Net Interest Income
- -------------------
Net interest income at September 30, 1999 of $3,261,000 was $28,000 less
than the September 30, 1998 net interest income of $3,289,000. Interest income
decreased $320,000 during this period primarily as a result of a reduction in
investment securities interest income. Investment securities interest income was
reduced due to a decrease in both the portfolio volume and the yield. The
reduction in other earning assets interest income was the result of lower
yields. Interest expense decreased $292,000 during this period. This reduction
was the result of lower rates experienced in all interest-bearing liability
categories.
Taxable-equivalent net interest income was $3,623,000 for the first nine
months of 1999, compared to $3,539,000 for the same period in 1998, an $84,000
or 2.37% increase. The change in net interest income on a tax-equivalent basis
is primarily the result of both the decrease in interest expense and the
increase in the nontaxable investment portfolio interest income during this
period. The net interest margin for the first nine months of 1999 and 1998 was
3.90% and 3.81%, respectively.
The tax-equivalent interest income at December 31, 1998 of $4,741,000 was
higher than both the December 31, 1997 and 1996 tax-equivalent net interest
income of $4,652,000 and $4,414,000, respectively. The net interest margin for
the twelve-month period ending December 31, 1998 of 3.82% was lower the 3.88% at
December 31, 1997 and the 3.87% at December 31, 1996. The lower 1998 net
interest margin is the result of higher interest rates paid on deposits in 1998,
compared to 1997 and 1996.
For analytical purposes, the following table reflects tax-equivalent net
interest income in recognition of the income tax savings on tax-exempt items
such as interest on municipal securities and tax-exempt loans. Adjustments are
made using a statutory federal tax rate of 34%.
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 1999 1998 1998 1997 1996
----------------- ----------------------------
<S> <C> <C> <C> <C> <C>
Interest income $6,091 $6,411 $8,513 $8,287 $7,849
Interest expense 2,830 3,122 4,133 3,904 3,647
----------------- ----------------------------
Net interest income 3,261 3,289 4,380 4,383 4,202
Tax equivalent adjustment 362 250 361 269 212
----------------- ----------------------------
Net interest income
(fully taxable equivalent) $3,623 $3,539 $4,741 $4,652 $4,414
================= ============================
</TABLE>
71
<PAGE> 78
The rate-volume variance analysis set forth in the table below, which is
computed on a tax-equivalent basis (tax rate of 34%), analyzes changes in net
interest income for the periods presented by their rate and volume components.
<TABLE>
<CAPTION>
Sept. 1999 over (under) Sept. Dec. 1998 over (under) 1997 Dec. 1997 over (under) 1996
1998 due to changes in due to changes in due to changes in
---------------------------- --------------------------- ---------------------------
(Dollars in thousands) Net Net Net
Change Rate Volume Change Rate Volume Change Rate Volume
------ ----- ------ ------ ---- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Investment
securities (1) $(153) $(113) $ (40) $ 108 $ 85 $ 23 $236 $ 141 $ 95
Loans (1) (26) (162) 136 137 (50) 187 185 779 (594)
Other assets (29) (32) 3 73 (10) 83 75 3 72
----- ----- ----- ----- ---- ----- ---- ----- -----
Total (208) (307) 99 318 25 293 496 923 (427)
----- ----- ----- ----- ---- ----- ---- ----- -----
INTEREST EXPENSE:
Savings deposits (51) (64) 13 (16) (5) (11) 11 (3) 14
Time deposits (231) (160) (71) 169 29 140 223 24 199
Borrowings and other interest-
bearing liabilities (10) (10) -- 76 19 57 24 24 --
----- ----- ----- ----- ---- ----- ---- ----- -----
Total (292) (234) (58) 229 43 186 258 45 213
----- ----- ----- ----- ---- ----- ---- ----- -----
Changes in net
interest income $ 84 $ (73) $ 157 $ 89 $(18) $ 107 $238 $ 878 $(640)
===== ===== ===== ===== ==== ===== ==== ===== =====
</TABLE>
(1) The interest earned on nontaxable investment securities and loans is shown
on a tax equivalent basis.
Provision for Loan Losses
- -------------------------
The provision for loan losses for the first nine months of 1999 was
$39,000, compared to $44,000 for the same period in 1998. The Bank experienced a
$7,000 net recovery of loans during the first nine months of 1999, compared to a
net charge off of $17,000 during the same period in 1998. The provision for loan
losses for the year ended December 31, 1998, 1997 and 1996 were $58,000, $62,000
and $81,000, respectively.
Other Income
- ------------
Other income for the first nine months of 1999 of $362,000 did not change
from the same period in 1998. A decrease in customer service fees during the
first nine months of 1999 was offset by increases in net realized gains on sales
of securities and other income. Other income for the entire year of 1998 of
$511,000 was $140,000 higher than the 1997 other income of $371,000, and
$156,000 higher than the 1996 other income of $355,000.
Other Operating Expenses
- ------------------------
Other operating expenses of $2,457,000 for the first nine months of 1999,
was $224,000 higher than the same period in 1998. This rise was the result of
increases in all other operating expense categories. Other operating expenses
for the entire year of 1998 of $3,037,000, was $141,000 and $229,000 higher than
the 1997 and 1996 other operating expenses.
72
<PAGE> 79
EXPERTS
The consolidated financial statements of Harleysville National
Corporation and subsidiaries as of December 31, 1998, and 1997, and for each of
the years in the three-year period ended December 31, 1998, have been
incorporated by reference herein and in the registration statement in reliance
upon the report of Grant Thornton, LLP, independent certified public
accountants, and upon the authority of the firm as experts in accounting and
auditing.
The financial statements of Citizens Bank and Trust Company, as of
December 31, 1998, 1997 and 1996, included in this proxy statement/prospectus
have been audited by Beard & Company, Inc., independent certified public
accountants, as indicated in its reports with respect thereto, and are included
herein in reliance upon the authority of the firm as experts in accounting and
auditing.
LEGAL OPINIONS
The legality of the shares of Harleysville common stock to be issued in
connection with the merger and certain other legal matters relating to the
transaction will be passed upon by the law firm of Shumaker Williams, P.C., Camp
Hill, Pennsylvania, Special Counsel to Harleysville.
OTHER MATTERS
Citizens' Board of Directors knows of no other matters, other than
those discussed in this proxy statement/prospectus, that will be presented at
the meeting. However, if any other matters are properly brought before the
meeting and any adjournment of the meeting, any proxy given pursuant to this
solicitation will be voted in accordance with the recommendations of the Board
of Directors of Citizens.
WHERE YOU CAN FIND MORE INFORMATION
Harleysville is subject to the informational requirements of the
Exchange Act, and, accordingly, files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information are available for inspection and copying at the Public Reference
Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The public may obtain information on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. Harleysville
is an electronic filer with the Commission. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission Web site is http://www.sec.gov.
You may also inspect materials and other information concerning
Harleysville at the offices of the National Association of Securities Dealers,
Inc. at 1735 K Street, N.W., Washington, D.C., because Harleysville's common
stock is authorized for quotation on the
73
<PAGE> 80
National Market System of The National Association of Securities Dealers
Automated Quotation System.
Citizens is not subject to the information requirements of the Exchange
Act and Citizens' capital stock is not authorized for quotation on the NASDAQ or
on any stock exchange, but is traded on a limited basis in privately negotiated
transactions.
This proxy statement/prospectus forms a part of a Registration
Statement that Harleysville has filed with the Commission under the Securities
Act, with respect to the Harleysville common stock to be issued in the merger.
This proxy statement/prospectus does not contain all of the information in the
Registration Statement. The Commission's rules and regulations permit omission
of certain information. You may inspect and copy the Registration Statement,
including any amendments and exhibits, at the locations mentioned above.
Statements contained in this proxy statement/prospectus as to the contents of
any contract or other document are not necessarily complete. We refer you to the
copy of the contract or other document, filed as an exhibit to the Registration
Statement. We also qualify our discussions by these documents.
Documents incorporated by reference are available from Harleysville
without charge (except for exhibits to the documents unless the exhibits are
specifically incorporated in this document by reference). You may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from Harleysville at the following address:
Harleysville National Corporation
485 Main Street
P.O. Box 195
Harleysville, PA 19438
Attention: JoAnn M. Bynon
(215) 256-8851
If you would like to request documents from Harleysville, please do so
by April 1, 2000, in order to receive them before the special meeting of
shareholders. If you request any incorporated documents from us, we will mail
them to you by first-class mail, or other equally prompt means, within one
business day of our receipt of your request.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the meeting. We have not
authorized anyone to provide you with information that is different from what is
contained or incorporated by reference in this document. This document is dated
February 14, 2000. You should not assume that the information contained in this
document is accurate as of any date other than that date, and neither the
mailing of this document to shareholders nor the issuance of Harleysville's
securities in the merger creates any implication to the contrary.
74
<PAGE> 81
All information in this proxy statement/prospectus that relates to
Harleysville National Corporation has been provided or verified by Harleysville
National Corporation. All information that relates to Citizens has been provided
or verified by Citizens.
75
<PAGE> 82
CITIZENS BANK AND TRUST COMPANY
INDEX TO FINANCIAL STATEMENTS AND
SUPPLEMENTARY FINANCIAL INFORMATION
Page
Selected Financial Data 15
Management's Discussion and Analysis 59
Interim Statements F-1
YEARS ENDED DECEMBER 31, 1998 AND 1997
Independent Auditor's Report F-7
Balance Sheets F-8
Statements of Income F-9
Statements of Changes in Stockholders' Equity F-10
Statements of Cash Flows F-11
Notes to Financial Statements F-12
YEARS ENDED DECEMBER 31, 1997 AND 1996
Independent Auditor's Report F-30
Balance Sheets F-31
Statements of Income F-32
Statements of Changes in Stockholders' Equity F-33
Statements of Cash Flows F-34
Notes to Financial Statements F-35
<PAGE> 83
CITIZENS BANK AND TRUST COMPANY
BALANCE SHEET
UNAUDITED
(Dollars in thousands)
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
ASSETS 1999 1998 1998 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 5,050 $ 2,550 $ 3,030 $ 3,590
Interest-bearing demand deposits with other banks 2,129 3,363 1,703 643
-------------------------------------------------------
Cash and cash equivalents 7,179 5,913 4,733 4,233
Federal funds sold 4,375 4,425 5,050 2,800
Securities available for sale 58,082 59,459 58,292 58,538
Securities held to maturity (fair value $1,340
at Sept. 30, 1999, $1,879 at Sept. 30, 1998
$1,707 at December 31, 1998 and
$2,602 at December 31, 1997) 1,346 1,852 1,691 2,580
Loans receivable, net 57,255 56,510 56,557 54,080
Bank premises and equipment, net 1,615 1,508 1,544 1,408
Accrued interest receivable 1,001 1,056 940 985
Prepaid expenses and other assets 1,434 591 552 552
-------------------------------------------------------
Total assets $ 132,287 $ 131,314 $ 129,359 $ 125,176
=======================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 13,105 $ 10,832 $ 10,894 $ 8,833
Interest bearing 96,195 96,043 96,116 95,891
-------------------------------------------------------
Total deposits 109,300 106,875 107,010 104,724
Securities sold under agreements to repurchase 2,058 3,612 1,711 262
Other borrowed funds 1,954 875 939 --
Accrued interest payable 402 498 434 522
Other liabilities 916 792 645 600
-------------------------------------------------------
Total liabilities 114,630 112,652 110,739 106,108
-------------------------------------------------------
Shareholders' Equity:
Common Stock, par value $50 per share;
authorized 6,000 shares; 5,542 shares issued and
outstanding at September 30, 1999; 5,585 shares issued
and outstanding
outstanding at September 30, 1998 and
December 31, 1998;
6,000 shares issued and outstanding at
December 31, 1997 277 279 279 300
Capital surplus 5,822 6,003 6,003 7,300
Retained earnings 12,323 11,815 11,950 11,283
Accumulated other comprehensive income (765) 565 388 185
-------------------------------------------------------
Total shareholders' equity 17,657 18,662 18,620 19,068
-------------------------------------------------------
Total liabilities and shareholders' equity $ 132,287 $ 131,314 $ 129,359 $ 125,176
=======================================================
</TABLE>
F-1
<PAGE> 84
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
(Dollars in thousands except average number
of common shares and per share information) FOR THE NINE MONTHS ENDED FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
INTEREST INCOME 1999 1998 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans, including fees $3,505 $3,457 $4,615 $4,464 $4,275
Investment securities:
Taxable 1,610 2,097 2,658 2,848 2,734
Exempt from federal taxes 829 602 901 709 648
Other 147 255 339 266 192
----------------------------------------------------------
Total interest income 6,091 6,411 8,513 8,287 7,849
----------------------------------------------------------
INTEREST EXPENSE
Deposits 2,771 3,053 4,034 3,881 3,647
Other 59 69 99 23 --
----------------------------------------------------------
Total interest expense 2,830 3,122 4,133 3,904 3,647
----------------------------------------------------------
Net interest income 3,261 3,289 4,380 4,383 4,202
Provision for loan losses 39 44 58 62 81
----------------------------------------------------------
Net interest income after provision
for loan losses 3,222 3,245 4,322 4,321 4,121
----------------------------------------------------------
OTHER OPERATING INCOME
Customer service fees 150 170 243 183 183
Net realized gains on sales of securities 43 37 77 12 --
Other 169 155 191 176 172
----------------------------------------------------------
Total other income 362 362 511 371 355
----------------------------------------------------------
Net interest income after provision
for loan losses and other income 3,584 3,607 4,833 4,692 4,476
----------------------------------------------------------
OTHER OPERATING EXPENSES
Salaries, wages and employee benefits 1,300 1,252 1,675 1,640 1,566
Expenses of premises and fixed assets 362 273 462 444 449
Other 795 708 900 812 793
----------------------------------------------------------
Total other operating expenses 2,457 2,233 3,037 2,896 2,808
----------------------------------------------------------
Income before income tax expense 1,127 1,374 1,796 1,796 1,668
Income tax expense 89 282 345 410 386
----------------------------------------------------------
Net income $1,038 $1,092 $1,451 $1,386 $1,282
==========================================================
Weighted average number of common shares:
Basic 5,545 5,656 5,638 6,000 6,000
==========================================================
Diluted 5,545 5,656 5,638 6,000 6,000
==========================================================
Net Income per share information:
Basic $187.20 $193.07 $257.31 $231.06 $213.71
==========================================================
Diluted $187.20 $193.07 $257.31 $231.06 $213.71
==========================================================
Cash Dividend per share $120.00 $105.00 $140.00 $100.00 $80.00
==========================================================
</TABLE>
F-2
<PAGE> 85
CITIZENS BANK AND TRUST COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND THE
PERIOD ENDING SEPTEMBER 30, 1999
UNAUDITED
<TABLE>
<CAPTION>
(Dollars in thousands) ACCUMULATED
OTHER TOTAL
COMMON CAPITAL RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK SURPLUS EARNINGS INCOME EQUITY
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 300 $ 7,300 $ 10,497 $ (69) $ 18,028
--------
Comprehensive income:
Net Income -- -- 1,386 -- 1,386
Changes in net unrealized gains
(losses) on securities available
for sale -- -- -- 254 254
--------
Total comprehensive income 1,640
Cash Dividends ($100 per share) -- -- (600) -- (600)
--------------------------------------------------------------------
Balance, December 31, 1997 300 7,300 11,283 185 19,068
Comprehensive income:
Net Income -- -- 1,451 -- 1,451
Changes in net unrealized gains
(losses) on securities available
for sale -- -- -- 203 203
--------
Total comprehensive income 1,654
Repurchase of 415 shares of common
stock (21) (1,297) -- -- (1,318)
Cash Dividends ($140 per share) -- -- (784) -- (784)
--------------------------------------------------------------------
Balance, December 31, 1998 279 6,003 11,950 388 18,620
Comprehensive income:
Net Income -- -- 1,038 -- 1,038
Changes in net unrealized gains
(losses) on securities available
for sale -- -- -- (1,153) (1,153)
--------
Total comprehensive income (115)
Repurchase of 43 shares of common
stock (2) (181) -- -- (183)
Cash Dividends ($120 per share) -- -- (665) -- (665)
--------------------------------------------------------------------
Balance, September 30, 1999 $ 277 $ 5,822 $ 12,323 $ (765) $ 17,657
====================================================================
</TABLE>
F-3
<PAGE> 86
CITIZENS BANK AND TRUST COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) Nine Months Ended Sept. 30, Year Ended December 31,
OPERATING ACTIVITIES: 1999 1998 1998 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 1,038 $ 1,092 $ 1,451 $ 1,386
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 39 44 58 62
Depreciation 164 101 143 146
Net gain on sale of securities (43) (37) (77) (12)
Net amortization of investment
securities discount/premiums 107 110 147 89
Decrease (increase) in accrued income receivable (61) (71) 46 (86)
Net (increase) decrease in prepaid expenses and
other assets (882) (39) 96 (33)
(Decrease) increase in accrued interest payable (32) (24) (88) 70
Net increase (decrease) in other liabilities 866 (5) (155) 49
-----------------------------------------------------
Net cash provided by operating activities 1,196 1,171 1,621 1,671
-----------------------------------------------------
INVESTING ACTIVITIES:
Proceeds, sales, maturity or calls of securities 20,038 27,524 38,693 29,253
Purchases of securities (21,295) (27,213) (37,321) (27,897)
Federal funds sold decrease (increase) 675 (1,625) (2,250) 75
Net increase in loans (737) (2,474) (2,535) (3,002)
Purchases of premises and equipment (235) (201) (280) (16)
-----------------------------------------------------
Net cash used in investing activities (1,554) (3,989) (3,693) (1,587)
-----------------------------------------------------
FINANCING ACTIVITIES:
Net increase in deposits 2,290 2,151 2,286 1,750
Net increase in securities sold under
agreements to repurchase 347 3,350 1,449 262
Net increase in other borrowed funds 1,015 875 939 --
Repurchase of common stock (183) (1,318) (1,318) --
Cash dividends & fractional shares (665) (560) (784) (600)
-----------------------------------------------------
Net cash provided by financing activities 2,804 4,498 2,572 1,412
-----------------------------------------------------
Increase in cash and cash equivalents 2,446 1,680 500 1,496
Cash and cash equivalents at beginning of period 4,733 4,233 4,233 2,737
-----------------------------------------------------
Cash and cash equivalents at end of the period $ 7,179 $ 5,913 $ 4,733 $ 4,233
=====================================================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 2,862 $ 3,146 $ 4,221 $ 3,834
=====================================================
Non-cash transactions:
Transfer from loans to other real estate owned $ 146 $ 328 $ 375 $ 415
=====================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 87
CITIZENS BANK AND TRUST COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
Citizens Bank and Trust Company (or the "Bank"), as of September 30, 1999, the
results of its operations for the nine month periods ended September 30, 1999
and 1998 and the cash flows for the nine month periods ended September 30, 1999
and 1998. It is suggested that these unaudited financial statements be read in
conjunction with the audited financial statements of the Bank and the notes
thereto set forth in the Bank's 1998 annual report.
The results of operations for the nine month periods ending September 30, 1999
and 1998 are not necessarily indicative of the results to be expected for the
full year.
NOTE 2 - Income tax expense is less than the amount calculated using the
statutory tax rate, primarily the result of tax exempt income earned from state
and municipal securities, loans and bank-owned life insurance.
NOTE 3 - On January 1, 1998, the Bank adopted the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards to provide prominent disclosure of comprehensive income
items. Comprehensive income is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. Other comprehensive income consists of net unrealized gains
(losses) on available for sale investment securities. Subsequent to the adoption
date, all prior-period amounts are required to be restated to conform to the
provision of SFAS No. 130. The adoption of SFAS No. 130 did not have a material
impact on the corporation's financial position or results of operation.
NOTE 4 - On January 1, 1998, the corporation adopted the Financial Accounting
Standards Board issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires that public business
enterprises report certain information about operating segments in complete sets
of financial statements of the enterprise and in condensed financial statements
of interim periods issued to shareholders. It also requires that public business
enterprises report certain information about their products and services, the
geographic areas in which they operate and their major customers. Management has
determined that under current conditions, the Bank will report one business
segment.
NOTE 5 - In June 1998, the Financial Accounting standard Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of
derivative (gains and losses) depends on the intended use of the derivative and
resulting designation. During July 1999, FASB issued SFAS No. 137 delaying the
effective date of this statement for all fiscal quarters of fiscal years
beginning after June 15, 2000. Earlier application is permitted only as of the
beginning of any fiscal quarter.
F-5
<PAGE> 88
CITIZENS BANK AND TRUST COMPANY
FINANCIAL REPORT
DECEMBER 31, 1998
F-6
<PAGE> 89
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Citizens Bank and Trust Company
Palmerton, Pennsylvania
We have audited the accompanying balance sheets of Citizens Bank and
Trust Company as of December 31, 1998 and 1997, and the related 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 financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Bank and
Trust Company as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Beard and Company, Inc.
Allentown, Pennsylvania
January 15, 1999
F-7
<PAGE> 90
CITIZENS BANK AND TRUST COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 1997
- ------------ ---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,029,917 $ 3,590,049
Interest-bearing demand deposits with other banks 1,703,271 642,666
------------ ------------
Cash and cash equivalents 4,733,188 4,232,715
Federal funds sold 5,050,000 2,800,000
Securities available for sale 58,292,250 58,538,302
Securities held to maturity 1,691,494 2,580,009
Loans receivable, net 56,556,959 54,080,031
Bank premises and equipment, net 1,543,931 1,407,515
Accrued interest receivable 939,362 985,613
Prepaid expenses and other assets 551,589 552,170
------------ ------------
Total assets $129,358,773 $125,176,355
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 10,894,327 $ 8,832,930
Interest bearing 96,115,319 95,890,987
------------ ------------
Total deposits 107,009,646 104,723,917
Securities sold under agreements to repurchase 1,711,012 261,728
Other borrowed funds 939,338 --
Accrued interest payable 434,453 522,365
Other liabilities 644,052 599,592
------------ ------------
Total liabilities 110,738,501 106,107,602
------------ ------------
Stockholders' equity:
Common stock, par value $ 50 per share; authorized 6,000 shares;
issued and outstanding 1998 5,585 shares; 1997 6,000 shares 279,250 300,000
Capital surplus 6,002,896 7,300,000
Retained earnings 11,949,891 11,283,247
Accumulated other comprehensive income 388,235 185,506
------------ ------------
Total stockholders' equity 18,620,272 19,068,753
------------ ------------
Total liabilities and stockholders' equity $129,358,773 $125,176,355
============ ============
</TABLE>
See Notes to Financial Statements.
F-8
<PAGE> 91
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ---- ----
<S> <C> <C>
Interest income:
Loans receivable, including fees $4,615,362 $4,463,527
Securities:
Taxable 2,657,486 2,848,194
Tax-exempt 900,516 708,746
Other 339,155 266,608
---------- ----------
Total interest income 8,512,519 8,287,075
---------- ----------
Interest expense:
Deposits 4,034,069 3,881,497
Other 98,800 22,549
---------- ----------
Total interest expense 4,132,869 3,904,046
---------- ----------
Net interest income 4,379,650 4,383,029
Provision for loan losses 57,753 61,967
---------- ----------
Net interest income after provision for loan losses 4,321,897 4,321,062
---------- ----------
Other income:
Customer service fees 243,152 183,040
Net realized gains on sales of securities 77,020 12,220
Other 191,410 175,573
---------- ----------
Total other income 511,582 370,833
---------- ----------
Other expenses:
Salaries and wages 1,208,304 1,191,429
Employee benefits 467,269 449,100
Occupancy 244,909 242,180
Equipment 217,412 201,461
Other 899,937 811,653
---------- ----------
Total other expenses 3,037,831 2,895,823
---------- ----------
Income before income taxes 1,795,648 1,796,072
Federal income taxes 344,944 409,729
---------- ----------
Net income $1,450,704 $1,386,343
========== ==========
</TABLE>
See Notes to Financial Statements.
F-9
<PAGE> 92
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended December 31, 1998 and 1997
- --------------------------------------
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 $ 300,000 $ 7,300,000 $ 10,496,904 $ (68,476)
------------ ------------ ------------ ------------
Comprehensive income:
Net income -- -- 1,386,343 --
Change in net unrealized gains (losses) on
securities available for sale -- -- -- 253,982
Total comprehensive income
Cash dividends declared ($ 100 per share) -- -- (600,000) --
------------ ------------ ------------ ------------
Balance, December 31, 1997 300,000 7,300,000 11,283,247 185,506
Comprehensive income:
Net income -- -- 1,450,704 --
Change in net unrealized gains (losses) on
securities available for sale -- -- -- 202,729
Total comprehensive income
Repurchase of 415 shares of common stock (20,750) (1,297,104) -- --
Cash dividends declared ($ 140 per share) -- -- (784,060) --
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $ 279,250 $ 6,002,896 $ 11,949,891 $ 388,235
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1998 and 1997
- --------------------------------------
Total
-----
<S> <C>
Balance, December 31, 1996 $ 18,028,428
------------
------------
Comprehensive income:
Net income 1,386,343
Change in net unrealized gains (losses) on
securities available for sale 253,982
------------
Total comprehensive income 1,640,325
------------
Cash dividends declared ($ 100 per share) (600,000)
------------
Balance, December 31, 1997 19,068,753
------------
Comprehensive income:
Net income 1,450,704
Change in net unrealized gains (losses) on
securities available for sale 202,729
------------
Total comprehensive income 1,653,433
------------
Repurchase of 415 shares of common stock (1,317,854)
Cash dividends declared ($ 140 per share) (784,060)
------------
BALANCE, DECEMBER 31, 1998 $ 18,620,272
============
</TABLE>
See Notes to Financial Statements.
F-10
<PAGE> 93
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997
- ------------------------ ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,450,704 $ 1,386,343
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 57,753 61,967
Provision for depreciation 143,147 145,685
Net realized gains on sales of securities (77,020) (12,220)
Net amortization of securities premiums and discounts 146,987 88,737
Change in assets and liabilities:
(Increase) decrease in:
Accrued interest receivable 46,251 (85,786)
Prepaid expenses and other assets 96,145 (32,719)
Increase (decrease) in:
Accrued interest payable (87,912) 69,780
Other liabilities (155,540) 49,247
------------ ------------
Net cash provided by operating activities 1,620,515 1,671,034
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities and principal repayments 23,741,129 15,107,745
Proceeds from sales 14,078,465 13,365,381
Purchases (37,321,397) (27,897,136)
Held to maturity securities:
Maturities and principal repayments 873,568 780,346
Federal funds sold, net (2,250,000) 75,000
Net increase in loans (2,534,681) (3,001,971)
Purchases of bank premises and equipment (279,563) (16,376)
------------ ------------
Net cash used in investing activities (3,692,479) (1,587,011)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,285,729 1,749,831
Net increase in securities sold under agreements to repurchase 1,449,284 261,728
Net increase in other borrowed funds 939,338 --
Repurchase of common stock (1,317,854) --
Cash dividends (784,060) (600,000)
------------ ------------
Net cash provided by financing activities 2,572,437 1,411,559
------------ ------------
Increase in cash and cash equivalents 500,473 1,495,582
Cash and cash equivalents:
Beginning 4,232,715 2,737,133
------------ ------------
Ending $ 4,733,188 $ 4,232,715
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 4,220,781 $ 3,834,266
============ ============
Income taxes $ 375,000 $ 415,000
============ ============
</TABLE>
See Notes to Financial Statements.
F-11
<PAGE> 94
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES
Nature of operations:
The Bank operates under a state bank charter and provides full
banking services, including trust services. As a state bank,
the Bank is subject to regulations of the Pennsylvania
Department of Banking and the Federal Deposit Insurance
Corporation. The area served by the Bank is principally
Carbon, Monroe and Northampton Counties, 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 with banks.
Trust assets:
Assets of the trust department, other than trust cash on
deposit at the Bank, are not included in these financial
statements because they are not assets of the Bank.
Securities:
Securities classified as available for sale are those
securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity. Any decision
to sell a security classified as available for sale would be
based on various factors, including significant movement in
interest rates, changes in maturity mix of the Bank's assets
and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities available
for sale are carried at fair value. Unrealized gains and
losses are reported as increases or decreases in other
comprehensive income, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost
of the specific securities sold, are included in earnings.
Premiums and discounts are recognized in interest income using
the interest method over the period to maturity.
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 the amortization
of premium and accretion of discount, computed by the interest
method 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.
F-12
<PAGE> 95
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans receivable:
Loans generally are stated at their outstanding unpaid
principal balances, net of an allowance for loan losses and
any deferred fees or costs. Interest income is accrued on the
unpaid principal balance. Loan origination fees, net of
certain direct origination costs, are deferred and recognized
as an adjustment of the yield (interest income) of the related
loans. The Bank is generally amortizing these amounts over the
contractual life of the loan.
A loan is generally considered impaired when it is probable
the Bank will be unable to collect all contractual principal
and interest payments due in accordance with the terms of the
loan agreement. The accrual of interest is discontinued when
management has serious doubts about further collectibility of
principal or interest. A loan may remain on accrual status if
it is in the process of collection and is either guaranteed or
well secured. When a loan is placed on nonaccrual status,
unpaid interest credited to income in the current year is
reversed and unpaid interest accrued in prior years is charged
against the allowance for loan losses. Interest received on
nonaccrual loans generally is either applied against principal
or reported as interest income, according to management's
judgment as to the collectibility of principal. Generally,
loans are restored to accrual status when the obligation is
brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the
ultimate collectibility of the total contractual principal and
interest is no longer in doubt.
Allowance for loan losses:
The allowance for loan losses is established through
provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance
for loan losses, and subsequent recoveries, if any, are
credited to the allowance.
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash
flows using the loan's initial effective interest rate or the
fair value of the collateral for certain collateral dependent
loans.
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.
F-13
<PAGE> 96
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Bank premises and equipment:
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on
straight-line and accelerated methods over their estimated
useful lives.
Advertising costs:
The Bank follows the policy of charging the costs of
advertising to expense as incurred.
Income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion of
the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered into
off-balance sheet financial instruments consisting of
commitments to extend credit and letters of credit. Such
financial instruments are recorded in the balance sheet when
they are funded.
New accounting standard:
The Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging
Activities", in June 1998. The Bank is required to adopt the
Statement on January 1, 2000. The adoption of the Statement is
not expected to have a significant impact on the financial
condition or results of operations of the Bank.
F-14
<PAGE> 97
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
2
SECURITIES
The amortized cost of securities and their approximate fair values as
of December 31 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
DECEMBER 31, 1998:
U.S. Treasury securities $ 8,074,517 $ 84,858 $ -- $ 8,159,375
U.S. Government agencies 11,852,272 45,997 16,778 11,881,491
State and political subdivisions 24,576,141 461,742 39,019 24,998,864
Corporate and other securities 1,617,048 9,364 19,179 1,607,233
Mortgage-backed and asset-
backed securities 11,579,037 87,327 26,077 11,640,287
Equity securities 5,000 -- -- 5,000
----------- ----------- ----------- -----------
$57,704,015 $ 689,288 $ 101,053 $58,292,250
=========== =========== =========== ===========
DECEMBER 31, 1997:
U.S. Treasury securities $12,651,610 $ 50,006 $ 2,085 $12,699,531
U.S. Government agencies 7,982,321 31,239 102,936 7,910,624
State and political subdivisions 14,608,473 250,112 2,863 14,855,722
Corporate and other securities 3,129,974 2,537 48,651 3,083,860
Mortgage-backed and asset-
backed securities 19,879,856 131,022 27,313 19,983,565
Equity securities 5,000 -- -- 5,000
----------- ----------- ----------- -----------
$58,257,234 $ 464,916 $ 183,848 $58,538,302
=========== =========== =========== ===========
HELD TO MATURITY SECURITIES:
DECEMBER 31, 1998:
Corporate and other securities $ 97,395 $ -- $ 2,906 $ 94,489
Mortgage-backed and asset-
backed securities 1,594,099 23,392 5,071 1,612,420
----------- ----------- ----------- -----------
$ 1,691,494 $ 23,392 $ 7,977 $ 1,706,909
=========== =========== =========== ===========
DECEMBER 31, 1997:
State and political subdivisions $ 220,000 $ 40 $ -- $ 220,040
Corporate and other securities 128,839 -- 4,639 124,200
Mortgage-backed and asset-
backed securities 2,231,170 34,725 8,469 2,257,426
----------- ----------- ----------- -----------
$ 2,580,009 $ 34,765 $ 13,108 $ 2,601,666
=========== =========== =========== ===========
</TABLE>
F-15
<PAGE> 98
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
2
SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31,
1998, by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because the borrowers may have the
right to prepay obligations with or without any penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------- ----------------------------
AMORTIZED COST FAIR VALUE AMORTIZED COST FAIR VALUE
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,210,078 $ 2,221,726 $ -- $ --
Due after one year through
five years 20,196,383 20,355,692 50,000 49,969
Due after five years through
ten years 11,049,825 11,325,792 47,395 44,520
Due after ten years 12,663,692 12,743,753 -- --
----------- ----------- ----------- -----------
46,119,978 46,646,963 97,395 94,489
Mortgage-backed and asset-
backed securities 11,579,037 11,640,287 1,594,099 1,612,420
Equity securities 5,000 5,000 -- --
----------- ----------- ----------- -----------
$57,704,015 $58,292,250 $ 1,691,494 $ 1,706,909
=========== =========== =========== ===========
</TABLE>
Gross realized gains and gross realized losses on sales of securities
available for sale were $ 80,754 and $ 3,734 respectively in 1998 and $
26,808 and $ 14,588 respectively in 1997.
Securities with an amortized cost of $ 8,263,074 and $ 12,975,829 at
December 31, 1998 and 1997 respectively were pledged to secure public
deposits and securities sold under agreements to repurchase.
F-16
<PAGE> 99
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
3
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable are comprised of the following at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Commercial $13,513,431 $14,623,862
Installment 23,556,029 23,331,882
Mortgage 20,283,534 16,882,505
----------- -----------
57,352,994 54,838,249
----------- -----------
Deduct:
Unearned net loan fees 255,756 238,392
Unearned discount 751 3,753
Allowance for loan losses 539,528 516,073
----------- -----------
796,035 758,218
----------- -----------
Net loans $56,556,959 $54,080,031
=========== ===========
</TABLE>
Changes in the allowance for loan losses for the years ended December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Balance, beginning $ 516,073 $ 456,776
Provision charged to expense 57,753 61,967
Recoveries 819 3,933
Loans charged off (35,117) (6,603)
--------- ---------
Balance, ending $ 539,528 $ 516,073
========= =========
</TABLE>
The Bank had no impaired loans as of December 31, 1998 and 1997.
F-17
<PAGE> 100
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
4
BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total
accumulated depreciation at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land and buildings $1,720,338 $1,795,043
Furniture and equipment 170,285 465,350
Computer equipment 283,374 344,012
Computer software 42,492 213,406
Bank-owned vehicles -- 11,107
---------- ----------
2,216,489 2,828,918
Less accumulated depreciation 672,558 1,421,403
---------- ----------
$1,543,931 $1,407,515
========== ==========
</TABLE>
5
DEPOSITS
The components of deposits at December 31, 1998 and 1997 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Demand, non-interest bearing $ 10,894,327 $ 8,832,930
Demand, interest bearing 22,366,443 22,532,907
Savings 19,111,312 18,272,036
Time, $ 100,000 and over 6,383,823 8,565,923
Time, other 48,253,741 46,520,121
------------ ------------
$107,009,646 $104,723,917
============ ============
</TABLE>
F-18
<PAGE> 101
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
5
DEPOSITS (CONTINUED)
At December 31, 1998, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1999 $43,203,723
2000 6,570,907
2001 1,677,166
2002 1,001,399
2003 2,161,079
Thereafter 23,290
-----------
$54,637,564
===========
</TABLE>
6
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within a
few days from the transaction date. The securities underlying the
agreements were with the Bank's safekeeping agent under the Bank's
control. Information concerning securities sold under agreements to
repurchase at December 31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Average daily balance during the year $1,768,039 $ 501,149
Average interest rate during the year 4.3% 4.5%
Maximum month-end balance during the year $3,611,829 $3,556,787
</TABLE>
7
OTHER BORROWED FUNDS
In 1998, the Bank opened a U.S. Treasury tax and loan note option
account for the deposit of withholding taxes, corporate income taxes and
certain other payments to the federal government. Deposits are subject
to withdrawal and are evidenced by an open-ended interest-bearing note.
Borrowings under this note option account were $939,338 at December 31,
1998, with interest payable at a variable rate (4.12% at December 31,
1998).
F-19
<PAGE> 102
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
8
COMPREHENSIVE INCOME
The Bank adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. Accounting principles generally require that recognized
revenue, expenses, gains and losses be included in net income. Although
certain changes in assets and liabilities, such as unrealized gains and
losses on available for sale securities, are reported as a separate
component of the equity section of the balance sheet, such items, along
with net income, are components of comprehensive income. The adoption of
SFAS No. 130 had no effect on the Bank's net income or stockholders'
equity.
The components of other comprehensive income and related tax effect for
the years ended December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Unrealized holding gains on available for sale securities $384,185 $397,041
Less reclassification adjustment for gains included in net
income 77,020 12,220
-------- --------
Net unrealized gains 307,165 384,821
Tax effect 104,436 130,839
-------- --------
Net of tax amount $202,729 $253,982
======== ========
</TABLE>
9
INCOME TAXES
The provision for federal income taxes for the years ended December 31,
1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Current $322,944 $409,729
Deferred 22,000 --
-------- --------
$344,944 $409,729
======== ========
</TABLE>
F-20
<PAGE> 103
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
9
INCOME TAXES (CONTINUED)
A reconciliation of the statutory income tax at a rate of 34% to the
income tax expense included in the statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
-------------------------- ------------------------
% Of % Of
Pretax Pretax
AMOUNT Income Amount Income
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate $ 611,000 34% $ 611,000 34%
Tax exempt interest (332,000) (18) (269,000) (15)
Disallowance of interest expense 50,000 2 46,000 3
Change in valuation allowance 25,000 1 22,000 1
Other (9,056) -- (271) --
--------- --- --------- ---
$ 344,944 19% $ 409,729 23%
========= === ========= ===
</TABLE>
The income tax provision includes $26,187 and $4,155 of income taxes
related to realized securities gains for the years ended December 31,
1998 and 1997 respectively.
Net deferred tax assets consist of the following components as of
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 145,000 $ 137,000
Deferred compensation 209,000 184,000
Loan origination fees 20,000 40,000
--------- ---------
374,000 361,000
Less valuation allowance (155,000) (130,000)
--------- ---------
219,000 231,000
--------- ---------
Deferred tax liabilities:
Property and equipment 24,000 17,000
Discount accretion 8,000 5,000
Net unrealized gains on securities available for sale 200,000 95,564
--------- ---------
232,000 117,564
--------- ---------
$ (13,000) $ 113,436
========= =========
</TABLE>
F-21
<PAGE> 104
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
10
LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Bank leases a branch office under an operating lease with a lease
term of five years expiring on February 28, 1999 with current monthly
payments of $1,516. The lease contains an escalation provision subject
to increases in real estate taxes paid by the lessor. The Bank is
responsible to pay certain utilities and maintenance and repairs during
the term of the lease.
The Bank also leases land upon which it constructed a branch office. The
lease expires in January 2006 and requires current monthly payments of
$2,534 and contains one 10-year renewal option and one 5-year renewal
option. The lease contains an escalation provision subject to increases
in the Consumer Price Index.
The total rental expense included in the income statements was $49,044
and $48,611 for the years ended December 31, 1998 and 1997
respectively.
Future minimum lease payments by year and in the aggregate, under
noncancellable operating leases with initial or remaining terms of one
year or more, consisted of the following at December 31, 1998:
<TABLE>
<S> <C>
1999 $ 33,445
2000 30,413
2001 30,413
2002 30,413
2003 30,413
Thereafter 63,359
--------
$218,456
========
</TABLE>
11
EMPLOYEE BENEFITS
Profit-sharing plan:
The Bank has a qualified profit-sharing plan covering full-time
employees. Contributions to the Plan are determined annually at the
discretion of the Board of Directors. The amount charged to expense
during the years ended December 31, 1998 and 1997 was $161,172 and $
152,371 respectively.
F-22
<PAGE> 105
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
11
EMPLOYEE BENEFITS (CONTINUED)
Deferred supplemental income plan:
The Bank has adopted various deferred compensation plans for certain
directors and officers of the Bank. Under the Plans' provisions,
benefits will be payable upon retirement, death or permanent disability
of the participant. At December 31, 1998 and 1997, $614,426 and $541,725
respectively had been accrued under these contracts. To fund the
benefits under these agreements, the Bank is the owner and the
beneficiary of life insurance policies on the lives of the directors and
officers. The policies had an aggregate cash surrender value of $359,379
and $301,504 at December 31, 1998 and 1997 respectively.
12
TRANSACTIONS WITH DIRECTORS, PRINCIPAL STOCKHOLDERS AND
EXECUTIVE OFFICERS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with its directors,
principal stockholders, executive officers and their related interests,
on the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others. These
persons were indebted to the Bank for loans totaling approximately
$440,000 and $206,000 at December 31, 1998 and 1997 respectively. During
1998, $407,000 of new loans were made and repayments totaled $173,000.
F-23
<PAGE> 106
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
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. These financial instruments include commitments to extend
credit and letters of credit. Those instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
A summary of the Bank's financial instrument commitments at December 31,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Commitments to grant loans $ 585,000 $ 915,000
Unfunded commitments under lines of credit 4,570,000 3,501,000
Outstanding letters of credit 42,000 10,000
</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 written are conditional commitments issued
by the Bank to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending other loan commitments.
F-24
<PAGE> 107
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
14
CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in Carbon, Monroe and Northampton Counties,
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.
15
REGULATORY MATTERS
The Bank is required to maintain cash reserve balances in vault cash or
with the Federal Reserve Bank. The total of those reserve balances was
approximately $460,000 at December 31, 1998.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets, and of Tier 1 capital to average assets.
Management believes, as of December 31, 1998, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification
that management believes have changed the Bank's category.
F-25
<PAGE> 108
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
15
REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the
following table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998
Total capital (to risk weighted assets) $18,772 29.25% $>5,134 >8.00% $>6,417 >10.00%
- - - -
Tier I capital (to risk weighted assets) 18,232 28.41 >2,567 >4.00 >3,850 > 6.00
- - - -
Tier I capital (to average assets) 18,232 14.12 >5,166 >4.00 >6,458 > 5.00
- - - -
AS OF DECEMBER 31, 1997:
Total capital (to risk weighted assets) $19,399 31.50% $>4,927 >8.00% $>6,159 >10.00%
- - - -
Tier I capital (to risk weighted assets) 18,883 30.66 >2,464 >4.00 >3,695 > 6.00
- - - -
Tier I capital (to average assets) 18,883 14.94 >5,056 >4.00 >6,320 > 5.00
- - - -
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31,
1998, approximately $11,950,000 of retained earnings were available for
dividend declaration without prior regulatory approval.
During 1998, the Bank received approval to repurchase up to 600 shares
of stock. As of December 31, 1998, 415 shares have been repurchased and
retired.
16
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
Bank's financial instruments; however, there are inherent weaknesses in
any estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates herein are not necessarily
indicative of the amounts the Bank could have realized in a sales
transaction on the dates indicated. The estimated fair value amounts
have been measured as of their respective year ends, and have not been
reevaluated or updated for purposes of these financial statements
subsequent to those respective dates. As such, the estimated fair values
of these financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at each year end.
F-26
<PAGE> 109
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
16
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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, 1998 and 1997:
Cash and cash equivalents and federal funds sold:
The carrying amounts of cash and short-term
instruments approximate their fair value.
Securities:
Fair values for securities equal quoted market price,
if available. If a quoted market price is not
available, fair value is estimated using quoted
market prices for similar securities.
Loans receivable:
The fair value of loans is estimated by discounting
the future cash flows using the current rates at
which similar loans would be made to borrowers with
similar credit ratings and for the same remaining
maturities.
Accrued interest receivable:
The carrying amount of accrued interest receivable
approximates fair value.
Deposit liabilities and securities sold under agreements to
repurchase:
The fair value of demand deposits, savings accounts,
certain money market deposits and securities sold
under agreements to repurchase is the amount payable
on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of
similar remaining maturities.
Other borrowed funds:
The current carrying amounts of other borrowed funds
approximate their fair values.
Accrued interest payable:
The carrying amount of accrued interest payable
approximates fair value.
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 into similar
agreements.
F-27
<PAGE> 110
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
16
- ---------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments
were as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------- -----------------------
CARRYING Estimated Carrying Estimated
AMOUNT Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 4,733 4,733 $ 4,233 $ 4,233
Federal funds sold 5,050 5,050 2,800 2,800
Securities 59,984 59,999 61,118 61,140
Loans receivable, net 56,557 56,824 54,080 54,615
Accrued interest receivable 939 939 986 986
Financial Liabilities:
Deposits 107,010 107,265 104,724 104,774
Securities sold under
agreements to repurchase 1,711 1,711 262 262
Other borrowed funds 939 939 -- --
Accrued interest payable 434 434 522 522
Off-Balance Sheet Financial
Instruments:
Commitments to extend credit
and outstanding letters of
credit -- -- -- --
</TABLE>
F-28
<PAGE> 111
CITIZENS BANK AND TRUST COMPANY
FINANCIAL REPORT
DECEMBER 31, 1997
F-29
<PAGE> 112
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Citizens Bank and Trust Company
Palmerton, Pennsylvania
We have audited the accompanying balance sheets of Citizens Bank and Trust
Company as of December 31, 1997 and 1996, and the related 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 financial statements referred to above present fairly,
in all material respects, the financial position of Citizens Bank and Trust
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Beard and Company, Inc.
Allentown, Pennsylvania
January 9, 1998, except for Note 15 as to which the date is
February 6, 1998
F-30
<PAGE> 113
CITIZENS BANK AND TRUST COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,590,049 $ 2,600,275
Interest-bearing demand deposits with other banks 642,666 136,858
------------- -------------
Cash and cash equivalents 4,232,715 2,737,133
Federal funds sold 2,800,000 2,875,000
Securities available for sale 58,538,302 58,786,784
Securities held to maturity 2,580,009 3,379,558
Loans receivable, net 54,080,031 51,140,027
Bank premises and equipment, net 1,407,515 1,536,824
Accrued interest receivable 985,613 899,827
Prepaid expenses and other assets 438,734 406,015
Deferred income taxes 113,436 244,276
------------- -------------
Total assets $ 125,176,355 $ 122,005,444
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 8,832,930 9,108,292
Interest bearing 95,890,987 93,865,794
------------- -------------
Total deposits 104,723,917 102,974,086
Securities sold under agreements to repurchase 261,728 --
Accrued interest payable 522,365 452,585
Other liabilities 599,592 550,345
------------- -------------
Total liabilities 106,107,602 103,977,016
------------- -------------
Stockholders' equity:
Common stock, par value $ 50 per share; authorized 6,000 shares;
issued and outstanding 6,000 shares 300,000 300,000
Capital surplus 7,300,000 7,300,000
Retained earnings 11,283,247 10,496,904
Net unrealized appreciation (depreciation) on securities
available for sale, net of tax 185,506 (68,476)
------------- -------------
Total stockholders' equity 19,068,753 18,028,428
------------- -------------
Total liabilities and stockholders' equity $ 125,176,355 $ 122,005,444
============= =============
</TABLE>
See Notes to Financial Statements.
F-31
<PAGE> 114
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
---------- ----------
<S> <C> <C>
Interest income:
Loans receivable, including fees $4,463,527 $4,275,563
Securities:
Taxable 2,848,194 2,733,734
Tax-exempt 708,746 648,272
Other 266,608 191,599
---------- ----------
Total interest income 8,287,075 7,849,168
---------- ----------
Interest expense:
Deposits 3,881,497 3,646,717
Other 22,549 --
---------- ----------
Total interest expense 3,904,046 3,646,717
---------- ----------
Net interest income 4,383,029 4,202,451
Provision for loan losses 61,967 81,270
---------- ----------
Net interest income after provision for loan losses 4,321,062 4,121,181
---------- ----------
Other income:
Customer service fees 183,040 183,190
Other 187,793 172,245
---------- ----------
Total other income 370,833 355,435
---------- ----------
Other expenses:
Salaries and wages 1,191,429 1,122,629
Employee benefits 449,100 443,174
Occupancy 242,180 202,228
Equipment 201,461 246,913
Other 811,653 793,389
---------- ----------
Total other expenses 2,895,823 2,808,333
---------- ----------
Income before income taxes 1,796,072 1,668,283
Federal income taxes 409,729 386,039
---------- ----------
Net income $1,386,343 $1,282,244
========== ==========
</TABLE>
See Notes to Financial Statements.
F-32
<PAGE> 115
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Capital Retained
Common Stock Surplus Earnings
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 300,000 $ 7,300,000 $ 9,694,660
Net income -- -- 1,282,244
Cash dividends declared ($ 80 per share) -- -- (480,000)
Net change in unrealized depreciation on
securities available for sale, net of tax -- -- --
------------ ------------ ------------
Balance, December 31, 1996 300,000 7,300,000 10,496,904
Net income -- -- 1,386,343
Cash dividends declared ($ 100 per share) -- -- (600,000)
Net change in unrealized appreciation on
securities available for sale, net of tax -- -- --
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 $ 300,000 $ 7,300,000 $ 11,283,247
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation) Total
On Securities Stockholders'
Available For Sale Equity
------------ ------------
<S> <C> <C>
Balance, December 31, 1995 $ 44,543 $ 17,339,203
Net income -- 1,282,244
Cash dividends declared ($ 80 per share) -- (480,000)
Net change in unrealized depreciation on
securities available for sale, net of tax (113,019) (113,019)
------------ ------------
Balance, December 31, 1996 (68,476) 18,028,428
Net income -- 1,386,343
Cash dividends declared ($ 100 per share) -- (600,000)
Net change in unrealized appreciation on
securities available for sale, net of tax 253,982 253,982
------------ ------------
BALANCE, DECEMBER 31, 1997 $ 185,506 $ 19,068,753
============ ============
</TABLE>
See Notes to Financial Statements.
F-33
<PAGE> 116
CITIZENS BANK AND TRUST COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,386,343 $ 1,282,244
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 61,967 81,270
Provision for depreciation 145,685 169,307
Net realized gains on sales or redemptions of securities (12,220) (467)
Net amortization of securities premiums and discounts 88,737 185,683
Change in assets and liabilities:
Decrease in:
Accrued interest receivable (85,786) (15,148)
Prepaid expenses and other assets (32,719) (30,047)
Deferred income taxes -- (10,000)
Increase in:
Accrued interest payable 69,780 33
Other liabilities 49,247 44,489
------------ ------------
Net cash provided by operating activities 1,671,034 1,707,364
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Maturities and principal repayments 15,107,745 7,901,072
Proceeds from sales 13,365,381 8,024,180
Purchases (27,897,136) (22,470,116)
Held to maturity securities:
Maturities and principal repayments 780,346 5,291,929
Purchases -- (220,000)
Federal funds sold, net 75,000 (1,025,000)
Net increase in loans (3,001,971) (5,908,600)
Purchases of bank premises and equipment (16,376) (628,038)
------------ ------------
Net cash used in investing activities (1,587,011) (9,034,573)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase In deposits 1,749,831 6,370,862
Net increase in securities sold under agreements to repurchase 261,728 --
Cash dividends (600,000) (480,000)
------------ ------------
Net cash provided by financing activities 1,411,559 5,890,862
------------ ------------
Increase (decrease) in cash and cash equivalents 1,495,582 (1,436,347)
Cash and cash equivalents:
Beginning 2,737,133 4,173,480
------------ ------------
Ending $ 4,232,715 $ 2,737,133
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 3,834,266 $ 3,646,684
============ ============
Income taxes $ 415,000 $ 416,423
============ ============
</TABLE>
See Notes to Financial Statements.
F-34
<PAGE> 117
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES
Nature of operations:
The Bank operates under a state bank charter and provides full
banking services, including trust services. As a state bank, the Bank
is subject to regulations of the Pennsylvania Department of Banking and
the Federal Deposit Insurance Corporation. The area served by the Bank
is principally Carbon, Monroe and Northampton Counties, 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 with banks.
Trust assets:
Assets of the trust department, other than trust cash on
deposit at the Bank, are not included in these financial statements
because they are not assets of the Bank.
Securities:
Securities classified as available for sale are those
securities that the Bank intends to hold for an indefinite period of
time but not necessarily to maturity. Any decision to sell a security
classified as available for sale would be based on various factors,
including significant movement in interest rates, changes in maturity
mix of the Bank's assets and liabilities, liquidity needs, regulatory
capital considerations and other similar factors. 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 the specific securities
sold, are included in earnings. Premiums and discounts are recognized
in interest income using the interest method over the period to
maturity.
F-35
<PAGE> 118
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities (continued):
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
the amortization of premium and accretion of discount, computed by the
interest method 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.
A loan is generally considered impaired when it is probable the Bank
will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement. The
accrual of interest is discontinued when management has serious doubts
about further collectibility of principal or interest. 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.
F-36
<PAGE> 119
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
1
- --------------------------------------------------------------------------------
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Allowance for loan losses (continued):
The allowance for loan losses related to impaired loans that
are identified for evaluation is based on discounted cash flows using
the loan's initial effective interest rate or the fair value of the
collateral for certain collateral dependent loans.
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.
Bank premises and equipment:
Bank premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on straight-line and
accelerated methods over their estimated useful lives.
Income taxes:
Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary differences
and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered into
off-balance sheet financial instruments consisting of commitments to
extend credit and letters of credit. Such financial instruments are
recorded in the balance sheet when they are funded.
F-37
<PAGE> 120
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES
The amortized cost of securities and their approximate fair values as
of December 31 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE SECURITIES:
DECEMBER 31, 1997:
U.S. Treasury securities $12,651,610 $ 50,006 $ 2,085 $12,699,531
U.S. Government agencies 7,982,321 31,239 102,936 7,910,624
State and political subdivisions 14,608,473 250,112 2,863 14,855,722
Corporate and other securities 3,129,974 2,537 48,651 3,083,860
Mortgage-backed and asset-
backed securities 19,879,856 131,022 27,313 19,983,565
Equity securities 5,000 -- -- 5,000
----------- ----------- ----------- -----------
$58,257,234 $ 464,916 $ 183,848 $58,538,302
=========== =========== =========== ===========
DECEMBER 31, 1996:
U.S. Treasury securities $12,013,315 $ 19,040 $ 31,417 $12,000,938
U.S. Government agencies 4,988,130 2,333 113,745 4,876,718
State and political subdivisions 14,706,218 93,819 37,369 14,762,668
Corporate and other securities 3,663,770 4,233 65,092 3,602,911
Mortgage-backed and asset-
backed securities 23,514,103 124,808 100,362 23,538,549
Equity securities 5,000 -- -- 5,000
----------- ----------- ----------- -----------
$58,890,536 $ 244,233 $ 347,985 $58,786,784
=========== =========== =========== ===========
HELD TO MATURITY SECURITIES:
DECEMBER 31, 1997:
State and political subdivisions $ 220,000 $ 40 $ -- $ 220,040
Corporate and other securities 128,839 -- 4,639 124,200
Mortgage-backed and asset-
backed securities 2,231,170 34,725 8,469 2,257,426
----------- ----------- ----------- -----------
$ 2,580,009 $ 34,765 $ 13,108 $ 2,601,666
=========== =========== =========== ===========
DECEMBER 31,1996:
State and political subdivisions $ 360,682 $ 1,888 $ -- $ 362,570
Corporate and other securities 162,142 -- 6,407 155,735
Mortgage-backed and asset-
backed securities 2,856,734 19,942 22,328 2,854,348
----------- ----------- ----------- -----------
$ 3,379,558 $ 21,830 $ 28,735 $ 3,372,653
=========== =========== =========== ===========
</TABLE>
F-38
<PAGE> 121
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
2
- --------------------------------------------------------------------------------
SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because the borrowers may have the right to prepay
obligations with or without any penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE Held To Maturity
------------------ ----------------
AMORTIZED COST Fair Value Amortized Cost Fair Value
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 7,484,077 $ 7,430,858 $ 220,000 $ 220,040
Due after one year through
five years 19,888,322 19,952,472 50,000 50,000
Due after five years through
ten years 8,683,579 8,847,327 78,839 74,200
Due after ten years 2,316,400 2,319,080 -- --
----------- ----------- ----------- -----------
38,372,378 38,549,737 348,839 344,240
Mortgage-backed and asset-
backed securities 19,879,856 19,983,565 2,231,170 2,257,426
Equity securities 5,000 5,000 -- --
----------- ----------- ----------- -----------
$58,257,234 $58,538,302 $ 2,580,009 $ 2,601,666
=========== =========== =========== ===========
</TABLE>
Gross realized gains and gross realized losses on sales of securities
available for sale were $ 26,808 and $ 14,588 respectively in 1997 and $
14,717 and $ 14,250 respectively in 1996.
Securities with an amortized cost of $ 12,975,829 and $ 5,488,867 at
December 31, 1997 and 1996 respectively were pledged to secure public
deposits and securities sold under agreements to repurchase.
F-39
<PAGE> 122
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
3
- --------------------------------------------------------------------------------
LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans receivable are comprised of the following at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial $14,623,862 $14,687,060
Installment 23,331,882 19,773,386
Mortgage 16,882,505 17,398,805
----------- -----------
54,838,249 51,859,251
----------- -----------
Deduct:
Unearned net loan fees 238,392 252,090
Unearned discount 3,753 10,358
Allowance for loan losses 516,073 456,776
----------- -----------
758,218 719,224
----------- -----------
Net loans $54,080,031 $51,140,027
=========== ===========
</TABLE>
Changes in the allowance for loan losses for the years ended December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Balance, beginning $ 456,776 $ 404,913
Provision charged to expense 61,967 81,270
Recoveries 3,933 746
Loans charged off (6,603) (30,153)
--------- ---------
Balance, ending $ 516,073 $ 456,776
========= =========
</TABLE>
The Bank had no impaired loans as of December 31, 1997 and 1996.
F-40
<PAGE> 123
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
4
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land and buildings $1,795,043 $1,795,043
Furniture and equipment 465,350 465,350
Computer equipment 344,012 337,561
Computer software 213,406 213,406
Bank-owned vehicles 11,107 11,107
---------- ----------
2,828,918 2,822,467
Less accumulated depreciation 1,421,403 1,285,643
---------- ----------
$1,407,515 $1,536,824
========== ==========
</TABLE>
5
- --------------------------------------------------------------------------------
DEPOSITS
The components of deposits at December 31, 1997 and 1996 were as follows:
1997 1996
------------ ------------
Demand, non-interest bearing $ 8,832,930 $ 9,108,292
Demand, interest bearing 22,532,907 23,189,173
Savings 18,272,036 18,504,958
Time, $ 100,000 and over 8,565,923 8,470,892
Time, other 46,520,121 43,700,771
------------ ------------
$104,723,917 $102,974,086
============ ============
F-41
<PAGE> 124
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
5
- --------------------------------------------------------------------------------
DEPOSITS (CONTINUED)
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1998 $ 41,792,187
1999 7,890,701
2000 3,380,570
2001 1,076,500
2002 925,569
Thereafter 20,517
--------------
$ 55,086,044
==============
</TABLE>
6
- --------------------------------------------------------------------------------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature within a
few days from the transaction date. The securities underlying the
agreements were with the Bank's safekeeping agent under the Bank's control.
The average balance and maximum month-end balances during the year were
$501,149 and $3,556,787 respectively. The average interest rate during the
year was 4.5%.
7
- --------------------------------------------------------------------------------
INCOME TAXES
The provision for federal income taxes for the years ended December 31,
1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current $ 409,729 $ 396,039
Deferred -- (10,000)
--------- ---------
$ 409,729 $ 386,039
========= =========
</TABLE>
F-42
<PAGE> 125
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
7
- --------------------------------------------------------------------------------
INCOME TAXES (CONTINUED)
A reconciliation of the statutory income tax at a rate of 34% to the income
tax expense included in the statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
---------------------- ---------------------
% OF % Of
PRETAX Pretax
AMOUNT INCOME Amount Income
------ ------ ------ ------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate $ 611,000 34% $ 567,000 34%
Tax exempt interest (269,000) (15) (246,000) (15)
Disallowance of interest expense 46,000 3 49,000 3
Change in valuation allowance 22,000 1 19,000 1
Other (271) -- (2,961) --
--------- -- --------- --
$ 409,729 23% $ 386,039 23%
========= == ========= ==
</TABLE>
The income tax provision includes $ 4,155 and $ 159 of income taxes related
to realized securities gains for the years ended December 31, 1997 and 1996
respectively.
Net deferred tax assets consist of the following components as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 137,000 $ 116,000
Deferred compensation 184,000 162,000
Loan origination fees 40,000 60,000
Net unrealized depreciation on securities available for sale -- 35,276
--------- ---------
361,000 373,276
Less valuation allowance (130,000) (108,000)
--------- ---------
231,000 265,276
--------- ---------
Deferred tax liabilities:
Property and equipment 17,000 6,000
Discount accretion 5,000 15,000
Net unrealized appreciation on securities available for sale 95,564 --
--------- ---------
117,564 21,000
--------- ---------
$ 113,436 $ 244,276
========= =========
</TABLE>
F-43
<PAGE> 126
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
8
- --------------------------------------------------------------------------------
LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Bank leases a branch office under an operating lease with a lease term
of five years expiring on February 28, 1999 with current monthly payments
of $ 1,516. The lease contains an escalation provision subject to increases
in real estate taxes paid by the lessor. The Bank is responsible to pay
certain utilities and maintenance and repairs during the term of the lease.
The Bank also leases land upon which it constructed a branch office. The
lease expires in January 2006 and requires current monthly payments of $
2,500 and contains one 10-year renewal option and one 5-year renewal
option. The lease contains an escalation provision subject to increases in
the Consumer Price Index.
The total rental expense included in the income statements was $ 48,611 and
$ 45,931 for the years ended December 31, 1997 and 1996 respectively.
Future minimum lease payments by year and in the aggregate, under
noncancellable operating leases with initial or remaining terms of one year
or more, consisted of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 48,191
1999 33,032
2000 30,000
2001 30,000
2002 30,000
Thereafter 92,500
--------
$263,723
========
</TABLE>
9
- --------------------------------------------------------------------------------
EMPLOYEE BENEFITS
Profit-sharing plan:
The Bank has a qualified profit-sharing plan covering full-time
employees. Contributions to the Plan are determined annually at the
discretion of the Board of Directors. The amount charged to expense
during the years ended December 31, 1997 and 1996 was $ 152,371 and
$139,503 respectively.
F-44
<PAGE> 127
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
9
- --------------------------------------------------------------------------------
EMPLOYEE BENEFITS (CONTINUED)
Deferred supplemental income plan:
The Bank has adopted various deferred compensation plans for certain
directors and officers of the Bank. Under the Plans' provisions,
benefits will be payable upon retirement, death or permanent
disability of the participant. At December 31, 1997 and 1996,
$541,725 and $ 476,812 respectively had been accrued under these
contracts. To fund the benefits under these agreements, the Bank is
the owner and the beneficiary of life insurance policies on the lives
of the directors and officers. The policies had an aggregate cash
surrender value of $ 301,504 and $ 256,600 at December 31, 1997 and
1996 respectively.
10
- --------------------------------------------------------------------------------
TRANSACTIONS WITH DIRECTORS, PRINCIPAL STOCKHOLDERS AND EXECUTIVE OFFICERS
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with its directors,
principal stockholders, executive officers and their related interests, on
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with others. These
persons were indebted to the Bank for loans totaling approximately
$206,000 and $ 242,000 at December 31, 1997 and 1996 respectively.
An analysis of the activity with respect to such loans to related parties
for the years ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Balance, January 1 $ 242,000 $ 292,000
New loans during the year 40,000 117,000
Repayments during the year (76,000) (167,000)
--------- ---------
Balance, December 31 $ 206,000 $ 242,000
========= =========
</TABLE>
F-45
<PAGE> 128
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
11
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
letters of credit. Those instruments involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments.
A summary of the Bank's financial instrument commitments at December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Commitments to extend credit $4,416,000 $3,792,000
Outstanding letters of credit 10,000 102,000
</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 written are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending other loan commitments.
F-46
<PAGE> 129
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
12
- --------------------------------------------------------------------------------
CONCENTRATION OF CREDIT RISK
The Bank grants commercial, residential and consumer loans to customers
primarily located in Carbon, Monroe and Northampton Counties, 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.
13
- --------------------------------------------------------------------------------
REGULATORY MATTERS
The Bank is required to maintain cash reserve balances in vault cash or
with the Federal Reserve Bank. The total of those reserve balances was
approximately $ 405,000 at December 31, 1997.
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material affect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below)
of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-
based, Tier I risk-based and Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
F-47
<PAGE> 130
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
13
- --------------------------------------------------------------------------------
REGULATORY MATTERS (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the following
table.
<TABLE>
<CAPTION>
Actual
----------------------
Amount Ratio
------ -------
<S> <C> <C>
AS OF DECEMBER 31, 1997:
Total capital (to risk weighted assets) $19,399 31.50%
Tier I capital (to risk weighted assets) 18,883 30.66
Tier I capital (to average assets) 18,883 14.94
AS OF DECEMBER 31, 1996:
Total capital (to risk weighted assets) $18,554 31.07%
Tier I capital (to risk weighted assets) 18,097 30.31
Tier I capital (to average assets) 18,097 14.87
</TABLE>
<TABLE>
<CAPTION>
For Capital Adequacy Purposes
-------------------------------------------------------------------
Amount Ratio
------------------------------- ------------------------------
<S> <C> <C>
AS OF DECEMBER 31, 1997:
Total capital (to risk weighted assets) greater than or equal to $4,927 greater than or equal to 8.00%
Tier I capital (to risk weighted assets) greater than or equal to 2,464 greater than or equal to 4.00
Tier I capital (to average assets) greater than or equal to 5,056 greater than or equal to 4.00
AS OF DECEMBER 31, 1996:
Total capital (to risk weighted assets) greater than or equal to $4,777 greater than or equal to 8.00%
Tier I capital (to risk weighted assets) greater than or equal to 2,388 greater than or equal to 4.00
Tier I capital (to average assets) greater than or equal to 4,868 greater than or equal to 4.00
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized Under Prompt Corrective Action Provisions
--------------------------------------------------------------------
Amount Ratio
------------------------------- -------------------------------
<S> <C> <C>
AS OF DECEMBER 31, 1997:
Total capital (to risk weighted assets) greater than or equal to $6,159 greater than or equal to 10.00%
Tier I capital (to risk weighted assets) greater than or equal to 3,695 greater than or equal to 6.00
Tier I capital (to average assets) greater than or equal to 6,320 greater than or equal to 5.00
AS OF DECEMBER 31, 1996:
Total capital (to risk weighted assets) greater than or equal to $5,971 greater than or equal to 10.00%
Tier I capital (to risk weighted assets) greater than or equal to 3,582 greater than or equal to 6.00
Tier I capital (to average assets) greater than or equal to 6,086 greater than or equal to 5.00
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1997,
approximately $ 11,283,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
14
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
Management uses its best judgment in estimating the fair value of the
Bank's financial instruments; however, there are inherent weaknesses in any
estimation technique. Therefore, for substantially all financial
instruments, the fair value estimates herein are not necessarily indicative
of the amounts the Bank could have realized in a sales transaction on the
dates indicated. The estimated fair value amounts have been measured as of
their respective year ends, and have not been reevaluated or updated for
purposes of these financial statements subsequent to those respective
dates. As such, the estimated fair values of these financial instruments
subsequent to the respective reporting dates may be different than the
amounts reported at each year end.
F-48
<PAGE> 131
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
14
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following information should not be interpreted as an estimate of the
fair value of the entire bank since a fair value calculation is only
provided for a limited portion of the Bank's assets. Due to a wide range of
valuation techniques and the degree of subjectivity used in making the
estimates, comparisons between the Bank's disclosures and those of other
companies may not be meaningful. The following methods and assumptions were
used to estimate the fair values of the Bank's financial instruments at
December 31, 1997 and 1996:
Cash and cash equivalents and federal funds sold:
The carrying amounts of cash and short-term instruments
approximate their fair value.
Securities:
Fair values for securities equal quoted market price, if
available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
Loans receivable:
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings and for the same
remaining maturities.
Accrued interest receivable:
The carrying amount of accrued interest receivable approximates
fair value.
Deposit liabilities and securities sold under agreements to
repurchase:
The fair value of demand deposits, savings accounts, certain
money market deposits and securities sold under agreements to
repurchase is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of
similar remaining maturities.
Accrued interest payable:
The carrying amount of accrued interest payable approximates fair
value.
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 into similar agreements.
F-49
<PAGE> 132
CITIZENS BANK AND TRUST COMPANY
NOTES TO FINANCIAL STATEMENTS
14
- --------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments were as
follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 4,233 $ 4,233 $ 2,737 $ 2,737
Federal funds sold 2,800 2,800 2,875 2,875
Securities 61,118 61,140 62,166 62,159
Loans receivable, net 54,080 54,615 51,140 51,562
Accrued interest receivable 986 986 900 900
Financial Liabilities:
Deposits 104,724 104,774 102,974 103,007
Securities sold under agreements to repurchase 262 262 - -
Accrued interest payable 522 522 453 453
Off-Balance Sheet Financial Instruments:
Commitments to extend credit and
outstanding letters of credit - - - -
</TABLE>
15
- --------------------------------------------------------------------------------
SUBSEQUENT EVENT
On February 6, 1998, the Bank purchased and retired 370 shares of its
common stock for approximately $ 1,173,000.
F-50
<PAGE> 133
ANNEXES
A Agreement and Plan of Reorganization
B Tax Opinion of Grant Thornton LLP
C Statute Regarding Dissenters' Rights
D Tucker Anthony Cleary Gull Fairness Opinion
<PAGE> 134
ANNEX A
Agreement and Plan of Reorganization
<PAGE> 135
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF THE TWENTY-EIGHTH DAY OF DECEMBER, 1999
BY AND AMONG
HARLEYSVILLE NATIONAL CORPORATION,
CITIZENS NATIONAL BANK
AND
CITIZENS BANK AND TRUST COMPANY
<PAGE> 136
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page(s)
<S> <C>
ARTICLE I
THE PLAN OF MERGER ....................................................................................... 2
SECTION 1.1 The Bank Merger ........................................................... 2
ARTICLE II
CONVERSION OF SHARES AND EXCHANGE OF STOCK CERTIFICATES .................................................. 2
SECTION 2.1 Conversion of Shares ...................................................... 2
SECTION 2.2 Exchange of Stock Certificates ............................................ 4
SECTION 2.3 Other Matters ............................................................. 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES ........................................................................... 7
SECTION 3.1 Representations and Warranties of CBTC .................................... 7
SECTION 3.2 Representations and Warranties of HNC ..................................... 23
SECTION 3.3 Representations and Warranties of CNB ..................................... 25
ARTICLE IV
COVENANTS OF CBTC ........................................................................................ 26
SECTION 4.1 Conduct of Business ....................................................... 26
SECTION 4.2 Best Efforts .............................................................. 29
SECTION 4.3 Access to Properties and Records .......................................... 29
SECTION 4.4 Subsequent Financial Statements ........................................... 30
SECTION 4.5 Board and Committee Minutes ............................................... 30
SECTION 4.6 Update Schedule ........................................................... 30
SECTION 4.7 Notice .................................................................... 31
SECTION 4.8 Other Proposals ........................................................... 31
SECTION 4.9 Dividends ................................................................. 31
SECTION 4.10 Core Deposits ............................................................. 31
SECTION 4.11 Affiliate Letters ......................................................... 31
SECTION 4.12 No Purchases or Sales of HNC Common Stock
During Price Determination Period ......................................... 32
SECTION 4.13 Accounting Treatment ...................................................... 32
SECTION 4.14 Press Releases ............................................................ 32
SECTION 4.15 Professional Fees ......................................................... 32
SECTION 4.16 Environmental Audits ...................................................... 32
ARTICLE V
COVENANTS OF HNC AND CNB ................................................................................ 33
SECTION 5.1 Best Effort ............................................................... 33
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 5.2 Access to Properties and Records .......................................... 33
SECTION 5.3 Subsequent Financial Statements ........................................... 34
SECTION 5.4 Update Schedule ........................................................... 34
SECTION 5.5 Notice .................................................................... 34
SECTION 5.6 No Purchase or Sale of HNC Common Stock During
Price Determination Period ................................................ 34
SECTION 5.7 Publicity ................................................................. 34
SECTION 5.8 Director and Officer Liability Insurance .................................. 34
SECTION 5.9 Shareholder Approval ...................................................... 35
ARTICLE VI
CONDITIONS TO CONSUMMATION ............................................................................... 35
SECTION 6.1 Common Conditions ......................................................... 35
SECTION 6.2 Conditions to Obligations of HNC and CNB .................................. 37
SECTION 6.3 Conditions to the Obligations of CBTC ..................................... 39
ARTICLE VII
TERMINATION .............................................................................................. 40
SECTION 7.1 Termination ............................................................... 40
SECTION 7.2 Effect of Termination ..................................................... 41
SECTION 7.3 Expenses .................................................................. 41
ARTICLE VIII
POST MERGER AGREEMENTS ................................................................................... 42
SECTION 8.1 Employees. ................................................................ 42
SECTION 8.2 Directors. ................................................................ 43
SECTION 8.3 Benefits. ................................................................. 43
ARTICLE IX
CLOSING AND EFFECTIVE DATE ............................................................................... 43
SECTION 9.1 Closing ................................................................... 44
SECTION 9.2 Effective Date ............................................................ 44
ARTICLE X
OTHER MATTERS ............................................................................................ 44
SECTION 10.1 Certain Definitions; Interpretation ....................................... 44
SECTION 10.2 Survival .................................................................. 45
SECTION 10.3 Parties in Interest ....................................................... 45
SECTION 10.4 Captions .................................................................. 45
SECTION 10.5 Severability .............................................................. 45
SECTION 10.6 Access; Confidentiality ................................................... 45
SECTION 10.7 Waiver and Amendment ...................................................... 46
SECTION 10.8 Counterparts .............................................................. 46
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 10.9 Governing Law ............................................................. 46
SECTION 10.10 Expenses .................................................................. 46
SECTION 10.11 Notices ................................................................... 46
SECTION 10.12 Entire Agreement: Etc. .................................................... 48
</TABLE>
AGREEMENT AND PLAN OF REORGANIZATION dated as of the 28th day of
December, 1999 (this "Plan" or this "Agreement"), is entered into by and among
Harleysville National Corporation, a Pennsylvania corporation ("HNC"), Citizens
National Bank, a national banking association ("CNB") and Citizens Bank and
Trust Company, a Pennsylvania chartered bank and trust company ("CBTC")
(collectively sometimes referred to as the "Parties").
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RECITALS:
WHEREAS, HNC is a Pennsylvania chartered, multi-institution bank
holding company; and
WHEREAS. Harleysville National Corporation North, Inc. ("HNC North") is
a wholly-owned subsidiary of HNC; and
WHEREAS, CNB is a wholly-owned national bank subsidiary of HNC North;
and
WHEREAS, CBTC is a Pennsylvania chartered bank and trust company; and
WHEREAS, the boards of directors of HNC, HNC North, CNB and CBTC have
each determined that it is in the best interests of their respective companies
to consummate the transactions provided for in this Agreement and the exhibits
hereto in the sequential order and manner provided herein and therein;
WHEREAS, the boards of directors of CNB and CBTC have approved and deem
it advisable and in the respective best interests of HNC and the CBTC
shareholders to consummate a merger of CBTC with and into CNB pursuant to the
terms and subject to the conditions set forth in this Agreement and the
Agreement and Plan of Merger of even date herewith by and between CNB and CBTC
in the form attached hereto as Exhibit 1 (the "Bank Merger Agreement"). Such
merger of CBTC with and into CNB on the terms and conditions provided in the
Agreement and the Bank Merger Agreement shall be referred to herein and therein
as the "Bank Merger".
WHEREAS, the Parties desire to provide for certain undertakings and
conditions, make certain representations, warranties, covenants and agreements
in connection with the transactions contemplated hereby and governing the
transactions contemplated herein.
NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto, intending to be legally bound hereby,
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 Bank Merger
Subject to the terms and conditions of this Agreement, CBTC shall merge
with and into CNB (the "Bank Merger") in accordance with the Bank Merger
Agreement and pursuant to the provisions of The National Bank Merger Act, 12
U.S.C. Section 215a (the "Bank Merger Act"). CNB shall be the surviving
corporation in the Bank Merger (sometimes hereinafter referred to as the
"Surviving
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Bank") and shall continue to be a national banking association and
the separate corporate existence of CNB with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Bank Merger.
The name of the Surviving Bank shall be "Citizens National Bank".
ARTICLE II
CONVERSION OF SHARES AND
EXCHANGE OF STOCK CERTIFICATES
SECTION 2.1 Conversion of Shares.
On the Effective Date (as defined in Section 9.2 of this Agreement) the
shares of CBTC Common Stock (defined below) then outstanding shall be converted
into shares of HNC Common Stock (defined below), as follows:
(a) General. Subject to the provisions of this Article II, each
share of CBTC Common Stock, par value $50.00 per share ("CBTC
Common Stock") issued and outstanding immediately before the
Effective Date (other than shares of CBTC Common Stock then
owned by HNC or any direct or indirect subsidiary of HNC,
other than trust account shares or shares acquired in
connection with debts previously contracted) shall, on the
Effective Date, be converted into and become, without any
action on the part of the holder thereof, the right to receive
166 shares of HNC Common Stock, par value, $1.00 per share
("HNC Common Stock") (the "Exchange Ratio"). Subject to the
provisions of Section 2.1(b), the aggregate number of shares
of HNC Common Stock to be issued under this Agreement shall
not exceed 919,972 shares and the Exchange Ratio shall be 166.
(b) Anti-dilution Provision. In the event that HNC shall at any
time before the Effective Date: (i) declare or pay a dividend
in shares of HNC Common Stock, (ii) combine the outstanding
shares of HNC Common Stock into a smaller number of shares, or
(iii) subdivide the outstanding shares of HNC Common Stock
into a greater number of shares, or (iv) reclassify the shares
of HNC stock, then the Exchange Ratio shall be proportionately
adjusted accordingly.
(c) No Fractional Shares. No fractional shares of HNC Common
Stock, and no scrip or certificates therefor, shall be issued
in connection with the Bank Merger. In lieu of the issuance of
any fractional share to which he would otherwise be entitled,
each former shareholder of CBTC shall receive in cash an
amount equal to the fair market value of his fractional
interest, which fair market value shall be determined by
multiplying such fraction by the Closing Market Price (as
defined in Section 2.1(d) of this Article II).
(d) Closing Market Price. For purposes of this Agreement, the
Closing Market Price
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shall be the arithmetic average of the per share closing
prices for HNC Common Stock for the twenty (20) trading days
immediately preceding the date which is five (5) business days
before the Effective Date, as reported on the National Market
System of the National Association of Securities Dealers
Automated Quotation System (NASDAQ/NMS), the foregoing twenty
(20) trading days being hereinafter sometimes referred to as
the "Price Determination Period". (For example, if November 1,
1999 were to be the Effective Date, then the Price
Determination Period would be September 27, 28, 29, 30,
October 1, 4, 5, 6, 7, 8, 11, 12, 13, 14, 15, 18, 19, 20, 21,
22, 1999.) In the event that NASDAQ/NMS shall fail to report a
closing price for HNC Common Stock for any trading day during
the Price Determination Period, then the closing price for
that day shall be equal to the average of the closing bid
price and the closing asked price as quoted on NASDAQ/NMS for
that day. In the event that NASDAQ/NMS shall fail to report a
closing price, closing bid price and closing asked price,
respectively, for HNC Common Stock for any trading day during
the Price Determination Period, then the closing price for
that day shall be equal to the average of the closing bid
prices and the closing asked prices as quoted: (i) by two
market makers in HNC Common Stock listed in HNC's 1999 Annual
Report to Shareholders; or, in the event that neither of these
firms is then making a market in HNC Common Stock, (ii) by two
brokerage firms then making a market in HNC Common Stock to be
selected by HNC and approved by CBTC.
(e) CBTC Treasury Stock. Each share of CBTC Common Stock issued
and held in the treasury of CBTC as of the Effective Date, if
any, shall be canceled, and no cash, stock, or other property
shall be delivered in exchange therefor.
(f) CBTC Common Stock held by HNC. Each share of CBTC Common Stock
(other than trust account shares or shares acquired in
connection with debts previously contracted) owned by HNC or
any direct or indirect subsidiary of HNC on the Effective
Date, if any, shall be cancelled.
(g) HNC Common Stock.
(i) Each share of HNC Common Stock issued and
outstanding immediately prior to the Effective
Date, shall, on and after the Effective Date,
continue to be issued and outstanding as an
identical share of HNC Common Stock.
(ii) Each share of HNC Common Stock issued and held in
the treasury of HNC as of the Effective Date, if
any, shall, on and after the Effective Date,
continue to be issued and held in the treasury of
HNC.
SECTION 2.2 Exchange of Stock Certificates.
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<PAGE> 142
CBTC Common Stock certificates shall be exchanged for HNC Common Stock
certificates in accordance with the following procedures:
(a) Exchange Agent. The transfer agent of HNC shall act as
exchange agent (the "Exchange Agent") to receive CBTC Common
Stock certificates from the holders thereof and to exchange
such stock certificates for HNC Common Stock certificates and
(if applicable) to pay cash for fractional shares of CBTC
Common Stock pursuant to Section 2.1(d) above. The Exchange
Agent shall, on or promptly after the Effective Date, mail to
each former shareholder of CBTC a notice specifying the
procedures to be followed in surrendering such shareholder's
CBTC Common Stock certificates.
(b) Surrender of Certificates. As promptly as possible after
receipt of the Exchange Agent's notice, each former
shareholder of CBTC shall surrender his CBTC Common Stock
certificates to the Exchange Agent; provided, that if any
former shareholder of CBTC shall be unable to surrender his
CBTC Common Stock certificates due to loss or mutilation
thereof, he may make a constructive surrender by following
procedures comparable to those customarily used by HNC for
issuing replacement certificates to HNC shareholders whose HNC
Common Stock certificates have been lost or mutilated. Upon
receiving a proper actual or constructive surrender of CBTC
Common Stock certificates from a former CBTC shareholder, the
Exchange Agent shall issue to such shareholder, in exchange
therefor, a HNC Common Stock certificate representing the
whole number of shares of HNC Common Stock into which such
shareholder's shares of CBTC Common Stock have been converted
in accordance with this Article II, together with a check in
the amount of any cash to which such shareholder is entitled,
pursuant to Section 2.1(c) of this Agreement, in lieu of the
issuance of a fractional share.
(c) Dividend Withholding. Dividends, if any, payable by HNC after
the Effective Date to any former shareholder of CBTC who has
not prior to the payment date surrendered his CBTC Common
Stock certificates may, at the option of HNC, be withheld. Any
dividends so withheld shall be paid, without interest, to such
former shareholder of CBTC upon proper surrender of his CBTC
Common Stock certificates.
(d) Failure to Surrender Certificates. All CBTC Common Stock
certificates must be surrendered to the Exchange Agent within
two (2) years after the Effective Date. In the event that any
former shareholder of CBTC shall not have properly surrendered
his CBTC Common Stock certificates within two (2) years after
the Effective Date, the shares of HNC Common Stock that would
otherwise have been issued to him may, at the option of HNC,
be sold and the net proceeds of such sale, together with the
cash (if any) to which he is entitled in lieu of the issuance
of a fractional share and any previously accrued dividends,
shall be held in a non-interest bearing account
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<PAGE> 143
for his benefit. From and after any such sale, the sole right
of such former shareholder of CBTC shall be the right to
collect such net proceeds, cash and accumulated dividends.
Subject to all applicable laws of escheat, such net proceeds,
cash and accumulated dividends shall be paid to such former
shareholder of CBTC, without interest, upon proper surrender
of his CBTC Common Stock certificates.
(e) Expenses of Share Surrender and Exchange. All costs and
expenses associated with the foregoing surrender and exchange
procedure shall be borne by HNC. Notwithstanding the
foregoing, no party hereto will be liable to any holder of
CBTC Common Stock for any amount paid in good faith to a
public official or agency pursuant to any applicable abandoned
property, escheat or similar law.
(f) Exchange Procedures. Each certificate for shares of CBTC
Common Stock delivered for exchange under this Article II must
be endorsed in blank by the registered holder thereof or be
accompanied by a power of attorney to transfer such shares
endorsed in blank by such holder. If more than one certificate
is surrendered at one time and in one transmittal package for
the same shareholder account, the number of whole shares of
HNC Common Stock for which certificates will be issued
pursuant to this Article II will be computed on the basis of
the aggregate number of shares represented by the certificates
so surrendered. If shares of CBTC Common Stock or payments of
cash are to be issued or made to a person other than the one
in whose name the surrendered certificate is registered, the
certificate so surrendered must be properly endorsed in blank,
with signature(s) guaranteed, or otherwise in proper form for
transfer, and the person to whom certificates for shares of
HNC Common Stock is to be issued or to whom cash is to be paid
shall pay any transfer or other taxes required by reason of
such issuance or payment to a person other than the registered
holder of the certificate for shares of CBTC Common Stock
which are surrendered. As promptly as practicable after the
Effective Date, HNC shall send, or cause to be sent, to each
shareholder of record of CBTC Common Stock, transmittal
materials for use in exchanging certificates representing CBTC
Common Stock for certificates representing HNC Common Stock
into which the former have been converted in the
Reorganization and Bank Merger.
(g) Closing of Stock Transfer Books; Cancellation of CBTC
Certificates. Upon the Effective Date, the stock transfer
books for CBTC Common Stock will be closed and no further
transfers of shares of CBTC Common Stock will thereafter be
made or recognized. All certificates for shares of CBTC Common
Stock surrendered pursuant to this Article II will be canceled
by HNC.
(h) Rights Evidenced by Certificate. Each certificate for shares
of HNC Common Stock issued in exchange for certificates of
CBTC Common Stock pursuant to Section 2.2(f) hereof will be
dated as of the Effective Date and be entitled to dividends
and all other rights and privileges pertaining to such shares
of HNC Common Stock from
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<PAGE> 144
the Effective Date. Until surrendered, each certificate
theretofore evidencing shares of CBTC Common Stock will, from
and after the Effective Date, evidence solely the right to
receive certificates for shares of HNC Common Stock pursuant
to Section 2.2(f) hereof. If certificates for shares of CBTC
Common Stock are exchanged for HNC Common Stock at a date
following one or more record dates for the payment of
dividends or of any other distribution on the shares of HNC
Common Stock subsequent to the Effective Date, HNC will pay
cash in an amount equal to dividends theretofore payable on
such HNC Common Stock and pay or deliver any other
distribution to which holders of shares of HNC Common Stock
have theretofore become entitled. No interest will accrue or
be payable in respect of dividends or cash otherwise payable
under this Section 2.2 upon surrender of certificates for
shares of HNC Common Stock. Notwithstanding the foregoing, no
party hereto will be liable to any holder of CBTC Common Stock
for any amount paid in good faith to a public official or
agency pursuant to any applicable abandoned property, escheat
or similar law. Until such time as certificates for shares of
CBTC Common Stock are surrendered by a CBTC shareholder to HNC
for exchange, HNC shall have the right to withhold dividends
or any other distributions, without interest, on the shares of
the HNC Common Stock issuable to such shareholder.
(i) Payment Procedures. As soon as practical after the Effective
Date, HNC shall make payment of the cash consideration
provided for in Section 2.1(c) to each person entitled
thereto.
(j) Unclaimed Shares. In the event that any certificates for
shares of CBTC Common Stock have not been surrendered for
exchange in accordance with this Section on or before the
second anniversary of the Effective Date, HNC may at any time
thereafter, with or without notice to the holders of record of
such certificates, sell for the accounts of any or all of such
holders any or all of the shares of HNC Common Stock which
such holders are entitled to receive under Section 2.1(a)
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 HNC
shall determine. If, in the opinion of counsel for HNC, 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. HNC 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 certificates for shares of CBTC Common Stock
whose Unclaimed Shares have been sold, to be paid to them upon
surrender of the certificates for shares of CBTC Common Stock.
From and after any such sale, the sole right of the holders of
the unsurrendered certificates for shares of CBTC Common Stock
whose Unclaimed Shares have been sold shall be the right to
collect the net sale proceeds held by HNC for their respective
accounts, and such holders shall not be entitled to receive
any
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<PAGE> 145
interest on such net sale proceeds held by HNC.
SECTION 2.3 Other Matters.
(a) Notwithstanding any term of this Agreement to the contrary,
HNC shall have the right to cause CBTC to be the Surviving
Bank of the Bank 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 CBTC shareholders 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) Nothing set forth in this Agreement or any Exhibit hereto
shall be construed:
(i) to preclude HNC from acquiring or assuming, or to
limit in any way the right of HNC to acquire or
assume, prior to or following the Effective Date,
the stock, or assets or liabilities of any other
financial services institution or other
corporation or entity, whether by issuance or
exchange of HNC Common Stock, or otherwise;
(ii) to preclude HNC from issuing, or to limit in any
way the right of HNC to issue, prior to or
following the Effective Date, HNC Common Stock,
HNC Preferred Stock or other securities;
(iii) to preclude HNC from granting employee, director
or compensatory options at any time with respect
to HNC Common Stock, HNC Preferred Stock or other
securities;
(iv) to preclude option holders of HNC from exercising
options at any time with respect to HNC Common
Stock, HNC Preferred Stock or other securities;
or
(v) to preclude HNC from taking, or to limit in any
way the right of HNC to take, any other action
not expressly and specifically prohibited by the
terms of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of CBTC.
CBTC represents and warrants to HNC (and the word "it" in this Article
III refers to CBTC
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and each subsidiary of it) that, as of even date herewith and except as
specifically disclosed in the Annex of disclosure schedules included herewith,
as follows:
(a) Corporate Organization and Qualification. CBTC is a
Pennsylvania chartered bank, duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Pennsylvania. CBTC has the requisite corporate 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. Except
as disclosed on Annex 3.1(a), CBTC has made available to HNC a
complete and correct copy of the charter and bylaws of CBTC
and such charter and such bylaws are in full force and effect
as of the date hereof.
(b) Authorized Capital. The authorized capital stock of CBTC
consists of 5,542 shares of CBTC Common Stock all of which
were issued and outstanding as of the date of this Agreement.
All of the outstanding shares of capital stock of CBTC have
been duly authorized and are validly issued, fully paid and
nonassessable. CBTC has no shares of capital stock reserved
for issuance. CBTC has no outstanding bonds, debentures, notes
or other obligations the holders of which have the right to
vote (or convertible into or exercisable for securities having
the right to vote) with shareholders on any matter. The
outstanding shares of capital stock of CBTC have not been
issued in violation of any preemptive rights. There are no
outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of
any character relating to the issued or unissued capital stock
or other securities of CBTC. After the Effective Date, CBTC
will have no obligation which is being assumed by HNC which
will result in any obligation to issue, transfer or sell any
shares of capital stock pursuant to any Employee Plan (as
defined in Section 3.1 (n)).
(c) Subsidiaries. CBTC has no subsidiaries.
(d) Corporate Authority. Subject only to approval of this
Agreement by the holders of the number of votes required by
applicable law, CBTC's articles of incorporation or bylaws
cast by all holders of CBTC Common Stock (without any
minority, class or series voting requirement), and, subject to
the regulatory approvals specified in Section 6.1(b) hereof,
CBTC 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 the Bank
Merger Agreement and to consummate the transactions applicable
to it contemplated hereby. This Agreement and the Bank Merger
Agreement has been duly and validly executed and delivered by
CBTC and constitutes the valid and binding obligations of CBTC
enforceable against it, 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.
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(e) No Violations. The execution, delivery and performance of this
Agreement by it does not, the execution, delivery and
performance of the Bank Merger Agreement by it will 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 6.1(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 Bank Merger, (ii) a breach or violation of, or a default
under CBTC's articles of incorporation, or its bylaws, or
(iii) except as disclosed in Annex 3.1(e), a breach or
violation of, or a default under (or an event which with due
notice or lapse of time or both would constitute a default
under), or result in the termination of, accelerate the
performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of it under any of the
terms, conditions or provisions of any note, bond, indenture,
deed of trust, loan agreement or other agreement, instrument
or obligation to which it is a party, or to which any of its
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 Bank 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 other
party to any such agreement, indenture or instrument, other
than (w) all required approvals, consents and waivers of
governmental authorities, (x) the approval of its shareholders
referred to in Section 6.1(a), (y) any such approval, consent
or waiver that already has been obtained, and (z) 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 Bank Merger.
(f) Financial Statements and Regulatory Reports. CBTC has
delivered to HNC and CNB its (i) Balance Sheets, Statements of
Earnings, Statements of Stockholders' Equity, and Statements
of Cash Flows of CBTC for the years ended December 31, 1998
and December 31, 1997, certified by Beard & Company, Inc. and
(ii) Call Reports, Consolidated Reports of Condition and
Income, (the aforementioned consolidated report of condition
and income as of September 30,1999, is referred to herein as
the "Bank Balance Sheet") and accompanying schedules, filed by
CBTC with any regulatory authority for each calendar quarter,
beginning with the quarter ended December 31, 1998, through
the Effective Date ("CBTC Regulatory Reports"). Each of the
foregoing financial statements fairly presents the financial
condition, assets and liabilities, and results of operations
of CBTC at their respective dates and for the respective
periods then ended and have been prepared in accordance with
generally accepted accounting principles consistently applied,
except as otherwise noted in a footnote thereto. The books and
records of CBTC are maintained in
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accordance with generally accepted accounting principles
consistently applied. The CBTC Regulatory Reports have been,
or will be, prepared in accordance with applicable regulatory
accounting principles and practices applied on a consistent
basis throughout the periods issued by such statements, and
fairly present, or will fairly present, the financial
position, results of operations and changes in shareholders'
equity of CBTC as of and for the periods ended on the dates
thereof, in accordance with applicable regulatory accounting
principles applied on a consistent basis.
(g) Absence of Undisclosed Liabilities. Except as disclosed in
Annex 3.1(g), or as reflected, noted or adequately reserved
against in the Bank Balance Sheet, as at September 30, 1999,
CBTC had no liabilities (whether accrued, absolute or
contingent) or asset impairment which are required to be
reflected, noted or reserved against therein under generally
accepted accounting principles or which are in any case or in
the aggregate material. Except as disclosed in Annex 3.1(g),
since September 30, 1999, CBTC has not incurred any such
liability, other than liabilities of the same nature as those
set forth in the Bank Balance Sheet, all of which have been
reasonably incurred in the ordinary course of business
consistent with customary business practices of prudently
managed banks (hereinafter referred to as "Ordinary Course of
Business").
(h) Absence of Certain Changes or Events. Since January 1, 1999 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, resources or personnel 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. It
has, as of the date hereof, sufficient personnel currently
employed and at work to operate its business in the Ordinary
Course of Business.
(i) Taxes. Its federal income tax returns have been examined and
closed or otherwise closed by operation of law through 1995.
All federal, state, local and foreign tax returns, including,
but not limited to, any and all Pennsylvania tax filings
arising under the Bank Shares Tax, Single Excise Tax and the
Amended 1989 Bank Shares Tax and/or similar taxes, 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
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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 CBTC,
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.
(j) Litigation and Liabilities. Except as set forth in Annex
3.1(j), 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 fact 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.
(k) 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 CBTC Regulatory Agencies,
charged with the supervision or regulation of financial or
depository institutions or engaged in the insurance of bank
deposits, nor, except as disclosed on Annex 3.1(k), has it
been advised by any CBTC 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.
(l) Agreements.
(i) Except as set forth in Annex 3.1(l) 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)
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of Regulation S-K promulgated by 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 $10,000;
(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 CBTC or committing to
dispose of some or all of the
capital stock or substantially all
of the assets of CBTC; or
(H) collective bargaining agreement,
contract, or other agreement or
understanding with a labor union or
labor organization.
(ii) It is not in default under or in violation of any
provision of any note, bond, indenture, mortgage,
deed of trust, loan agreement, lease or other
agreement to which it is a party or to which any
of its respective
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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.
(m) Labor Matters. 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.
(n) Employee Benefit Plans. Annex 3.1(n) contains a complete list
of all pension, retirement, stock option, stock purchase,
stock ownership, savings, stock appreciation right, profit
sharing, deferred compensation, consulting, bonus, group
insurance, severance and other employee benefits, incentive
and welfare policies, contracts, plans and arrangements, and
all trust agreements related thereto, in respect to any of its
present or former directors, officers or other employees
(hereinafter referred to collectively as the "Employee
Plans").
(i) All of the Employee Plans maintained by it comply
in all material respects with all applicable
requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the
Code and other applicable laws; no Employee Plan
has engaged in a "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975
of the Code) which is likely to result in any
material penalties, taxes or other events under
Section 502(i) of ERISA or Section 4975 of the
Code which would have a Material Adverse Effect
on it.
(ii) No liability to the Pension Benefit Guaranty
Corporation has been or is expected to be
incurred with respect to any Employee Plan which
is subject to Title IV of ERISA ("Pension Plan"),
or with respect to any "single-employer plan" (as
defined in Section 4001 (a)(15) of ERISA)
currently or formerly maintained by it or any
entity which is considered one employer with CBTC
under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate").
(iii) No Pension Plan or single-employer plan of an
ERISA Affiliate had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA
(whether or not waived)) as of the last day of
the end of the most recent plan year ending prior
to the date hereof; all contributions to any
Pension Plan or single-employer plan of an ERISA
Affiliate that were required by Section 302 of
ERISA and were due prior to the date hereof have
been made on or before the respective dates on
which such contributions were due; the fair
market value of the assets of each Pension Plan
or single-employer plan of an ERISA Affiliate
exceeds the present value of the
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"benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or
single employer plan of an ERISA Affiliate as of
the end of the most recent plan year with respect
to the respective Pension Plan or single-employer
plan of an ERISA Affiliate ending prior to the
date hereof, calculated on the basis of the
actuarial assumptions used in the most recent
actuarial valuation for such Pension Plan or
single-employer plan of an ERISA Affiliate as of
the date hereof; and no notice of a "reportable
event" (as defined in Section 4043 of ERISA) for
which the 30-day reporting requirement has not
been waived has been required to be filed for any
Pension Plan or single-employer plan of an ERISA
Affiliate within the 12-month period ending on
the date hereof.
(iv) CBTC has not provided, nor is it required to
provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(v) CBTC has not contributed to any "multi-employer
plan," as defined in Section 3(37) of ERISA, on
or after September 26, 1980.
(vi) Each Employee Plan of it which is an "employee
pension benefit plan" (as defined in Section 3(2)
of ERISA) and which is intended to be qualified
under Section 401(a) of the Code (a "Qualified
Plan") has received a favorable determination
letter from the Internal Revenue Service ("IRS")
covering the requirements of the Tax Equity and
Fiscal Responsibility Act of 1982, the Retirement
Equity Act of 1984 and the Deficit Reduction Act
of 1984 and the Tax Reform Act of 1986; it is not
aware of any circumstances likely to result in
revocation of any such favorable determination
letter; each such Employee Plan has been amended
to reflect the requirements of subsequent
legislation applicable to such plans; and each
Qualified Plan has complied at all relevant times
in all material respects with all applicable
requirements of Section 401(a) of the Code.
(vii) Each Qualified Plan which is an "employee stock
ownership plan" (as defined in Section 4975(e)(7)
of the Code) has at all relevant times satisfied
all of the applicable requirements of Sections
409 and 4975(e)(7) of the Code and the
regulations thereunder.
(viii) CBTC has not 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
or excise taxes which
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may be subsequently imposed or assessed which are
not material in amount.
(ix) There is no pending or threatened litigation,
administrative action or proceeding relating to
any Employee Plan, other than routine claims for
benefits.
(x) CBTC has made 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, except as to Covered Persons (as
defined in Section 8.3) CBTC does not have any
obligations for retiree health and life benefits
under any Employee Plan that cannot be terminated
without incurring any liability thereunder.
(xi) 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 CBTC to any person which is an
"excess parachute payment" (as defined in Section
280G of the Code) under any Employee Plan,
increase any benefits payable under any Employee
Plan, or accelerate the time of payment or
vesting of any such benefit.
(xii) All annual reports have been filed timely with
respect to each Employee Plan, it has made
available to HNC 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 1993, (B) such Employee Plan,
including amendments thereto, (C) each trust
agreement and insurance contract relating to such
Employee Plan, including amendments thereto, (D)
the most recent summary plan description for such
Employee Plan, including amendments thereto, if
the Employee Plan is subject to Title I of ERISA,
(E) the most recent actuarial report or valuation
if such Employee Plan is a Pension Plan and (F)
the most recent determination letter issued by
the IRS if such Employee Plan is a Qualified
Plan.
(xiii) Except as to Covered Persons (as defined by
Section 8.3), there are no retiree health benefit
plans except as required to be maintained by
COBRA.
(o) Title to Assets. It has good and marketable title to its
properties and assets (other than property as to which it is
lessee), except for (i) such items shown in the CBTC
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
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respect to any property leased by it, there are no defaults by
it, or, to its knowledge, 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, to its knowledge, 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 of
which it has knowledge 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.
(p) 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.
(q) Fees. Except as set forth in Annex 3.1(q) attached hereto,
neither it nor any of its respective officers, directors,
employees or agents have 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 this Agreement or the transactions
contemplated hereby.
(r) Environmental Matters. For purposes of this Section 3.1, the
following terms shall have the indicated meaning:
"Environmental Law" means any federal, state or local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree,
injunction or agreement with any governmental entity relating
to: the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other
natural resource); and the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Substances. The
term Environmental Law includes without limitation: the
Comprehensive Environmental Response, Compensation and
Liability Act, as amended, 42 U.S.C. Section 9601, et seq.,
the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901, et seq., the Clean Air Act, as amended,
42 U.S.C. Section 7401, et seq., the Federal
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Water Pollution Control Act, as amended, 33 U.S.C. Section
1251, et seq., the Toxic Substances Control Act, as amended,
15 U.S.C. Section 9601, et seq., the Emergency Planning and
Community Right to Know Act, 42 U.S.C. Section 11001, et seq.,
the Safe Drinking Water Act, 42 U.S.C. Section 300f, et seq.,
and all comparable state and local laws; and any common law
(including without limitation common law that may impose
strict liability) that may impose liability or obligation for
injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance presently 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 material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or
any derivative or by-product thereof, asbestos, radioactive
material, and polychlorinated biphenyls.
"CBTC Loan Portfolio Properties and Other Properties Owned"
means those properties serving as collateral for loans in
CBTC's loan portfolio, or properties owned or operated by CBTC
(including, without limitation, in a fiduciary capacity).
Except as set forth on Annex 3.1(r) hereto:
(i) CBTC has not been nor is in violation of or held
to be liable under any Environmental Law.
(ii) None of the CBTC Loan Portfolio Properties and
Other Properties Owned have been or, to CBTC's
knowledge, are in violation of or have been held
to be liable under any Environmental Law.
(iii) CBTC has no knowledge that any environmental
contaminant, pollutant, toxic or hazardous waste
or other similar substance has been generated,
used, stored, processed, disposed of or
discharged onto any of the real estate now or
previously owned or acquired (including without
limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's
right) or leased by CBTC, except as disclosed on
Annex 3.1(r). In particular, without limiting the
generality of the foregoing sentence, except as
disclosed on Annex 3.1(r), CBTC has no knowledge
that: (i) any materials containing asbestos have
been used or incorporated in any building or
other structure or improvement located on any of
the real estate now or previously owned or
acquired (including without limitation any real
estate acquired by means of foreclosure or
exercise of any other creditor's right) or leased
by CBTC; (ii) any electrical transformers,
fluorescent light fixtures with ballasts or other
equipment containing
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PCB's are or have been located on any of the real
estate now or previously owned or acquired
(including without limitation any real estate
acquired by means of foreclosure or exercise of
any other creditor's right) or leased by CBTC;
(iii) any underground storage tanks for the
storage of gasoline, petroleum products or other
toxic or hazardous substances are or have ever
been located on any of the real estate now or
previously owned or acquired (including without
limitation any real estate acquired by means of
foreclosure or exercise of any other creditor's
right) or leased by CBTC.
(iv) Except as previously disclosed in Annex 3.1(r),
there is no legal, administrative, arbitration or
other proceeding, claim, action, cause of action
or governmental investigation of any nature
seeking to impose, or that could result in the
imposition on CBTC of any liability arising under
any local, state or federal environmental
statute, regulation or ordinance including,
without limitation, the Comprehensive
Environmental Response, Compensation and
Liability Act of 1980, as amended, pending or, to
CBTC's knowledge, threatened against CBTC; to
CBTC's knowledge, there is no reasonable basis
for any such proceeding, claim, action or
governmental investigation; and CBTC is not
subject to any agreement, order, judgment, decree
or memorandum by or with any court, governmental
authority, regulatory agency or third party
imposing any such liability.
(s) Allowance. The allowance for loan and lease losses shown on
CBTC's consolidated statement of financial condition as of
December 31, 1998 was, and the allowance for loan and lease
losses shown on CBTC's consolidated statement of financial
condition for periods ending after the date of this Agreement
will be, in the opinion of management of CBTC, 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 HNC in writing prior to the date hereof the
amounts of all past due loans, leases, advances, credit
enhancements, other extensions of credit, commitments and
interest-bearing assets, and it shall disclose promptly to HNC
after the end of each quarter after the date hereof and on the
Effective Date the amounts thereof as of such dates. It has
disclosed to HNC in writing prior to the date hereof the
amounts of all overdrafts occurring since June 1, 1999 and it
shall disclose promptly to HNC after the end of each quarter
after the date hereof and on the Effective Date the amount of
such overdrafts. The OREO and in-substance foreclosures
included in any of its non-performing assets are carried net
of reserves at the lower of cost or market value based on
current independent appraisals or current management
appraisals.
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(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, 1997 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
the directors (a) determined that the Bank Merger is advisable
and in the best interests of it and its shareholders, (b)
approved this Agreement, the Bank Merger Agreement, and the
transactions contemplated hereby and thereby and (c) directed
that the Agreement be submitted for consideration by its
shareholders at the CBTC Shareholders' Meeting (as hereafter
defined) with the recommendation of the board of directors
that the shareholders approve the Bank Merger and the
transactions contemplated thereby.
(y) Fairness Opinions. Its board of directors has received a
written opinion, a copy of which has been furnished to HNC, to
the effect that the Exchange Ratio specified in this
Agreement, at the time of its execution, is fair to CBTC
shareholders from a financial point of view.
(z) Fidelity Bonds. Since at least December 31, 1993, CBTC 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 December 31, 1993, the
aggregate amount of all potential claims under such bonds has
not exceeded $50,000 and CBTC is not aware of any facts which
would reasonably form the basis of a claim under such bonds.
CBTC 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.
(aa) Condition of Tangible Assets. Except as set forth in Annex
3.1(aa), all buildings,
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structures and improvements on the real property owned or
leased by it are in good condition, ordinary wear and tear
excepted, and are free from structural defects in all material
respects. 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.
(bb) Loans by CBTC. Since December 31, 1990 and except as shown on
Annex 3.1(bb), in the aggregate, the loans by CBTC have been
lawfully made, constitute valid debts of the obligors, have
been issued, granted or made by CBTC in the Ordinary Course of
Business, are subject to the terms of payment as shall have
been agreed upon between CBTC and each customer, and CBTC does
not know of any applicable set-off or counterclaim which in
the aggregate would have a Material Adverse Effect on it. A
list of all loans thirty (30) days or more past due as of
October 31, 1999, and as of the last day of each month for
each of the preceding twelve (12) months thereto has been
previously delivered to HNC. No part of the amount collectible
under any loan is contingent upon performance by CBTC of any
obligation and no agreement for participation, in which CBTC
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. CBTC does not know of any
pending, threatened or expected actions in connection with any
material loans or commitments presently or previously made by
CBTC relating to claims based on theories of "lenders'
liability" or any other basis.
(cc) Regulatory Compliance - Pennsylvania Department of Banking.
CBTC is in compliance in all material respects with the
applicable rules and regulations of the Pennsylvania
Department of Banking, except as noted in Annex 3.1(cc).
(dd) Regulatory Compliance - FDIC. Except as noted on Annex 3.1(dd)
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.
(ee) Capital Compliance. As of the date of this Agreement, CBTC was
in compliance with the minimum capital requirements applicable
to Pennsylvania chartered banking associations, including as
to leverage ratio requirements, tangible capital requirements
and risk based capital requirements.
(ff) Software Application; Year 2000. Except as noted on Annex
3.1(ff), CBTC is in compliance with all requirements announced
or promulgated by the CBTC Regulatory Agencies and by the
Federal Financial Institutions Examination Council
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in connection with Year 2000 preparedness and compliance. To
its knowledge, CBTC does not use any software material to its
operations that is not Year 2000 compliant.
(gg) Owned Software. To its knowledge, CBTC does not use any
software material to its operations that has been designed or
developed by CBTC's management information or development
staff or by consultants on CBTC's behalf.
(hh) Licensed Software. The software material to its operations
that is used by CBTC is licensed from third party licensors or
constitutes "off-the-shelf" software, is held by CBTC
legitimately and, except as set forth on Annex 3.1(hh), is
fully transferable hereunder without any third party consent.
All of CBTC's computer hardware has legitimately licensed
software installed therein.
(ii) No Errors; Nonconformity. The software material to its
operations that is used by CBTC is free from any material
defect or programming or documentation error, operates and
runs in a reasonable and efficient business manner and
conforms to the stated specifications thereof.
(jj) No Bugs or Viruses. CBTC has not knowingly altered its data,
or any software material to its operations which may, in turn,
damage the integrity of the data, stored in electronic,
optical, or magnetic or other form. Except as set forth on
Annex 3.1(jj) hereto, CBTC has no knowledge of the existence
of any bugs or viruses with respect to such software.
(kk) Documentation. CBTC has furnished HNC and CNB with true and
accurate copies of all documentation (end user or otherwise)
relating to the use, maintenance and operation of the software
material to its operations.
(ll) Assessments Fully Paid. All payments, fees and charges
assessed by appropriate state and federal agencies against
CBTC, and due on or prior to the date of this Agreement, have
been paid in full.
(mm) Proxy Statement/Prospectus., Etc. With respect to all
information relating to CBTC, CBTC Common Stock and actions
taken and statements made by CBTC in connections with the
transactions contemplated herein (except for information
provided by HNC and its subsidiaries) neither (i) the Proxy
Statement/Prospectus (as defined herein at Section 5.1(b)) 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 5.1(b)) is declared effective,
at the time the Proxy Statement/Prospectus is mailed to the
shareholders of CBTC or at the date of the meeting of the CBTC
shareholders at which the shareholders will consider this
Agreement (the "CBTC Shareholders' Meeting") nor (ii) any
other documents to be
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filed by CBTC with the SEC 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.
(nn) Significant Customers. Prior to the date of this Agreement,
CBTC has delivered to HNC a true and correct list identifying
all significant customers of CBTC. For purposes of this
Section 3.1, a "significant customer" shall mean any customer
who had (i) aggregate outstanding loans in the amount of
$50,000 or more, or (ii) aggregate daily deposits in the
amount of $50,000 or more.
(oo) Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to CBTC, CBTC Common Stock and CBTC's
involvement in the transactions contemplated hereby)
including, without limitation, the Annexes attached hereto,
nor any financial statement, schedule (certificate, or other
statement or document delivered by CBTC to HNC and CNB in
connection herewith contains any statement which, at the time
and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact or omits
to state any material fact necessary to make the statements
contained herein or therein not false or misleading. In
particular, without limiting the generality of the foregoing
sentence, the information provided and the representations
made by CBTC to HNC in connection with the Registration
Statement (as defined in Section 5.1(b) of this Agreement),
both at the time such information and representations are
provided and made and at the time of the Closing, will be true
and accurate in all material respects and will not contain any
false or misleading statement with respect to any material
fact or omit to state any material fact necessary (i) to make
the statements made therein not false or misleading, or (ii)
to correct any statement contained in an earlier communication
with respect to such information or representations which has
become false or misleading.
(pp) Beneficial Ownership of HNC Common Stock. Prior to the
Effective Date, CBTC and its officers and directors will not
in the aggregate own beneficially (within the meaning of SEC
Rule 13d-3(d)(1)) more than five percent (5%) of the
outstanding shares of HNC Common Stock.
(qq) Non-Registration Under the 1934 Act. CBTC Common Stock is
neither registered nor required to be registered under Section
12 of the Securities Exchange Act of 1934 (the "1934 Act") and
is not subject to the periodic reporting requirements imposed
by Section 13 or 15(d) of the 1934 Act.
(rr) Deposit Insurance. The deposits of CBTC are insured by the
Bank Insurance Fund, as administered by the Federal Deposit
Insurance Corporation ("FDIC") in
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accordance with the Federal Deposit Insurance Act, and CBTC
has timely paid all assessments and timely filed all reports
required to be paid or filed by the Federal Deposit Insurance
Act.
(ss) Repurchase Agreements. Except as disclosed on Annex 3.1(ss),
with respect to any agreement pursuant to which CBTC has
purchased securities subject to an agreement to resell, if
any, CBTC has a valid repurchase agreement or other instrument
governing such securities, CBTC expects no material financial
losses arising from such repurchase agreements or other such
instruments, and the value of such securities equals or
exceeds the amount of the contra party's repurchase
obligation. Except as disclosed on Annex 3.1(ss), which
identifies location and type of securities, CBTC maintains
physical possession of purchased securities that are subject
to an agreement to resell.
(tt) Assumability of Contracts and Leases. Except as disclosed on
Annex 3.1(tt), all Material Contracts between CBTC and any
other entity or person are assumable and assignable and do not
contain any term or provision that would accelerate or
increase payments that would otherwise be due by CBTC to such
person or entity, or change or modify the provisions or terms
of such leases, contracts and agreements by reason of this
Agreement or the transactions contemplated hereby. Except as
disclosed on Annex 3.1(tt), each lease pursuant to which CBTC,
as lessee, leases real or personal property is valid and in
effect in accordance with its respective terms, and there is
not, under any of such leases, on the part of the lessee, or,
to CBTC's knowledge, on the part of any of the other parties
thereto, any material existing default or any event which with
notice or lapse of time, or both, would constitute such a
default, other than defaults which would not individually or
in the aggregate have a material adverse effect on the
financial condition, business, prospects, or operating results
of CBTC.
(uu) Absence of Questionable Payments. From and after December 31,
1995, CBTC has not, nor, to its knowledge, has any director,
officer, agent, employee, consultant or other person
associated with or acting on behalf of, CBTC (i) used any CBTC
corporate funds for unlawful contributions, gifts,
entertainment or unlawful expenses relating to political
activity; or (ii) made any direct or indirect unlawful
payments to governmental officials from any CBTC corporate
funds, or established or maintained any unlawful or unrecorded
accounts with funds received from CBTC.
(vv) Powers of Attorney; Guarantees. Except as set forth on Annex
3.1(vv), CBTC does not have any power of attorney outstanding,
or any obligation or liability either actual, constructive or
contingent, as guarantor, surety, cosigner, endorser, co-maker
or indemnitor in respect of the obligation of any person,
corporation, partnership, joint venture, association,
organization or other entity, except for letters of credit
issued in the Ordinary Course of Business which are listed on
Annex 3.1(vv)
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(ww) Adjustable Rate Mortgages. CBTC has made all interest rate
adjustments to any mortgage loan according to the terms of
said mortgage loan and has complied and is in compliance in
all material respects with all federal, state and other
applicable laws, rules and regulations, including orders,
writs, decrees, injunctions and other requirements of any
court or governmental authorities having jurisdiction over
adjustable rate mortgages.
(xx) CRA Compliance. CBTC has received a satisfactory compliance
rating and has received a satisfactory Community Reinvestment
Act rating. CBTC has no knowledge of any facts or
circumstances which would prevent it from receiving such
satisfactory ratings upon its next appropriate examination.
(yy) Derivatives. Except as set forth on Annex 3.1(yy), CBTC does
not own or hold any derivatives, "caps", or "floors", in its
investment portfolio.
(zz) Annual Meeting Documents. CBTC has delivered, or will deliver
to HNC copies of its notice of annual meeting, form of proxy
and any other report provided upon request to any CBTC
shareholder used or for use in connection with its meetings of
shareholders held in 1999, 1998 and 1997.
(aaa) Trust Department and Fiduciary Relationships. CBTC has
established, maintained and administered all fiduciary and
custodian relationships, accounts and agreements, and
undertaken and performed all fiduciary and custodian duties,
obligations and responsibilities in compliance in all material
respects with all applicable laws statutes, rules, regulation
and the governing instruments such fiduciary and custodian
relationships.
(bbb) Accuracy of Representations. Until and as of Closing, CBTC
will promptly notify HNC if any of the representations
contained in this Section 3.1 cease to be true and correct
subsequent to the date hereof. Further, no representations
made by CBTC pursuant to this Agreement contain any untrue
statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the
circumstances under which they were made, not misleading.
SECTION 3.2 Representations and Warranties of HNC.
HNC represents and warrants to CBTC that, as of even date herewith and
except as specifically disclosed in the Annex of disclosure schedules included
herewith, as follows:
(a) Authority. The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of
HNC, and, except for the completion of the liquidation of HNC
North, no other corporate action on the part of HNC is
necessary to authorize the
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approval of this Agreement or the consummation of the
transactions contemplated herein. This Agreement has been duly
executed and delivered by HNC and, assuming due authorization,
execution and delivery by CBTC, receipt of required regulatory
approvals and the approval of the CBTC shareholders,
constitutes a valid and binding obligation of HNC, enforceable
against HNC in accordance with its terms, except to the extent
enforcement is limited by bankruptcy, insolvency and other
similar laws affecting creditor's rights or principles of
equity. Assuming regulatory approval, the execution, delivery
and consummation of this Agreement will not constitute a
violation or breach of or default under the Articles of
Incorporation or the Bylaws of HNC or any statute, rule,
regulation, order, decree, directive, agreement, indenture or
other instrument to which HNC is a party or by which HNC or
any of its properties are bound.
(b) Organization and Standing. HNC is a business corporation that
is duly organized, validly existing and in good standing under
the laws of the Commonwealth of Pennsylvania. HNC is a
registered bank holding company under the Bank Holding Company
Act of 1956, as amended, and has full power and lawful
authority to own and hold its properties and to carry on its
present business. HNC owns, directly or indirectly all of the
issued and outstanding shares of capital stock of Harleysville
National Bank and Trust Company, HNC North, Inc., The Citizens
National Bank and Security National Bank. Harleysville
National Bank & Trust Company, The Citizens National Bank and
Security National Bank are national banking associations
validly existing and in good standing under the laws of the
United States, and are duly authorized to engage in the
banking business as insured banks under the Federal Deposit
Insurance Act, as amended. Harleysville National Bank and
Trust Company and The Citizens National Bank are authorized to
engage in trust activities.
(c) Capitalization. The authorized capital stock of HNC consists
of Thirty Million (30,000,000) shares of common stock, par
value One Dollar ($1.00) per share ("HNC Common Stock") of
which, as of the date of this Agreement, 7,915,130 shares were
issued and outstanding. All outstanding shares of HNC Common
Stock have been duly issued and are validly outstanding, fully
paid and nonassessable. The shares of HNC Common Stock to be
issued in connection with the Bank Merger have been duly
authorized and, when issued in accordance with the terms of
this Agreement, will be validly issued, fully paid and
nonassessable.
(d) Articles of Incorporation and Bylaws. The copies of the
Articles of Incorporation, as amended, and of the Bylaws, as
amended, of HNC which have been delivered to CBTC are true,
correct, and complete in all material respects.
(e) Annual Reports and Financial Statements. HNC has delivered to
CBTC true and complete copies of (i) HNC's Annual Report on
Form 10-K for HNC's fiscal year ended December 31, 1998,
containing consolidated balance sheets of HNC at
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December 31, 1998 and December 31, 1997 and consolidated
statements of earnings, changes in shareholders' equity and
cash flows of HNC for the three years ended December 31, 1998,
1997 and 1996 and such financial statements have been
certified by Grant Thornton LLP, and (ii) HNC's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999,
containing unaudited consolidated balance sheets of HNC as at
such date and unaudited consolidated statements of earnings
and cash flows of HNC for the three-month period reflected
therein. HNC has also delivered to CBTC true and correct
copies of its annual reports on Form 10-K for the years 1998,
1997 and 1996, together with its annual reports to
shareholders for the same periods. All such reports
(collectively, the "HNC Reports") (i) comply in all material
respects with the requirements of the rules and regulations of
the SEC, (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 HNC with the SEC 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 HNC is responsible for filing with the SEC or
any regulatory agency in connection with the Bank Merger will
comply as to form in all material respects with the
requirements of applicable law.
(f) Absence of Undisclosed Liabilities. Except as disclosed in
Annex 3.2(f) or as reflected, noted or adequately reserved
against in the HNC Balance Sheet, at September 30, 1999, HNC
had no material liabilities (whether accrued, absolute,
contingent or otherwise) which are required to be reflected,
noted or reserved against therein under generally accepted
accounting principles or which are in any case or in the
aggregate material. Except as described in Annex 3.2(f), since
September 30, 1999, HNC has not incurred any such liability
other than liabilities of the same nature as those set forth
in the HNC Balance Sheet, all of which have been reasonably
incurred in the Ordinary Course of Business.
(g) Absence of Changes. Since September 30, 1999, there has not
been any material and adverse change in the condition
(financial or otherwise), assets, liabilities, business,
operations or future prospects of HNC or CNB.
(h) Litigation. Except as disclosed in Annex 3.2(h): (i) there is
no litigation, investigation or proceeding pending, or to the
knowledge of HNC threatened, that involves HNC or its
properties and that, if determined adversely to HNC, would
materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or
future prospects of HNC; (ii) there are no outstanding orders,
writs, injunctions, decrees, consent agreements, memoranda of
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understanding or other directives of any federal, state or
local court or governmental authority or of any arbitration
tribunal against HNC which materially and adversely affect the
condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of HNC or restrict in
any manner the right of HNC to conduct its business as
presently conducted; and (iii) HNC is not aware of any fact or
condition presently existing that might give rise to any
litigation, investigation or proceeding which, if determined
adversely to HNC, would materially and adversely affect the
condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of HNC. For purposes
of this Section 3.2(h), HNC shall be deemed to include CNB.
(i) Proxy Statement/Prospectus. At the time the Proxy
Statement/Prospectus (as defined in Section 5.1 of this
Agreement) is mailed to the shareholders of CBTC and at all
times subsequent to such mailing, up to and including the
Effective Date, the Proxy Statement/Prospectus (including any
pre- and post-effective amendments and supplements thereto),
with respect to all information relating to HNC and CNB, HNC
Common Stock, and actions taken and statements made by HNC,
HNC North and CNB in connection with the transactions
contemplated herein (other than information provided by CBTC
to HNC and CNB), will: (i) comply in all material respects
with applicable provisions of the 1933 Act and the 1934 Act
and the pertinent rules and regulations thereunder; and (ii)
not contain any statement which, at the time and in light of
the circumstances under which it is made, is false or
misleading with respect to any material fact, or omits to
state any material fact that is necessary to be stated therein
in order (A) to make the statements therein not false or
misleading, or (B) to correct any statement in an earlier
communication with respect to the Proxy Statement/Prospectus
which has become false or misleading.
SECTION 3.3 Representations and Warranties of CNB
CNB represents and warrants to CBTC as of even date herewith as
follows:
(a) Capital Structure of CNB. CNB is authorized to issue One
Million (1,000,000) shares of capital stock, par value One
Dollar ($1.00) per share, of which all shares outstanding are
owned by HNC.
(b) Organization and Standing. CNB is a national banking
association which is duly organized, validly existing and in
good standing under the laws of the United States. CNB has
full power and lawful authority to own and hold its properties
and to carry on its present business.
(c) Authorized and Effective Agreement. The execution, delivery
and performance of this Agreement and the Bank Merger
Agreement have been duly and validly authorized by the Board
of Directors of the CNB. Subject to appropriate shareholder
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and regulatory approvals, neither the execution and delivery
of this Agreement or the Bank Merger Agreement nor the
consummation of the transactions provided for herein or
therein will violate any agreement to which CNB is a party or
by which it is bound or any law, regulation, order, decree or
any provision of its Articles of Incorporation or By-laws.
ARTICLE IV
COVENANTS OF CBTC
SECTION 4.1 Conduct of Business.
Except as otherwise consented to by HNC and CNB in writing, CBTC shall:
(a) use all reasonable efforts to carry on its business in, and
only in, the ordinary course of business consistent with
customary business practices of prudently managed banks
(hereinafter referred to as "Ordinary Course of Business");
(b) to the extent consistent with prudent business judgment, use
all reasonable efforts to: (i) preserve its present business
organization; (ii) maintain good relationships with its
employees; (iii) retain the services of its officers and
employees; (iv) maintain sufficient personnel employed and at
work to operate its business in the Ordinary Course of
Business; and (v) maintain its relationships with customers,
suppliers and others having business dealings with CBTC;
(c) maintain all of CBTC's structures, equipment and other real
property and tangible personal property in good repair, order
and condition, except for ordinary wear and tear and damage by
unavoidable casualty;
(d) use all reasonable efforts to preserve or collect all material
claims and causes of action belonging to CBTC;
(e) keep in full force and effect all insurance policies now
carried by CBTC;
(f) perform in all material respects each of CBTC's obligations
under all material agreements, contracts, instruments and
other commitments to which CBTC is a party or by which CBTC
may be bound or which relate to or affect its properties,
assets and business;
(g) maintain its books of account and other records in the
Ordinary Course of Business;
(h) comply in all material respects with all statutes, laws,
ordinances, rules and regulations, decrees, orders, consent
agreements, examination reports, memoranda
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of understanding and other federal, state, county, local and
municipal governmental directives applicable to CBTC and to
the conduct of its business;
(i) not amend CBTC's Articles of Incorporation or Bylaws;
(j) not enter into or assume any material contract, incur any
material liability or obligation, make any material
commitment, acquire or dispose of any property or asset or
engage in any transaction or subject any of CBTC's properties
or assets to any material lien, claim, charge, or encumbrance
of any kind whatsoever;
(k) not take or permit to be taken on its behalf any action which
would constitute a breach of any representation, warranty or
covenant set forth in this Agreement;
(l) not declare, set aside or pay any dividend or make any other
distribution in respect of CBTC Common Stock, except as
provided in Section 4.9 of this Article IV;
(m) not authorize, purchase, issue or sell (or authorize, issue or
grant options, warrants or rights to purchase or sell) any
shares of CBTC Common Stock or any other equity or debt
securities of CBTC or any securities convertible into CBTC
Common Stock;
(n) except as specifically provided herein, not increase the rate
of compensation of, pay a bonus or severance compensation to,
or enter into any employment, severance, deferred compensation
or other agreement with any officer, director, employee or
consultant of CBTC; except that CBTC may grant general salary
increases and year-end bonuses to individual employees in the
ordinary course of business consistent with past practice;
(o) not enter into any related party transaction of the kind
contemplated in Section 3.1(l) of this Agreement except such
related party transactions relating to extensions of credit
made in accordance with all applicable laws, regulations and
rules and in the Ordinary Course of Business on substantially
the same terms, including interest rates and collateral, as
those prevailing at the time for comparable arm's length
transactions with other persons that do not involve more than
the normal risk of collectability or present other unfavorable
features and after disclosure of such to HNC;
(p) not change the presently outstanding number of shares or
effect any capitalization, reclassification, stock dividends,
stock split or like change in capitalization;
(q) not enter into or substantially modify (except as may be
required by applicable law) any pension, retirement, stock
option, stock warrant, stock purchase, stock appreciation
right, savings, profit sharing, deferred compensation,
severance, consulting, bonus, group insurance or other
employee benefit, incentive or welfare
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contract, or plan or arrangement, or any trust agreement
related thereto, in respect to any of its directors, officers,
or other employees; with the exception that CBTC may pay to
such current employees of its choosing retention bonuses in an
aggregate amount not to exceed $40,000, said bonuses to be
paid prior to the Effective Date.
(r) not merge with or into, or consolidate with, or be purchased
or acquired by, any other corporation, financial institution,
entity, or person (or agree to any such merger, consolidation,
affiliation, purchase or acquisition) or permit (or agree to
permit) any other corporation, financial institution, entity
or person to be merged with it or consolidate or affiliate
with any other corporation, financial institution, entity or
person; acquire control over any other firm, financial
institution, corporation or organization or create any
subsidiary; acquire, liquidate, sell or dispose (or agree to
acquire, liquidate, sell or dispose) of any assets other than
in the Ordinary Course of Business and consistent with prior
practice;
(s) not solicit or encourage inquiries or proposals with respect
to, furnish any information relating to, or participate in any
negotiations or discussions concerning any acquisition or
purchase of all or a substantial equity interest or portion of
the assets in or of CBTC or any business combination with CBTC
other than as contemplated by this Agreement, or authorize or
permit any officer, director, agent or affiliate of it to do
any of the above, provided, however, that it may respond to an
unsolicited, bona fide, written offer, after receipt of a
written opinion (subject only to normal and customary
qualifications) of outside counsel that the failure to do so
would constitute a breach of the CBTC board of directors'
fiduciary duty; or fail to notify HNC immediately if any such
inquiries or proposals are received by, any such information
is requested from, or any such negotiations are sought to be
initiated with CBTC;
(t) not change any method, practice or principle of accounting
except as may be required by generally accepted accounting
principles or any applicable regulation or take any action
that would preclude satisfaction of the condition to closing
contained in Section 6.2(e) relating to financial accounting
treatment of the Bank Merger;
(u) not make any loan or other credit facility commitment in
excess of $150,000 (including without limitation, lines of
credit and letters of credit) to any affiliate or compromise,
expand, renew or modify any such outstanding commitment;
(v) not enter into any swap or similar commitment, agreement or
arrangement which is not consistent with past practice and
which increases the credit or interest rate risk over the
levels existing at December 31, 1998;
(w) not enter into any derivative, cap or floor or similar
commitment, agreement or arrangement, except in the Ordinary
Course of Business and consistent with past
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practices;
(x) not enter into any participation arrangements or approvals of
extensions of credit in excess of $350,000.00 or renew, expand
or modify any outstanding participation arrangements or
approvals;
(y) not take any action which would result in any of the
representations and warranties of CBTC set forth in this
Agreement becoming untrue in any material respect as of any
date after the date hereof;
(z) not sell, exchange or otherwise dispose of any investment
securities or loans that are held for sale, prior to scheduled
maturity and other than pursuant to policies agreed upon from
time to time by the parties;
(aa) not purchase any security for its investment portfolio except
in conformance with its investment policy in effect as of
September 30, 1999.
(bb) not waive, release, grant or transfer any rights of value or
modify or change in any material respect any existing
agreement to which CBTC is a party, other than in the Ordinary
Course of Business consistent with past practice;
(cc) not knowingly take any action that would, under any statute,
regulation or administrative practice of any regulatory
agency, materially and adversely affect the ability of any
party to this Agreement to obtain any required approvals for
consummation of the transaction; and
(dd) not agree to any of the foregoing items (i) through (cc).
SECTION 4.2 Best Efforts.
CBTC shall cooperate with HNC and CNB and shall use its best efforts to
do or cause to be done all things necessary or appropriate on its part in order
to fulfill the conditions precedent set forth in Article VI of this Agreement
and to consummate this Agreement and the Bank Merger Agreement. In particular,
without limiting the generality of the foregoing sentence, CBTC shall:
(a) cooperate with HNC and CNB in the preparation of all required
applications for regulatory approval of the transactions
contemplated by this Agreement and in the preparation of the
Registration Statement (as defined in Section 5.1(b) of this
Agreement);
(b) call a special or annual meeting of its shareholders and take,
in good faith, all actions which are necessary or appropriate
on its part in order to secure the approval and adoption of
this Agreement and the Bank Merger Agreement by its
shareholders at
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that meeting, including recommending the approval of such
agreements by the shareholders of CBTC, unless, prior to
calling such meeting, it receives a written opinion (subject
only to normal and customary qualifications) of outside
counsel that the adoption of this Agreement and the Bank
Merger Agreement would constitute a breach of the CBTC board
of directors' fiduciary duty;
(c) cooperate with HNC and CNB in making CBTC's employees
reasonably available for training by HNC and CNB prior to the
Effective Date, to the extent that such training is deemed
reasonably necessary by HNC and CNB to ensure that CBTC's
offices will be properly operated as a part of CNB after the
Bank Merger;
(d) make additions to loan loss reserves and make loan write-offs,
write-downs and other adjustments that reasonably should be
made by CBTC in accordance with generally accepted accounting
principles, directives of governmental authorities, and all
regulations, rules and directives of the Pennsylvania
Department of Banking and FDIC;
(e) suspend any dividend reinvestment and/or stock repurchase
plan, as soon as practicable; and
(f) modify the Articles of Incorporation or Bylaws or any other
documents of CBTC reasonably requested by HNC necessary to
effectuate the transactions contemplated hereby.
SECTION 4.3 Access to Properties and Records.
CBTC shall give to HNC and CNB and their authorized representatives
(including without limitation their counsel, accountants, economic and
environmental consultants and other designated representatives) reasonable
access during normal business hours to all properties, books, contracts,
documents and records of CBTC as HNC or CNB may reasonably request, subject to
the obligations of HNC and CNB and their authorized representatives to maintain
the confidentiality of all non-public information concerning CBTC obtained by
reason of such access.
SECTION 4.4 Subsequent Financial Statements .
Between the date of execution of this Agreement and the Effective Date,
CBTC shall promptly prepare and deliver to HNC and CNB as soon as practicable
all internal monthly and quarterly financial statements, reports to shareholders
and reports to regulatory authorities prepared by or for CBTC, including all
audit reports submitted to CBTC by independent auditors in connection with each
annual, interim or special audit of the books of CBTC made by such accountants.
In particular, without limiting the generality of the foregoing sentence, CBTC
shall deliver to HNC and CNB as soon as practicable a balance sheet as of
September 30, 1999 and a related statement of income for the three (3) months
then ended (which financial statements are
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hereinafter referred to as the "September 30, 1999 Financial Statements"). The
representations and warranties set forth in Section 3.1(f) of this Agreement
shall apply to the September 30, 1999 Financial Statements.
SECTION 4.5 Board and Committee Minutes.
CBTC shall provide to HNC, within 10 days after any meeting of the
Board of Directors, or any committee thereof, or any senior or executive
management committee, a copy of the minutes of such meeting.
SECTION 4.6 Update Schedule.
CBTC shall promptly disclose to HNC and CNB in writing any change,
addition, deletion or other modification to the information set forth in the
Annexes to this Agreement. Notwithstanding the foregoing, disclosures made
subsequent to the date of this Agreement shall not relieve CBTC from any and all
liabilities for prior statements and disclosures to HNC and CNB.
SECTION 4.7 Notice.
CBTC shall promptly notify HNC and CNB in writing of any actions,
claims, investigations, proceedings or other developments which, if pending or
in existence on the date of this Agreement, would have been required to be
disclosed to HNC and CNB in order to ensure the accuracy of the representations
and warranties set forth in this Agreement or which otherwise could materially
and adversely affect the condition (financial or otherwise), assets,
liabilities, business operations or future prospects of CBTC.
SECTION 4.8 Other Proposals.
CBTC shall not authorize or permit any officer, director, employee,
agent, consultant, counsel or other representative to, directly or indirectly,
solicit, encourage, initiate or engage in discussions or negotiations with, or
respond to requests for information, inquiries or other communications from any
persons other than HNC or CNB concerning the fact of, or the terms and
conditions of, this Agreement, or concerning any acquisition of CBTC, or any
assets or business thereof (except that CBTC officers may respond to inquiries
from analysts, regulatory authorities and holders of CBTC Common Stock in the
Ordinary Course of Business); and CBTC shall notify HNC immediately if any such
discussions or negotiations are sought to be initiated with CBTC by any such
person other than HNC or if any such requests for information, inquiries,
proposals or communications are received from any person other than HNC.
Provided, however, that CBTC may respond to an unsolicited bona fide written
offer if it receives a written opinion (subject only to normal and customary
qualifications) of outside counsel that the failure to respond would constitute
a breach of the CBTC board of directors' fiduciary duty.
SECTION 4.9 Dividends.
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Between the date of this Agreement and the Effective Date, CBTC shall
only declare and pay cash dividends as provided herein. CBTC shall only pay
regular quarterly cash dividends in an amount not in excess of $40.00 per share.
Dividend declaration and payment dates shall be consistent with prior practices
of CBTC. Provided, however, that if the Effective Date of the transaction were
to entitle CBTC shareholders to a quarterly cash dividend for the respective
calendar quarter, from CBTC and subsequently HNC, then CBTC shall not pay a
dividend in said quarter.
SECTION 4.10 Core Deposits.
CBTC shall use commercially reasonable efforts to maintain deposits.
SECTION 4.11 Affiliate Letters.
CBTC shall deliver or cause to be delivered to HNC and CNB, at or
before the Closing (as defined in Section 1.1(c) of this Agreement), a letter or
agreement from each officer, director and shareholder of CBTC who may be deemed
to be an "affiliate" (as that term is defined for purposes of Rules 145 and 405
promulgated by the SEC under the 1933 Act) of CBTC, in form and substance
satisfactory to HNC and CNB, under the terms of which each such officer,
director or shareholder acknowledges and agrees to abide by all limitations
imposed by the 1933 Act and by all rules, regulations and releases promulgated
thereunder with respect to the sale or other disposition of the shares of HNC
Common Stock to be received by such person pursuant to this Agreement.
SECTION 4.12 No Purchases or Sales of HNC Common Stock During Price
Determination Period.
Neither CBTC nor any executive officer or director of CBTC nor any
shareholder of CBTC who may be deemed to be an "affiliate" (as that term is
defined for purposes of Rules 145 and 405 promulgated by the SEC under the 1933
Act) of CBTC shall purchase or sell on NASDAQ, or submit a bid to purchase or an
offer to sell on NASDAQ, directly or indirectly, any shares of HNC Common Stock
or any options, rights or other securities convertible into shares of HNC Common
Stock during the Price Determination Period.
SECTION 4.13 Accounting Treatment.
CBTC acknowledges that HNC presently intends to treat the business
combination contemplated by this Agreement as a "pooling of interests" for
financial reporting purposes. CBTC shall not take (and shall use its best
efforts not to permit any of its directors, officers, employees, shareholders,
agents, consultants or other representatives to take) any action which would
preclude HNC from treating such business combination as a "pooling of interests"
for financial reporting purposes.
SECTION 4.14 Press Releases.
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CBTC shall not issue any press release related to this Agreement and
the Bank Merger Agreement or the transactions contemplated hereby or thereby as
to which HNC has not given its prior written consent, and shall consult with HNC
as to the form and substance of other public disclosures related thereto;
provided, however, that nothing contained herein shall prohibit CBTC from making
any disclosure which its counsel deems reasonably necessary.
SECTION 4.15 Professional Fees.
CBTC shall not incur professional expenses in connection with the
transactions contemplated by this Agreement in excess of $450,000 unless CBTC
and HNC mutually agree in writing to increase such amount because of unique and
unforeseen circumstances. Nothing contained herein shall be interpreted to
impair CBTC's obligations to pay professional fees pursuant to contracts in
effect as of the date of this Agreement. Such professional expenses shall
include those paid and payable to attorneys, accountants, consultants and
investment bankers.
SECTION 4.16 Environmental Audits.
CBTC shall permit, if HNC elects to do so at its own expense,
environmental audits to be performed at any physical location owned, leased or
occupied on the date hereof by CBTC.
ARTICLE V
COVENANTS OF HNC AND CNB
From the date of this Agreement until the Effective Date (as defined in
Section 1.1(d) of this Agreement), HNC and CNB covenant and agree to do the
following:
SECTION 5.1 Best Efforts.
HNC and CNB shall cooperate with CBTC and shall use their best efforts
to do or cause to be done all things necessary or appropriate on their part in
order to fulfill the conditions precedent set forth in Article VI of this
Agreement and to consummate this Agreement. In particular, without limiting the
generality of the foregoing sentence, HNC and CNB agree to do the following:
(a) Applications for Regulatory Approval. HNC and CNB shall
promptly prepare and file, with the cooperation and assistance
of CBTC, all required applications for regulatory approval of
the transactions contemplated by this Agreement and the Bank
Merger Agreement.
(b) Registration Statement. HNC shall promptly prepare, with the
cooperation and assistance of CBTC, and file with the SEC, a
registration statement under the 1933 Act (the "Registration
Statement") for the purpose of registering the shares of HNC
Common Stock to be issued under the provisions of this
Agreement. HNC may rely
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upon all information provided to it by CBTC in this connection
and HNC shall not be liable for any untrue statement of a
material fact or any omission to state a material fact in the
Registration Statement or in the proxy statement and
prospectus (the "Proxy Statement/Prospectus") which is
prepared as a part thereof, if such statement is made by HNC
in reliance upon any information provided to HNC by CBTC or by
its agents and representatives. HNC will advise CBTC, after it
receives notice thereof, of the time when the Registration
Statement or any Pre- or Post-Effective Amendment thereto has
become effective or any supplement or amendment has been
filed. HNC shall provide a copy of the Registration Statement
to CBTC for comment and review at least five (5) business days
in advance of the anticipated filing date.
(c) State Securities Laws. HNC and CNB, with the cooperation of
CBTC, shall promptly take all such actions as may be necessary
or appropriate in order to comply with all applicable
securities laws of any state having jurisdiction over the
transactions contemplated by this Agreement.
(d) Liquidation of HNC North. HNC shall approve the HNC North Plan
of Liquidation and the transactions contemplated thereby and
the liquidation of HNC North shall have been completed.
SECTION 5.2 Access to Properties and Records.
HNC and CNB shall give to CBTC and to its authorized representatives
(including without limitation counsel, accountants, economic and environmental
consultants and other designated representatives) reasonable access during
normal business hours to all properties, books, contracts, documents and records
of HNC and CNB as they may reasonably request, subject to their obligation and
the obligation of their authorized representatives to maintain the
confidentiality of all non-public information concerning HNC or CNB obtained by
reason of such access.
SECTION 5.3 Subsequent Financial Statements.
Between the date of execution of this Agreement and the Effective Date,
HNC shall promptly prepare and deliver to CBTC as soon as practicable each
Quarterly Report to HNC's shareholders and any Annual Report to HNC's
shareholders normally prepared by HNC and any Current Report on Form 8-K filed
by HNC with the SEC. The representations and warranties set forth in Sections
3.2 of this Agreement shall apply to the financial statements set forth in the
foregoing Quarterly Reports and any Annual Report to HNC's shareholders and to
the information contained in any Current Report on Form 8-K.
SECTION 5.4 Update Schedule.
HNC and CNB shall promptly disclose to CBTC in writing any change,
addition, deletion
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or other modification to the information set forth in its Annexes to this
Agreement.
SECTION 5.5 Notice.
HNC and CNB shall promptly notify CBTC in writing of any actions,
claims, investigations or other developments which, if pending or in existence
on the date of this Agreement, would have been required to be disclosed to them
in order to ensure the accuracy of the representations and warranties set forth
in this Agreement or which otherwise could materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business, operations or
future prospects of HNC or CNB.
SECTION 5.6 No Purchase or Sale of HNC Common Stock During Price Determination
Period.
Neither HNC nor any subsidiary of HNC, nor any executive officer or
director of HNC or any subsidiary of HNC, nor any shareholder of HNC who may be
deemed to be an "affiliate" (as that term is defined for purposes of Rules 145
and 405 promulgated by the SEC under the 1933 Act) of HNC, shall purchase or
sell on NASDAQ, or submit a bid to purchase or an offer to sell on NASDAQ,
directly or indirectly, any shares of HNC Common Stock or any options, rights or
other securities convertible into shares of HNC Common Stock during the Price
Determination Period; provided, however, that HNC may purchase shares of HNC
Common Stock in the Ordinary Course of Business during the Price Determination
Period pursuant to HNC's employee benefit plans, stock option plans or HNC's
dividend reinvestment and stock purchase plan.
SECTION 5.7 Publicity.
HNC shall provide to CBTC, for review and comment, copies of any public
disclosure or press releases related to this Agreement and the Bank Merger
Agreement and the transactions contemplated hereby or thereby, prior to any
public release of such disclosure or press release.
SECTION 5.8 Director and Officer Liability Insurance.
For a period of six (6) years following the Effective Date, HNC shall
pay the premiums for a Director and Officer Liability Insurance Tail Policy for
the Directors and Officers of CBTC as of the Effective Date and for all former
directors and officers of CBTC, if so permitted by the insurance carrier and
within the financial limitations of this Section 5.8, with conditions and terms
the same as or, if unavailable, substantially comparable to the Director and
Officer Liability Policy of CBTC as of the date of this Agreement, so long as
such policy can be obtained at a cost not in excess of 150% of the rate for such
Director and Officer Liability Insurance Tail Policy in effect as of the date of
this Agreement. In the event HNC is unable to obtain such a Director and Officer
Liability Insurance Tail Policy at a cost not in excess of 150% of such rate,
HNC shall obtain a Director and Officer Liability Insurance Tail Policy with the
maximum coverage reasonably available for a cost that is equal to 150% of such
rate.
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SECTION 5.9 Shareholder Approval.
CNB and HNC shall each take, in good faith, all actions which are
necessary or appropriate on its respective part to secure the approval and
adoption of this Agreement and the Bank Merger Agreement by CNB's shareholder,
including recommending the approval of such agreements.
ARTICLE VI
CONDITIONS TO CONSUMMATION
SECTION 6.1 Common Conditions.
The respective obligations of the parties to effect the Bank Merger
shall be subject to the satisfaction or waiver prior to the Effective Date of
the following conditions:
(a) The Agreement, the Bank Merger Agreement and the transactions
contemplated hereby and thereby shall have been approved by
the requisite vote of the shareholders of CBTC in accordance
with applicable law.
(b) All approvals, consents or waivers required by any of the CBTC
Regulatory Agencies or the HNC Regulatory Agencies with
respect to this Agreement and the Bank Merger Agreement and
the transactions contemplated hereby and thereby including,
without limitation, the approvals, notices to, consents or
waivers of (i) the Board, (ii) the Office of the Comptroller
of the Currency ("OCC") and (iii) the Pennsylvania Department
of Banking (the CBTC Regulatory Agencies and the HNC
Regulatory Agencies, are, collectively 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 Bank Merger) shall have expired; and
the parties shall have procured all other regulatory
approvals, consents or waivers of governmental authorities or
other persons that are necessary or appropriate to the
consummation of the transactions contemplated by this
Agreement and the Bank Merger Agreement except those
approvals, consents or waivers, if any, of which failure to
obtain would not, individually or in the aggregate, have a
Material Adverse Effect on HNC or CBTC (after giving effect to
the transaction contemplated hereby); provided, however, that
no such approval shall have imposed any condition or
requirement which in the reasonable opinion of the board of
directors of HNC or CNB renders consummation of the Bank
Merger inadvisable.
(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
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agency of competent jurisdiction which enjoins or prohibits
the consummation of the Bank 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 Bank Merger or any other
transaction contemplated by this Agreement.
(f) The Registration Statement shall have been filed (the date of
which is referred to herein as the "Filing Date") by HNC with
the SEC under the 1933 Act, and shall have been declared
effective prior to the time the Proxy Statement/Prospectus is
first mailed to the shareholders of CBTC, and no stop order
with respect to the effectiveness of the Registration
Statement shall have been issued; the HNC 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 CBTC entitled to receive such shares.
(g) A ruling from the IRS or an opinion of Shumaker Williams,
P.C., counsel to HNC and CNB, or from an accounting firm
acceptable to HNC to the effect that:
(i) The Bank Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code
and HNC, CNB and CBTC 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 CBTC, HNC
or CNB by reason of the Bank Merger;
(iii) Except for cash received in lieu of fractional
shares and cash received by CBTC Shareholders who
exercise their dissenter's rights, no gain or
loss will be recognized by the shareholders of
CBTC who receive solely HNC Common Stock upon the
exchange of their shares of CBTC Common Stock for
shares of HNC Common Stock;
(iv) The tax basis of the HNC Common Stock to be
received by the CBTC shareholders will be, in
each instance, the same as the basis of the CBTC
Common Stock surrendered in exchange therefor;
(v) The holding period of the HNC Common Stock
received by a CBTC
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shareholder receiving HNC Common Stock will
include the period during which the CBTC Common
Stock surrendered in exchange therefor was held;
(vi) Cash received by a CBTC shareholder in lieu of a
fractional share interest of HNC Common Stock or
upon exercise of dissenter's rights will be
treated as having been received as a distribution
in full payment in exchange for the fractional
share interest of HNC Common Stock, or the tax
basis in the shares surrendered, as the case may
be, which he would otherwise be entitled to
receive and will qualify as capital gain or loss;
and
(vii) Subject to any limitations imposed under Sections
381 and 382 of the Code, CNB, as the survivor to
the Bank Merger, will carry-over and take into
account all accounting items and tax attributes
of CBTC, including but not limited to earning and
profits, methods of accounting, and tax basis and
holding periods of CBTC.
In case a ruling from the IRS is sought, CBTC and HNC 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 HNC and CBTC be
necessary or advisable to obtain such ruling.
SECTION 6.2 Conditions to Obligations of HNC and CNB.
The obligations of HNC and CNB to effect the Bank Merger shall be
subject to the satisfaction or waiver prior to the Effective Date of the
following additional conditions:
(a) Each of the representations and warranties of CBTC contained
in this Agreement shall be true and correct in all material
respects as of the Effective Date as if made on such date (or
on the date when made in the case of any representation or
warranty which specifically relates to an earlier date); CBTC
shall have performed each of its covenants and agreements
contained in this Agreement in all material respects; and HNC
and CNB shall have received certificates signed by the
President or other authorized officer, and Secretary of CBTC
dated as of the date of the Closing, to the foregoing effect.
(b) Beard & Company, Inc., and if they shall not provide it, such
other accounting firm as is acceptable to the parties, shall
have furnished to HNC an "agreed upon procedures" letter,
dated the Effective Date, in form and substance satisfactory
to HNC to the effect that, based upon a procedure performed
with respect to the financial condition of CBTC, for the
period from December 31, 1999 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
CBTC, (b) inquiries made by
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them of officers and other employees of CBTC responsible for
financial and accounting matters as to transaction, 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) other procedures
and inquiries specified and performed by them (A) stating as
of a specified date not more than five (5) days prior to the
date of such letter, the capitalization of CBTC, and (B) that
nothing has come to their attention that would indicate that
any material adjustments would be required to the audited
financial statements for the period ended December 31, 1999 in
order for them to be in conformity with generally accepted
accounting principles applied on a consistent basis with that
of prior periods.
(c) HNC shall have received an opinion or opinions dated as of the
Effective Date, from Rhoads & Sinon LLP, substantially in the
form attached hereto as Exhibit 4.
(d) There shall not have occurred any change in the financial
condition, properties, assets, business or results of
operation of CBTC which, individually or in the aggregate, has
had or might reasonably be expected to result in a Material
Adverse Effect on CBTC.
(e) The Bank 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 HNC shall have received a
letter from Grant Thornton LLP in form and substance
reasonably satisfactory to HNC as to the matters specified in
Section 6.2(e).
(f) HNC shall have received from each of the persons identified by
CBTC pursuant to Section 4.11 hereof an executed counterpart
of an affiliate's agreement in the form contemplated by such
Section.
(g) Except as otherwise provided in this Agreement, prior to
Closing, all issued and outstanding options, warrants or
rights to acquire CBTC Common Stock shall have been canceled.
No compensation or other rights will be payable or
exchangeable in the Bank Merger in respect of any such rights
which remain unexercised at the Effective Date.
(h) Closing Documents. CBTC shall have delivered to HNC and CNB
(i) all consents and authorizations of landlords and other
persons that are necessary to permit this Agreement and the
Bank Merger Agreement to be consummated without violation of
any lease or other agreement to which CBTC is a party or by
which any of its properties are bound; and (ii) such other
certificates and documents as HNC and CNB and their counsel
may reasonably request (all of the foregoing certificates and
other documents being herein referred to as "CBTC Closing
Documents").
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(i) Dissenting Shareholders. Holders of no more than five percent
(5%) of the issued and outstanding shares of CBTC (277 shares)
shall have exercised their statutory appraisal or Dissenters'
Rights.
(j) Environmental Matters. No environmental problem of a kind
contemplated in Section 3.1(r) of Article III of this
Agreement and not previously disclosed on Annex 3.1(r) shall
have been discovered which would, or which potentially could,
materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or
future prospects of CBTC; provided, that for purposes of
determining the materiality of an undisclosed environmental
problem or problems, the definition of "material" shall be
governed by the proviso to Section 10.1 of this Agreement. The
result of any environmental audit conducted pursuant to
Section 4.16 with respect to owned, leased or occupied bank
premises shall be reasonably satisfactory to HNC.
(k) [INTENTIONALLY OMITTED]
(l) Litigation. The status of all litigation pending against CBTC
which, individually or in the aggregate, would have a Material
Adverse Effect on CBTC shall be reasonably satisfactory to
HNC.
(m) The CBTC board of directors shall have amended each of the
Deferred Compensation Agreements (the "Plans"), attached
hereto collectively as Exhibit 2, to allow continued
contributions by the Directors, as defined therein, to the
Plans.
(n) The CBTC board of directors shall have amended each of the
Director's Compensation Agreements (the "Compensation
Agreements"), attached hereto collectively as Exhibit 3, and
each of the Directors, as defined therein, shall have provided
his written consent to change the compensation to be paid
under the Compensation Agreements, as contemplated by the CBTC
board of directors.
SECTION 6.3 Conditions to the Obligations of CBTC.
The obligations of CBTC to effect the Bank Merger shall be subject to
the satisfaction or waiver prior to the Effective Date of the following
additional conditions:
(a) Each of the representations and warranties of HNC and CNB
contained in this Agreement shall be true and correct in all
material respects on the Effective Date as if made on such
date (or on the date when made in the case of any
representation or warranty which specifically relates to an
earlier date); HNC and CNB shall have performed, in all
material respects, each of its covenants and agreements
contained in this Agreement; and CBTC shall have received
certificates signed by the President or other authorized
officer and Secretary or Assistant Secretary of HNC and CNB to
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the foregoing effect.
(b) CBTC shall have received an opinion dated as of the Effective
Date, from Shumaker Williams, P.C., Camp Hill, Pennsylvania,
counsel to HNC, substantially in the form attached hereto as
Exhibit 5.
(c) There shall not have occurred any change in the financial
condition, properties, assets or business or results of
operation of HNC and CNB which, individually or in the
aggregate, has had or might reasonably be expected to result
in a Material Adverse Effect on HNC or the Material
Subsidiaries taken as a whole.
(d) The status of all Material pending litigation that might
reasonably be expected to result in a Materially Adverse
Effect to HNC or the Material Subsidiaries taken as a whole,
shall be satisfactory to CBTC.
(e) The shares of HNC Common Stock to be issued in the Bank Merger
shall have been authorized to be listed for quotation on the
NASDAQ National Market System.
(f) CBTC shall have received from Hopper Soliday, a Division of
Tucker Anthony Incorporated, an opinion dated within five (5)
days of the date of the Proxy Statement/Prospectus to be
furnished to shareholders of CBTC stating that the Exchange
Ratio specified in this Agreement is fair to the shareholders
of CBTC from a financial point of view.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination.
This Agreement and the Bank Merger Agreement may be terminated, and the
Bank Merger abandoned, prior to the Effective Date, either before or after its
approval by the shareholders of CBTC:
(a) by the mutual, written consent of CBTC and HNC if the board of
directors of each so determines by a vote of a majority of the
members of the entire Board;
(b) by CBTC if (i) by written notice to HNC that there has been a
material breach by HNC 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 HNC by CBTC or (ii) by
written notice to HNC that any condition precedent to CBTC's
obligations as set forth in Article VI of this Agreement has
not been met or waived by CBTC, through no fault of CBTC, on
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September 30, 2000.
(c) by HNC by written notice to the other parties, in the event
(i) of a material breach by CBTC 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 CBTC by HNC or
(ii) any condition precedent to HNC's obligations as set forth
in Article VI of this Agreement has not been met or waived by
HNC, through no fault of HNC or CNB, on September 30, 2000.
(d) by HNC or CBTC by written notice to the other, in the event
that the Bank Merger is not consummated by September 30, 2000,
unless the failure to so consummate by such time is due to the
material 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 HNC, by giving written notice to CBTC in the event that,
prior to the Effective Date, CBTC permits or agrees to permit,
any of the following: (i) a merger with any other corporation,
financial institution, entity or Person; (ii) a consolidation
with any other corporation, financial institution, entity or
Person; (iii) an acquisition of control over any other entity,
financial institution, corporation or Person; (iv) the
creation of any subsidiary; (v) the acquisition, liquidation,
sale or disposal of all or substantially all of CBTC's assets;
or upon the occurrence of any of the following: (vi) the
failure of CBTC's shareholders to approve this Agreement or
the Bank Merger Agreement at a meeting called for such purpose
after the announcement by any person (other than HNC) of an
offer or proposal to acquire 20 percent or more of CBTC Common
Stock, or to acquire, merge or consolidate with CBTC or to
purchase or acquire all or substantially all of CBTC's assets;
(vii) the acquisition by any person (other than HNC) of
beneficial ownership of 20 percent or more of CBTC Common
Stock exclusive of shares of CBTC Common Stock sold directly
or indirectly to such person by HNC; or (viii) any person
(other than HNC) shall have commenced a tender or exchange
offer, or shall have filed an application with an appropriate
bank regulatory authority with respect to a publicly announced
offer, to purchase or acquire securities of CBTC such that,
upon consummation of such offer, such person would own,
control or have the right to acquire 20 percent or more of
CBTC Common Stock.
SECTION 7.2 Effect of Termination.
In the event of the termination of this Agreement and the Bank Merger
Agreement as provided above, this Agreement and the Bank Merger Agreement shall
thereafter become void and have no effect, except that the provisions of Section
3.1(q) (Fees), Sections 4.3 and 5.2 (relating to confidentiality and return of
documents), Section 4.14 and 5.7 (Press Releases and Publicity) and Sections 7.3
and 9.10 (Expenses) of this Agreement shall survive any such termination and
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abandonment.
SECTION 7.3 Expenses.
Any termination of this Agreement pursuant to Sections 7.1(a) or 7.l(d)
hereof shall be without cost, expense or liability on the part of any party to
the others. Any termination of this Agreement pursuant to Section 7.1(b) or
7.1(c) hereof shall also be without cost, liability or expense on the part of
any party to the others, unless the material 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 HNC shall not have breached its obligations hereunder, if
this Agreement is terminated by HNC pursuant to Section 7.1 (c) hereof, CBTC
shall promptly, but in no event later than four (4) business days after such
termination, pay HNC a fee of $350,000, which amount shall be payable by wire
transfer of same day funds. So long as HNC shall not have breached its
obligations hereunder, if this Agreement is terminated by HNC pursuant to
Section 7.1 (e) hereof, CBTC shall promptly, but in no event later than four (4)
business days after such termination, pay HNC a fee of $2,400,000, which amount
shall be payable by wire transfer of same day funds. If CBTC fails to promptly
pay the amount due pursuant to this Section 7.3, and, in order to obtain such
payment, HNC commences a suit which results in a judgment against CBTC for all
or a substantial portion of the fee set forth in this Section 7.3, CBTC shall
pay to HNC all costs and expenses (including reasonable attorneys' fees)
incurred by HNC in connection with such suit.
ARTICLE VIII
POST MERGER AGREEMENTS
SECTION 8.1 Employees.
(a) HNC and any of its affiliates shall have the right (but not
the obligation) to employ, as officers and employees of HNC,
CNB or other affiliates of HNC immediately following the
Effective Date, any persons who are officers and employees of
CBTC immediately before the Effective Date. It shall be a
condition to employment by HNC or any of its affiliates that
any former officer or employee of CBTC agree to cancel any
existing employment contract, agreement or understanding
between him or herself and CBTC, including without limitation
all benefits related to severance arrangements upon a change
of control or otherwise, prior to accepting such new
employment and without accepting any of the severance benefits
or other benefits or payments associated with such contract,
agreement or understanding.
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(b) Immediately following the Effective Date, former CBTC
employees who are employed by CNB, HNC or an HNC affiliate
(collectively, the "HNC Affiliates") as provided in Section
8.1(a) as Continuing Employees shall be entitled to
participate in any and all benefit plans in effect at such
time for employees of the respective HNC Affiliate in
accordance with the terms of such plans. Subject to the terms
and conditions of the Plans, former CBTC employees who are
employed by the respective HNC Affiliate shall receive service
credit from their respective hire dates for employment at CBTC
for purposes of eligibility and vesting requirements (but not
for purposes of benefit accrual) under the respective HNC
Affiliate's benefit plans, and service credit from the
Effective Date for purposes of benefit calculation under the
respective HNC Affiliate's benefit plans.
(c) To the extent permitted by the terms of the applicable plan,
HNC will, or will cause the respective HNC Affiliate to, waive
all limitations as to pre-existing condition requirements,
exclusions and any waiting periods with respect to
participation and coverage requirements for health, welfare,
life, disability and other benefits for employees offered
employment with an HNC Affiliate so that such employees shall
be eligible to participate in HNC's health, welfare and
benefit plans on the Effective Date.
(d) As provided herein, HNC will provide, after the Bank Merger,
severance payments to employees of CBTC (other than employees
whose severance benefits are provided for in written
employment agreements) whose employment is terminated (other
than for cause) or who are laid off from their employment on
or after the Effective Date, and before the expiration of 6
months following the Effective Date and who sign a release of
any and all claims the employee may have against CBTC, HNC or
an HNC Affiliate. HNC, CNB and CBTC shall consult and mutually
agree upon the individual amounts to be received by former
CBTC employees who are eligible for severance payments.
Factors to be considered in the determination of individual
severance payments to former CBTC employees include, among
others: years of service, title and responsibilities.
(e) HNC and CNB reserve any and all rights they may have regarding
modification, amendment or termination of CBTC's present
pension and profit sharing plans.
SECTION 8.2 Directors.
Subject to any necessary regulatory approval or notice, immediately
after the Effective Date, James A. Wimmer shall be appointed to the board of
directors of HNC to serve in the Class C of Director to be elected at the year
2001 HNC Annual Meeting of Shareholders. Subject to any necessary regulatory
approval or notice, immediately after the Effective Date, James A. Wimmer and
Linda P. Wimmer shall be appointed to the board of directors of CNB. Consistent
with the fiduciary duties and regulatory pronouncements applicable to HNC and
CNB, HNC shall nominate
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and recommend James A. Wimmer and Linda P. Wimmer for election to the board of
directors of CNB at each successive election as long as James A. Wimmer remains
a member of the board of directors of HNC.
SECTION 8.3 Benefits.
For three (3) years following the Effective Date, and subject to the
terms and conditions of the applicable health insurance policy, CNB shall pay
the annual health insurance premium in the amount listed for each of the
individuals listed on Annex 8.3 (the "Covered Persons"), up to an aggregate
amount of $46,408.00 per year. In the event that the aggregate health insurance
premiums for the Covered Persons exceeds $46,408.00 per year, each Covered
Person shall be responsible for the amount in excess of his or her respective
individual annual premium amount as listed on Annex 8.3 in order to continue
coverage through CNB. Should group health insurance be unavailable to any of the
Covered Persons through CNB's health insurance carrier, CNB shall, in lieu of
providing continued health insurance coverage through CNB, pay to the Covered
Person(s) an amount equal to his or her individual annual premium amount as
listed on Annex 8.3 for the period up to three (3) years following the Effective
Date.
ARTICLE IX
CLOSING AND EFFECTIVE DATE
SECTION 9.1. Closing.
Provided that all conditions precedent set forth in Article VI of this
Agreement shall have been satisfied or shall have been waived in accordance with
Section 9.7 of this Agreement, the parties shall hold a closing (the "Closing")
at the offices of HNC at 483 Main Street, Harleysville, Pennsylvania, or such
other mutually agreed upon location, within twenty (20) days after the receipt
of all required regulatory approvals and after the expiration of all applicable
waiting periods on a date to be agreed upon by the parties, at which time the
parties shall deliver the CBTC Closing Documents, the HNC/CNB Closing Documents,
the opinions of counsel required by Sections 6.2(c) and 6.3(b) of this
Agreement, and such other documents and instruments as may be necessary or
appropriate to effectuate the purposes of this Agreement.
SECTION 9.2. Effective Date.
The Bank Merger of CBTC with and into CNB shall become effective and
this Agreement and the Bank Merger Agreement shall be consummated on the date
upon which the Closing has occurred and the OCC issues a Certificate of Merger
(the "Effective Date"). At the Effective Date, CBTC shall cease to exist as a
separate banking institution, and CNB shall become the surviving institution of
the Bank Merger.
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ARTICLE X
OTHER MATTERS
SECTION 10.1 Certain Definitions; Interpretation.
As used in this Agreement, the following terms shall have the meanings
indicated: "Material" means material to the party in question
(as the case may be) and its respective subsidiaries, taken as
a whole.
"Material Adverse Effect," with respect to a person, means any
condition, event, change or occurrence that has or results in
an effect which is material and adverse to (A) the financial
condition, properties, assets, business or results of
operations of such person and its subsidiaries, taken as a
whole, or (B) the ability of such person to perform its
obligations under, and to consummate the transactions
contemplated by, this Agreement. In addition to the above, in
the case of CBTC, receipt of a CAMELS rating in connection
with a safety and soundness examination which is a "3" or
worse shall be deemed to have a "Material Adverse Effect" on
CBTC.
"Person" includes an individual, corporation, partnership,
association, trust or unincorporated organization.
"Subsidiary," with respect to a person, means any other person
controlled by such person.
When a reference is made in this Agreement to Exhibits, 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 10.2 Survival.
The representations, warranties and agreements of the parties set forth
in this Agreement shall not survive the Effective Date, and shall be terminated
and extinguished on the Effective Date, and from and after the Effective Date,
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
agreements; 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
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Effective Date, and (ii) shall not relieve any person of liability for fraud,
deception or intentional misrepresentation.
SECTION 10.3 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 Bank Merger pursuant to
Article II 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 10.4 Captions.
The captions contained in this Agreement are for reference purposes
only and are not part of this Agreement.
SECTION 10.5 Severability.
If any provision of this Agreement or the application thereof to any
party or circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provisions to other
parties or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
SECTION 10.6 Access; Confidentiality.
The parties hereby agree to conduct the investigations and discussions
contemplated by Section 4.3 and Section 5.2 of this Agreement in a manner so as
to not interfere unreasonably with normal operations and customer and employee
relationships. If the transactions contemplated by this Agreement are not
consummated, the parties hereby agree to destroy or return all documents and
records obtained from the other or their respective representatives during the
course of any investigation and will cause all information with respect to the
other party obtained pursuant to this Agreement or preliminarily thereto to be
kept confidential, except to the extent such information becomes public through
no fault of the party which has obtained such information or any of its
respective representatives or agents and except to the extent disclosure of any
such information is legally required. Each party hereby agrees to give the other
party prompt notice of any contemplated disclosure where such disclosure is so
legally required.
SECTION 10.7 Waiver and Amendment.
Prior to the Effective Date, 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
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change the form or the amount of the merger consideration or otherwise have the
effect of prejudicing the CBTC shareholders' interest in the merger
consideration following the CBTC Shareholders' Meeting.
SECTION 10.8 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 10.9 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 10.10 Expenses.
Subject to the provisions of Section 7.3 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 and the cost of printing and mailing the Proxy
Statement/Prospectus shall be paid by HNC.
SECTION 10.11 Notices.
All notices, requests, acknowledgments and other communications
hereunder to a party shall be in writing and shall be deemed to have been duly
given when delivered by hand, telecopy, telegram or telex (confirmed in writing)
to such party at its address set forth below or such other address as such party
may specify by notice to the other party hereto.
If to CBTC, to:
Citizens Bank and Trust Company
372 Delaware Avenue
P.O. Box 196
Palmerton, PA 18071-0196
Attention: James A. Wimmer, President
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<PAGE> 189
With copies to:
Rhoads & Sinon LLP
One S. Market Square
Harrisburg, PA 17108-1146
Attention: Dean H. Dusinberre, Esquire
If to HNC, to:
Harleysville National Corporation
P. O. Box 195
Harleysville, PA 19438
Attention: Walter E. Daller, Jr.
President and Chief Executive Officer
With copies to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attention: Nicholas Bybel, Jr., Esquire
If to CNB, to:
The Citizens National Bank.
13-15 W. Ridge Street
P. O. Box 128
Lansford, PA 18232-0128
Attention: Thomas D. Oleksa
President
With copies to:
Shumaker Williams, P.C.
3425 Simpson Ferry Road
Camp Hill, PA 17011
Attention: Nicholas Bybel, Jr., Esquire
SECTION 10.12 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
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written agreements heretofore made. All terms and provisions of this Agreement,
together with such other agreements as are executed by the parties in connection
herewith, on the date hereof, shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Nothing in this Agreement is intended to confer upon any other person any rights
or remedies of any nature whatsoever under or by reason of this Agreement except
as expressly provided.
IN WITNESS WHEREOF, the parties hereto have caused this to be executed
by their duly authorized officers as of the day and year first above written.
HARLEYSVILLE NATIONAL CORPORATION
/s/ Jo Ann M. Bynon /s/ Walter E. Daller, Jr.
- ------------------------------ --------------------------------------------
Jo Ann M. Bynon, Secretary By: Walter E. Daller, Jr.
Title: President and Chief Executive Officer
THE CITIZENS NATIONAL BANK
/s/ Martha A. Rex /s/ Thomas D. Oleksa
- ------------------------------ --------------------------------------------
Martha A. Rex, Cashier By: Thomas D. Oleksa
Title: President
CITIZENS BANK AND TRUST COMPANY
/s/ Thomas K. Thomas /s/ James A. Wimmer
- ------------------------------ --------------------------------------------
Thomas K. Thomas, Secretary By: James A. Wimmer
Title: Chairman and President
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<PAGE> 191
AGREEMENT AND PLAN OF MERGER
OF
CITIZENS BANK AND TRUST COMPANY
WITH AND INTO
CITIZENS NATIONAL BANK
UNDER THE CHARTER OF
CITIZENS NATIONAL BANK
THIS AGREEMENT AND PLAN OF MERGER ("Bank Merger Agreement") is dated as
of December 28, 1999, by and between CITIZENS NATIONAL BANK, a national banking
association, having its principal office at 13-15 W. Ridge Street, P.O. Box 128,
Lansford, Pennsylvania 18232 ("CNB"), and CITIZENS BANK AND TRUST COMPANY, a
Pennsylvania chartered bank and trust company having its principal office at 372
Delaware Avenue, Palmerton, Pennsylvania 18071 ("CBTC") (the two parties being
sometimes collectively referred to as the "Constituent Banks") each acting
pursuant to resolutions approved and adopted by the vote of a majority of its
directors.
WITNESSETH:
WHEREAS, CBTC and CNB are parties to an Agreement and Plan of
Reorganization of even date herewith (the "Reorganization Agreement") which
provides, among other things, for the execution of the Bank Merger Agreement and
the merger of CBTC with and into CNB (the "Bank Merger") in accordance with the
terms and conditions set forth therein and herein; and
WHEREAS, the respective Boards of Directors of CBTC and CNB deem the
Bank Merger in accordance with the Reorganization Agreement and pursuant to the
terms and conditions herein set forth or referred to, desirable and in the best
interests of the Constituent Banks and their respective shareholders; and
WHEREAS, the respective Boards of Directors of CBTC and CNB have
adopted resolutions approving and adopting this Bank Merger Agreement, and the
respective Boards of Directors of CBTC, CNB and Harleysville National
Corporation, the parent bank holding company of CNB ("HNC") have adopted
resolutions approving and adopting the Reorganization Agreement, and the Boards
of Directors of CBTC and CNB have directed that this Bank Merger Agreement and
the Reorganization Agreement be submitted to their respective shareholders; and
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WHEREAS, the approval of this Bank Merger Agreement and the
Reorganization Agreement requires the affirmative vote of the holders of at
least two-thirds of the outstanding shares of CBTC Common Stock and the holders
of at least two-thirds of the outstanding shares of CNB Common Stock;
NOW, THEREFORE, in consideration of their mutual covenants and
agreements contained herein and in the Reorganization Agreement, and for the
purpose of stating the method, terms and conditions of the Bank Merger,
including the rights of the shareholders of CBTC, and such other details and
provisions as are deemed desirable, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. The Bank Merger. Subject to the terms and conditions of this Bank
Merger Agreement and the Reorganization Agreement, and in accordance with the
provisions of the Act of November 7, 1918, as amended (12 U.S.C. Section 215a)
(the "Bank Merger Act") (as defined in Section 1.1 of the Reorganization
Agreement), CBTC shall be merged with and into CNB under the Bank Merger Act,
and CNB shall be the surviving association. On the Effective Date, the separate
existence of CBTC shall cease, and CNB shall be the surviving association (the
"Surviving Association"), the principal and branch offices of CBTC shall become
authorized branch offices of CNB ; and all the property (real, personal and
mixed), rights, powers, duties, and obligations of CBTC and CNB shall be taken
and deemed to be transferred to and vested in the Surviving Association, CNB,
without further act or deed, as provided by applicable laws and regulations.
2. Name and Location of Principal Office. Subject to any necessary
prior regulatory approval, the name of the Surviving Association shall be The
Citizens National Bank, and the location of its principal office shall be 13-15
W. Ridge Street, Lansford, Pennsylvania 18232.
3. Articles of Association. The Articles of Association of CNB as in
effect immediately prior to the Effective Date, at the Effective Date and
thereafter, shall be the Articles of Association of the Surviving Association,
until amended in accordance with applicable law.
4. Bylaws. The Bylaws of CNB as in effect immediately prior to the
Effective Date, at the Effective Date and thereafter, shall be the Bylaws of the
Surviving Association, until amended in accordance with applicable law.
5. Conversion of Shares. The manner and basis of converting shares of
common stock of the Constituent Banks shall be as follows:
5.1. Conversion of CBTC Common Stock. On the Effective Date
(as defined in Section 9.2 of the Reorganization Agreement),
the shares of CBTC Common Stock then outstanding and eligible
for conversion under Article II of the Reorganization
Agreement shall be converted into shares of HNC Common Stock
in
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accordance with the terms of and as provided in Section 2.1 of
the Reorganization Agreement.
5.2. Stock of CNB. The shares of CNB Common Stock issued and
outstanding immediately prior to the Effective Date shall
continue to be issued and outstanding shares of Common Stock
of the Surviving Association. From and after the Effective
Date, each certificate that, prior to the Effective Date,
represented shares of CNB Common Stock, shall evidence
ownership of shares of such Common Stock of the Surviving
Association.
6. Surrender and Exchange of CBTC Certificates. On the Effective Date,
CBTC Common Stock certificates shall be exchanged for HNC Common Stock
certificates in accordance with and as provided in Section 2.2 of the
Reorganization Agreement.
7. Effect of Bank Merger. On the Effective Date, the Surviving
Association shall succeed, without further act or deed, to all of the property,
rights, powers, duties and obligations of the Constituent Banks in accordance
with the Bank Merger Act. Any claim existing or action pending by or against
either of the Constituent Banks may be prosecuted to judgment as if the Bank
Merger had not taken place, and the Surviving Association may be substituted in
its place.
8. Continuation of Business. The Surviving Association shall continue
in business with the assets and liabilities of each of the Constituent Banks.
The Surviving Association shall be a national banking association organized and
having perpetual existence under the laws of the United States. Any branch
offices of the Surviving Association shall consist of CNB's and CBTC's present
principal and branch offices and any other branch office or offices that CNB and
CBTC may be authorized to have as of the Effective Date. As of the Effective
Date, the separate existence of CBTC shall cease.
9. Board of Directors and Officers. The directors of CNB as in effect
immediately prior to the Effective Date shall be the directors of the Surviving
Association, and James A. Wimmer and Linda P. Wimmer shall be appointed to serve
as directors of CNB until such time as their successors have been duly elected,
qualified, or appointed. The officers of CNB as in effect immediately prior to
the Effective Date shall be the officers of the Surviving Association, with such
changes as shall be made from time to time by the Board of Directors of CNB.
10. Effective Date of the Bank Merger. The Effective Date of the Bank
Merger shall be as defined and provided for in Section 9.2 of the Reorganization
Agreement.
11. Further Assurances. If at any time the Surviving Association shall
consider or be advised that any further assignments, conveyances or assurances
are necessary or desirable to vest, perfect or confirm in the Surviving
Association title to any property or rights of CBTC, or otherwise carry out the
provisions hereof, the proper officers and directors of CBTC, as of the
Effective Date, on behalf of CBTC shall execute and deliver any and all proper
assignments,
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<PAGE> 194
conveyances and assurances, and do all things necessary or desirable to vest,
perfect or confirm title to such property or rights in the Surviving Association
and otherwise carry out the provisions hereof.
12. Shareholder Approval. This Bank Merger Agreement shall be approved
and adopted by the affirmative vote of shareholders of each of the Constituent
Banks owning at least two-thirds of its common stock outstanding.
13. Termination and Amendment. This Bank Merger Agreement may be
terminated as provided in Article VII of the Reorganization Agreement. This Bank
Merger Agreement shall be terminated and the Bank Merger shall be abandoned in
the event that prior to the Effective Date the Reorganization Agreement is
terminated as provided therein. Since time is of the essence to this Bank Merger
Agreement, if for any reason the transaction shall not have been consummated by
September 30, 2000, this Bank Merger Agreement shall terminate automatically as
of that date unless extended, in writing, prior to said date by mutual action of
the Boards of Directors of the parties. If there is termination after approval
of the Bank Merger by the Office of the Comptroller of the Currency (the "OCC"),
the parties shall execute and file with the OCC prior to the Effective Date a
statement of termination of the Bank Merger. Notwithstanding prior approval by
the shareholders of CBTC, this Bank Merger Agreement may be amended in any
respect in the manner and subject only to the limitations set forth in Section
10.7 of the Reorganization Agreement.
14. Notwithstanding any term of this Bank Merger Agreement to the
contrary, CNB may, in its discretion at any time prior to the Effective Time,
cause CBTC to be the Surviving Corporation of the Bank Merger described so long
as the exercise of such right does not have a material adverse effect on the
interests of the CBTC shareholder or cause a material delay in, or otherwise
adversely affect, consummation of the transactions contemplated herein; if such
right is exercised, this Bank Merger Agreement shall be deemed to be modified to
accord such change.
15. Obligations. The obligations of CNB and CBTC to effect the Bank
Merger shall be subject to all terms and conditions contained in the
Reorganization Agreement, except as may be provided by applicable law.
16. Extensions; Waivers. Each party, by a written instrument signed by
a duly authorized officer, may extend the time for the performance of any of the
obligations or other acts of the party hereto, and may waive compliance with any
obligations of the other party contained in this Bank Merger Agreement.
17. Notices. Any notice or other communication required or permitted
under this Bank Merger Agreement shall be given, and shall be effective, in
accordance with the provisions of the Reorganization Agreement.
18. Counterparts; Headings. This Bank Merger Agreement may be executed
in
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<PAGE> 195
several counterparts, and by the parties hereto on separate counterparts, each
of which will constitute an original. The headings and captions contained herein
are for reference purposes only and do not constitute a part hereof.
19. Governing Law. This Bank Merger Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
except to the extent governed or controlled by federal law.
A-A-5
<PAGE> 196
IN WITNESS WHEREOF, the signatures and seals of said merging banks this
28th day of December, 1999, each hereunto set by its President or a Vice
President and attested by its duly authorized officer, pursuant to a resolution
of its Board of Directors, acting by a majority thereof, and witness the
signatures hereto of a majority of each of said Boards of Directors.
<TABLE>
<CAPTION>
ATTEST: CITIZENS BANK AND TRUST COMPANY
<S> <C>
By: /s/ Thomas K. Thomas By: /s/ James A. Wimmer
----------------------------- -----------------------------------------
Thomas K. Thomas, Secretary James A. Wimmer, Chairman and President
[BANK SEAL]
/s/ Terry D. Eckert /s/ Janet Webb
- ----------------------------- ----------------------------
Terry D. Eckert Janet Webb
/s/ Irmgard M. James /s/ James A. Wimmer
- ----------------------------- ----------------------------
Irmgard James James A. Wimmer
/s/ Richard Rahn, Sr. /s/ Linda P. Wimmer
- ----------------------------- ----------------------------
Richard Rahn, Sr. Linda P. Wimmer
/s/ Thomas K. Thomas
- -----------------------------
Thomas K. Thomas
</TABLE>
Directors of Citizens Bank
and Trust Company,
Carbon County, Pennsylvania
A-A-6
<PAGE> 197
<TABLE>
<CAPTION>
ATTEST: CITIZENS NATIONAL BANK
<S> <C>
BY: /s/ Martha A. Rex By:/s/ Thomas D. Oleksa
----------------------------- -----------------------------------------
Martha A. Rex, Cashier Thomas D. Oleksa, President
[BANK SEAL]
/s/ Thomas S. McCready /s/ Walter E. Daller, Jr.
- ----------------------------- ----------------------------
Thomas S. McCready, Esq. Walter E. Daller, Jr.
/s/ Joseph G. Bechtel /s/ Freddie J. Lesher
- ----------------------------- ----------------------------
Joseph G. Bechtel Freddie J. Lesher
/s/ Charles J. Breidinger /s/ Carol J. Simcoe
- ----------------------------- ----------------------------
Charles J. Breidinger Carol J. Simcoe
/s/ Mark Fegley /s/ Charles W. Stopp
- ----------------------------- ----------------------------
Mark Fegley Charles W. Stoop
/s/ Richard A. Koch /s/ Joseph J. Velitsky
- ----------------------------- ----------------------------
Richard A. Koch Joseph J. Velitsky, Esq.
/s/ Walter E. Kruczek /s/ Demetra M. Takes
- ----------------------------- ----------------------------
Walter E. Kruczek Demetra M. Takes
/s/ Thomas D. Oleksa
- -----------------------------
Thomas D. Oleksa
</TABLE>
The Directors of Citizens National
Bank, Carbon County, Pennsylvania
A-A-7
<PAGE> 198
COMMONWEALTH OF PENNSYLVANIA :
: SS.
COUNTY OF : CARBON
On this _____ day of December, 1999, before me, a Notary Public for the
Commonwealth and County aforesaid, personally came James A. Wimmer, as
President, and Thomas K. Thomas, as Secretary, of Citizens Bank and Trust
Company, and each in his said capacity acknowledged the foregoing instrument to
be the act and deed of said banking institution and the seal affixed thereto to
be its seal; and came also Terry D. Eckert, Irmgard James, Richard Rahn, Sr.,
Thomas K. Thomas, Janet Webb, James A. Wimmer and Linda P. Wimmer, being a
majority of the Board of Directors of said banking institution, and each of them
acknowledged said instrument to be the act and deed of said banking institution
and of himself as director thereof.
WITNESS my official seal and signature this day and year aforesaid.
--------------------------------------------------
(Seal of Notary) Notary Public, Carbon County
My commission expires:
--------------------------------------------------
A-A-8
<PAGE> 199
COMMONWEALTH OF PENNSYLVANIA :
: SS.
COUNTY OF CARBON :
On this ____ day of _______________, 1999, before me, a Notary Public
for the Commonwealth and County aforesaid, personally came Thomas D. Oleksa, as
President, and Martha A. Rex, as Cashier, of Citizens National Bank, and each in
his capacity acknowledged the foregoing instrument to be the act and deed of
said national banking association and the seal affixed thereto to be its seal;
and came also Joseph G. Bechtel, Charles J. Breidinger, Thomas D. Oleksa,
Demetra M. Takes, Thomas S. McCready, Esq., Mark Fegley, Richard A. Koch, Walter
E. Kruczek, Freddie J. Lesher, Carole J. Simcoe, Charles W. Stopp, Joseph J.
Velitsky, Esq, and Walter E. Daller, Jr. being a majority of the Board of
Directors of said national banking association and each of them acknowledged
said instrument to be the act and deed of said national banking association and
of himself as a director thereof.
WITNESS my official seal and signature this day and year aforesaid.
-----------------------------------------
(Seal of Notary) Notary Public, Carbon County
My commission expires:
A-A-9
<PAGE> 200
ANNEX A
EXHIBIT 2
A-2-1
<PAGE> 201
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 28th day of August, 1987 by and between
CITIZENS BANK AND TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
(hereinafter called "Bank") and THOMAS K. THOMAS, 145 Delaware Avenue,
Palmerton, Pennsylvania 18071 (hereinafter called "Director").
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Director on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Director and retain his
services for twelve years, and the Director has agreed to defer from his
earnings from the Bank Four Thousand Dollars ($4,000.00) per year for twelve
years.
NOW, THEREFORE, in consideration of the covenants hereinafter contained
and intending by this Agreement to be legally bound, Bank and Director agree as
follows:
1. The Bank agrees to pay Director the total sum One Hundred
Ninety-three Thousand Five hundred Ninety-four Dollars
($193,594) payable in monthly installments of One Thousand Six
Hundred Thirteen Dollars and Twenty-eight Cents ($1,613.28)
for 120 consecutive months, commencing on the first day of the
month following Director's 65th birthday. Payments to the
Director will terminate when the 120 payments have been made
or at the time of the Director's death, whichever occurs
first.
2. In the event Director should die before attaining age 65, the
Bank agrees to pay the Director's beneficiary designated in
writing to the Bank, the sum of One Thousand Six Hundred
Seventy-nine Dollars and Thirty-three Cents ($1,679.33) per
month for 120 consecutive months. Payments will begin on the
first day of the month
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<PAGE> 202
following Director's death.
3. If the Director dies after age 65, but prior to receiving the
full 120 monthly installments, the remaining monthly
installments will be paid to the Director's designated
beneficiary. The beneficiary shall receive all remaining
monthly installments which the Director would have received
until the total sum of One Hundred Ninety-three Thousand Five
Hundred Ninety-four Dollars ($193,594) set forth in Paragraph
1 is paid. If the Director fails to designate a beneficiary in
writing to the Bank, the balance of the monthly installments
remaining at the time of his death shall be paid to the
personal representative of the estate of the Director.
4. If the Director, for any reason other than death, fails to
serve twelve consecutive years as a Director, he will receive
monthly compensation beginning at age 65 on the basis that the
sum of full months served bears to the required number of 144
months times the compensation stated in Paragraph 1.
5. No payments will be made to the Director's beneficiary or to
his estate in the event of death by suicide during the first
three years of this Agreement.
6. This Agreement does not constitute a contract of employment
between the parties, nor shall any provision of this Agreement
restrict the right of the Bank's shareholders to replace the
Director or the right of the Director to terminate his
service.
7. The service of the Director shall not be deemed to have been
terminated or interrupted due to his absence from active
service on account of illness, disability, during any
authorized vacation or during temporary leaves of absence
granted by the Bank for reasons of professional advancement,
education, health or government service, or during military
leave for any period if the Director is elected to serve on
A-2-3
<PAGE> 203
the Board following such interruption.
8. The Director agrees that all rights to compensation following
age 65 shall be forfeited hy him if he engages in competition
with the Bank, without the prior written consent of the Bank,
within a radius of 50 miles of the main office of the Bank for
a period of ten years, coinciding with the number of years
that the Director shall receive such compensation.
9. None of the rights to compensation under this Agreement are
assignable by the Director or any beneficiary or designee of
the Director and any attempt to anticipate, sell, transfer,
assign, pledge, encumber or change Director's rights to
receive compensation, shall be void.
10. The rights granted to the Director or any designee or
beneficiary under this Agreement shall be solely those of any
unsecured creditor of the Bank.
11. If the Bank shall acquire an insurance policy or any other
asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither
Director nor any beneficiary of Director shall have any right
with respect to, or claim against, such policy or other asset
except as expressly provided by the terms of such policy or in
the title to such other asset. Such policy or asset shall not
be deemed to be held under trust for the benefit of Director
or hid beneficiary or to be held in any way as collateral
security for the fulfilling of the obligations of the Bank
under this Agreement except as may be expressly provided by
the terms of such policy or other asset. It shall be, and
remain, a general, unpledged, unrestricted asset of the Bank.
12. This Agreement shall be construed under and governed by the
laws of the State of Pennsylvania.
A-2-4
<PAGE> 204
13. This Agreement shall be binding upon the parties hereto and
their respective heirs, administrators, successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the
day and year above written
CITIZENS BANK AND TRUST COMPANY
ATTEST:
/s/ Richard W. Webb BY: /s/ James A. Wimmer
- ------------------- -----------------------
Secretary President
/s/ Thomas K. Thomas
-----------------------
Director
A-2-5
<PAGE> 205
DESIGNATION OF BENEFICIARY
In accordance with the Deferred Compensation Agreement dated August 28,
1987, by and between the undersigned and Citizens Bank and Trust Company, I
hereby designate First Valley Bank Under Agreement of Trust dated May 15, 1987,
my ___________, if living, to receive in monthly installments the balance of all
of my benefits due under such plan. If my beneficiary shall not service me, then
such amounts shall be paid to _____________________.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 28th day
of August, 1987.
/s/ Thomas K. Thomas
--------------------
A-2-6
<PAGE> 206
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 5th day of October, 1989, by and between
CITIZENS BANK AND TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
(hereinafter called "Bank") and PAULA A. MEITZLER, of Kregeville, Pennsylvania
(hereinafter called "Employee").
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Employee on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and,
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Employee and recognizes that her services are vital to its continue growth
and profits in the future; and,
WHEREAS, the Bank desires to compensate the employee and retain her
services until retirement at age 65; and,
WHEREAS, the Employee has agreed to defer from her earnings from the
Bank Five Hundred ($500.00) per year until she retires at age 65.
NOW, THEREFORE, in consideration of the covenants hereinafter contained
and intending by this agreement to be legally bound, Bank and Employee agree as
follows:
1. The Bank agrees to pay Employee that total sum of Two Hundred
Fifty-two Thousand One Hundred Seventeen Dollars and No Cents
($252,117.00) payable in monthly installments of Two Thousand
One Hundred Dollars and Ninety-seven Cents ($2,0100.97) for
120 consecutive months, commencing on the first day of the
month following the Employee's 65th birthday. Payments to the
Employee will terminate when the 120 payment have been made or
at the time of the Employee's death, whichever comes first.
A-2-7
<PAGE> 207
2. In the event Employee should die before attaining age 65, the
Bank agrees to pay to Employee's Beneficiary(ies) designated
in writing to the Bank, the sum of Eight hundred Three Dollars
and Seventy-five Cents ($803.75) for 120 consecutive months.
Payments will begin on the first day of the month following
Employee's death.
3. If the Employee dies after age 65, but prior to receiving the
full 120 monthly installments, the remaining monthly
installments will be paid to the Employee's designated
beneficiary(ies). The beneficiary(ies) shall receive all
remaining monthly installments which the Employee would have
received until the total sum of Two Hundred Fifty-two Thousand
One Hundred Seventeen Dollars and No cents ($252,117.00) set
forth in Paragraph 1 is paid. If Employee fails to designate a
beneficiary in writing to the Bank, the balance of the monthly
installments remaining at the time of her death shall be paid
to the personal representative of the estate of the Employee.
4. If the Employee, for any reason other than death, fails to
remain employed by Bank until her retirement at age 65, she
will receive monthly compensation beginning at age 65 on the
basis that the sum of full months served from the date of this
contract bears to the required number of months from the date
of this contract to age 65 times that compensation stated in
Paragraph 1.
5. No payments will be made to the Employee's beneficiary(ies) or
to her estate in the event of death by suicide during the
first three years of this Agreement.
6. This agreement does not constitute a contract of employment
between the parties, nor shall any provision of this Agreement
restrict the right of the Bank's directors to replace the
Employee or the rights of the employee to terminate her
service by
A-2-8
<PAGE> 208
resignation.
7. The service of the employee shall not be deemed to have been
terminated or interrupted due to her absence from active
service on account of illness, disability, during any
authorized vacation or during temporary leaves of absence
granted by the Bank for reasons of professional advancement,
education, health or government service, or during military
leave for any period if the Employee returns to her employment
following such interruption.
8. The Employee agrees that all rights to compensation following
age 65 shall be forfeited by her if she (at that time) engages
in )Bank) competition with the Bank, without prior written
consent of the Bank, within a radius of 20 miles of the main
office of the Bank for a period of 10 years, coinciding with
the number of years that the Employee shall receive such
compensation.
9. None of the rights to compensation under this Agreement are
assignable by the Employee or any beneficiary or designee of
the Employee and any attempt to anticipate, sell, transfer,
assign, pledge, encumber or change Employee's right to receive
compensation, shall be void.
10. The rights granted to the Employee or any designee or
beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
11. If the Bank shall acquire an insurance policy or any other
asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither
Employee nor any beneficiary of Employee shall have any right
with respect to, or claim against, such policy or other asset
except as expressly provided by the terms of such policy or in
the title to such other asset. Such policy or asset shall not
be deemed to be held under any trust for the benefit of
Employee or her
A-2-9
<PAGE> 209
beneficiary(ies) or to be held in any way as collateral
security for the fulfilling of the obligations of the Bank
under this Agreement except as may be expressly provided by
the terms of such policy or other asset. it shall be, and
remain, a general, unpledged, unrestricted asset of the Bank.
12. This Agreement shall be construed under the governed by the
laws of the State of Pennsylvania.
13. this Agreement shall be binding upon the parties hereto and
their respective heirs, administrators, successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the
day and year above written.
CITIZENS BANK AND TRUST COMPANY
ATTEST:
/s/ Thomas K. Thomas BY: /s/ James A. Wimmer
- -------------------- -----------------------
Assistant Secretary President
/s/ Paula A. Meitzler
-----------------------
Employee
A-2-10
<PAGE> 210
DESIGNATION OF BENEFICIARY
In accordance with the Deferred Compensation Agreement dated October 6,
1989, by and between the undersigned and Citizens Bank and Trust Company, I
hereby designate Glen A. Meitzler, my husband, if living, to receive in monthly
installments the balance of all of my benefits due under such plan. If my
beneficiary shall not survive me, then such amounts shall be paid to surviving
children.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 5th day
of October, 1989.
/s/ Paula A. Meitzler
---------------------
A-2-11
<PAGE> 211
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 28th day of October, 1987 by and between
CITIZENS BANK AND TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
(hereinafter called "Bank") and RONALD J. STEBER, of R.D. #6, Box 402,
Lehighton, Pennsylvania 18235 (hereinafter called "Officer").
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Officer on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Officer and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Officer and retain his
services for nine years, and the Officer has agreed to defer from his earnings
from the Bank One Thousand Two Hundred Dollars ($1,200.00) per year for nine (9)
years.
NOW, THEREFORE, in consideration of the covenants hereinafter contained
and intending by this Agreement to be legally bound, Bank and Officer agree as
follows:
1. The Bank agrees to pay Officer the total sum of Ninety-one
Thousand Twenty-two Dollars ($91,022) payable in monthly
installments of Seven Hundred Fifty-eight Dollars and Fifty
Cents ($758.50) for 120 consecutive months, commencing on the
first day of the month following Officer's 65th birthday.
Payments to the Officer will terminate when the 120 payments
have been made or at the time of the Officer's death,
whichever occurs first.
2. In the event Officer should die before attaining age 65, the
Bank agrees to pay to Officer's beneficiary designated in
writing to the Bank, the sum of Seven Hundred Seven Dollars
and Seventeen Cents ($707.17) per month for 120 consecutive
A-2-12
<PAGE> 212
months. Payments will begin on the first day of the month
following Officer's death.
3. If the Officer dies after age 65, but prior to receiving the
full 120 monthly installments, the remaining monthly
installments will be paid to the Officer's designated
beneficiary. The beneficiary shall receive all remaining
monthly installments which the Officer would have received
until the total sum of Ninety-one Thousand Twenty-two Dollars
($91,022) set forth in Paragraph 1 is paid. If the Officer
fails to designate a beneficiary in writing to the Bank, the
balance of the monthly installments remaining at the time of
his death shall be paid to the personal representative of the
estate of the Officer.
4. If the Officer, for any reason other than death, fails to
serve nine consecutive years as a Officer, he will receive
monthly compensation beginning at age 65 on the basis that the
sum of full months served bears to the required number of 108
months times the compensation stated in Paragraph 1.
5. No payments will be made to the Officer's beneficiary or to
his estate in the event of death by suicide during the first
three years of this Agreement.
6. This Agreement does not constitute a contract of employment
between the parties, nor shall any provision of this Agreement
restrict the right of the Bank's management to replace the
Officer or the right of the Officer to terminate his service.
7. The service of the Officer shall not be deemed to have been
terminated or interrupted due to his absence from active
service on account of illness, disability, during any
authorized vacation or during temporary leaves of absence
granted by the Bank for reasons of professional advancement,
education, health or government service, or during military
Bank following such interruption.
A-2-13
<PAGE> 213
8. The Officer agrees that all rights to compensation following
age 65 shall be forfeited by him if he engages in competition
with the Bank, without the prior written consent of the Bank,
within a radius of 50 miles of the main office of the Bank for
a period of ten years, coinciding with the number of years
that the Officer shall receive such compensation.
9. None of the rights to compensation under this Agreement are
assignable by the Officer or any beneficiary or designee of
the Officer and any attempt to anticipate, sell, transfer,
assign, pledge, encumber or change Officer's right to receive
compensation shall be void.
10. The rights granted to the Officer or any designee or
beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
11. If the Bank shall acquire an insurance policy or any other
asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither
Officer nor any beneficiary or Officer shall have any right
with respect to, or claim against, such policy or other asset
except as expressly provided by the terms of such policy or in
the title to such other asset. Such policy shall not be deemed
to be held under any trust for the benefit of Officer or his
beneficiary or to be held in any way as collateral security
for the fulfilling of the obligations of the Bank under this
Agreement except as may be expressly provided by the terms of
such policy or other asset. It shall be, and remain, a
general, unpledged, unrestricted asset of the Bank.
12. This Agreement shall be construed under the governed by the
laws of the State of Pennsylvania.
A-2-14
<PAGE> 214
13. This Agreement shall be binding upon the parties hereto and their
respective heirs, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement
the day and year above written.
CITIZENS BANK AND TRUST COMPANY
ATTEST:
By: /s/ Richard W. Webb By: /s/ James A. Wimmer
--------------------------- ---------------------------
Secretary President
/s/ Ronald J. Steber
---------------------------
Officer
A-2-15
<PAGE> 215
DESIGNATION OF BENEFICIARY
In accordance with a Deferred Compensation Agreement dated October 28,
1987, by and between the undersigned and Citizens Bank and trust Company, I
hereby designate Carol Steber, my wife, if living, to receive in monthly
installments the balance of all of my benefits due under such plan. If my
beneficiary shall not survive me, then such amounts shall be paid to issue, per
stipes.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 28th day
of October, 1987.
/s/ Ronald J. Steber
------------------------
A-2-16
<PAGE> 216
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 15th day of August, 1987, by and between
CITIZENS BANK AND TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
(hereinafter called "Bank") and JAMES A. WIMMER, 1412 Hampton Road, Allentown,
Pennsylvania 18104 (hereinafter called "Director").
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Director on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Director and retain his
services for nine years, and the Director has agreed to defer from his earnings
from the Bank Six Thousand Dollars ($6,000.00) per year for nine (9) years.
NOW, THEREFORE, in consideration of the covenants hereinafter contained
and intending by this Agreement to be legally bound, Bank and Director agree as
follows:
1. The Bank agrees to pay Director the total sum of Four Hundred
Thirty-eight Thousand Seven Hundred Eighty-nine Dollars
($438,789), payable in monthly installments of Thirty-six
Hundred Fifty-six Dollars and Fifty-eight Cents ($3,656.58)
for 120 consecutive months, commencing on the first day of the
month following Director's 65th birthday. Payments to the
Director will terminate when the 120 payments have been made
or at the time of the Director's death, whichever occurs
first.
2. In the event Director should die before attaining age 65, the
Bank agrees to pay to Director's beneficiary designated in
writing to the Bank, the sum of Three Thousand
<PAGE> 217
Four Hundred Forty-eight Dollars and Seventeen Cents
($3,448.17) per month for 120 consecutive months. Payments
will begin on the first day of the month following Director's
death.
3. If the Director dies after age 65, but prior to receiving the
full 120 monthly installments, the remaining monthly
installments will be paid to the Director's designated
beneficiary. The beneficiary shall receive all remaining
monthly installments which the Director would have received
until the total sum of Four Hundred Thirty-eight Thousand
Seven Hundred Eighty-nine Dollars ($438,789) set forth in
Paragraph 1 is paid. If the Director fails to designate a
beneficiary in writing to the Bank, the balance of the monthly
installments remaining at the time of his death shall be paid
to the personal representative of the estate of the Director.
4. If the Director, for any reason other than death, fails to
serve twelve consecutive years as a Director, he will receive
monthly compensation beginning at age 65 on the basis that the
sum of full months served bears to the required number of 108
months times the compensation stated in Paragraph 1.
5. No payments will be made to the Director's beneficiary or to
his estate in the event of death by suicide during the first
three years of this Agreement.
6. This Agreement does not constitute a contract of employment
between the parties, nor shall any provision of this Agreement
restrict the right of the Bank's shareholders to replace the
Director of the right of the Director to terminate his
service.
7. The service of the Director shall not be deemed to have been
terminated or interrupted due to his absence from active
service on account of illness, disability, during any
authorized vacation or during temporary leaves of absence
granted by
A-2-18
<PAGE> 218
the Bank for reasons of professional advancement, education,
health or government service, or during military leave for any
period if the Director is elected to serve on the Board
following such interruption.
8. The Director agrees that all rights to compensation following
age 65 shall be forfeited by him if he engages in competition
with the Bank, without the prior written consent of the Bank,
within a radius of 50 miles of the main office of the Bank for
a period of ten years, coinciding with the number of years
that the Director shall receive such compensation.
9. None of the rights to compensation under this Agreement are
assignable by the Director or any beneficiary or designee of
the Director and any attempt to anticipate, sell, transfer,
assign, pledge, encumber or change Director's right to receive
compensation, shall be void.
10. The rights granted to the Director or any designee or
beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
11. If the Bank shall acquire an insurance policy or any other
asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither
Director nor any beneficiary of Director shall have any right
with respect to, or claim against, such policy or other asset
except as expressly provided by the terms of such policy or in
the title to such other asset. Such policy or asset shall not
be deemed to be held under any trust for the benefit of
Director or his beneficiary or to be held in any way as
collateral security for the fulfilling of the obligations of
the Bank under this Agreement except as may be expressly
provided by the terms of such policy or other asset. It shall
be, and remain, a general, unpledged unrestricted asset of the
Bank.
A-2-19
<PAGE> 219
12. This Agreement shall be construed under and governed by the
laws of the State of Pennsylvania.
13. This Agreement shall be binding upon the parties hereto and
their respective heirs, administrators, successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the
day and year above written.
ATTEST: CITIZENS BANK AND TRUST COMPANY
/s/ Richard W. Webb BY: /s/ James A. Wimmer
President
/s/ James A. Wimmer
Director
A-2-20
<PAGE> 220
DESIGNATION OF BENEFICIARY
In accordance with a Deferred Compensation Agreement dated August 15,
1987, by and between the undersigned and Citizens Bank and Trust Company, I
hereby designate Linda P. Wimmer, my wife, if living, to receive in monthly
installments the balance of all of my benefits due under such plan. If my
beneficiary shall not survive me, then such amounts shall be paid to my issue,
per stirpes.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 15th day
of August, 1987.
/s/ James A. Wimmer
-------------------
A-2-21
<PAGE> 221
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 19th day of August, 1989, by and between
CITIZENS BANK AND TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
(hereinafter called "Bank") and TERRY D. ECKERT, OF Palmerton, Pennsylvania
(hereinafter called "Director").
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Director on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Director and retain his
services for 14 years; AND
WHEREAS, the Director has agreed to defer from his earnings from the
Bank Six Thousand ($6,000.00) Dollars per year for the first three years and
Five Thousand Six ($5,000) Dollars for the next eleven years from his earnings
from the bank.
NOW, THEREFORE, in consideration of the covenants hereinafter contained
and intending by this agreement to be legally bound, Bank and Director agree as
follows:
1. The Bank agrees to pay Director that total sum of Two Hundred
Sixty-eight Thousand Seven Hundred Eighty-six dollars
*$268,786.00) payable in monthly installments of Two Thousand
Two Hundred Thirty-nine Dollars and eighty-eight Cents
($2,239.88) for 120 consecutive months, commencing on the
first day of the month following the Director's 65th birthday.
Payments to the Director will terminate when the 120 payments
have been made or at the time of the Director's death,
whichever comes first.
A-2-22
<PAGE> 222
2. In the event Director should die before attaining age 65, the
Bank agrees to pay to Director's beneficiary(ies) designated
in writing to the Bank, the sum of Two Thousand Seven Dollars
and Fifty-four Cents ($2,007.54) for 120 consecutive months.
Payments will begin on the first day of the month following
Director's death.
3. If the Director dies after age 65, but prior to receiving the
full 120 monthly installments, the remaining monthly
installments will be paid to the Director's designated
beneficiary(ies). The beneficiary(ies) shall receive all
remaining monthly installments which the Director would have
received until the total sum of Two Hundred Sixty-eight
Thousand Seven Hundred Eighty-six Dollars ($268,786.00) set
forth in Paragraph 1 is paid. If Director fails to designate a
beneficiary in writing to the Bank, the balance of the monthly
installments remaining at the time of his death shall be paid
to the personal representative of the estate of the Director.
4. If the Director, for any reason other than death, fails to
remain employed by Bank for 14 consecutive years he will
receive monthly compensation beginning at age 65 on the basis
that the sum of full months served from the date of this
contract to age 65 times that compensation stated in Paragraph
1.
5. No payments will be made to the Director's beneficiary(ies) or
to his estate in the event of death by suicide during the
first three years of this Agreement.
6. This agreement does not constitute a contract of employment
between the parties, nor shall any provision of this Agreement
restrict the right of the Bank's shareholders to replace the
Director or the right of the Director to terminate his service
by resignation.
7. The service of the Director shall not be deemed to have been
terminated or
A-2-23
<PAGE> 223
interrupted due to his absence from active service on account
of illness disability, during any authorized vacation or
during temporary leaves of absence granted by the Bank for
reasons of professional advancement, education, health or
government service, or during military leave for any period if
the Director returns to his employment following such
interruption.
8. The Director agrees that all rights to compensation following
age 65 shall be forfeited by him if he engage in competition
with the Bank, without prior written consent of the Bank,
within a radius of 50 miles of the main office of the Bank for
a period of 10 years coinciding with the number of years that
the Director shall receive such compensation.
9. None of the rights to compensation under this Agreement are
assignable by the Director or any beneficiary or designee of
the Director and any attempt to anticipate, sell, transfer,
assign, pledge, encumber or change Director's right to receive
compensation, shall be void.
10. The rights granted to the Director or any designee or
beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
11. If the Bank shall acquire an insurance policy or an other
asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither
Director nor any beneficiary or Director shall have any right
with respect to, or claim against, such policy or other asset
except as expressly provided by the terms of such policy or in
the title to such other asset. Such policy or asset shall not
be deemed to be held under any trust for the benefit of
Director or his beneficiary(ies) or to be held in any way as
collateral security for the fulfilling of the obligations of
the Bank under this Agreement except as may be expressly
provided by the terms of
A-2-24
<PAGE> 224
such policy or other asset. It shall be, and remain, a
general, unpledged, unrestricted asset of the Bank.
12. The Agreement shall be construed and governed under the laws
of the State of Pennsylvania.
13. This Agreement shall be binding upon the parties hereto and
their respective heirs, administrators, successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the
day and year above written.
CITIZENS BANK AND TRUST COMPANY
ATTEST:
/s/ Thomas K. Thomas BY: /s/ James A. Wimmer
- -------------------- -------------------
Assistant Secretary President
/s/ T. D. Eckert
A-2-25
<PAGE> 225
DESIGNATION OF BENEFICIARY
In accordance with the Deferred Compensation Agreement dated August 19,
1989, by and between the undersigned and Citizens Bank and Trust Company, I
hereby designate Priscilla T. Eckert, my wife, if living, to receive in monthly
installments the balance of all of my benefits due under such plan. If my
beneficiary shall not survive me, the such amounts shall be paid (equally) to
Edward Krufka, Jr., Theresa Podgusky, Michael A. Krufka, Andrew J. Krufka,
Kathrine M. Krufka, Margaret M. Krufka.
IN WITNESS WHEREOF, I have set my hand and seal this 28th day of
December, 1989.
/s/ Terry D. Eckert
-------------------
A-2-26
<PAGE> 226
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 2nd day of October, 1987 by and between
CITIZENS BANK AND TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
(hereinafter called "Bank") and ROBERT ADAMS, of 450 Princeton Avenue,
Palmerton, Pennsylvania 18071 (hereinafter called "Officer").
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Officer on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Officer and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Officer and retain his
services for two years, and the Officer has agreed to defer from his earnings
from the Bank Nine Thousand Three Hundred Thirty-nine Dollars ($9,339.00) per
year for two (2) years.
NOW, THEREFORE, in consideration of the covenants hereinafter contained
and intending by this Agreement to be legally bound, Bank and Officer agree as
follows:
1. The Bank agrees to pay Officer the total sum of Seventy-eight
Thousand Seven Hundred eighty-five Dollars ($78,785) payable
in monthly installments of Six Hundred Fifty-six Dollars and
Fifty Cents ($656.50) for 120 consecutive months, commencing
on the first day of the month following Officer's 65th
birthday. Payments to the Officer will terminate when the 120
payments have been made or at the time of the Officer's death,
whichever occurs first.
2. In the event Officer should die before attaining age 65, the
Bank agrees to pay to Officer's beneficiary designated in
writing to the Bank, the sum of Eight Hundred Seventeen
Dollars and Ninety-two Cents ($817.92) per month for 120
consecutive
A-2-27
<PAGE> 227
months. Payments will begin on the first day of the month
following Officer's death.
3. If the Officer dies after age 65, but prior to receiving the
full 120 monthly installments, the remaining monthly
installments will be paid to the Officer's designed
beneficiary. The beneficiary shall receive all remaining
monthly installments which the Officer would have received
until the total sum of Seventy-eight Thousand Seven Hundred
Eighty-five Dollars ($78,785) set forth in Paragraph 1 is
paid. If the Officer fails to designate a beneficiary in
writing to the Bank, the balance of the monthly installments
remaining at the time of his death shall be paid to the
personal representative of the estate of the Officer.
4. If the Officer, for any reason other than death, fails to
serve two consecutive years as a Officer, he will receive
monthly compensation beginning at age 65 on the basis that the
sum of full months served bears to the required number of 24
months times the compensation stated in Paragraph 1.
5. No payments will be made to the Officer's beneficiary or to
his estate in the event of death by suicide during the first
three years of this Agreement.
6. This Agreement does not constitute a contract of employment
between the parties, nor shall any provision of this Agreement
restrict the right of the Bank's management to replace the
Officer or the right of the Officer to terminate his service.
7. The service of the Officer shall not be deemed to have been
terminated or interrupted due to his absence from active
service on account of illness, disability, during any
authorized vacation or during temporary leaves of absence
granted by the Bank for reasons of professional advancement,
education, health or government service, or during military
leave for any period if the Officer continues to be
A-2-28
<PAGE> 228
employed by Bank following such interruption.
8. The Officer agrees that all rights to compensation following
age 65 shall be forfeited by him if he engages in competition
with the Bank, without the prior written consent of the Bank,
within a radius of 50 miles of the main office of the Bank for
a period of ten years, coinciding with the number of years
that the Officer shall receive such compensation.
9. None of the rights to compensation under this Agreement are
assignable by the Officer or any beneficiary or designee of
the Officer and any attempt to anticipate, sell, transfer,
assign, pledge, encumber or change Officer's right to receive
compensation, shall be void.
10. The rights granted to the Officer or any designee or
beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
11. If the Bank shall acquire an insurance policy or any other
asset in connection with the liabilities assumed by it
hereunder, it is expressly understood and agreed that neither
Officer nor any beneficiary of Officer shall have any right
with respect to, or claim against, such policy or other asset
except as expressly provided by the terms of such policy or in
the title to such other asset. Such policy or asset shall not
be deemed to be held under any trust for the benefit of
Officer or his beneficiary or to be held in any way as
collateral security for the fulfilling of the obligations of
the Bank under this Agreement except as may be expressly
provided by the terms of such policy or other asset. it shall
be, and remain, a general, unpledged, unrestricted asset of
the Bank.
12. This Agreement shall be construed under and governed by the
laws of the State of Pennsylvania.
A-2-29
<PAGE> 229
13. This Agreement shall be binding upon the parties hereto and
their respective heirs, administrators successors and assigns.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement the
day and year above written.
CITIZENS BANK AND TRUST COMPANY
ATTEST:
/s/ Richard W. Webb BY: /s/ James A. Wimmer
- ------------------- -------------------
Secretary President
/s/ Robert E. Adams
-------------------
Officer
A-2-30
<PAGE> 230
DESIGNATION OF BENEFICIARY
In accordance with a Deferred Compensation Agreement dated October 2,
1987, by and between the undersigned and Citizens Bank and trust Company, I
hereby designate Evelyn M. Adams, my wife, if living, to receive in monthly
installments the balance of all of my benefits due under such plan. If my
beneficiary shall not survive me, then such amounts shall be paid to issue, per
stirpes.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 2nd day
of October, 1987.
/s/ Robert E. Adams
-------------------
A-2-31
<PAGE> 231
10228 SW 74th Court
Ocala, FL 34476
November 4, 1992
Citizens Bank & Trust Company
372 Delaware Avenue
Palmerton, PA 18071
ReR: Deferred Compensation Agreement
Robert Adams
Gentlemen:
Please use this letter as your authorization to update beneficiary designations
on the above referenced agreement to the following:
Primary: Evelyn M. Adams, Spouse
Contingent: Robert E. & Evelyn M. Adams, TTEES, UTD 10/29/92, FBO Same
Please send confirmation of this change and future statements to the above
address. Thank you for your prompt attention to this request.
Sincerely,
/s/ Robert E. Adams
- -------------------
Robert Adams
A-2-32
<PAGE> 232
ANNEX A
EXHIBIT 3
A-3-1
<PAGE> 233
DIRECTOR'S COMPENSATION AGREEMENT
JAMES A. WIMMER
CITIZENS BANK & TRUST COMPANY
PALMERTON, PENNSYLVANIA
APRIL 1, 1983
A-3-2
<PAGE> 234
DIRECTOR'S COMPENSATION AGREEMENT
This Agreement is entered into this first day of April, 1983, between
CITIZENS BANK & TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
18071 (Herein referred to as the "Bank") and JAMES A. WIMMER, 1412 Hampton Road,
Allentown, Pennsylvania 18104 (Herein referred to as the "Director").
W I T N E S S E T H
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Director on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Director and retain his
services for four years, if elected, to serve on the Board of Directors. Such
compensation is set forth below; and
WHEREAS, the Director, in consideration of the foregoing, agrees to
continue to serve as a Director, if elected,
NOW, THEREFORE, it is mutually agreed as follows:
1. Compensation. The Bank agrees to pay Director the total sum of
$890,110 payable in monthly installments of $7,417.58 for 120 consecutive
months, commencing on the first day of the month following Director's 65th
birthday. Payments to the Director will terminate when the 120 payments have
been made or at the time of the Director's death, whichever occurs first.
2. Death of Director Before Age 65. In the event Director should die
before reaching age 65, the Bank agrees to pay to Director's beneficiary
designated in writing to the Bank, the sum of $3,017.75 per month for 120
consecutive months. Payments will begin on the first day of the month following
Director's death.
3. Indexing of Deferred Income Payments. The deferred income payments
stated in Paragraph "1" and Paragraph "2" of this agreement will be made
provided the monthly average of the Moody's 20 Year Corporate Bond Average is
between 11% and 13% from (date of agreement) until payments are commenced. If
the monthly average of the Moody 20 Year Corporate Bond Average is between 11%
and 13% for that period, the payments may be indexed by the Bank in accordance
with the actual average of the Moody 20 Year Corporate Bond Average.
A-3-3
<PAGE> 235
4. Death of Director After Age 65. If the Director dies after age 65
prior to receiving the full 120 monthly installments, the remaining monthly
installments will be paid to the Director's designated beneficiary (ies). The
beneficiary (ies) shall receive all remaining monthly installments which the
Director would have received until the total sum of $890,110 set forth in
paragraph "1" is paid. If the Director fails to designate a beneficiary in
writing to the Bank, the balance of monthly installments remaining at the time
of his death shall be paid to the legal representative of the estate of the
Director.
5. Termination of Service as A Director. If the Director, for any
reason other than death, fails to serve four consecutive years as a Director, he
will receive monthly compensation beginning at age 65 on the basis that the
number of full months served bears to the required number of 48 months times the
compensation stated in paragraph "1". For example, if the Director serves only
24 months, he will be entitled to 24/48 or 50% of the compensation stated in
paragraph "1".
6. Suicide. No payments will be made to the Director's beneficiary
(ies) or to his estate in the event of death by suicide during the first three
years of this agreement.
7. Status of Agreement. This agreement does not constitute a contract
of employment between the parties, nor shall any provision of this agreement
restrict the right of the Bank's Shareholders to replace the Director or the
right of the Director to terminate his service.
8. Binding Effect. This agreement shall be binding upon the parties
hereto and upon the successors and assigns of the Bank, and upon the heirs and
legal representatives of the Director.
9. Interruption of Service. The service of the Director shall not be
deemed to have been terminated or interrupted due to his absence from active
service on account of illness, disability, during any authorized vacation or
during temporary leaves of absence granted by the Bank for reasons of
professional advancement, education, health or government service, or during
military leave for any period if the Director is elected to serve on the Board
following such interruption.
10. Forfeiture of Compensation by Competition. The Director agrees that
all rights to compensation following age 65 shall be forfeited by him if he
engages in competition with the Bank, without the prior written consent of the
Bank, within a radius of 50 miles of the main office of the Bank for a period of
ten years, coinciding with the number of years that the Director shall receive
such compensation.
11. Assignment of Rights. None of the rights to compensation under this
Agreement are assignable by the Director or any beneficiary or designee of the
Director and any attempt to
A-3-4
<PAGE> 236
anticipate, sell, transfer, assign, pledge, encumber or change Director's right
to receive compensation, shall be void.
12. Status of Director's Rights. The rights granted to the Director or
any designee or beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
13. Amendments. This Agreement may be amended only by a written
Agreement signed by the parties.
14. If the Bank shall acquire an insurance policy or any other asset in
connection with the liabilities assumed by it hereunder, is expressly understood
and agreed that neither Director nor any beneficiary of Director shall have any
right with respect to, or claim against, such policy or other asset except as
expressly provided by the terms of such policy or in the title to such other
asset. Such policy or asset shall not be deemed to be held under any trust for
the benefit of Director or his beneficiaries or to be held in any way as
collateral security for the fulfilling of the obligations of the Bank under this
Agreement except as may be expressly provided by the terms of such policy or
other asset. It shall be, and remain, a general, unpledged, unrestricted asset
of the Bank.
15. This agreement shall be construed under and governed by the laws of
the State of Pennsylvania.
16. Interpretation. Wherever appropriate in this Agreement, words used
in the singular shall include the plural and the masculine shall include the
feminine gender.
IN WITNESS HEREOF, the parties have signed this Agreement the day and
year above written.
CITIZENS BANK & TRUST COMPANY
(SEAL) BY /s/ Jacob Philip, Chairman
/s/ Richard W. Webb, Secretary /s/ James A. Wimmer (SEAL)
- ------------------------------ ------------------- ------
Witness JAMES A. WIMMER, DIRECTOR
A-3-5
<PAGE> 237
DIRECTOR'S COMPENSATION AGREEMENT
THOMAS K. THOMAS
CITIZENS BANK & TRUST COMPANY
PALMERTON, PENNSYLVANIA
APRIL 1, 1983
A-3-6
<PAGE> 238
DIRECTOR'S COMPENSATION AGREEMENT
This Agreement is entered into this first day of April, 1983, between
CITIZENS BANK & TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
18071 (Herein referred to as the "Bank") and THOMAS K. THOMAS, 145 Delaware
Ave., Palmerton, Pennsylvania 18071 (Herein referred to as the "Director").
W I T N E S S E T H
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Director on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Director and retain his
services for four years, if elected, to serve on the Board of Directors. Such
compensation is set forth below; and
WHEREAS, the Director, in consideration of the foregoing, agrees to
continue to serve as a Director, if elected,
NOW, THEREFORE, it is mutually agreed as follows:
1. Compensation. The Bank agrees to pay Director the total sum of
$319,130 payable in monthly installments of $2,659.42 for 120 consecutive
months, commencing on the first day of the month following Director's 65th
birthday. Payments to the Director will terminate when the 120 payments have
been made or at the time of the Director's death, whichever occurs first.
2. Death of Director Before Age 65. In the event Director should die
before reaching age 65, the Bank agrees to pay to Director's beneficiary
designated in writing to the Bank, the sum of $1,765.67 per month for 120
consecutive months. Payments will begin on the first day of the month following
Director's death.
3. Indexing of Deferred Income Payments. The deferred income payments
stated in Paragraph "1" and Paragraph "2" of this agreement will be made
provided the monthly average of the Moody's 20 Year Corporate Bond Average is
between 11% and 13% from (date of agreement) until payments are commenced. If
the monthly average of the Moody 20 Year Corporate Bond Average is between 11%
and 13% for that period, the payments may be indexed by the Bank in accordance
with the actual average of the Moody 20 Year Corporate Bond Average.
A-3-7
<PAGE> 239
4. Death of Director After Age 65. If the Director dies after age 65
prior to receiving the full 120 monthly installments, the remaining monthly
installments will be paid to the Director's designated beneficiary (ies). The
beneficiary (ies) shall receive all remaining monthly installments which the
Director would have received until the total sum of $319,130 set forth in
paragraph "1" is paid. If the Director fails to designate a beneficiary in
writing to the Bank, the balance of monthly installments remaining at the time
of his death shall be paid to the legal representative of the estate of the
Director.
5. Termination of Service as A Director. If the Director, for any
reason other than death, fails to serve four consecutive years as a Director, he
will receive monthly compensation beginning at age 65 on the basis that the
number of full months served bears to the required number of 48 months times the
compensation stated in paragraph "1". For example, if the Director serves only
28 months, he will be entitled to 24/48 or 50% of the compensation stated in
paragraph "1".
6. Suicide. No payments will be made to the Director's beneficiary
(ies) or to his estate in the event of death by suicide during the first three
years of this agreement.
7. Status of Agreement. This agreement does not constitute a contract
of employment between the parties, nor shall any provision of this agreement
restrict the right of the Bank's Shareholders to replace the Director or the
right of the Director to terminate his service.
8. Binding Effect. This agreement shall be binding upon the parties
hereto and upon the successors and assigns of the Bank, and upon the heirs and
legal representatives of the Director.
9. Interruption of Service. The service of the Director shall not be
deemed to have been terminated or interrupted due to his absence from active
service on account of illness, disability, during any authorized vacation or
during temporary leaves of absence granted by the Bank for reasons of
professional advancement, education, health or government service, or during
military leave for any period if the Director is elected to serve on the Board
following such interruption.
10. Forfeiture of Compensation by Competition. The Director agrees that
all rights to compensation following age 65 shall be forfeited by him if he
engages in competition with the Bank, without the prior written consent of the
Bank, within a radius of 50 miles of the main office of the Bank for a period of
ten years, coinciding with the number of years that the Director shall receive
such compensation.
11. Assignment of Rights. None of the rights to compensation under this
Agreement are assignable by the Director or any beneficiary or designee of the
Director and any attempt to
A-3-8
<PAGE> 240
anticipate, sell, transfer, assign, pledge, encumber or change Director's right
to receive compensation, shall be void.
12. Status of Director's Rights. The rights granted to the Director or
any designee or beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
13. Amendments. This Agreement may be amended only by a written
Agreement signed by the parties.
14. If the Bank shall acquire an insurance policy or any other asset in
connection with the liabilities assumed by it hereunder, is expressly understood
and agreed that neither Director nor any beneficiary of Director shall have any
right with respect to, or claim against, such policy or other asset except as
expressly provided by the terms of such policy or in the title to such other
asset. Such policy or asset shall not be deemed to be held under any trust for
the benefit of Director or his beneficiaries or to be held in any way as
collateral security for the fulfilling of the obligations of the Bank under this
Agreement except as may be expressly provided by the terms of such policy or
other asset. It shall be, and remain, a general, unpledged, unrestricted asset
of the Bank.
15. This agreement shall be construed under and governed by the laws of
the State of Pennsylvania.
16. Interpretation. Wherever appropriate in this Agreement, words used
in the singular shall include the plural and the masculine shall include the
feminine gender.
IN WITNESS HEREOF, the parties have signed this Agreement the day and
year above written.
CITIZENS BANK & TRUST COMPANY
-----------------------------
(SEAL) BY /s/ James A. Wimmer
------------------
JAMES A. WIMMER, PRESIDENT
/s/ Richard W. Webb, Secretary /s/ Thomas K. Thomas (SEAL)
- ------------------------------ ------------------------------
Witness THOMAS K. THOMAS, DIRECTOR
A-3-9
<PAGE> 241
DIRECTOR'S COMPENSATION AGREEMENT
RICHARD W. WEBB
CITIZENS BANK & TRUST COMPANY
PALMERTON, PENNSYLVANIA
APRIL 1, 1983
A-3-10
<PAGE> 242
DIRECTOR'S COMPENSATION AGREEMENT
This Agreement is entered into this first day of April, 1983, between
CITIZENS BANK & TRUST COMPANY, 372 Delaware Avenue, Palmerton, Pennsylvania
18071 (Herein referred to as the "Bank") and RICHARD W. WEBB, 887 E. Princeton
Ave., Palmerton, Pennsylvania 18071 (Herein referred to as the "Director").
W I T N E S S E T H
WHEREAS, the Bank recognizes that the competent and faithful efforts of
Director on behalf of the Bank have contributed significantly to the success and
growth of the Bank; and
WHEREAS, the Bank values the efforts, abilities and accomplishments of
the Director and recognizes that his services are vital to its continued growth
and profits in the future; and
WHEREAS, the Bank desires to compensate the Director and retain his
services for four years, if elected, to serve on the Board of Directors. Such
compensation is set forth below; and
WHEREAS, the Director, in consideration of the foregoing, agrees to
continue to serve as a Director, if elected,
NOW, THEREFORE, it is mutually agreed as follows:
1. Compensation. The Bank agrees to pay Director the total sum of
$1,407,720 payable in monthly installments of $11,731 for 120 consecutive
months, commencing on the first day of the month following Director's 65th
birthday. Payments to the Director will terminate when the 120 payments have
been made or at the time of the Director's death, whichever occurs first.
2. Death of Director Before Age 65. In the event Director should die
before reaching age 65, the Bank agrees to pay to Director's beneficiary
designated in writing to the Bank, the sum of $3,232.42 per month for 120
consecutive months. Payments will begin on the first day of the month following
Director's death.
3. Indexing of Deferred Income Payments. The deferred income payments
stated in Paragraph "1" and Paragraph "2" of this agreement will be made
provided the monthly average of the Moody's 20 Year Corporate Bond Average is
between 11% and 13% from (date of agreement) until payments are commenced. If
the monthly average of the Moody 20 Year Corporate Bond Average is between 11%
and 13% for that period, the payments may be indexed by the Bank in accordance
with the actual average of the Moody 20 Year Corporate Bond Average.
A-3-11
<PAGE> 243
4. Death of Director After Age 65. If the Director dies after age 65
prior to receiving the full 120 monthly installments, the remaining monthly
installments will be paid to the Director's designated beneficiary (ies). The
beneficiary (ies) shall receive all remaining monthly installments which the
Director would have received until the total sum of $1,407,720 set forth in
paragraph "1" is paid. If the Director fails to designate a beneficiary in
writing to the Bank, the balance of monthly installments remaining at the time
of his death shall be paid to the legal representative of the estate of the
Director.
5. Termination of Service as A Director. If the Director, for any
reason other than death, fails to serve four consecutive years as a Director, he
will receive monthly compensation beginning at age 65 on the basis that the
number of full months served bears to the required number of 48 months times the
compensation stated in paragraph "1". For example, if the Director serves only
24 months, he will be entitled to 24/48 or 50% of the compensation stated in
paragraph "1".
6. Suicide. No payments will be made to the Director's beneficiary
(ies) or to his estate in the event of death by suicide during the first three
years of this agreement.
7. Status of Agreement. This agreement does not constitute a contract
of employment between the parties, nor shall any provision of this agreement
restrict the right of the Bank's Shareholders to replace the Director or the
right of the Director to terminate his service.
8. Binding Effect. This agreement shall be binding upon the parties
hereto and upon the successors and assigns of the Bank, and upon the heirs and
legal representatives of the Director.
9. Interruption of Service. The service of the Director shall not be
deemed to have been terminated or interrupted due to his absence from active
service on account of illness, disability, during any authorized vacation or
during temporary leaves of absence granted by the Bank for reasons of
professional advancement, education, health or government service, or during
military leave for any period if the Director is elected to serve on the Board
following such interruption.
10. Forfeiture of Compensation by Competition. The Director agrees that
all rights to compensation following age 65 shall be forfeited by him if he
engages in competition with the Bank, without the prior written consent of the
Bank, within a radius of 50 miles of the main office of the Bank for a period of
ten years, coinciding with the number of years that the Director shall receive
such compensation.
11. Assignment of Rights. None of the rights to compensation under this
Agreement are assignable by the Director or any beneficiary or designee of the
Director and any attempt to
A-3-12
<PAGE> 244
anticipate, sell, transfer, assign, pledge, encumber or change Director's right
to receive compensation, shall be void.
12. Status of Director's Rights. The rights granted to the Director or
any designee or beneficiary under this Agreement shall be solely those of an
unsecured creditor of the Bank.
13. Amendments. This Agreement may be amended only by a written
Agreement signed by the parties.
14. If the Bank shall acquire an insurance policy or any other asset in
connection with the liabilities assumed by it hereunder, is expressly understood
and agreed that neither Director nor any beneficiary of Director shall have any
right with respect to, or claim against, such policy or other asset except as
expressly provided by the terms of such policy or in the title to such other
asset. Such policy or asset shall not be deemed to be held under any trust for
the benefit of Director or his beneficiaries or to be held in any way as
collateral security for the fulfilling of the obligations of the Bank under this
Agreement except as may be expressly provided by the terms of such policy or
other asset. It shall be, and remain, a general, unpledged, unrestricted asset
of the Bank.
15. This agreement shall be construed under and governed by the laws of
the State of Pennsylvania.
16. Interpretation. Wherever appropriate in this Agreement, words used
in the singular shall include the plural and the masculine shall include the
feminine gender.
IN WITNESS HEREOF, the parties have signed this Agreement the day and
year above written.
CITIZENS BANK & TRUST COMPANY
(SEAL) BY /s/ James A. Wimmer
-------------------
JAMES A. WIMMER, PRESIDENT
/s/ T. K. Thomas /s/ Richard W. Webb (SEAL)
- ---------------- -------------------------------
Witness RICHARD W. WEBB, DIRECTOR
A-3-13
<PAGE> 245
ANNEX A
EXHIBIT 4
A-4-1
<PAGE> 246
[Letterhead of Rhoads & Sinon LLP]
[Date of Closing]
Board of Directors
HARLEYSVILLE NATIONAL CORPORATION
P.O. Box 195
Harleysville, PA 19438
Ladies and Gentlemen:
We have acted as Special Counsel to Citizens Bank and Trust Company
("CBTC"), a Pennsylvania chartered bank and trust company, in connection with
the Agreement and Plan of Reorganization, dated as of December __, 1999 (as
amended, the "Agreement"), by and among Harleysville National Corporation
("HNC"), Citizens National Bank ("CNB") and CBTC pursuant to which CBTC will be
merged with and into CNB (the "Bank Merger"). While this firm represents CBTC in
connection with specific legal matters as to which we are consulted by it, we do
not perform or provide legal services to CBTC in connection with the day-to-day
operations of its business or routine legal proceedings related thereto. This
opinion is being delivered to you in accordance with the provisions of Section
6.2(c) of the Agreement.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991) (the "Accord"). As a consequence, it is subject to the qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. Except as otherwise indicated herein, capitalized
terms used in this opinion letter are defined as set forth in the Agreement or
the Accord. The law covered by the opinions expressed herein is limited to the
federal law of the United States and the laws of the Commonwealth of
Pennsylvania.
In connection with the opinions expressed herein, we have examined
originals, or copies certified or otherwise identified to our satisfaction, of
the articles of incorporation, the certificate of incorporation, the certificate
of good standing, the by-laws, the Agreement and such other corporate and other
records, certificates and documents as we have considered necessary or
appropriate for the purposes of rendering the opinions set forth below.
A-4-2
<PAGE> 247
Based upon and subject to the foregoing and the other terms and
provisions hereof, it is our opinion that:
1. CBTC is a bank and trust company that is duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania.
2. CBTC has full corporate power and authority (including all federal,
state, local and foreign governmental authorizations) to carry on its businesses
as it is now being conducted and to own its properties and assets.
3. The authorized capital stock of CBTC consists of 5,542 shares of
CBTC Common Stock, par value $50.00 per share, all of which are issued and
outstanding. In that regard, we note that although the articles of incorporation
state that CBTC is authorized to issue 6,000 shares of common stock, CBTC,
pursuant to permission granted by the Pennsylvania Department of Banking dated
January 15, 1998, (copy attached hereto), acquired 458 shares of its common
stock which the Department of Banking required CBTC to retire. All of the issued
and outstanding shares of capital stock of CBTC have been duly authorized and
are validly issued, fully paid and nonassessable. CBTC has no shares of capital
stock reserved for issuance.
4. To our actual knowledge, CBTC has no outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote) with
shareholders on any matter. The outstanding shares of capital stock of CBTC have
not been issued in violation of any preemptive rights. To our actual knowledge,
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 CBTC.
5. To our actual knowledge, CBTC has no subsidiaries.
6. CBTC has the requisite corporate power and authority to execute and
deliver the Agreement and the Bank Merger Agreement and to carry out the
transactions contemplated therein, and all corporate actions required to be
taken by CBTC to authorize the execution and delivery of the Agreement and the
Bank Merger Agreement and the performance of the transactions contemplated
therein have been taken. The Agreement and the Bank Merger Agreement have been
duly authorized, executed and delivered by CBTC and, assuming due authorization,
execution and delivery by HNC and CNB, and receipt of required regulatory
approvals and the approval of the CNB shareholders, constitutes a valid and
binding obligation of CBTC and is enforceable against it in accordance with its
terms, subject to bankruptcy, insolvency, and other laws of general
applicability relating to or affecting creditors' rights and general equity
principles.
7. The execution, delivery and performance of the Agreement will not,
and the consummation of the transactions contemplated thereby will not,
constitute (i) a breach or
A-4-3
<PAGE> 248
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license, to which CBTC (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 Bank Merger,
(ii) a breach or violation of, or a default under CBTC's articles of
incorporation, or its bylaws, or (iii) to our actual knowledge, except as
disclosed in Annex 3.1(e), a breach or violation of, or a default under (or an
event which with due notice or lapse of time or both would constitute a default
under), or result in the termination of, accelerate the performance required by,
or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the properties or assets of CBTC 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 its 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 Bank Merger.
8. The consummation of the transactions contemplated by the Agreement
does not require as to CBTC any approval, consent or waiver under any law, rule,
regulation, judgment, decree, order, governmental permit or license or, to our
actual knowledge, the approval, consent or waiver of any party to any agreement,
indenture or instrument, other than (i) all required approvals, consents and
waivers of governmental authorities, and (ii) the approval of its shareholders
referred to in Section 6.1(a).
9. Except as set forth in Annex 3.1(j) to the Agreement (i) to our
actual knowledge, there are no civil, criminal or administrative actions, suits,
claims, hearings, investigations or proceedings before any court, governmental
agency or otherwise pending or, threatened against CBTC and (ii) to our actual
knowledge based solely upon written certificates of officers of CBTC, there are
no 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 the
management of CBTC is aware that could reasonably be expected to result in any
claims against or obligations or liabilities of CBTC), that, alone or in the
aggregate, are reasonably likely to have a Material Adverse Effect on CBTC or to
hinder or delay, in any material respect, consummation of the transactions
contemplated by the Agreement.
10. To our actual knowledge, except as set forth in Annex 3.1(k) to the
Agreement, CBTC 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 CBTC 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 CBTC Regulatory
Agency that such body is contemplating issuing or requesting (or is considering
the appropriateness of issuing or requesting) any such order,
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directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolution or similar undertaking.
The General Qualifications apply to the opinions expressed at
paragraphs 2 and 7 hereof.
This opinion is furnished by us as Special Counsel to CBTC solely for
your benefit and solely in connection with the above-described transaction and
for no other purpose. You may not, without our express written approval, deliver
copies of this opinion or extracts therefrom to any other person and no one
other than you is entitled to rely on this opinion. Our opinion is as of the
date hereof, and we undertake no duty to update such opinion after the date
hereof.
Very truly yours,
RHOADS & SINON LLP
By: Dean H. Dusinberre, Esquire
cc: James A. Wimmer, Chairman and President
CITIZENS BANK AND TRUST COMPANY
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ANNEX A
EXHIBIT 5
A-5-1
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[Letterhead of Shumaker Williams, P.C.]
[Date of Closing]
Board of Directors
CITIZENS BANK AND TRUST COMPANY
327 Delaware Avenue P.O. Box 196
Palmerton, PA 18071-0196 VIA HAND DELIVERY
RE: Acquisition of Citizens Bank and Trust Company ("CBTC")
pursuant to a merger of CBTC with and into Citizens National
Bank ("CNB"), a wholly owned subsidiary of Harleysville National
Corporation ("HNC")
File No. 853-99
Ladies and Gentlemen:
We have acted as special counsel to Harleysville National Corporation
("HNC"), a Pennsylvania corporation and Citizens National Bank, a national
banking association, ("CNB") in connection with the preparation of the Agreement
and Plan of Reorganization dated as of _____________, 1999 by and among HNC, CNB
and Citizens Bank and Trust Company ("CBTC"), a Pennsylvania chartered bank and
trust company (as amended, the "Agreement") in which the principal terms of the
merger (the "Bank Merger") of CBTC with and into CNB are set forth. We also have
participated on HNC's and CNB's behalf in various matters and transactions
related to the Bank Merger. This opinion letter is provided to you at the
request of HNC pursuant to Section 6.3(b) of the Agreement.
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991) (the "Accord"). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this opinion
letter should be read in conjunction therewith. Except as otherwise indicated
herein, capitalized terms used in this opinion letter are defined as set forth
in the Agreement or the Accord. The law covered by the opinions expressed herein
is limited to the federal law of the United States and the laws of the
Commonwealth of Pennsylvania.
In connection with the opinions expressed herein, we have examined
originals or copies certified or otherwise identified to our satisfaction of the
articles of incorporation, the articles of association, the certificate of
incorporation, the by-laws, the Agreement, and such corporate and other records,
certificates and documents as we have considered necessary or appropriate for
the purposes of rendering the opinions set forth below.
Based upon and subject to the foregoing and the other terms and
provisions hereof, we are of the opinion that:
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1. HNC is a business corporation that is duly organized, validly
existing and in good standing under the laws of the Commonwealth of Pennsylvania
as evidenced in the Subsisting Corporation Certificate issued by the
Commonwealth of Pennsylvania, Corporation Bureau.
2. HNC is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended, and has full corporate power and authority to
own and hold its properties and to carry on its present business.
3. CNB is a national banking association which is duly organized and
validly existing and in good standing under the laws of the United States of
America and has full corporate power and authority to own and hold its
properties and to carry on its present business.
4. HNC and CNB have full corporate power and authority to execute and
deliver the Agreement and to carry out the transactions contemplated therein,
and all corporate actions required to be taken by HNC and CNB to authorize the
execution and delivery of the Agreement and the performance of the transactions
contemplated therein have been taken.
5. The Agreement has been duly authorized, executed and delivered by
HNC and CNB and, assuming due authorization, execution and delivery by CBTC and
receipt of required regulatory approvals and the approval of the CBTC
shareholders, constitutes a valid and binding obligation of each of HNC and CNB
and is enforceable against HNC and CNB in accordance with its terms, subject to
bankruptcy, insolvency, and other laws of general applicability relating to or
affecting creditors' rights and general equity principles.
6. The execution, delivery and consummation of the Agreement will not
constitute a violation or breach of or default under the Articles of
Incorporation or the Bylaws of HNC or CNB or any statute, rule, regulation,
order, decree, directive, agreement, indenture or other instrument to which any
of them is a party or by which any of them or any of their properties are bound.
7. To our actual knowledge, except as disclosed in Annex 3.2(h) to the
Agreement: (i) there is no litigation, investigation or proceeding pending, or
to the knowledge of HNC threatened, that involves HNC or CNB or any of their
properties and that, if determined adversely to any of them, would materially
and adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of HNC or CNB; (ii) there
are no outstanding orders, writs, injunctions, decrees, consent agreements,
memoranda of understanding or other directives of any federal, state or local
court or governmental authority or of any arbitration tribunal against HNC or
CNB which materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations or future prospects of HNC
or CNB or restrict in any manner the right of any of them to conduct its
business as presently conducted; and (iii) to our actual knowledge, there exists
no fact or condition presently existing that might give rise to any litigation,
investigation or proceeding which, if determined
A-5-3
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adversely to HNC or CNB, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations or future
prospects of HNC or CNB.
8. The authorized capital stock of HNC consists of Thirty Million
(30,000,000) shares of common stock, par value One Dollar ($1.00) per share, of
which as of the date hereof, __________ shares were issued and outstanding. All
outstanding shares of HNC Common Stock have been duly issued and are validly
outstanding, fully paid and nonassessable. The shares of HNC Common Stock to be
issued under the Agreement have been duly authorized and, when issued in
accordance with the Agreement, will be validly issued, fully paid and
non-assessable and free and clear of any mortgage, pledge, lien or claim, except
for those attaching by virtue of succession from CBTC Common Stock exchanged
therefor.
9. No consent, approval, authorization or order of any federal or state
court or federal or state governmental agency or body is required for the
consummation by HNC or CNB of the transactions contemplated by the Agreement,
except for such consents, approvals, authorizations or orders as have been
obtained.
10. Upon notification to the Office of the Comptroller of the Currency
and the Pennsylvania Department of Banking of the consummation of the Bank
Merger, the Bank Merger will have been effected in compliance will all
applicable federal and Pennsylvania laws and regulations in all material
respects.
The General Qualifications apply to the opinions set forth in
paragraphs 4 and 6 hereof.
This opinion is furnished by us as Special Counsel to HNC and CNB,
solely for your benefit and solely in connection with the above-described
transaction and for no other purpose. You may not, without our express written
approval, deliver copies of this opinion or extracts therefrom to any other
person and no one other than you is entitled to rely on this opinion. Our
opinion is as of the date hereof, and we undertake no duty to update such
opinion after the date hereof.
Sincerely,
SHUMAKER WILLIAMS, P.C.
By Nicholas Bybel, Jr., Esquire
cc: Walter E. Daller, Jr., President and Chief Executive Officer
HARLEYSVILLE NATIONAL CORPORATION
Thomas D. Oleksa, President
CITIZENS NATIONAL BANK
A-5-4
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ANNEX B
Tax Opinion of Grant Thornton LLP
B-1
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February , 2000
Mr. Walter E. Daller, Jr.
President
HARLEYSVILLE NATIONAL CORPORATION
483 Main Street
Harleysville, Pennsylvania 19438
Dear Mr. Daller:
You have requested our advice in regards to certain U.S. federal income tax
consequences of the proposed merger of Citizens Bank and Trust Company into
Citizens National Bank. Our advice is based upon our understanding of the
transaction which is described below:
THE TRANSACTION
1. Harleysville National Corporation is a registered multi-bank
holding company incorporated in the Commonwealth of
Pennsylvania. It has one class of stock outstanding (common
stock, $1.00 par value), which is publicly traded over the
counter and is commonly quoted on the National Association of
Securities Dealers Automated Quotation system for national
market issues.
2. Harleysville National Bank, Citizens National Bank and
Security National Bank are each federally chartered commercial
banks regulated by the Office of the Comptroller of the
Currency. Each of these three banking subsidiaries has one
class of outstanding stock. Harleysville National Bank and
Citizens National Bank are wholly owned by Harleysville.
Citizens National Bank is, presently, wholly owned by HNC
North, Inc. a wholly owned subsidiary of Harleysville National
Corporation and a Pennsylvania corporation. All of the
companies join with Harleysville National Corporation in the
filing of a consolidated federal income tax return on the
basis of a calendar taxable year using the accrual method of
accounting to compute taxable income. HNC Financial Corp. is
another wholly owned subsidiary of Harleysville National
Corporation and a Delaware corporation.
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3. Citizens Bank and Trust Company is a Pennsylvania chartered
bank and trust company, subject to regulation by the
Pennsylvania Department of Banking. Citizens Bank and Trust
Company capital stock trades on a very limited basis in the
over-the counter market and is quoted and transactions are
reported on the OTC Bulletin Board and in privately negotiated
transactions. Citizens Bank and Trust Company files its
federal income tax return on the basis of a calendar year-end
using the accrual method of accounting.
4. Part of Harleysville's business growth plan is the acquisition
of smaller community financial institutions that are well
known in their local market places, but don't have the
organizational strength possessed by Harleysville National
Corporation. In keeping with this strategy, the management of
Harleysville and the management of Citizens Bank and Trust
Company have agreed to a combination to be accomplished
pursuant to a plan of merger.
5. Pursuant to state corporation law, Harleysville will liquidate
its wholly owned subsidiary HNC North and cancel the stock of
HNC North in exchange for the assets of HNC North.
Harleysville will then own directly 100% of the stock of
Citizens National Bank.
6. On the date of the complete liquidation of HNC North into
Harleysville National Corporation, the fair market value of
HNC North's assets will exceed its liabilities.
7. After the liquidation of HNC into Harleysville, Citizens Bank
and Trust Company will merge into Citizens National Bank with
Citizens National Bank surviving, pursuant to state and
national banking law. Except for fractional shares and
shareholders of Citizens Bank and Trust Company exercising
dissenter's rights, Citizens Bank and Trust Company
shareholders will exchange all of their Citizens Bank and
Trust Company stock solely for stock of Harleysville. Citizens
Bank and Trust Company stock will then be canceled. Citizens
National Bank will continue to operate the commercial banking
business of Citizens Bank and Trust Company through an un-
incorporated division.
8. There is a valid business purpose for each of the steps of the
transaction described above.
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9. Prior to the merger, HNC Financial Corporation, a wholly owned
subsidiary of Harleysville National Corporation, owns 2.76% of
the common stock of Citizens National Bank and Trust
Corporation. Neither Harleysville National Corporation nor any
of its other subsidiaries presently owns or has ever owned any
of the stock of Citizens National Bank and Trust Company.
10. At the time of the liquidation of HNC North, Harleysville will
own at least 80% of the voting power or at least 80% of the
total number of shares of any class of HNC North outstanding.
11. One hundred percent of HNC North stock will be cancelled after
the distribution of HNC North assets to Harleysville in the
liquidation.
12. The complete distribution of HNC North assets to Harleysville
will occur within the same taxable year.
13. The fair market value of Harleysville stock to be received by
former shareholders of Citizens Bank and Trust Company in
exchange for their shares of Citizens Bank and Trust Company
stock will be approximately equal to the fair market value of
that Citizens Bank and Trust Company stock.
14. No Citizens National Bank stock will be issued in the
transaction.
15. As a result of this merger, Citizens National Bank will
acquire at least 90% of the fair market value of Citizens Bank
and Trust Company's net assets and at least 70% of the fair
market value of its gross assets held immediately prior to the
transaction. Amounts used by Citizens Bank and Trust Company
to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by
Citizens Bank and Trust Company will be included as assets
held immediately prior to the transaction.
16. Citizens National Bank has no intention to issue additional
shares of its stock that would result in HNC North (before its
complete liquidation) or Harleysville (after the complete
liquidation of HNC North) owning less than 80% of the voting
power or less than 80% of the total number of shares of any
class of Citizens National Bank outstanding stock.
17. Neither Harleysville nor any party related to it has any
intention to reacquire any Harleysville stock issued to the
shareholders of Citizens Bank and Trust Company in the merger.
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18. Harleysville has no intention to liquidate Citizens National
Bank or cause the merger of Citizens National Bank into any
other corporation.
19. Harleysville has no intention to cause Citizens National Bank
to sell or otherwise dispose of any of its assets, except for
transfers made in the ordinary course of its business or
transfers of its assets to a corporation directly controlled
by Citizens National Bank by means of Citizens National Bank's
ownership of at least 80% of the voting power and 80% of the
total number of shares of all classes of outstanding stock of
the corporation.
20. Each corporation and all shareholders, will each pay all of
their own expenses associated with the liquidation and the
merger.
21. None of the corporations is a regulated investment company, a
real estate investment trust or a corporation with 50% or more
of the value of its total assets comprised of stock or
securities and 80% or more of the value of its total assets
being held for investment (other than stock or securities in a
corporation at least 50% of the voting or 50% of the value of
the stock of which is owned by the first corporation in which
case the first corporation will be deemed to own its ratable
share of the second corporation's assets).
22. None of the corporations is under the jurisdiction of a court
in a Title 11 or similar case.
23. None of the compensation received by any employee of Citizens
Bank and Trust Company will be separate consideration for, or
allocable to, any of the shares of Citizens Bank and Trust
Company stock owned by the employee. Likewise, none of the
shares of Harleysville stock received by any employee of
Citizens Bank and Trust Company will be in payment for
employment. All compensation paid to employees of Citizens
Bank and Trust Company will be for services actually rendered
and will be comparable to amounts commonly paid to other
employees for similar services.
24. Immediately after the merger, Citizens National Bank will not
have outstanding any warrants, options, convertible securities
or any other type of right which would permit any person to
acquire stock of Citizens National Bank that will cause
Harleysville to own less than 80% of the voting power or less
than 80% of the total number of outstanding shares of all
classes of stock outstanding.
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25. The merger of Citizens Bank and Trust Company into Citizens
National Bank will constitute a merger under applicable state
or federal law.
26. The payment of cash in lieu of fractional shares of
Harleysville stock is solely for the purpose of avoiding the
expense and inconvenience of issuing fractional shares. The
total amount of cash that will be paid to former shareholders
of Citizens Bank and Trust Company instead of fractional
shares of Harleysville stock will not exceed 1% of the value
of the total amount of cash and stock that will be issued in
the merger to the former shareholders of Citizens Bank and
Trust Company in exchange for their shares of Citizens Bank
and Trust Company stock.
27. The fair market value of Citizens Bank and Trust Company's and
Citizens National Bank's assets exceed the sum of their
respective liabilities and any liabilities to which their
assets are subject.
28. Citizens Bank and Trust Company has not bought back any of its
stock in the last two calendar years.
29. All liabilities assumed by Citizens National Bank in the
merger and all the liabilities collateralized by the assets of
Citizens Bank and Trust Company were incurred by Citizens Bank
and Trust Company in the ordinary course of its business.
30. Citizens Bank and Trust Company's only outstanding stock is
its common stock. None of the debt of Citizens Bank and Trust
Company is considered stock for U.S. federal income tax
purposes.
31. No liabilities, either fixed or contingent, of Citizens Bank
and Trust Company or of Citizens Bank and Trust Company's
shareholders will be assumed by Harleysville.
32. No indebtedness exists between Harleysville, or any of its
subsidiaries, and Citizens Bank and Trust Company that was
issued, acquired, or will be settled at a discount.
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CONCLUSIONS
Based upon the description of the transaction above and subject to the
limiting conditions set out below, we are of the opinion that for U.S.
federal income tax purposes:
1. No gain or loss will be recognized by Harleysville upon the
receipt of HNC North assets in the liquidation.
2. No gain or loss will be recognized by HNC North on the
distribution of its assets to Harleysville or the cancellation
of its stock.
3. The merger of Citizens Bank and Trust Company with and into
Citizens National Bank will constitute a tax-free
reorganization for U.S. federal income tax purposes.
4. No gain or loss will be recognized by the former shareholders
of Citizens Bank and Trust Company upon the exchange of their
Citizens Bank and Trust Company stock for Harleysville stock.
5. The basis and holding periods of former Citizens Bank and
Trust Company shareholders in their Citizens Bank and Trust
Company stock will carry over to the Harleysville stock they
receive in the merger provided that the shares of Citizens
Bank and Trust Company stock were held by them as capital
assets on the date of the transaction.
6. Former Citizens Bank and Trust Company shareholders receiving
cash in lieu of fractional shares of Harleysville stock will
have gain or loss on such exchanges equal to the excess of the
cash received in lieu of such fractional shares over the
shareholder's basis in Citizens Bank and Trust Company stock
allocable to the fractional shares. That gain or loss will be
capital gain or loss, if the shares of Citizens Bank and Trust
Company stock qualified as capital assets in the hands of the
exchanging shareholder. The capital gain or loss will be long
term if the shareholders holding period for the stock is more
than one year and short term if not.
7. Former Citizens Bank and Trust Company shareholders exercising
dissenter's rights will have gain or loss on the receipt of
cash for their Citizens Bank and Trust Company shares equal to
the excess of the cash received over their basis in their
Citizens Bank and Trust Company stock. That gain or loss will
qualify as capital gain or loss, if the shares of Citizens
Bank and Trust Company stock qualified as capital assets in
the
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hands of the exchanging shareholder and, the capital gain or
loss will be long term if the shareholder's holding period for
the shareholder's Citizens Bank and Trust Company stock is
more than one year and short term if not.
8. No gain or loss will be recognized by Citizens National Bank
upon the receipt of Citizens Bank and Trust Company's assets
and liabilities in the merger. The basis and holding period of
Citizens Bank and Trust Company in its assets transferred to
Citizens National Bank will carryover to Citizens National
Bank and become Citizens National Bank's basis and holding
period in those assets.
9. Citizens National Bank will succeed to the tax attributes of
Citizens Bank and Trust Company including net operating loss
carryovers, credit carryovers and accounting methods.
10. Harleysville will not recognize gain or loss on the merger of
Citizens Bank and Trust Company into Citizens National Bank.
Harleysville's basis in its Citizens National Bank stock will
be increased by the basis of Citizens Bank and Trust Company
in its net assets immediately prior to the merger of Citizens
Bank and Trust Company with and into Citizens National Bank.
LIMITING CONDITIONS
We have relied upon the accuracy and completeness of the above
description of the transaction without independent verification. Our
conclusions as to the U.S. federal income tax consequences of the
transaction are dependent upon the accuracy of that description and
those representations and if the description or representations are
inaccurate in any material respect, the conclusions may not be correct.
Our conclusions as to the federal income tax consequences of the
transaction are based upon our interpretations of the Internal Revenue
Code of 1986, final, temporary and proposed regulations promulgated
under the Code, IRS pronouncements and judicial decisions as of the
date of this letter. Moreover, our opinions are based upon our
professional interpretations of those authorities. Other knowledgeable
persons including the U.S. Internal Revenue Service might interpret
those authorities differently and reach different conclusions.
Accordingly, we cannot give any assurance that the Internal Revenue
Service or the Courts will accept our conclusions as correct. However,
we are of the opinion that our conclusions more likely than not
represent the correct application of the U.S. federal income tax laws.
We express no opinion regarding tax consequences under the laws of any
state,
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foreign or local jurisdiction. Additionally, no opinion is expressed on
federal tax matters except those specifically discussed herein.
This letter has been prepared for the benefit of the parties to the
transaction. No obligation is undertaken with respect to any other
persons. We consent to reference to this letter in registration
statements filed with the Securities Exchange Commission in regards to
the transaction.
Very truly yours,
Philadelphia, Pennsylvania
February __, 2000
B-9
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ANNEX C
Statute Regarding Dissenters' Rights
C-1
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EXCERPTS FROM, SECTION 215a OF THE
NATIONAL BANK ACT RELATING TO DISSENTERS' RIGHTS
(b) If a merger shall be voted for at the called meetings by
the necessary majorities of the shareholders of each association or
State bank participating in the plan of merger, and thereafter the
merger shall be approved by the Comptroller, any shareholder of any
association or State bank to be merged into the receiving association
who has voted against such merger at the meeting of the association or
bank of which he is stockholder, or has given notice in writing at or
prior to such meeting to the presiding officer that he dissents from
the plan of merger, shall be entitled to receive the value of the
shares so held by him when such merger shall be approved by the
Comptroller upon written request made to the receiving association at
any time before thirty days after the date of consummation of the
merger, accompanied by the surrender of his stock certificates.
(c) The value of the shares of any dissenting shareholder
shall be ascertained, as of the effective date of the merger, by an
appraisal made by a committee of three persons, composed of (1) one
selected by the vote of the holders of the majority of the stock, the
owners of which are entitled to payment in cash; (2) one selected by
the directors of the receiving association; and (3) one selected by the
two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment,
that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the Comptroller, who shall
cause a reappraisal to be made which shall be final and binding as to
the value of the shares of the appellant.
(d) If, within ninety days from the date of consummation of
the merger, for any reason one or more of the appraisers is not
selected as herein provided, or the appraisers fail to determine the
value of such shares, the Comptroller shall upon written request of any
interested party cause an appraisal to be made which shall be final and
binding on all parties. The expenses of the Comptroller in making the
reappraisal or the appraisal, as the case may be, shall be paid by the
receiving association. The value of the shares ascertained shall be
promptly paid to the dissenting shareholders by the receiving
association. The shares of stock of the receiving association which
would have been delivered to such dissenting shareholders had they not
requested payment shall be sold by the receiving association at an
advertised public auction, and the receiving association shall have the
right to purchase any of such shares at such public auction, if it is
the highest bidder therefor, for the purpose of reselling such shares
within thirty days thereafter to such person or persons and at such
price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a price greater
than the amount paid to the dissenting shareholders, the excess in such
sale price shall be paid to such dissenting shareholders. The appraisal
of such shares of stock in
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any State bank shall be determined in the manner prescribed by the law
of the State in such cases, rather than as provided in this section, if
such provision is made in the State law; and no such merger shall be in
contravention of the law of the State under which such bank is
incorporated. The provisions of this subsection shall apply only to
shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
------------------
Section 215(b)(4) of the National Bank Act defines the term
"receiving association," as used in Section 215a, to mean the national
banking association into which one or more national banking
associations or one or more State banks, located within the same State,
merge.
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ANNEX D
Tucker Anthony Cleary Gull Fairness Opinion
D-1
<PAGE> 267
Board of Directors
Citizens Bank & Trust Company
372 Delaware Avenue
Palmerton, PA 18071
Ladies and Gentlemen:
You have requested our opinion, as investment bankers, as to
the fairness, from a financial point of view, of the terms of the
proposed merger (the "Merger") of Citizens Bank & Trust Company
("Citizens") with and into Harleysville National Corporation
Corporation ("Harleysville"). Pursuant to the Agreement and Plan of
Reorganization dated December 28, 1999 between Citizens and
Harleysville (the "Merger Agreement"), each share of Citizens Common
Stock outstanding at the Effective Time of Merger will be converted
into the right to receive (the "Merger Consideration") 166 shares of
Harleysville Common Stock (the "Exchange Ratio").
Hopper Soliday, a division of Tucker Anthony Incorporated
("Hopper Soliday"), as a customary part of its investment banking
business, is engaged in valuing businesses and their securities in
connection with mergers and acquisitions, stock purchase offers,
negotiated underwritings, secondary distributions of securities,
private placements and for estate, corporate reorganization and other
purposes.
Hopper Soliday reviewed, among other things: i) Citizens'
audited financial statements and related financial information for
years ended December 31, 1994 through December 31, 1998 and Citizens'
quarterly financial statements on for the periods ending March 31,
1999, June 30, 1999 and September 30, 1999; ii) Harleyville's Annual
Reports on Form 10-K and related financial information for years ended
December 31, 1994 through December 31, 1998 and Quarterly Reports on
Form 10-Q for the periods ending March 31, 1999, June 30, 1999 and
September 30, 1999; iii) certain information concerning the respective
businesses, operations, regulatory condition and prospects of
Harleysville and Citizens, including financial forecasts, relating to
the business, earnings, assets and prospects of Harleysville and
Citizens, furnished to Hopper Soliday by Harleysville and Citizens,
which Hopper Soliday discussed with members of senior management of
Harleysville and Citizens; iv) historical market prices and trading
activity for the Harleysville Common Stock and Citizens Common Stock
and
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similar data for certain publicly traded companies which Hopper Soliday
deemed to be relevant; v) the results of operations of Harleysville and
Citizens and similar data for certain companies which Hopper Soliday
deemed to be relevant; vi) the financial terms of the Merger
contemplated by the Merger Agreement and the financial terms of certain
other mergers and acquisitions which Hopper Soliday deemed to be
relevant; vii) the pro forma impact of the Merger on the earnings and
book value per share, consolidated capitalization and certain balance
sheet and profitability ratios of Harleysville; viii) the Merger
Agreement; and ix) such other matters as Hopper Soliday deemed
necessary. Hopper Soliday also met with certain members of senior
management and other representatives of Harleysville and Citizens to
discuss the foregoing as well as other matters Hopper Soliday deemed
relevant.
In conducting our review and in arriving at our opinion, we
relied upon and assumed the accuracy and completeness of the financial
and other information provided to us or that which was publicly
available and did not attempt independently to verify such information.
We relied upon the managements of Citizens and Harleysville as to the
reasonableness and achievability of the financial and operating
forecasts and projections (and the assumptions and bases thereof)
provided to us and assumed that such forecasts and projections
reflected the best currently available estimates and judgements of such
managements and that such forecasts and projections would be realized
in the amounts and in the time periods estimated by such managements.
We also assumed, without independent verification, that the aggregate
allowances for loan losses for Citizens and Harleysville were adequate.
We did not make or obtain any evaluations or appraisals of the assets
of Citizens and Harleysville, nor did we examine any individual loan
credit files. Our opinion is limited to the fairness, from a financial
point of view, to the shareholders of Citizens of the Merger
Consideration.
In rendering our opinion we have assumed that in the course of
obtaining the necessary regulatory approvals for the Merger, no
conditions will be imposed that will have a material adverse effect on
the contemplated benefits of the Merger to either Citizens or, on a pro
forma basis, the resulting company following the Merger. Our opinion
necessarily is based upon conditions as they exist on, and can be
evaluated as of, the date of this letter.
On the basis of the aforementioned analysis, and subject to
the qualifications described above, as of the date hereof, we are of
the opinion that the Merger Consideration provided for by the Merger
Agreement is fair to the shareholders of Citizens from a financial
point of view.
Sincerely,
Hopper Soliday, a Division of Tucker Anthony Incorporated
D-3
<PAGE> 269
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law
of 1988, as amended (15 Pa. C.S. Sections 1101-4162) provides that a
business corporation has the power under certain circumstances to indemnify its
directors, officers, employees and agents against certain expenses incurred by
them in connection with any threatened, pending or completed action, suit or
proceeding.
Article 10 of the Amended Bylaws of Harleysville provides for the
indemnification of its directors, officers, employees and agents in accordance
with, and to the maximum extent permitted by, the provisions of Subchapter D of
Chapter 17 of the Pennsylvania Business Corporation Law of 1988, as amended.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
2.1 Agreement and Plan of Reorganization (the "Agreement") dated
as of December 28, 1998, among Harleysville National
Corporation, Citizens Bank and Trust Company. (Included in
Annex A to the proxy statement prospectus).
3(i) Harleysville National Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit 4A to
Harleysville National Corporation's Registration Statement No.
333-17813 on Form S-8, filed on December 13, 1996.)
3(ii) Harleysville National Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 4B to Harleysville
National Corporation's Registration Statement No. 333-17813
on Form S-8, filed on December 13, 1996.)
4.1 Harleysville National Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit 4A to
Harleysville National Corporation's Registration Statement No.
333-17813 on Form S-8, filed on December 13, 1996.)
4.2 Harleysville National Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 4B to Harleysville
National Corporation's Registration Statement No. 333-17813 on
Form S-8, filed on December 13, 1996.)
II-1
<PAGE> 270
5 Opinion of Shumaker Williams, P.C. re: Legality of
Harleysville National Corporation Common Stock.
8 Opinion of Grant Thornton, LLP re: Tax Matters. (Included at
Annex B in the proxy statement/prospectus)
10.1 Harleysville National Corporation 1993 Stock Incentive Plan.
(Incorporated by Reference to Exhibit 4.3 of Registration
Statement No. 33- 57790 on Form S-8, filed with the Commission
on October 1, 1993.)
10.2 Harleysville National Corporation Stock Bonus Plan.
(Incorporated by Reference to Exhibit 99A of Registration
Statement No. 33-17813 on Form S-8, filed with the Commission
on December 13, 1996.)
10.3 Supplemental Executive Retirement Plan. (Incorporated by
Reference to Exhibit 10.3 to the Annual Report on Form 10-K of
Harleysville National Corporation for the year ended December
31, 1997, filed on March 27, 1998.)
10.4 Executive Employment Agreement, dated as of July 28, 1998,
between The Citizens National Bank of Lansford and Francis P.
Burbidge.
10.5 Consulting Agreement, dated as of July 28, 1998, between The
Citizens National Bank of Lansford and Francis P. Burbidge.
10.6 Release Agreement, dated as of July 28, 1998, by and among The
Citizens National Bank of Lansford, The Citizens National Bank
of Slatington, Harleysville National Corporation, Northern
Lehigh Bancorp, Inc. and Francis P. Burbidge.
10.7 Walter E. Daller, Jr., Chairman, President and Chief Executive
Officer's employment agreement. (Incorporated by Reference to
Registrant's Registration Statement on for 8-K, filed with the
Commission March 25, 1999.)
10.8 Demetra M. Takes, Vice President Harleysville and President
and Chief Operating Officer Harleysville National Bank,
employment agreement. (Incorporated by Reference to
Registrant's Registration Statement on Form 8-K, filed with
the Commission on March 25, 1999.)
10.9 Vernon L. Hunsberger, Senior Vice President/CFO and Cashier's
employment agreement. (Incorporated by Reference to
Registrant's Registration Statement on Form 8-K, filed with
the Commission on March 25, 1999.)
II-2
<PAGE> 271
10.10 Harleysville National Corporation 1998 Stock Incentive Plan.
(Incorporated by Reference to Registrant's Registration
Statement No. 333- 79971 on Form S-8, filed with the
Commission on June 4, 1999.)
10.11 Harleysville National Corporation 1998 Independent Directors
Stock Option Plan. (Incorporated by Reference to Registrant's
Registration Statement No. 333-79973 on Form S-8, filed with
the Commission on June 4, 1999.)
10.12 Agreement. (Incorporated by Reference to Exhibit 2.1.)
11 Statement re: Computation of Earnings Per Share. (Included at
Page __ of the proxy statement/prospectus contained herein.)
12 Computation of Ratios. (Incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999.)
21 Subsidiaries of Registrant
23.1 Consent of Shumaker Williams, P.C.
23.2 Consent of Grant Thornton, LLP.
23.3 Consent of Beard & Company, Inc.
23.4 Consent of Tucker Anthony Cleary Gull.
24 Power of Attorney.
99.1 Form of Citizens Bank and Trust Company Proxy.
99.2 Letter to Shareholders of Citizens Bank and Trust Company.
99.3 Notice of Meeting.
99.4 Statute Relating to Dissenters' Rights. (Included as Annex C
to the Proxy Statement contained herein.)
(b) Financial Statement Schedules:
None required.
(c) Opinion of Financial Advisor:
The Opinion of Financial Advisor is included in the proxy
statement/prospectus as Annex D.
II-3
<PAGE> 272
Item 22. Undertakings.
(a)
1. The undersigned Registrant hereby undertakes as follows:
(A) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act; (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;
Provided, however, that paragraphs (1)(a)(i) and (1)(a)(ii)
above do not apply if the registration statement is on Form S-3 or Form S-8 and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registration pursuant
to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(B) That, for the purpose of determining any liability under
the Securities Act, 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 that, for
purposes of determining any liability under the Securities Act, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) 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 the time shall be deemed to be the initial bona
fide offering thereof.
3. The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to the
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other
II-4
<PAGE> 273
items of the applicable form.
The registrant undertakes that every prospectus (i) that is
filed pursuant to the preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-operative 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.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the bylaws of the registrant, or otherwise, the
registrant has been advised that in the opinion of the 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.
(b) 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 (1) 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.
(c) The undersigned registrant hereby undertakes to supplement by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 274
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of
Harleysville, Commonwealth of Pennsylvania on January 31, 2000.
HARLEYSVILLE NATIONAL CORPORATION
By: /s/ Walter E. Daller, Jr.
Walter E. Daller, Jr.
President, CEO and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Walter E. Daller, Jr. and Demetra M.
Takes, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Commission, granting unto the
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that the attorneys-in-fact and agents or
either of them, or their substitutes, may lawfully do or cause to be done by
virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Capacity Date
-------- ----
<S> <C> <C>
/s/ Walter E. Daller, Jr. President, CEO and Chairman January 31, 2000
- ------------------------- of the Board and Director
Walter E. Daller, Jr. (Principal Executive Officer)
/s/ Vernon L. Hunsberger Treasurer January 31, 2000
- ------------------------ (Principal Accounting or
Vernon L. Hunsberger Financial Officer)
</TABLE>
<PAGE> 275
<TABLE>
<S> <C> <C>
/s/ LeeAnn Bergey Director January 31, 2000
- --------------------------
LeeAnn Bergey
/s/ Martin E. Fossler Director January 31, 2000
- ----------------------------
Martin E. Fossler
/s/ Harold A. Herr Director January 31, 2000
- -----------------------------
Harold A. Herr
/s/ Thomas S. McCready Director January 31, 2000
- ----------------------
Thomas S. McCready
/s/ Henry M. Pollak Director January 31, 2000
- ---------------------------
Henry M. Pollak
/s/ Palmer E. Retzlaff Director January 31, 2000
- ---------------------------
Palmer E. Retzlaff
/s/ Walter F. Vilmeier Director January 31, 2000
- ---------------------------
Walter F. Vilsmeier
/s/ William M. Yocum Director January 31, 2000
- ------------------------
William M. Yocum
</TABLE>
<PAGE> 276
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number
In Sequential
Number Title Number System
<S> <C> <C>
2.1 Agreement and Plan of Reorganization (the "Agreement")
dated as of December 28, 1998, among Harleysville
National Corporation, Citizens Bank and Trust Company.
(Included in Annex A to the proxy statement
prospectus).
3(i) Harleysville National Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit 4A to
Harleysville National Corporation's Registration Statement No.
333-17813 on Form S-8, filed on December 13, 1996.)
3(ii) Harleysville National Corporation Amended Bylaws.
(Incorporated by reference to Exhibit 4B to Harleysville
National Corporation 's Registration Statement
No.333-17813 on Form S-8, filed on December 13, 1996.)
4.1 Harleysville National Corporation Amended Articles of
Incorporation. (Incorporated by reference to Exhibit 4A to
Harleysville National Corporation's Registration Statement No.
333-17813 on Form S-8, filed on December 13, 1996.)
4.2 Harleysville National Corporation Amended Bylaws. (Incorporated by
reference to Exhibit 4B to Harleysville National Corporation's
Registration Statement No. 333-17813 on Form S-8, filed on December
13, 1996.)
5 Opinion of Shumaker Williams, P.C. re: Legality of Harleysville
National Corporation Common Stock.
8 Opinion of Grant Thornton, LLP re: Tax Matters. (Included at Annex
B in the proxy statement/prospectus)
10.1 Harleysville National Corporation 1993 Stock Incentive Plan.
(Incorporated by Reference to Exhibit 4.3 of Registration Statement
No. 33-57790 on Form S-8, filed with the Commission on October 1,
1993.)
</TABLE>
<PAGE> 277
<TABLE>
<CAPTION>
<S> <C>
10.2 Harleysville National Corporation Stock Bonus Plan.
(Incorporated by Reference to Exhibit 99A of Registration Statement
No. 33-17813 on Form S-8, filed with the Commission on December 13,
1996.)
10.3 Supplemental Executive Retirement Plan. (Incorporated by Reference
to Exhibit 10.3 to the Annual Report on Form 10-K of Harleysville
National Corporation for the year ended December 31, 1997, filed on
March 27, 1998.)
10.4 Executive Employment Agreement, dated as of July 28,
1998, between The Citizens National Bank of Lansford and
Francis P. Burbidge. (Incorporated by Reference to
Exhibit 10.4 to the Registration Statement on Form S-4,
filed on November 12, 1998.)
10.5 Consulting Agreement, dated as of July 28, 1998, between
The Citizens National Bank of Lansford and Francis P.
Burbidge. (Incorporated by Reference to Exhibit 10.5 to
the Registration Statement on Form S-4, filed on
November 12, 1998.)
10.6 Release Agreement, dated as of July 28, 1998, by and
among The Citizens National Bank of Lansford, The
Citizens National Bank of Slatington, Harleysville
National Corporation, Northern Lehigh Bancorp, Inc. and
Francis P. Burbidge. (Incorporated by Reference to
Exhibit 10.6 to the Registration Statement on Form S-4,
filed on November 12, 1998.)
10.7 Walter E. Daller, Jr., Chairman, President and Chief
Executive Officer's employment agreement. (Incorporated
by Reference to Registrant's Registration Statement on
for 8-K, filed with the Commission March 25, 1999.)
10.8 Demetra M. Takes, Vice President Harleysville and
President and Chief Operating Officer Harleysville
National Bank, employment agreement. (Incorporated by
Reference to Registrant's Registration Statement on Form
8-K, filed with the Commission on March 25, 1999.)
</TABLE>
<PAGE> 278
<TABLE>
<CAPTION>
<S> <C>
10.9 Vernon L. Hunsberger, Senior Vice President/CFO and
Cashier's employment agreement. (Incorporated by
Reference to Registrant's Registration Statement on Form
8-K, filed with the Commission on March 25, 1999.)
10.10 Harleysville National Corporation 1998 Stock Incentive Plan.
(Incorporated by Reference to Registrant's Registration Statement
No. 333-79971 on Form S-8, filed with the Commission on June 4,
1999.)
10.11 Harleysville National Corporation 1998 Independent Directors Stock
Option Plan. (Incorporated by Reference to Registrant's
Registration Statement No. 333-79973 on Form S-8, filed with the
Commission on June 4, 1999.)
10.12 Agreement. (Incorporated by Reference to Exhibit 2.1.)
11 Statement re: Computation of Earnings Per Share. (Included at page
9 of the proxy statement/prospectus contained herein.)
12 Computation of Ratios. (Incorporated by Reference to Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.)
21 Subsidiaries of Registrant. (Incorporated by Reference to
Registrant's Annual Report on Form 10-K for the year ended December
31, 1999.)
23.1 Consent of Shumaker Williams, P.C. (Incorporated by Reference to
Exhibit 5.)
23.2 Consent of Grant Thornton, LLP.
23.3 Consent of Beard & Company, Inc.
23.4 Consent of Tucker Anthony Cleary Gull.
24 Power of Attorney. (Included on Signature Page.)
99.1 Form of Citizens Bank and Trust Company Proxy.
99.2 Letter to Shareholders of Citizens Bank and Trust Company.
99.3 Notice of Meeting.
</TABLE>
<PAGE> 279
<TABLE>
<CAPTION>
<S> <C>
99.4 Statute Relating to Dissenters' Rights. (Included as Annex D to the
Proxy Statement contained herein.)
</TABLE>
<PAGE> 1
EXHIBIT 5
February 14, 2000
Mr. Walter E. Daller Mr. James A. Wimmer
President President and Chairman
Harleysville National Corporation Citizens Bank and Trust Company
483 Main Street 372 Delaware Avenue
PO Box 195 PO Box 196
Harleysville, PA 19438 Palmerton, PA 18071
RE: Harleysville National Association/Citizens Bank and
Trust Company Our File No: 99-853
Dear Messrs Daller and Wimmer:
We are special counsel to Harleysville National Corporation
(the"Company") in the Company's acquisition of Citizens Bank and Trust Company
(the "Bank"). In connection with the transaction, the Company proposes to offer
up to 919,972 shares of common stock, par value $1.00 per share (the "Common
Stock"), to shareholders of the Bank. The Common Stock is covered by a
Registration Statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended.
In connection with the registration of the Common Stock, we have reviewed:
1. The Articles of Incorporation of the Company;
2. The Bylaws of the Company;
3. Resolutions adopted by the Board of Directors of the Company
relating to the Registration Statement, certified by the
Secretary of the Company;
4. The Agreement and Plan of Reorganization, dated as of December
28, 1999, by and among the Company, Citizens National Bank and
Citizens Bank and Trust Company (the "Agreement");
5. The Registration Statement; and
<PAGE> 2
6. Copies of the certificates representing shares of the Common Stock.
Based on our review of the foregoing, it is our opinion that:
a. The Company is a corporation, duly organized and in
good standing under the laws of the Commonwealth of
Pennsylvania; and
b. The Common Stock covered by the Registration
Statement has been duly authorized and, when issued
pursuant to the terms described in the Registration
Statement and the Agreement, will be legally issued
by the Company and fully paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to us in the related Proxy
Statement/Prospectus. In giving this consent, we do not admit that we are
experts 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 thereunder.
Very truly yours,
/s/ Shumaker Williams, P.C.
SHUMAKER WILLIAMS, P.C.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 20, 1999 accompanying the
consolidated financial statements of Harleysville National Corporation and
Subsidiaries included in the Annual Report on Form 10-K for the year ended
December 31, 1998, which is incorporated by reference in this Registration
Statement. We consent to the incorporation by reference in the Registration
Statement of the aforementioned report, and to the use of our name as it appears
under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
January 27, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-4 of
Harleysville National Corporation of our report, dated January 15, 1999,
relating to the financial statements of Citizens Bank and Trust Company for the
years ended December 31, 1998 and 1997 and of our report dated, January 19,
1998, except for Note 15 as to which the date is February 6, 1998, relating to
the financial statements of Citizens Bank and Trust Company for the years ended
December 31, 1997 and 1996, included therein. We also consent to the reference
to our Firm under the caption "Experts" in the related Proxy
Statement/Prospectus.
/s/ BEARD & COMPANY, INC.
Allentown, Pennsylvania
January 28, 2000
<PAGE> 1
EXHIBIT 23.4
January 31, 2000
Board of Directors
Citizens Bank & Trust Company
372 Delaware Avenue
Palmerton, PA 18071
Ladies and Gentlemen:
We hereby consent to the use in the Registration Statement on Form S-4
of our opinion relating to the fairness to the shareholders of Citizens Bank &
Trust Company, from a financial point of view, of the terms of the merger
between Harleysville National Corporation and Citizens Bank & Trust Company and
to the references to Tucker Anthony Incorporated in the Joint Proxy
Statement/Prospectus constituting part of this registration statement. In giving
such 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
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "experts" as used
in the Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Tucker Anthony Incorporated
By:/s/ Lawrence Kintner
----------------------------
Lawrence Kintner
Executive Vice President
Lancaster, PA
Date: January 31, 2000
<PAGE> 1
EXHIBIT 99.1
CITIZENS BANK AND TRUST COMPANY
PROXY
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL
7, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints ____________________,
_________________ and ____________________ and each or any of them, proxies of
the undersigned, with full power of substitution, to vote all of the shares of
Citizens Bank and Trust Company (the "Bank") that the undersigned may be
entitled to vote at the Special Meeting of Shareholders of the Bank to be held
at the main office of the bank at 372 Delaware Avenue, Palmerton, Pennsylvania
18071-1820 on Friday, April 7, 2000, commencing at 10:00 a.m., prevailing time,
and at any adjournment or postponement thereof, as follows:
1. Approve and adopt the Agreement and Plan of Reorganization, dated as of
December 28, 1999 among Citizens Bank and Trust Company, Harleysville
National Corporation and Citizens National Bank.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
2. To consider and act upon such other business that may properly come
before the Special Meeting and any adjournment or postponement of the
meeting.
This proxy, when properly signed, will be voted in the manner directed
herein by the undersigned shareholder and as determined by a majority of the
Bank's Board of Directors as to any other business that may properly come before
the Special Meeting. If no direction is made, this proxy will be voted for the
proposal and as determined by a majority of the Bank's Board of Directors as to
any other business that may properly come before the Special Meeting.
Dated: -----------------, 2000
--------------------------------
Signature of Shareholder
--------------------------------
Signature of Shareholder
Number of Shares Held of Record
on February 11, 2000
This proxy must be dated, signed by the shareholder and returned
promptly to the Bank in the enclosed envelope. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If more than one trustee,
all should sign. If a corporation, please sign in full corporate name by
president or authorized officer. If a partnership, please sign in partnership
name by authorized person.
<PAGE> 1
EXHIBIT 99.2
[CITIZENS BANK AND TRUST COMPANY LETTERHEAD]
February 14, 2000
Dear Shareholder:
You are invited to attend a special meeting of the shareholders of
Citizens Bank and Trust Company. This special meeting will be held on Friday,
April 7, 2000, at 10:00 a..m., at the main office of the Bank, 372 Delaware
Avenue, Palmerton, Pennsylvania 18071. The main purpose of the meeting is to
vote on the merger of your Bank into Citizens National Bank, a subsidiary of
Harleysville National Corporation, a bank holding company located in
Harleysville, Montgomery County, Pennsylvania. If the merger is completed, you
will receive 166 shares of Harleysville common stock in exchange for each of
your shares of Citizens capital stock. The exchange of Citizens stock for
Harleysville stock will be tax-free to Citizens shareholders for federal income
purposes. Completion of the merger is subject to certain conditions. The two
principal conditions that the merger must meet are that the shareholders of
Citizens Bank and Trust Company approve the merger and that certain banking
regulatory agencies approve the merger.
The attached notice of special meeting and proxy statement/prospectus
describe the formal business to be transacted at the meeting. The directors and
officers of Citizens will be present at the meeting to respond to any questions
from our shareholders.
We urge you to carefully read the enclosed proxy statement/prospectus
that describes the merger in detail and the requirements needed to complete the
merger. The information contained in the "SUMMARY" portion of the proxy
statement/prospectus gives a basic description of the merger. If you have any
questions after a review of the proxy statement/prospectus consult with your own
advisors or contact James A. Wimmer, President, telephone (610) 826-2457.
Tucker Anthony Cleary Gull, Citizens' investment banker, provided the
Board of Directors with an opinion that the consideration to be received by the
shareholders in the merger transaction is fair from a financial point of view.
Your Board of Directors believes that the merger is in the best
interests of the Bank and its shareholders and recommends that you vote FOR the
merger.
Sincerely yours,
James A. Wimmer
Chairman and President
<PAGE> 1
EXHIBIT 99.3
CITIZENS BANK AND TRUST COMPANY
372 DELAWARE AVENUE
PALMERTON, PENNSYLVANIA 18071
(610) 826-2457
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 7, 2000
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Citizens Bank and Trust Company will be held at 10:00 a..m., Eastern Standard
Time, on Friday, April 7, 2000, at the main office of the Bank, 372 Delaware
Avenue, Palmerton, Pennsylvania 18071. We enclose a form of proxy and a proxy
statement/prospectus for the meeting.
We are holding the meeting for the purpose of considering and acting
upon the following matters:
1. Approval and adoption of the Agreement and Plan of
Reorganization, dated as of December 28, 1999, by and among
Harleysville National Corporation, Citizens National Bank and
Citizens Bank and Trust Company. The agreement provides that
Citizens Bank and Trust Company will merge into The Citizens
National Bank. Upon completion of the merger, each Citizens
Bank and Trust Company shareholder will have the right to
receive 166 shares of Harleysville common stock, in exchange
for each share of capital stock of Citizens held by the
shareholder; and
2. Other matters as may properly come before the meeting and any
adjournment or postponement of the meeting.
We may take action on the proposal at the meeting or on any dates to
which we may adjourn the meeting. Only those shareholders whose ownership
appears on the shareholder records of Citizens Bank and Trust Company at the
close of business on February 11, 2000, will be entitled to receive notice of
the meeting and to vote at the meeting.
Your Board of Directors believes that this merger is in the best
interests of the Bank and its shareholders. Our reasons for this belief are
provided in the enclosed proxy statement/prospectus. We urge you to vote for the
merger. Your participation at the meeting, in person or by sending in a
completed proxy, is important. We need the affirmative vote of at least
two-thirds (66.7%) of the outstanding shares of common stock to approve the
merger.
If you do not send in a completed proxy or you do not attend the
meeting and vote, it has the same effect as voting against the merger.
Therefore, we urge you to complete, sign, date and
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return the enclosed form of proxy in the enclosed postage-paid envelope as soon
as possible so that your shares will be voted at the meeting. If you do attend
the meeting and wish to vote in person, you can do so by giving written notice
to the Secretary of the meeting. Your ballot at the meeting will replace your
proxy.
On behalf of the Board of Directors, I thank you for your support and
recommend that you vote "FOR" approval of the agreement and merger.
By Order of the Board of Directors,
James A. Wimmer
Chairman and President
Palmerton, Pennsylvania
February 14, 2000
