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As filed with the Securities and Exchange Commission on October 1, 1999
Registration No. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
DROVERS BANCSHARES CORPORATION
(Name of registrant in its charter)
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PENNSYLVANIA 6022 23-2209390
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
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30 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401, (717) 843-1586
(Address and telephone number of principal executive offices)
A. RICHARD PUGH, PRESIDENT AND CHIEF EXECUTIVE OFFICER
DROVERS BANCSHARES CORPORATION
30 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
(717) 843-1586
(Name, address and telephone number of agent for service)
COPIES TO:
Charles J. Ferry, Esquire
Rhoads & Sinon LLP
One South Market Square, 12th Floor, P.O. Box 1146, Harrisburg, PA 17108-1146
(717) 233-5731
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to a dividend or interest reinvestment plan, please check the following: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE
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Common Stock, no
par value per share $5,750,000 $1,599
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(1) The actual offering price described herein has not been determined. We have
calculated the registration fee pursuant to Rule 457(o) based on the maximum
aggregate offering price.
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 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(A), may determine.
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PROSPECTUS
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____________ SHARES OF COMMON STOCK
[LOGO] DROVERS BANCSHARES CORPORATION
Drovers Bancshares Corporation is offering up to ______ shares of its
common stock at the purchase price of $____ per share. There is no aggregate
minimum number of shares or dollar amount that must be purchased as a condition
to the offering.
The common stock of Drovers Bancshares Corporation is listed on the Nasdaq
National Market under the symbol "DROV". On _____ __, ____, the last reported
sale price for our common stock was $______ per share.
You should read the "Risk Factors" section beginning on page 9 before
investing.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the common stock or determined if this
Prospectus is true or complete. Any representation to the contrary is a
criminal offense.
These securities are not deposits or accounts of a bank and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
We have engaged ________________________________________________________,
a registered broker-dealer, as our financial advisor and exclusive sales agent
to assist, on a "best efforts" basis, in the solicitation of subscriptions to
purchase shares in the offering. We intend to sell the shares during an initial
offering period expiring _______ __, ____. If all of the shares offered hereby
are not sold during such period, we may continue to sell shares thereafter
pursuant to this Prospectus. ______________ may establish a selling group that
may include itself and enter into selected dealer agreements with each member of
the selling group to assist in the sale of shares in the offering after the
initial offering period. Neither ______________ nor any member of the selling
group will have any obligation to purchase any shares in the offering.
Estimated Estimated Net
Price to Public Expenses (1) Proceeds to Drovers (1)
--------------- ------------ -----------------------
Per Share $________ $________ $________
Total Maximum (2) $________ $________ $________
__________________
(1) Includes estimated expenses of the offering, including estimated
commissions, assuming that all shares are sold in the initial offering
period and that 50% of the shares are sold to current shareholders. Actual
expenses and net proceeds may vary.
(2) Although we are offering shares with an aggregate offering price of
approximately $5,000,000, we have filed a registration statement covering
shares with an aggregate value of $5,750,000. If we find that demand for
the shares at the offering price is sufficient, we may sell additional
shares with an aggregate offering price of up to $5,750,000. If we sell all
of the additional shares in the initial offering period, estimated net
proceeds to Drovers would increase by approximately $731,250.
We will conduct an initial closing after the initial offering period ending
______ __, ____. If we offer shares after the initial offering period, we plan
to keep the offering open for an additional 30 days, although we may terminate
it early or extend it at our discretion (but for not more than an additional 30
days). We will conduct a second closing after the end of this additional
offering period. Payments for stock orders will be held in a non-interest
bearing escrow account pending a closing. You should read the "Plan of
Distribution and How to Order" section beginning on page 54 before investing.
______________,
_________________________________________
The date of this Prospectus is ________ __, ____.
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DROVERS BANCSHARES CORPORATION
Headquartered in York, Pennsylvania
[MAP OF BRANCH LOCATIONS]
Branch Locations: Supermarket Future Branch
Cape Horn Square Branch Locations: Locations:
Emigsville (Located in "Giant Food" Stores) Dillsburg
Hellam East York Marketplace Newberrytown
Main Office South York Plaza
Memory Lane West Manchester Loan Production
Mt. Rose Avenue Office Locations:
Queensgate Convenience Store Mechanicsburg, PA
Richland Avenue Branch Locations: Frederick, MD
Shrewsbury (Located in "Tom's" Stores)
Westgate Dover Operations Center:
York Haven Penvale Research and
Administrative
Services Center -
York, PA
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TABLE OF CONTENTS
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Page
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Forward-Looking Statements Relating to Future Performance or Expectations....... 2
Prospectus Summary.............................................................. 3
Summary Selected Consolidated Financial Data of Drovers Bancshares Corporation.. 8
Risk Factors.................................................................... 9
Use of Proceeds................................................................. 14
Capitalization.................................................................. 15
Market for Common Stock and Dividends........................................... 16
Business........................................................................ 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................. 24
Management...................................................................... 48
Stock Ownership of Management and Principal Shareholders........................ 52
Determination of Offering Price................................................. 54
Plan of Distribution and How to Order........................................... 54
Description of Our Capital Stock................................................ 59
Shares Eligible for Future Sale................................................. 63
Legal Matters................................................................... 63
Experts......................................................................... 64
Incorporation By Reference...................................................... 64
Where You Can Find More Information............................................. 65
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ABOUT THIS PROSPECTUS
You should only rely on the information contained or incorporated by
reference in this Prospectus. Drovers has not authorized anyone to provide you
with information different from that contained in this Prospectus. We are
offering to sell, and soliciting offers to buy, shares of our common stock only
in jurisdictions where offers, sales and solicitations are permitted. The
information contained in this Prospectus is accurate only as of the date of this
Prospectus, regardless of the time of delivery of this Prospectus or of any sale
of common stock.
To understand the offering fully and for a more complete description
of the offering you should read this entire document carefully, including
particularly the "Risk Factors" section, as well as the documents identified in
the sections called "Incorporation by Reference" and "Where You Can Find More
Information."
1
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FORWARD-LOOKING STATEMENTS RELATING TO
FUTURE PERFORMANCE OR EXPECTATIONS
Drovers has used and incorporated by reference "forward-looking
statements" in this Prospectus. Words such as "believes," "expects," "may,"
"will," "should," "projected," "contemplates" or "anticipates" may constitute
forward-looking statements. These statements are within the meaning of the
Private Securities Litigation Reform Act of 1995 and are subject to risks and
uncertainties that could cause our actual results to differ materially. Drovers
has used these statements to describe our expectations and estimates in various
areas, including:
. our overall business conditions particularly in the markets in which
we operate,
. fiscal and monetary policy,
. the market for loan originations,
. year 2000 compliance issues,
. competitive products and pricing,
. credit risk management and
. changes in regulations affecting financial institutions.
Actual results could vary materially from the future results covered
in our forward-looking statements. The statements in the "Risk Factors" section
are cautionary statements identifying important factors, including certain risks
and uncertainties, that could cause our results to vary materially from the
future results covered in such forward-looking statements. Other factors, such
as the general state of the United States or our local economy, could also cause
actual results to vary materially from the future results covered in such
forward-looking statements. Drovers disclaims any obligation to announce
publicly or to inform you about future events or developments that affect the
forward-looking statements in this Prospectus.
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PROSPECTUS SUMMARY
The following is a summary of Drovers' business operations and the
major terms of the offering of common stock. You should carefully read the more
detailed discussion and financial information appearing elsewhere or
incorporated by reference in this Prospectus before you decide to invest.
References to "Drovers," the "Corporation," "we," "our" and "us" are to Drovers
Bancshares Corporation.
Drovers Bancshares Corporation
General.
Drovers is a Pennsylvania one-bank holding company headquartered in York,
Pennsylvania.
The Drovers & Mechanics Bank (referred to as the "Bank") is a wholly-
owned subsidiary of Drovers. The Bank is chartered pursuant to the laws of the
Commonwealth of Pennsylvania and is subject to the supervision of the Banking
Department of the Commonwealth and the Federal Deposit Insurance Corporation.
The Bank was organized in 1883 as a national bank and became a state-chartered
non-member of the Federal Reserve System on February 14, 1979.
The Bank offers a wide variety of banking, investment management and
trust services to individuals and commercial customers in its service area.
Personal banking services include checking accounts, savings and time accounts,
certificates of deposit, personal and mortgage loans, home improvement loans,
safe deposit services, estate planning and administration, and personal trust
and investment management services. Commercial banking services are provided to
businesses, nonprofit organizations and local municipalities. These services
include checking accounts, savings and time accounts, cash management services,
financing activities and corporate trust services in the areas of pension,
profit sharing and employee benefit plans.
Drovers had $643.5 million in assets and $483.6 million in deposits at
June 30, 1999. Our deposits are insured by the FDIC up to FDIC limits. On June
30, 1999, the Bank employed 218 full-time equivalent employees.
The Bank has 16 branches, including the main office in downtown York,
Pennsylvania, nine branches located in the surrounding suburbs of the City of
York and six branches located in Shrewsbury, Emigsville, Hellam, York Haven,
Dover and Red Lion, Pennsylvania. The Hellam location, which is a full-service
bank office, opened in January 1999.
The Bank plans to open two new branch offices in the near future.
Construction of a new branch located near Dillsburg, Pennsylvania began in July
1999. The office is scheduled to open in November 1999. A contract has been
signed to purchase land at the Newberrytown exit of I-83 in Newberry Township
for a new branch office. Construction of this branch should begin in
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October 1999 and be completed in early 2000. The Bank opened its first loan
production office in April 1999 at the Rossmoyne Business Center in Cumberland
County, near Harrisburg, Pennsylvania. The Bank opened its second loan
production office in August 1999 in Frederick, Maryland. The Bank also has 28
ATMs, 12 of which are remote service facilities.
Our principal executive offices are located at 30 South George Street,
York, PA 17401. Our telephone number at such location is (717) 843-1586.
Strategic Highlights.
Our vision is to be "The First Choice for Financial Solutions" within
our market area. To achieve our vision, we plan to further capitalize on the
opportunities created by recent bank consolidations and the overall economic
strength of our markets. Our goal is to enhance our regional presence and
deliver shareholder value by:
. increasing penetration of and expanding our geographic
market;
. expanding lending activities;
. diversifying sources of income;
. delivering high quality products and services through our
associates; and
. growing our business in a safe and sound manner.
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-4-
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The Offering
Securities Being Offered By Us..... Up to _____ shares of common stock. (This
does not include the additional ______
shares that we have registered and may
issue in connection with this offering.
See the footnote on the cover page of
this Prospectus.)
Shares of Common Stock Outstanding
at September 24, 1999.............. 4,698,037 shares. (This does not include
shares issuable upon exercise of
outstanding options as of September 24,
1999.)
Offering Price..................... $______ per share.
Nasdaq National Market Symbol...... DROV
Common Stock to be Outstanding
After the Offering................. ________ (maximum) shares. (This does
not include the additional _____ shares
that we have registered and may issue in
connection with this offering or any
shares issuable upon exercise of
currently outstanding options or
pursuant to our dividend reinvestment
and stock purchase plan.)
Use of Proceeds.................... We will contribute most of the net
proceeds we receive, after payment of the
expenses of the offering, to the Bank as
equity capital to be used for general
corporate purposes of the Bank,
including:
. financing growth, which may include
expansion of the Bank's lending
activities, construction of new
branches or acquisitions of other
financial services companies,
including banks and thrifts; and
. investment in securities.
Proceeds that we retain at the holding
company level will be used to pay the
expenses of this offering, for
investments and general corporate
purposes.
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Limitations on your Purchases...... Minimum purchase is 100 shares and
maximum purchase is _______ shares,
representing 5% of the _______ shares we
are offering, unless we change these
amounts. Our articles of incorporation
prohibit purchases of our common stock by
10% or more beneficial owners
(individuals or group) without either an
85% affirmative shareholder vote or
advance approval by a majority of our
directors in office who were elected
prior to the time the 10% beneficial
ownership was acquired. We may reject any
subscription in our discretion for any
reason.
Offering........................... The initial offering period will be from
the date of this Prospectus until _______
__, ____, unless earlier terminated at
our discretion. We will have a closing as
soon as practicable after this initial
offering period.
After completion of the initial offering
period, we may, in our discretion,
continue the offering for an additional
30 days, unless earlier terminated. We
may extend this additional offering
period for up to an additional 30 days,
at our discretion. We will have a second
closing as soon as practicable after the
end of this additional offering period.
Certificates for Shares............ We intend to deliver certificates
representing shares for accepted stock
orders as soon as practicable after each
closing.
Termination of Offering............ We may terminate the offering at any time
without notice. We currently anticipate
terminating the entire offering within
____ days after the date of this
Prospectus.
Handling of Funds.................. Funds received in payment of stock orders
will be held in a non-interest bearing
escrow account at the Bank until a
subsequent closing occurs. Checks
received will be deposited into the
escrow account by Noon of the next
business day. Any funds received with
respect to stock
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6
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orders that are not accepted will be
returned, without interest, promptly
after rejection of the stock order.
Allocation if Offering Oversubscribed If the offering is oversubscribed, we
may, but are not required to, allocate
available shares in our discretion.
In allocating shares, we may take into
account any factors, including the order
in which stock orders are received, our
desire to have a broad distribution of
stock ownership and administrative
convenience.
Risk Factors....................... See the "Risk Factors" section of this
Prospectus.
How to Order....................... During the initial offering period,
complete and execute the stock order form
that accompanies this Prospectus and
return it with payment in full. After the
initial offering period, contact the
Stock Information Center at 717-519-2333
for instructions on submitting stock
orders and payment.
For Further Information on Ordering See the "Plan of Distribution and How to
Order" section of this Prospectus.
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7
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SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
OF DROVERS BANCSHARES CORPORATION
We have selected consolidated financial data as of and for the dates or period
indicated. You should read our consolidated financial statements and related
notes included in our annual report on Form 10-K for the year ended December 31,
1998 and our quarterly report on Form 10-Q for the six months ended June 30,
1999, which are incorporated by reference herein.
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(All dollar amounts presented in thousands, except per share data)
At or For the Six Months Ended June 30, At or For the Years Ended December 31,
--------------------------------------- ---------------------------------------------------------------
Summary Results of
Operations: 1999 1998 1998 1997 1996 1995 1994
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Net interest income $ 10,647 $ 9,424 $ 19,255 $ 17,013 $ 15,264 $ 14,524 $ 12,894
Provision for loan losses 851 468 1,266 386 645 501 382
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Net interest income after
provision 9,796 8,956 17,989 16,627 14,619 14,023 12,512
Noninterest income 2,724 2,718 5,408 3,953 3,364 2,837 2,457
Noninterest expense 8,068 7,410 15,231 13,234 12,050 11,058 10,355
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Income before taxes 4,452 4,264 8,166 7,346 5,933 5,802 4,614
Income taxes 764 1,016 1,356 1,715 1,084 1,521 845
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Net income $ 3,688 $ 3,248 $ 6,810 $ 5,631 $ 4,849 $ 4,281 $ 3,769
==================================================================================================
Share Data (1):
Net income - basic $ 0.79 $ 0.70 $ 1.46 $ 1.21 $ 1.04 $ 0.92 $ 0.82
Net income - diluted 0.78 0.68 1.43 1.20 1.04 0.92 0.82
Dividends per share 0.23 0.21 0.44 0.37 0.35 0.30 0.25
Book value 10.36 9.79 10.27 9.32 8.20 7.54 6.43
Balance Sheet Data:
Investments $177,829 $166,249 $161,619 $179,299 $128,082 $ 91,823 $ 94,359
Loans, net 421,598 351,716 386,197 310,369 279,987 252,468 226,737
Total assets 643,472 559,183 597,793 524,892 446,713 382,791 352,287
Deposits 483,629 425,684 457,672 402,086 360,204 306,653 283,173
Borrowings 104,389 79,145 86,155 74,918 44,639 30,172 22,246
Shareholders' equity 48,649 45,796 48,193 43,470 38,092 34,921 29,724
Profitability Ratios:
Return on average assets (2) 1.21% 1.20% 1.22% 1.15% 1.20% 1.16% 1.11%
Return on average equity (2) 14.90% 14.51% 14.69% 13.88% 13.31% 13.04% 12.76%
Net interest margin (2) 3.74% 3.70% 3.67% 3.71% 4.09% 4.26% 4.13%
Efficiency Ratio (3) 60.64% 62.21% 62.42% 63.72% 65.38% 64.09% 67.59%
Asset Quality Ratios:
Reserve for loan
losses/Total loans 0.98% 1.03% 1.00% 1.05% 1.11% 1.15% 1.15%
Reserve for loan
losses/Non-
performing assets (4) 130.99% 175.27% 140.06% 356.45% 122.41% 152.26% 212.74%
Net charge-offs as % of
average loans 0.15% 0.03% 0.19% 0.07% 0.17% 0.08% 0.04%
Capital Ratios:
Equity to assets 7.56% 8.19% 8.06% 8.28% 8.53% 9.12% 8.44%
Leverage ratio (5) 7.70% 7.92% 7.84% 7.98% 8.44% 8.99% 8.92%
Risk based capital ratios:
Tier 1 capital 10.78% 11.39% 11.30% 12.14% 12.50% 12.96% 12.92%
Total capital 11.74% 12.33% 12.34% 13.10% 13.53% 14.07% 14.00%
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(1) All per share calculations have been restated to reflect all stock splits
and stock dividends.
(2) Data for the six months ended June 30, 1998 and June 30, 1999 have been
annualized.
(3) Equals other expenses as a percentage of net interest income plus other
income, excluding gain/loss on sale of securities.
(4) Nonperforming assets includes non accrual loans, restructured loans, loans
90 days past due but still accruing, and other real estate.
(5) Equals Tier 1 risk based capital as a percentage of total assets.
-8-
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RISK FACTORS
Investing in the common stock will provide you with an equity ownership
interest in Drovers. As a shareholder, you will be subject to risks inherent in
our business. The value of your investment may increase or decrease and could
result in a loss. The common stock offered by this Prospectus does not
constitute a deposit or other obligation of a bank and is not insured by the
Federal Deposit Insurance Corporation or any other governmental agency. You
should carefully consider the following factors, as well as other information
contained or incorporated by reference in this Prospectus, before deciding to
invest in our shares of common stock.
Risk Factors Related to the Company.
We May Not Be Able To Sustain Our Current Rate Of Growth.
During recent years, we have experienced significant growth, and our business
strategy calls for continued similar expansion. In particular, we intend to use
the funds raised in this offering to support anticipated increases in our loans
and investments and new branches. Our ability to continue to grow depends, in
part, upon our ability to expand our market areas, successfully attract deposits
to those locations, and identify loan and investment opportunities. Our ability
to manage growth successfully will also depend on whether we can continue to
efficiently fund asset growth and maintain asset quality and cost controls, as
well as on factors beyond our control, such as economic conditions and interest
rate trends. The growth of our commercial and industrial loans and commercial
real estate loans has been the principal factor in our increased earnings in the
past few years. In the event that we are unable to sustain our historic growth
rate, our earnings could be adversely impacted. We recognize the challenge in
managing growth while controlling costs and maintaining asset quality and its
potential impact on our financial performance.
Our Loan Mix May Increase Our Credit Risk.
There are certain risks inherent in making all loans. These risks include
interest rate changes over the time period in which loans may be repaid, risks
resulting from changes in our regional economy, risks inherent in dealing with
individual borrowers, and, in the case of a loan backed by collateral, risks
resulting from uncertainties about the future value of the collateral.
Commercial and industrial loans and commercial real estate loans comprised
60.9% of our total loans as of June 30, 1999. Commercial loans are typically
larger than residential real estate loans and consumer loans. Because our loan
portfolio contains a significant number of commercial and industrial loans and
commercial real estate loans with relatively large balances, the deterioration
of one or a few of these loans may cause a significant increase in
9
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nonperforming loans. An increase in nonperforming loans could result in a loss
of earnings from these loans, an increase in the provision for loan losses and
an increase in loan charge-offs.
The Bank maintains an allowance for loan losses based on, among other things,
historical experience, an evaluation of economic conditions, and regular reviews
of delinquencies and loan portfolio quality. We cannot assure you that charge-
offs in future periods will not exceed the allowance for loan losses or that
additional increases in the allowance for loan losses will not be required.
Additions to the allowance for loan losses would result in a decrease in our net
income and, possibly, our capital.
Changes In Interest Rates May Adversely Affect Our Earnings And Financial
Condition.
Our net income depends principally upon our net interest income. Net interest
income is the difference between interest earned on loans, investments and other
interest-earning assets and the interest paid on deposits and borrowed funds.
Net interest income represented approximately 78.1% of our net revenues in
fiscal year 1998. Changes in interest rates can increase or reduce net interest
income and net income.
Different types of assets and liabilities may react differently, and at
different times, to changes in market interest rates. When interest-bearing
liabilities mature or reprice more quickly than interest-earning assets in a
period, an increase in market rates of interest could reduce net interest
income. When interest-earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could reduce net interest
income. Changes in market interest rates are affected by many factors beyond
our control, including inflation, unemployment, money supply, international
events, and events in the United States and other financial markets.
We attempt to manage risk from changes in market interest rates, in part, by
controlling the mix of interest rate sensitive assets and interest rate
sensitive liabilities. However, interest rate risk management techniques are
not exact and a rapid increase or decrease in interest rates could adversely
affect our financial performance.
Adverse Conditions In Our Market Area May Have An Adverse Effect On Us.
Substantially all of our business is with customers located within York
County, Pennsylvania, and contiguous counties. The businesses to whom we make
loans are small and medium sized and are dependent upon the regional economy.
Adverse economic and business conditions in our market area could affect our
borrowers, their ability to repay their loans and consequently our financial
condition and performance.
10
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Competition With Other Financial Institutions Could Adversely Affect Our
Profitability.
We face substantial competition in originating loans and in attracting
deposits. This competition in originating loans comes principally from other
banks, savings institutions, credit unions, mortgage banking companies and other
lenders. Some of our competitors may enjoy advantages such as greater financial
resources, a wider geographic presence, a wider array of services, or more
favorable pricing alternatives and lower origination and operating costs. This
competition could decrease the number and size of loans which we originate and
the interest rate which we receive on these loans.
In attracting deposits, we compete with other insured depository institutions
such as banks, savings institutions and credit unions, as well as institutions
offering uninsured investment alternatives, including money market funds. These
competitors may offer higher interest rates than we do, which could decrease the
deposits that we attract or require us to increase our rates to attract new
deposits. Increased deposit competition could increase our cost of funds and
adversely affect our ability to generate the funds necessary for our lending
operations and investment opportunities.
Government Regulation Significantly Affects Our Business.
The banking industry is extensively regulated. Banking regulations are
intended primarily to protect depositors and the federal deposit insurance
funds, not stockholders. We are subject to regulation and supervision by the
Board of Governors of the Federal Reserve System. The Bank is subject to
regulation and supervision by the Pennsylvania Department of Banking and FDIC.
Regulatory requirements affect our lending practices, capital structure,
investment practices, dividend policy and growth. For example, the Bank is
subject to various regulatory capital requirements, which involve both
quantitative measures of the Bank's assets and liabilities and qualitative
judgments by regulators regarding risk and other factors. The Bank's failure to
meet minimum capital requirements could result in actions by its regulators that
could adversely affect our ability to pay dividends or otherwise adversely
impact our operations. Changes in laws, regulations and regulatory practices
affecting the banking industry could impose additional costs on us and otherwise
adversely affect us.
Problems Related To The Year 2000 Issue Could Adversely Affect Our
Business.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. We have tested all
computer programs and systems and taken the necessary remedial action. However,
the failure to detect a problem or to correct any such programs or hardware
could result in system failures or miscalculations causing
11
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disruptions of our operations, including a temporary inability to process
transactions or engage in similar normal business activities.
The Year 2000 issue may adversely affect the credit quality of our loan
portfolio if our customers were unable to service their bank debt due to their
own Year 2000 problems or that of their key customers or suppliers. Year 2000
problems for our suppliers may have an adverse effect on us. For example,
without electrical power and telephone communications, it would be very
difficult for the Bank to operate effectively.
Anti-Takeover Provisions May Prevent Our Being Acquired In A Hostile
Acquisition.
Our Articles of Incorporation presently contain provisions which may be deemed
to be "anti-takeover" in nature in that such provisions may deter, discourage or
make more difficult the assumption of control by another corporation or person
through a tender offer, merger, proxy contest or similar transaction or series
of transactions. These provisions include limitations on the issuance (other
than pursuant to an employee stock option plan, a dividend reinvestment plan or
an underwritten public offering) of any voting securities to, and mergers with
or sales of substantially all of our assets to, any person or group beneficially
owning or controlling 10% or more of our voting securities, without the
affirmative vote of the holders of at least 85% of all our securities entitled
to vote. These provisions may be waived if the particular transaction is
approved in advance by a majority of the directors who were elected prior to the
time such person or group beneficially owned or controlled 10% or more of our
voting securities. The ability of continuing directors to waive these provisions
may give them a veto with respect to certain types of offers for control of the
Company. We also maintain a classified Board of Directors, and directors may be
removed by our shareholders only for cause. The Pennsylvania business
corporation law also includes anti-takeover provisions that may be applicable
under certain circumstances because our stock is registered with the SEC under
the Securities Exchange Act. In addition, applicable federal and state banking
laws and regulations impose requirements for regulatory approval of acquisitions
of controlling interests in bank holding companies and financial institutions.
Risk Factors Related to this Offering.
Our Stock Is Not an Insured Deposit.
Investments in the shares of common stock in this offering are not deposits
insured against loss by the FDIC or any other entity.
12
<PAGE>
We Have Determined the Offering Price, Which May Not Reflect the Actual
Market Price of the Stock After This Offering.
The offering price does not necessarily reflect the price at which the common
stock will sell following this offering and may be higher or lower than recent
market prices for the shares.
There Is No Assurance That All the Shares Being Offered Will be Sold
Because There Will Not Be an Underwriter.
The offering will not be undertaken through the services of an underwriter
and there can be no assurances that all or any of the shares of common stock
offered hereby will be sold or that the liquidity of such shares will increase
in the future. ______________ is not obligated to purchase any shares in this
offering.
There is No Minimum Number of Shares to be Sold.
No minimum number of shares is required to be sold under the terms of this
offering. All orders will be irrevocable by subscribers. Although our goal is
to sell at least $5,000,000 of common stock in the offering, we may terminate
the offering at any time before or after selling $5,000,000 of stock.
Possible Volatility of Stock Price.
The market price of our common stock may fluctuate in response to numerous
factors, including variations in our annual or quarterly financial results, or
our competitors, changes by financial research analysts in their estimates of
our earnings or our competitors or our failure or our competitors to meet such
estimates, conditions in the economy in general or the banking industry in
particular, or unfavorable publicity affecting us, the Bank, or the industry.
In addition, equity markets have, on occasion, experienced significant price and
volume fluctuations that have affected the market price for many companies'
securities and have been unrelated to the operating performance of those
companies. Any fluctuation may adversely affect the market price of our common
stock.
13
<PAGE>
USE OF PROCEEDS
The net proceeds, after payment of financial advisory fees, commissions and
other fees and expenses, from the sale of shares of common stock with an
aggregate purchase price of $5.0 million offered hereby, are estimated to be
approximately $4.725 million if shares are purchased during the initial offering
period and 50% of the shares are sold to current shareholders. Net proceeds
will be less if fewer shares are sold, if all of the shares are not sold during
the initial offering period or if a smaller percentage of shares are sold to
current shareholders. Net proceeds will be more if we sell the additional
shares that we have registered.
We intend that most of the net proceeds to us from the sale of the common
stock will be contributed to the Bank as equity capital to be used for general
corporate purposes, which may include:
. expansion of lending activities;
. construction of new branches;
. acquisitions of other financial services companies, including banks and
thrifts; and
. investments in securities.
Proceeds that we retain at the holding company level will be used for
investments and other general corporate purposes, including payment of the
expenses of this offering. The precise amounts and timing of the application of
proceeds will depend upon our funding requirements.
14
<PAGE>
CAPITALIZATION
The following table sets forth Drovers' consolidated capitalization at June
30, 1999 and as adjusted to give pro forma effect (i) to our sale of $5.0
million aggregate offering price of shares of common stock in this offering, and
(ii) to the sale on September 17, 1999 of $7.5 million aggregate liquidation
amount of 9.25% capital securities due September 30, 2029 by our subsidiary,
Drovers Capital Trust I, and a like aggregate principal amount of our 9.25%
Junior Subordinated Deferrable Interest Debentures to the Drovers Capital Trust
I. For this table we have assumed that all shares are sold during the initial
offering period, that our net proceeds will be approximately $4.725 million
after estimated offering expenses (including commissions), and that these
proceeds will be invested in assets with a 50% risk weighting for regulatory
capital purposes. Because of increased sales expenses in a broker-assisted
offering, estimated net proceeds will be less than the assumed amounts if shares
are sold after the initial offering period with the assistance of broker-
dealers. This table does not reflect any shares of stock that may have been
sold since June 30, 1999 pursuant to our dividend reinvestment plan or any of
our stock option plans.
<TABLE>
<CAPTION>
At June 30, 1999
(Dollars in thousands) Actual As Adjusted
---------- --------------
<S> <C> <C>
Corporation-obligated mandatorily redeemable capital
securities of subsidiary trust....................... $ 0 $ 7,500
SHAREHOLDERS' EQUITY:
Common Stock, no par value per share - authorized
15,000,000 shares; issued and outstanding, June 30,
1999, 4,697,637 shares and as adjusted
for the offering..................................... 38,828 43,553
Retained Earnings....................................... 10,753 10,753
Accumulated Other Comprehensive Income.................. -932 -932
Total Shareholders' Equity.............................. $48,649 $53,374
Total Capitalization.................................... $48,649 $60,874
Book Value Per Share.................................... $10.36 $___ (1)
Capital Ratios:
Tier I Leverage Ratio............................. 7.70% 9.42%
Tier I Capital to Risk-Weighted Assets............ 10.78% 13.26%
Total Capital to Risk-Weighted Assets............. 11.74% 14.21%
- ------------------
</TABLE>
(1) Assumes ______ shares are sold in the offering, resulting in _____ issued
and outstanding shares being used in the calculation of book value per share
as adjusted for the offering.
15
<PAGE>
MARKET FOR COMMON STOCK AND DIVIDENDS
Market for Common Stock.
Since June 2, 1998, the common stock of Drovers has been traded on the Nasdaq
National Market System under the symbol "DROV". Prior to that date, the stock
was traded in the over-the-counter market.
The following table sets forth high and low closing prices per share for the
common stock for each quarter of 1997 and 1998 and for the quarters thereafter
through ________ __, 1999. High and low sales prices before July 1, 1998, were
provided by Bloomberg Business News. The table also reflects cash dividends
declared on the common stock. High and low sales prices after July 1, 1998 are
from the Nasdaq Stock Market. Prices and dividends have been re-stated to
reflect a 5% stock dividend in 1999, a three-for-two stock split in 1998 and a
5% stock dividend issued in 1997.
Dividends
High Low Declared
--------- ------- ---------
1997
- ----
First Quarter $14.82 $12.54 $0.09
Second Quarter 14.50 13.15 0.09
Third Quarter 17.70 14.36 0.09
Fourth Quarter 22.70 17.60 0.10
1998
- ----
First Quarter $24.92 $21.43 $0.10
Second Quarter 30.95 23.97 0.11
Third Quarter 30.48 24.65 0.11
Fourth Quarter 25.71 23.22 0.11
1999
- ----
First Quarter $24.05 $21.48 $0.11
Second Quarter 23.50 22.00 0.12
Third Quarter
On ______ ___, ____, the last reported sale price of the common stock on
the Nasdaq National Market System was $___ per share. As of September 24, 1999,
4,698,037 shares were outstanding held of record by approximately 1,450 persons.
This number does not include the number of beneficial holders of Drovers common
stock held in street name; we believe this number was approximately 600. On
September 24, 1999, there were outstanding options which were exercisable on
that date (or within 90 days thereof) for 147,799 shares of common stock with a
weighted average exercise price of $14.90 per share.
16
<PAGE>
Dividends.
The holders of the common stock are entitled to receive dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. Funds for the payment of dividends are primarily obtained from
dividends paid by the Bank to the Company.
We have adopted a dividend reinvestment and stock purchase plan available
to stockholders who elect to reinvest their cash dividends for the purchase of
additional shares of common stock. Participants may also elect to make
voluntary cash payments not to exceed $2,500 each quarter for the purchase of
additional shares. Shares issued under this plan may be acquired in the open
market or issued by us.
It is the present intention of our Board of Directors to continue to pay
regular quarterly cash dividends; however, the declaration and payment of future
dividends is at the sole discretion of the Board of Directors, and the amount of
dividends depends upon the earnings, financial condition and capital needs of
the Company and the Bank and certain other factors, including restrictions
arising from federal banking laws and regulations to which the Company and the
Bank are subject.
We are largely a non-operating holding company and most of our operating
assets are owned by the Bank and the Bank's subsidiaries. We rely primarily on
dividends from the Bank to meet our obligations. We are a legal entity separate
and distinct from our banking and other non-banking subsidiaries. The principal
source of our income is dividends from the Bank. The Bank is subject to certain
restrictions imposed by federal and state law on any extensions of credit to,
and certain other transactions with, us and certain other affiliates, and on
investments in stock or other securities thereof. Such restrictions prevent us
and such other affiliates from borrowing from the Bank unless the loans are
secured by various types of collateral. Further, such secured loans, other
transactions and investments by the Bank are generally limited in amount as to
us and as to each of such other affiliates to 10% of the Bank's capital stock
and surplus and as to us and all of such other affiliates to an aggregate of 20%
of the Bank's capital stock and surplus. In addition, payment of dividends to
us by the Bank is subject to ongoing review by banking regulators and is subject
to various statutory limitations and in certain circumstances requires approval
by banking regulatory authorities. Because we are a holding company, our right
to participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise, is subject to the prior
claims of creditors of the subsidiary, except to the extent we may ourselves be
recognized as a creditor of that subsidiary.
17
<PAGE>
BUSINESS
Drovers Bancshares Corporation is a one-bank holding company registered
under the Bank Holding Company Act of 1956, as amended, that was organized on
May 17, 1982, under the Pennsylvania business corporation law. Our principal
executive offices are located at 30 South George Street, York, Pennsylvania
17401. Our telephone number at such location is (717) 843-1586.
The Drovers & Mechanics Bank (the "Bank") is a wholly-owned subsidiary of
Drovers Bancshares Corporation. The Bank is chartered pursuant to the laws of
the Commonwealth of Pennsylvania and is subject to the supervision of the
Banking Department of the Commonwealth and the Federal Deposit Insurance
Corporation. The Drovers & Mechanics Bank was organized in 1883 as a national
bank and became a state-chartered non-member of the Federal Reserve System in
1979.
The Bank offers a wide variety of banking, investment management and trust
services to individuals and commercial customers in its service area. Personal
banking services include checking accounts, savings and time accounts,
certificates of deposit, personal and mortgage loans, home improvement loans,
safe deposit services, estate planning and administration and personal trust and
investment management services. Commercial banking services are provided to
businesses, nonprofit organizations and local municipalities. These services
include checking accounts, savings and time accounts, financing activities and
corporate trust services in the areas of pension, profit sharing and employee
benefit plans.
On June 30, 1999, the Bank employed 218 full-time equivalent employees.
The Bank has 16 branches, including the main office in the City of York, nine
additional branches located in the surrounding suburbs, and six branches located
in Shrewsbury, Emigsville, Hellam, York Haven, Dover and Red Lion, Pennsylvania.
A research and administrative services center is located in the York suburbs.
The Hellam location, which is a full-service bank, opened in January 1999.
The Bank plans to open two new branch offices in the near future. Construction
of a new branch located near Dillsburg, Pennsylvania began in July 1999. The
office is scheduled to open in November 1999. A contract has been signed to
purchase land at the Newberrytown exit of I-83 in Newberry Township,
Pennsylvania for a new branch office. Construction of this branch should begin
in October 1999 and be completed in early 2000. The Bank opened its first loan
production office in April 1999. The office is located at the Rossmoyne
Business Center in Cumberland County, near Harrisburg. This is the Bank's first
facility outside York County. The Bank opened its second loan production office
in August 1999, at the Patrick Center in Frederick, Maryland. This office is
the Bank's first facility located outside of Pennsylvania. The staff at the loan
production offices will initially focus on commercial lending.
The Bank also has 28 ATMs, 12 of which are located at remote service
facilities.
18
<PAGE>
In December 1993, the Bank purchased the office building adjacent to the
Bank's main office. The five-story complex, known as 96 South George, provides
for future growth and enables the Corporation to maintain its headquarters in
downtown York. The accounting, corporate banking, and executive offices of the
Bank are located on the fifth floor of 96 South George Street.
The Bank is a limited partner in five ventures to renovate and operate
apartment buildings. All five ventures provide low-income housing to qualified
families. The first building opened in 1994. The second opened in March, 1996.
The third opened in December, 1998. The fourth opened in September, 1999. The
fifth is scheduled to be opened in the fourth quarter of 1999. The investments
are accounted for under the equity method of accounting. The combined carrying
value of the investments at June 30, 1999 was $5,664,000 and was $5.4 million
and $2.3 million, respectively, at December 31, 1998 and 1997.
Recent Developments.
On September 17, 1999, we completed the private placement to accredited
investors of $7.5 million of 9.25% capital securities due September 30, 2029
issued by our newly formed Delaware trust subsidiary, Drovers Capital Trust I.
Securities of this type qualify as Tier I capital and interest payable thereon
is currently considered to be tax-deductible. Proceeds of the issue were
invested by Drovers Capital Trust I in junior subordinated debentures issued by
Drovers. Net proceeds from the sale of the debentures will be used for general
corporate purposes, including the purposes described under the "Use of Proceeds"
section of this Prospectus.
Products and Services.
Through the Bank we offer a wide variety of banking, investment management
and trust services to individuals and commercial customers in our service area.
Personal banking services include:
. checking accounts;
. savings and time deposits;
. certificates of deposit;
. personal and mortgage loans;
. safe deposit services;
19
<PAGE>
. estate planning and administration; and
. personal trust and investment management services.
Commercial banking services to businesses, non-profit organizations and
local municipalities include:
. checking accounts;
. savings and time accounts;
. financing activities;
. corporate trust services in the areas of pension, profit sharing and
employee benefit plans; and
. cash management services.
Strategic Highlights.
Our vision is to be "The First Choice for Financial Solutions" within our
market area. To achieve our vision, we plan to further capitalize on the
opportunities created by recent bank consolidations and the overall economic
strength of our markets. Our goal is to enhance our regional presence and
increase shareholder value by (i) increasing penetration of and expanding our
geographic market, (ii) expanding our lending activities, (iii) diversifying our
sources of income, (iv) delivering high quality products and services through
our associates, and (v) growing our business in a safe and sound manner.
Increase Penetration of and Expand our Geographic Market.
We have made a significant increase in our market penetration in York
County during the past seven years. One key strategy to continue long-term
growth is to increase our total financial services relationship with our
existing clients. Additionally, we plan to expand by entering economically and
demographically attractive markets through de novo branching. During 1999 we
opened our Hellam office and plan to open offices in Dillsburg and Newberrytown
later this year or in early 2000. We recently opened loan production offices in
Mechanicsburg, Pennsylvania and Frederick, Maryland to capitalize on market
opportunities. We also plan to expand through acquisitions of and alliances
with other financial services companies that we believe will add value to our
franchise by bringing new products, services and customers to our institution.
Lastly, we will expand through alternative delivery channels, such as our ATM
20
<PAGE>
network which as of June 30, 1999 had increased 33% to 28 ATM's since June 30,
1998. We have also experienced success with our supermarket and convenience
store branches, which give us the opportunity to be in locations that are
convenient to existing and potential customers.
Expand Lending Activities.
We intend to continue our focus on lending to small and medium-sized
businesses in our market. Our commercial loan portfolio has grown from $122.0
million at December 31, 1995 to $259.4 million at June 30, 1999, a 112.6%
increase. Our commercial loan portfolio accounted for 47.8% of the total loan
portfolio at December 31, 1995 and accounted for 60.9% of the total loan
portfolio at June 30, 1999. Because of the consolidation in the York County
banking market, we have had opportunities to develop new lending and deposit
relationships with established businesses.
Diversify Sources of Income.
In addition to growing our net interest income, our strategy is to continue
improving our profitability by increasing non-interest income, particularly in
our Investment Services & Trust Division. To accomplish this strategy, we
recently hired a new manager of the Investment Services & Trust Division who has
extensive commercial banking and investment management experience.
Additionally, we earn non-interest income from other areas including gains on
sales of residential mortgage loans, deposit product service fees, non-credit
corporate banking fees and ATM fees. We are evaluating other initiatives that
will complement our existing products and services and increase non-interest
income.
Deliver High Quality Products and Services Through Our Associates.
We believe that the recent trend towards consolidation in the banking
industry has created a shortage of institutions capable of providing high
quality, personalized banking services to individuals and local businesses. We
have initiated a comprehensive strategy to achieve our goal of superior sales
and service by (i) training our front line personnel to become trusted advisers
to our clients, (ii) implementing compensation strategies that reward employees
for delivering superior sales and service, (iii) using technology to ensure that
we match the appropriate products to the needs of our customers and potential
customers, and (iv) enhancing our positive image in the community by encouraging
participation in community activities by all of our employees.
21
<PAGE>
Grow Our Business in a Safe and Sound Manner.
Economic conditions have been favorable for financial institutions in
Pennsylvania and Maryland during the last eight years. During this period, we
have experienced significant growth in our loan portfolio. We are cognizant of
the relationship in the banking industry between rapid loan growth and poor loan
quality. Maintaining strong loan quality has been and will continue to be a
strategic focus. To accomplish this goal, we continually evaluate and update
our internal control framework, particularly in relation to credit quality.
Additionally, we have implemented a formal risk management policy and procedures
for executing our lending policy. In addition to credit risk, we assess
interest rate risk, market risk and operations risk on a regular basis to ensure
our institution is run in a safe and sound manner.
Market Opportunity.
We are a community-focused financial institution with our main office in
York, Pennsylvania, 16 branches located throughout York County and loan
production offices in Cumberland County, Pennsylvania and Frederick, Maryland.
York County is located along the Interstate 83 corridor between Baltimore and
Harrisburg, Pennsylvania's capital. York County is accessible to Pennsylvania's
largest metropolitan markets, Philadelphia and Pittsburgh, via the Pennsylvania
Turnpike which passes through the northern tier of the county. The southern end
of the county is a bedroom community for the Baltimore metropolitan area.
-----------------------------------------
Travel Distance from City of York
Area Miles
-----------------------------------------
Baltimore 45
Philadelphia 97
Washington, D.C. 90
New York City 200
Pittsburgh 220
-----------------------------------------
Local Banking Industry.
York County is served by approximately eighteen banks and three thrifts
operating 145 branches. Consolidations, particularly among our largest
competitors, and the resulting disruption in customer relationships have allowed
community-based financial institutions such as ours to improve our market share
position by offering a quality alternative to the larger financial institutions.
During the three years ended June 30, 1999, we have increased deposits in excess
of
22
<PAGE>
54.1%, or 18.0% on an annualized basis. During the three years ended June
30, 1999, we have increased loans in excess of 60.6%, or 20.2% on an annualized
basis.
Demographics.
According to Woods & Poole Economics, Inc., York County is ranked 8th of 67
Pennsylvania counties in terms of total population (see table below). Total
population grew 8.6% between 1980 and 1990. The current population is
approximately 373,000.
--------------------------------------------------------------------
York
County PA U.S.
------- ---------- -----------
Population 373,000 12,049,000 270,051,000
State Rank * 8th
Unemployment Rate (4/99) 3.1% 4.1% 4.1%
State Rank * 8th
--------------------------------------------------------------------
* Rank of 67 counties
Employment.
York County's economic strength is grounded in its employment diversity
and solid manufacturing base. According to Woods & Poole Economics, Inc.,
manufacturing accounts for approximately 25% of jobs in the county, compared to
approximately 15% in Pennsylvania and 13% nationwide. York County's
manufacturers include well-known names such as Harley Davidson, Dentsply, York
International and Pfaltzgraff. Other significant employers are in the health
care, services and snack food industries. From April 1998 to April 1999, retail
trade expanded by 1,200 jobs as York County's economy remained strong. Other
growth industries and the respective increase in jobs from April 1998 to April
1999 include: services (+600 jobs), transportation and utilities (+500 jobs),
wholesale trade (+300 jobs), transportation equipment (+200 jobs) and food
products (+200 jobs). The York County unemployment rate as of April 30, 1999 was
3.1%, compared to 4.1% in Pennsylvania and 4.1% in the United States.
The positive economic environment and our focus on the communities we
serve have contributed to our strong growth. We plan to continue capitalizing on
the customer service disruptions that have taken place as a result of bank
consolidations in our marketplace. We believe our continued emphasis on
customer relationships, combined with a positive economic and industry
environment, will continue to present us with opportunities to continue our
long-term growth.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following section of this Prospectus sets forth information concerning
the financial condition and results of operations of Drovers as of and for the
six month periods ending June 30, 1999 and June 30, 1998 and for the years ended
December 31, 1998 and indicated prior years. The information presented is not
intended to be complete. You should read Drovers' consolidated financial
statements and related notes included in our annual report on Form 10-K for the
year ended December 31, 1998 and our quarterly report on Form 10-Q for the six
months ended June 30, 1999, and the management's discussion and analysis set
forth in such reports, which are incorporated by reference in this Prospectus.
RESULTS OF OPERATIONS
The consolidated earnings of Drovers are derived primarily from the
operations of its wholly-owned subsidiaries. Drovers is a bank holding company.
The Bank, Drovers' principal subsidiary, is a Pennsylvania state-chartered, FDIC
insured bank. The Bank has two wholly-owned subsidiaries, 96 South George
Street, Inc. and Drovers Investment Company. 96 South George Street, Inc.'s
primary asset is an office building attached to the Bank's main office, which
houses its corporate headquarters. Drovers Investment Company holds certain
investment assets. Drovers Realty Company, a direct wholly-owned subsidiary of
Drovers, has various real estate holdings, including ground and building leases.
It rents the real estate to the Bank for use as branch offices. Drovers Capital
Trust I is a newly formed Delaware trust subsidiary that issued on September 17,
1999 $7.5 million of 9.25% capital securities, the proceeds of which were
invested in junior subordinated debentures issued by Drovers.
Six Month Periods Ended June 30, 1999 and 1998.
Drovers recorded net income of $3.7 million and $3.3 million for the six
months ended June 30, 1999 and 1998, respectively. The return on average equity
(ROAE) and return on assets (ROAA) for the six months ended June 30, 1999 were
14.90% and 1.21%, respectively. This compares to an ROAE and ROAA for the same
period last year of 14.51% and 1.20%, respectively.
Years Ended December 31, 1998, 1997 and 1996.
Drovers recorded net income of $6.8 million, $5.6 million and $4.8 million
in 1998, 1997 and 1996, respectively. The return on average equity (ROAE) and
return on average assets (ROAA) in 1998 were 14.69% and 1.22%, respectively.
This compares to an ROAE and ROAA in 1997 of 13.88% and 1.15%, respectively, and
an ROAE and ROAA in 1996 of 13.31% and 1.20%, respectively.
-24-
<PAGE>
Net Interest Income.
Net interest income represents the difference between the interest earned
on loans and investments and the interest paid on deposits and other sources of
funds. Net interest income is a measurement of how well management balances
interest rate sensitive assets and liabilities while maintaining adequate
interest margins.
Six Month Periods Ended June 30, 1999 and 1998.
The following table presents the trends in net interest income for the six
month periods ended June 30, 1999 and 1998:
Six Months Ended June 30,
(In thousands) 1999 1998 Change
- -----------------------------------------------------------------------------
Interest income $21,749 $20,142 $1,607
Interest expense 11,102 10,718 384
------------------------
Net interest income $10,647 $ 9,424 $1,223
========================
Drovers' largest category of earning assets consists of loans to businesses
and individuals. The majority of earning assets are supported by commercial and
consumer deposits and shareholders' equity. Changes in net interest income are
determined by variations in the volume and mix of assets and liabilities as well
as their sensitivity to interest rate movements.
Net interest income increased $1.2 million during the first six months of
1999 over the same period of 1998. Average earning assets increased 12.0% to
$574.9 million for the first half of 1999 compared to $513.6 million for the
same period last year and 9.6% compared to $524.7 million for all of 1998. The
margin for the first six months of 1999 was 3.74% compared to 3.70% for the
first half of 1998 and 3.67% for all of last year. Contributing to the boost in
the margin was a decline in the average cost on time deposits, which decreased
0.37% during the first six months of 1999 from the same period in 1998 and 0.33%
from all of 1998. The decline in the cost on time deposits and the increase in
average earning assets for the first six months of 1999 offset a decline in
yield on loans.
Years Ended December 31, 1998 and 1997.
Net interest income rose 13.2% or $2.2 million in 1998 as compared to 1997,
after advancing 11.5% or $1.7 million in 1997 as compared to 1996. Increased
volume drove the increases in net interest income for 1998 and 1997.
-25-
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, % Change
(In thousands) 1998 1997 1996 98/97 97/96
- ----------------------------------------------------------------------------------- ----------------
<S> <C> <C> <C> <C> <C>
Total interest income $40,991 $36,267 $30,055 13.0% 20.7%
Total interest expense 21,736 19,254 14,791 12.9% 30.2%
------------------------------------------------
Net interest income $19,255 $17,013 $15,264 13.2% 11.5%
================================================
</TABLE>
The following table depicts the changes in rate and volume components of
net interest income:
<TABLE>
<CAPTION>
1998 over 1997 1997 over 1996
------------------------------- ------------------------------
Total Change Due To Total Change Due To
(In thousands) Change Rate Volume Change Rate Volume
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest income $ 4,724 $ -787 $ 5,511 $6,212 $ 14 $6,198
Total interest expense 2,482 -132 2,614 4,463 714 3,749
------- ------- ------- ------ ------ --------
Net interest income $ 2,242 $ -655 $ 2,897 $1,749 $ -700 $2,449
======= ======= ======= ====== ====== ========
</TABLE>
Two of the primary performance measures that indicate how successful a
bank is in managing its asset and liability structure are net interest spread
and net interest margin. Net interest spread is the average rate earned on
earning assets less the average rate paid on interest-bearing funds. Net
interest margin incorporates both the net interest spread and margin on earning
assets financed by noninterest-bearing funds. The following table illustrates
the net interest spread and the net interest margin:
1998 Average 1997 Average
(In thousands) Balance Rate Balance Rate
- --------------------------------------------------------------------------
Earning assets $524,729 7.81% $458,752 7.91%
=====================================
Financed by:
Interest-bearing funds $463,520 4.69% $408,069 4.72%
Noninterest-bearing funds 61,209 -- 50,683 --
-------------------------------------
Total $524,729 4.14% $458,752 4.20%
=====================================
Net interest income $ 19,255 $ 17,013
======== ========
Net interest spread 3.12% 3.19%
Net interest income margin 3.67% 3.71%
The average spread and margin declined 0.07% and 0.04%, respectively,
in 1998 as compared to 1997. The average yield on earning assets decreased
0.10% in 1998 as compared to 1997. This decrease was partially offset by a
0.03% decline in the cost of interest-bearing funds.
Drovers increased holdings in investment securities throughout 1997.
This strategy generated net interest income used to offset the costs of an
expanding branch office network. The increased holdings in lesser yielding
investment securities, however, resulted in a narrower
-26-
<PAGE>
spread and margin, which bottomed out in the fourth quarter of 1997 when the
margin was 3.56%.
Drovers experienced extraordinary loan demand in 1998. The
combination of a strong local economy, low interest rates and customer
dissatisfaction with large bank mergers caused the demand. This resulted in
strong loan growth accounting for nearly all of the increase in interest-bearing
assets. This change in mix of higher yielding loans compared to investment
securities caused the margin to increase throughout most of 1998.
Noninterest Income.
Six Month Periods Ended June 30, 1999 and 1998.
Six Months
Ended June 30,
(In thousands) 1999 1998 Change
- ------------------------------------------------------------------------
Trust income $ 674 $ 588 $ 86
Service charges on deposit accounts 921 792 129
Securities gains 67 231 -164
Net gains on loan sales 549 584 -35
Equity in losses of real
estate ventures -111 -55 -56
Other 624 578 46
----------------------
Total $2,724 $2,718 $ 6
======================
Noninterest income increased slightly for the six months ended June
30, 1999 as compared to the six months ended June 30, 1998. The gain on sale of
loans declined $35,000 for the first half of 1999 as compared to the first half
of 1998 as mortgage refinancing activity decreased. Income from gain on sale of
securities decreased $164,000 for the six month period ended June 30, 1999
compared with the same period in 1998. Drovers sold a portion of its community
bank stock portfolio during the first half of 1998.
Offsetting the decline in gains from asset sales was an increase in
service charges on deposit accounts and trust income, which increased $129,000
and $86,000, respectively, for the six month period ended June 30, 1999 versus
the comparable period of 1998. An increase in collection of insufficient fund
and return check charges caused most of the growth in service charges on deposit
accounts.
The fair value of investments managed by the Investment Services and
Trust Division was $254.9 million at June 30, 1999, an increase of $25.3
million, or 11.0%, over June 30, 1998. The division has experienced growth in
employee benefits, personal trust and investment management accounts. Overall
increases in the equity markets continued to boost the value of assets managed
and the related fee income.
-27-
<PAGE>
Years Ended December 31, 1998 and 1997.
Years Ended December 31, % Change
(In thousands) 1998 1997 1996 98/97 97/96 96/95
- --------------------------------------------------------------------------------
Investment services and
trust income $1,295 $1,105 $1,020 17.2% 8.3% 10.4%
Service charges on deposit
accounts 1,692 1,293 1,199 30.9% 7.8% 22.1%
Securities gains 262 197 196 33.0% 0.5% 84.9%
Net gains on loan sales 1,044 491 390 112.6% 25.9% 40.3%
Equity in losses of
real estate ventures -104 -81 -137 28.4% -40.9% 114.1%
Other 1,219 948 696 28.6% 36.2% 13.9%
----------------------------------------------------
Total other income $5,408 $3,953 $3,364 36.8% 17.5% 18.6%
====================================================
Noninterest income was $5.4 million in 1998, an increase of $1.5
million from 1997. The 1997 noninterest income was $4.0 million, an increase of
$589,000 over the 1996 level of $3.4 million.
Income from the Investment Services and Trust Division increased
$190,000, or 17.2%, in 1998 versus 1997. The fair value of investments managed
by the Division was $252.1 million at the end of 1998, an increase of 16.2% over
the prior year end. The Division experienced strong growth in the trust services
area, including employee benefits, personal trust and in investment management
accounts. Overall increases in the equity markets the past three years helped
boost the value of assets managed and the related fee income.
Service charges on deposit accounts increased $399,000, or 30.9%, in
1998 versus 1997. Drovers engaged a consulting group in the fourth quarter of
1997. The consultants completed an analysis of various products and processes
that sought ways to enhance productivity by reducing expenses and improving
noninterest income. Most of the increase in deposit service charges was a
direct result of implementing their recommendations. Fees from business
checking accounts grew in 1997 due to growth in business deposits. In April
1996, Drovers raised automatic teller machine (ATM) transaction fees which
helped increase deposit service charges throughout 1998 and 1997.
Net gains from investment securities sales were $262,000 in 1998.
Drovers liquidated some of its community bank stock portfolio accounting for
most of the gains. A similar liquidation in late 1997 accounted for $74,000 in
gains. The other gains in 1997 and in 1996 came from investment portfolio
restructuring used to increase interest income and decrease overall asset
sensitivity.
Net gains on loan sales result mostly from the sale of residential
mortgages. Low interest rates, a strong economy and a mild winter pushed gains
to record levels in 1998. Mortgage loans
-28-
<PAGE>
sold were $60.8 million, $30.3 million and $23.8 million in 1998, 1997 and 1996,
respectively. When Drovers sells loans and retains servicing, it recognizes a
servicing asset. This recognition increases the loan sale gains. Mortgage
servicing rights recognized and included in loan sale gains were $361,000,
$197,000 and $176,000 in 1998, 1997 and 1996, respectively. Drovers sold a small
credit card portfolio in 1998 for a gain of $43,000. The sale of commercial loan
participations in 1998 totaled $3.7 million and generated a $28,000 gain from
capitalizing the loan servicing rights.
Drovers recognized a $104,000 loss during 1998 from its equity
investments in four real estate limited partnerships. The partnerships were
formed to renovate properties for lease as low-income housing apartments. The
first two partnerships opened in 1994 and 1996. Both remain fully occupied.
The third partnership opened its first of two buildings in late 1998. Apartment
rent-up has exceeded projections. Construction has begun on the building owned
by the fourth partnership and is expected to open in 1999. Drovers receives
substantial financial benefits from these investments in the form of historic
and low-income tax credits.
Other income increased $271,000, or 28.6%, in 1998 versus 1997.
Drovers offers ATM and debit cards, charges surcharges for non-customers using
our ATM machines and provides electronic interchange services for various
merchants. The fees associated with these various electronic transactions have
steadily increased. In 1998, these fees increased $157,000 as compared to 1997,
and provided most of the growth in other income. The ATM surcharge generated
$180,000 in fees in 1997, its first year of implementation. Loan servicing
income continues to provide a steady source of other income. Total mortgage
loans serviced were $106.6 million, $100.4 million and $93.3 million at the end
of 1998, 1997 and 1996, respectively.
Noninterest Expense.
Six Month Periods Ended June 30, 1999 and 1998.
Six Months
Ended June 30,
(In thousands) 1999 1998 Change
-----------------------------------------------------------
Salaries and employee benefits $4,365 $4,013 $352
Occupancy and premises 644 545 99
Furniture and equipment 679 595 84
Marketing expense 350 302 48
Net cost of operation of other
of other real estate -24 18 -42
Supplies 255 243 12
Other taxes 217 193 24
Other 1,582 1,501 81
----------------------
Total $8,068 $7,410 $658
======================
-29-
<PAGE>
Noninterest expenses increased $658,000 for the first six months of 1999 as
compared to the first six months of 1998. Salaries and benefits are the largest
component of noninterest expense and increased $352,000 for the first half of
1999 as compared to the first half of 1998. Staffing at the new Hellam office,
which opened in January 1999, contributed to the increase. Average full-time
equivalent staffing levels were 218 at June 30, 1999 compared to 215 at June 30,
1998. Accrued incentive compensation increased $94,000 for the first half of
1999 as compared to the first half of 1998.
Occupancy and premises expense increased $99,000 for the six month period
ended June 30, 1999 as compared to the first half of 1998. The opening of the
Hellam office contributed to this increase. Furniture and equipment expense
increased $84,000 for the first six months of 1999 as compared to the first six
months of 1998 due to increases in equipment depreciation and maintenance
contracts.
Noninterest expenses increased $81,000 for the six month period ended June
30, 1999 as compared to the first half of 1998. Affecting this increase were
increases in data processing, legal, loan servicing rights amortization and over
and short charges. The increase in expenses was partially offset by a decrease
in consulting services.
Years Ended December 31, 1998, 1997 and 1996.
Years Ended December 31, % Change
(In thousands) 1998 1997 1996 98/97 97/96 96/95
- ------------------------------------------------------ ----------------------
Salaries and employee
benefits $ 8,006 $ 7,597 $ 6,818 5.4% 11.4% 6.1%
Occupancy and premises 1,246 917 827 35.9% 10.9% 3.6%
Furniture and equipment 1,365 1,111 896 22.9% 24.0% 22.1%
Marketing 645 441 627 46.3% -29.7% 61.2%
Net cost of operation of
other real estate 56 53 26 5.7% 103.8% 766.7%
Supplies 535 443 442 20.8% 0.2% 27.7%
Other taxes 375 331 325 13.3% 1.8% 10.5%
Other 3,003 2,341 2,089 28.3% 12.1% 1.0%
----------------------------------------------------
Total other expenses $15,231 $13,234 $12,050 15.1% 9.8% 9.0%
====================================================
Noninterest expenses include all expenses except interest, provision
for loan losses and income taxes. In 1998, total noninterest expenses increased
$2.0 million, or 15.1%
Salaries and employee benefits are the most significant noninterest
expense category, representing 52.6% of total noninterest expenses for 1998. In
1998, salaries and employee benefits increased $409,000, or 5.4% over 1997.
Full-time equivalent staffing levels were 215 at the end of 1998 compared to 209
in 1997 and 193 in 1996. Drovers maintains two incentive
-30-
<PAGE>
compensation plans. Both plans require minimum earnings targets before
incentives are paid. Drovers paid incentives of $511,000, $391,000 and $234,000
in 1998, 1997 and 1996, respectively.
Occupancy and premises expense increased $329,000, or 35.9%, during
1998 as compared to 1997. Two branch offices opened in late 1997 caused most of
this year's increase. Lease payments for the new Hellam office, opened in
January 1999, began in the fourth quarter. During December 1998 Drovers
accelerated the depreciation expense on a branch office scheduled for relocation
within a grocery store. This resulted in an additional $56,000 in expense.
Occupancy and premises expense includes the lease revenues less operating
expenses of the 96 South George Street office building for office space not
occupied by Drovers. This resulted in a reduction of total occupancy and
premises expense of $17,000, $111,000 and $134,000 in 1998, 1997 and 1996,
respectively. The positive impact to occupancy and premises expense has
declined due to an increase in space occupied by Drovers and its subsidiaries.
Furniture and equipment expense increased $254,000, or 22.9%, in 1998
versus 1997. Personal computer and Year 2000 software upgrades contributed to
the increase. Depreciation expense rose due to the equipment purchased for the
new branch offices. Costs associated with a mainframe and ATM network upgrade
and the depreciation expense related to the Dover branch office caused the 1997
increase. Drovers installed a wide area computer network and renovated office
space in two buildings in the fourth quarter of 1995. The full impact of the
depreciation from these capital expenditures occurred in 1996.
Marketing expense grew $204,000, or 46.3%, during 1998 versus 1997.
During 1998 Drovers conducted an extensive image and branding campaign. The
campaign focused on Drovers' community bank image and commitment to the markets
it serves. The Bank celebrated its 115th anniversary in June of 1998.
The net cost of operating other real estate was $56,000 in 1998
compared to $53,000 in 1997 and $26,000 in 1996. Other real estate held was
$148,000, $154,000 and $803,000 at year end 1998, 1997 and 1996, respectively.
Other expenses increased $662,000, or 28.3%, in 1998 versus 1997.
Professional services increased $146,000 in 1998 as compared to 1997 mainly due
to consulting services discussed previously. Total costs for consulting
services were approximately $270,000, well below the savings received from
implementing the consultants' recommendations. In addition, Drovers
commissioned an organizational sales assessment in 1998. As a result, extensive
sales and sales management training was begun in 1999. The training will help
sustain growth and high performance. Amortization of loan servicing rights
increased $96,000 in 1998 due to an increase in residential mortgage loan
refinancings. Data processing expenses increased $106,000 caused primarily by
the expansion of our ATM network. Higher consulting and data processing
expenses contributed to the 1997 increase. Legal fees and checking account
benefits purchased from a third party caused the increase in 1996.
-31-
<PAGE>
Taxation.
Six Month Periods Ended June 30, 1999 and 1998.
Drovers recognized a provision for income taxes of $764,000 for the
six months ending June 30, 1999. The average tax rate, applicable income taxes
divided by income before taxes, was 17.2%. This compares to an average tax rate
of 16.6% for all of 1998.
Years Ended December 31, 1998, 1997 and 1996.
Drovers seeks to minimize its tax liability by investing in low-income
housing partnerships that provide tax credits, purchasing tax-free municipal
bonds and purchasing equity investments eligible for partially tax-free
dividends. The effective tax rate was 16.6% in 1998, 23.3% in 1997 and 18.3% in
1996. Tax credits received were $807,000, $279,000 and $633,000 in 1998, 1997
and 1996, respectively. Average municipal bonds were $23.5 million, $22.2
million and $14.7 million in 1998, 1997 and 1996, respectively. Average equity
securities were $18.2 million in 1998, $13.1 million in 1997 and $5.5 million in
1996. The effective tax rate fluctuates mainly from the level of tax credits
received. Drovers increased its holdings in tax advantaged investments to help
offset increasing taxable income. Projected tax credits are $789,000 in 1999,
$595,000 per year in 2000 through 2003 and $2.2 million thereafter.
-32-
<PAGE>
FINANCIAL CONDITION
Six Month Period Ended June 30, 1999.
The following comparison of actual balances indicates how Drovers has
generated and employed its funds for the six months ending June 30, 1999:
<TABLE>
<CAPTION>
Balance Balance
June 30, December 31
(In thousands) 1999 1998 $ Change % Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FUNDING USES:
Money market investments............ $ 2,109 $ 479 $ 1,630 340.3%
Investment securities............... 177,829 161,619 16,210 10.0%
Loans (net)......................... 421,598 386,197 35,401 9.2%
---------------------------------------------------
Total interest-bearing assets....... 601,536 548,295 53,241 9.7%
Noninterest-bearing assets.......... 41,936 49,498 -7,562 -15.3%
---------------------------------------------------
TOTAL USES.......................... $643,472 $597,793 $45,679 7.6%
===================================================
FUNDING SOURCES:
Interest-bearing demand deposits.... $ 52,615 $ 51,211 $ 1,404 2.7%
Savings deposits.................... 132,024 121,479 10,545 8.7%
Time deposits....................... 248,384 229,643 18,741 8.2%
Short-term borrowings............... 29,680 23,325 6,355 27.2%
Long-term borrowings................ 74,709 62,830 11,879 18.9%
---------------------------------------------------
Total interest-bearing liabilities.. 537,412 488,488 48,924 10.0%
Noninterest-bearing demand
deposits....................... 50,606 55,339 -4,733 -8.6%
Other liabilities................... 6,805 5,773 1,032 17.9%
Shareholders' equity................ 48,649 48,193 456 0.9%
---------------------------------------------------
TOTAL SOURCES....................... $643,472 $597,793 $45,679 7.6%
===================================================
</TABLE>
Total assets have increased $45.7 million, or 7.6%, since December 31,
1998. Net loans grew $35.4 million and investment securities grew $16.2 million
during the first half of 1999. Commercial loan demand remained strong during
the first six months of 1999. During the first half of 1999, commercial loans
grew $26.0 million, or 11.9%, with $19.9 million, or 76.7%, of
-33-
<PAGE>
this growth comprised of loans secured by real estate. Consumer installment
loans, including loans secured by residential real estate, increased $5.5
million, or 8.3%, primarily as a result of a Home Equity Lending Program in our
branch offices during the first half of 1999.
During the first six months of 1999, management increased holdings in
investment securities $16.2 million to leverage Drovers' capital base. Total
investment purchases during the first half of 1999 were $49.9 million. The
purchases included fixed rate mortgage-backed and collateralized mortgage
obligations, variable rate corporate obligations, fixed rate municipal bonds and
fixed rate agency notes. Drovers also sold $6.0 million of U.S. government
corporate and agency bonds, classified as held-to-maturity during the first half
of 1999. These bonds were within three months of a probable call date and the
sales resulted in gains of $26,000.
Deposits, which grew $26.0 million, or 5.7%, during the first half of
1999, funded most of the asset growth during that time frame. Certificates of
deposit and other time deposits and savings deposits contributed most of the
growth, increasing $18.7 million and $10.5 million, respectively, during the
first half of 1999. Drovers' Indexed Money Fund, a savings product that pays a
money market interest rate, grew $6.8 million, or 12.9%, during the first half
of 1999. The remaining assets were funded with short-term and long-term
borrowings from the Federal Home Loan Bank of Pittsburgh. The long-term
borrowings included $12.0 million with a fixed rate of interest until at least
2004.
-34-
<PAGE>
Years Ended December 31, 1998, 1997 and 1996.
Drovers functions as a financial intermediary and, therefore, its
financial condition and progress may be examined in terms of trends in its
sources and uses of funds. The following comparison of average daily balances
indicates how Drovers has generated and employed its funds:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------ --------------------------- --------
Average Increase Average Increase Average
(In thousands) Balance (Decrease) % Balance (Decrease) % Balance
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Funding uses:
Interest-bearing
deposits $ 653 $ (601) (47.9)% $ 1,254 $(1,621) (56.4)% $ 2,875
Investment securities 169,069 4,578 2.8% 164,491 60,010 57.4% 104,481
Loans 355,007 62,000 21.2% 293,007 27,474 10.3% 265,533
------------------------------------------------------------------------
Total interest-
earning assets 524,729 65,977 14.4% 458,752 85,863 23.0% 372,889
Noninterest-earning
assets 34,443 1,958 6.0% 32,485 753 2.4% 31,732
------------------------------------------------------------------------
Total uses $559,172 $67,935 13.8% $491,237 $86,616 21.4% $404,621
========================================================================
Funding sources:
Demand deposits $ 45,935 $ 3,349 7.9% $ 42,586 $ 1,140 2.8% $ 41,446
Savings deposits 119,555 18,243 18.0% 101,312 27,010 36.4% 74,302
Time deposits 218,759 18,136 9.0% 200,623 28,997 16.9% 171,626
Short-term borrowings 28,418 2,758 10.7% 25,660 13,373 108.8% 12,287
Long-term borrowings 50,853 12,965 34.2% 37,888 6,852 22.1% 31,036
------------------------------------------------------------------------
Total interest-
bearing liabilities 463,520 55,451 13.6% 408,069 77,372 23.4% 330,697
Demand deposits 41,752 4,677 12.6% 37,075 3,821 11.5% 33,254
Other liabilities 7,550 2,013 36.4% 5,537 1,296 30.6% 4,241
Shareholders' equity 46,350 5,794 14.3% 40,556 4,127 11.3% 36,429
------------------------------------------------------------------------
Total sources $559,172 $67,935 13.8% $491,237 $86,616 21.4% $404,621
========================================================================
</TABLE>
Total average assets were $559.2 million in 1998, representing a $67.9
million, or 13.8%, increase from 1997. Loans accounted for nearly all the
growth, increasing $62.0 million, or 21.2%, in 1998 versus 1997. Commercial and
residential mortgage lending provided most of the growth in loans.
Total deposits grew $44.4 million, or 11.6%, in 1998 versus 1997. The deposit
growth in 1998 funded 65.4% of the asset growth in 1998. The popular Indexed
Money Fund provided most of the growth in savings deposits, which grew $18.2
million from year end 1998 over year end 1997. Certificate of deposit balances
continued to grow, increasing time deposits $18.1 million from year end 1998
over year end 1997. Average short and long term borrowings increased $15.7
million from year end 1998 over year end 1997. Additional borrowings at the
Federal Home Loan Bank accounted for most of the increase.
-35-
<PAGE>
Average Balances and Rates.
Six Month Periods Ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
YTD June 1999 YTD June 1998
---------------------------- --------------------------
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits
with banks $ 361 $ 12 6.70% $ 1,078 $ 32 5.99%
Taxable investment securities 127,537 4,021 6.36% 132,857 4,261 6.47%
Equity securities 19,367 554 5.77% 17,892 503 5.67%
Tax-exempt investment securities 24,015 633 5.32% 23,802 646 5.47%
Loans 403,655 16,529 8.26% 337,927 14,700 8.77%
-------------------------------------------------------
TOTAL 574,935 $21,749 7.63% 513,556 $20,142 7.91%
======= =======
Noninterest-earning assets 37,948 33,259
-------- --------
TOTAL ASSETS $612,883 $546,815
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 52,158 $ 249 0.96% $ 44,830 $ 268 1.21%
Savings deposits 129,053 2,140 3.34% 117,524 2,187 3.75%
Time deposits 239,680 6,383 5.37% 212,405 6,048 5.74%
Short-term borrowings 20,064 468 4.70% 30,170 790 5.28%
Long-term borrowings 69,661 1,862 5.39% 49,947 1,425 5.75%
-------------------------------------------------------
TOTAL 510,616 $11,102 4.38% 454,876 $10,718 4.75%
======= =======
Noninterest-bearing liabilities:
Demand deposits 44,849 39,727
Other liabilities 7,500 7,060
Shareholders' equity 49,918 45,152
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $612,883 $546,815
======== ========
NET INTEREST SPREAD 3.25% 3.16%
==== ====
INTEREST EXPENSE AS A
PERCENT OF EARNING
ASSETS 3.89% 4.21%
NET INTEREST INCOME
MARGIN $10,647 3.74% $ 9,424 3.70%
======= ==== ======= ====
</TABLE>
Average nonaccrual loans included in average loans for the six months ended
June 30, 1999 and 1998 were $1.1 million and $631,000, respectively. Year-to-
date loan fees included in interest income were $617,000 and $682,000 for 1999
and 1998, respectively.
-36-
<PAGE>
Years Ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------- ---------------------------- ---------------------------
Average Average Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits
with banks $ 653 $ 41 6.28% $ 1,254 $ 70 5.58% $ 2,875 $ 155 5.39%
Taxable investment securities 127,311 8,156 6.41% 129,170 8,712 6.74% 84,232 5,492 6.52%
Equity securities 18,212 1,033 5.67% 13,114 767 5.85% 5,503 336 6.11%
Tax-exempt investment
securities 23,546 1,278 5.43% 22,207 1,231 5.54% 14,746 873 5.92%
Loans 355,007 30,483 8.59% 293,007 25,487 8.70% 265,533 23,199 8.74%
------------------------------------------------------------------------------------------
TOTAL 524,729 $40,991 7.81% 458,752 $36,267 7.91% 372,889 $30,055 8.06%
======= ======= =======
Noninterest-earning assets 34,443 32,485 31,732
-------- -------- --------
TOTAL ASSETS $559,172 $491,237 $404,621
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $ 45,935 $ 534 1.16% $ 42,586 $ 514 1.21% $ 41,446 $ 510 1.23%
Savings deposits 119,555 4,379 3.66% 101,312 3,600 3.55% 74,302 2,116 2.85%
Time deposits 218,759 12,461 5.70% 200,623 11,530 5.75% 171,626 9,696 5.65%
Short-term borrowings 28,418 1,491 5.25% 25,660 1,353 5.27% 12,287 584 4.75%
Long-term borrowings 50,853 2,871 5.65% 37,888 2,257 5.96% 31,036 1,885 6.07%
-----------------------------------------------------------------------------------------
TOTAL 463,520 $21,736 4.69% 408,069 $19,254 4.72% $330,697 $14,791 4.47%
======= ======= =======
Noninterest-bearing liabilities:
Demand deposits 41,752 37,075 33,254
Other liabilities 7,550 5,537 4,241
Shareholders' equity 46,350 40,556 36,429
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $559,172 $491,237 $404,621
======== ======== ========
NET INTEREST SPREAD 3.12% 3.19% 3.59%
==== ===== =====
INTEREST EXPENSE AS A
PERCENT OF EARNING
ASSETS 4.14% 4.20% 3.97%
NET INTEREST INCOME
MARGIN $ 19,255 3.67% $17,013 3.71% $15,264 4.09%
======== ===== ======= ===== ======= ====
</TABLE>
Average nonaccrual loans included in average loans for 1998, 1997 and 1996
were $797,000, $680,000 and $2.2 million, respectively. Loan fees included in
interest income were $1.2 million, $483,000 and $356,000 in 1998, 1997 and 1996,
respectively.
-37-
<PAGE>
Investment Securities.
The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 1,488 $ 26 $ 0 $ 1,514
Obligations of states and political
subdivisions 15,167 353 1 15,519
Mortgage-backed securities and
collateralized mortgage obligations 6,805 85 14 6,876
------------------------------------------
Total investment securities $23,460 $464 $15 $23,909
==========================================
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 13,494 $ 6 $ 193 $ 13,307
Obligations of states and political
subdivisions 11,941 73 272 11,742
Corporate obligations 10,154 57 116 10,095
Mortgage-backed securities and
collateralized mortgage obligations 101,022 303 1,851 99,474
--------------------------------------------
Total debt securities 136,611 439 2,432 134,618
Equity securities 19,170 673 92 19,751
--------------------------------------------
Total investment securities $155,781 $1,112 $2,524 $154,369
============================================
</TABLE>
-38-
<PAGE>
Years Ended December 31, 1998, 1997 and 1996.
The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 8,476 $139 $ 0 $ 8,615
Obligations of states and political
subdivisions 16,926 697 0 17,623
Mortgage-backed securities and
collateralized mortgage obligations 8,857 124 23 8,958
-------------------------------------------
Total investment securities $34,259 $960 $23 $35,196
==========================================
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 7,014 $ 105 $ 0 $ 7,119
Obligations of states and political
subdivisions 7,541 243 24 7,760
Corporate obligations 4,726 21 81 4,666
Mortgage-backed securities and
collateralized mortgage obligations 88,304 973 243 89,034
--------------------------------------------
Total debt securities 107,585 1,342 348 108,579
Equity securities 17,884 930 33 18,781
--------------------------------------------
Total investment securities $125,469 $2,272 $381 $127,360
============================================
</TABLE>
-39-
<PAGE>
The amortized cost and estimated fair value of investment securities
classified as held-to-maturity as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $10,469 $ 153 $ 0 $10,622
Obligations of states and political
subdivisions 18,318 707 0 19,025
Mortgage-backed securities and
collateralized mortgage
obligations 13,965 165 79 14,051
------------------------------------------
Total investment securities $42,752 $1,025 $79 $43,698
==========================================
</TABLE>
The amortized cost and estimated fair value of investment securities
classified as available-for-sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 18,003 $ 109 $ 5 $ 18,107
Obligations of states and political
subdivisions 5,898 198 0 6,096
Corporate obligations 500 0 14 486
Mortgage-backed securities and
collateralized mortgage
obligations 93,729 1,047 29 94,747
--------------------------------------------
Total debt securities 118,130 1,354 48 119,436
Equity securities 16,004 1,107 0 17,111
--------------------------------------------
Total investment securities $134,134 2,461 $48 $136,547
============================================
</TABLE>
Proceeds from sales of investment securities classified as available-for-sale
during 1998, 1997 and 1996 were $471,000, $6.8 million and $14.6 million,
respectively. Gross realized gains during 1998, 1997 and 1996 were $262,000,
$196,000 and $293,000, respectively. Gross realized losses during 1998, 1997
and 1996 were $0, $0 and $108,000, respectively.
No held-to-maturity investment securities were sold during 1998, 1997 or 1996,
however, gains were recognized on securities with call options exercised by the
issuer. Realized gains were $0, $1,000 and $11,000 in 1998, 1997 and 1996,
respectively.
-40-
<PAGE>
At December 31, 1998 and 1997, assets with a carrying value of $40.7 million
and $42.9 million, respectively, were pledged as required or permitted by law to
secure certain public and trust deposits and repurchase agreements. The
aggregate book value of debt securities from a single issuer did not exceed 10%
of stockholders' equity at December 31, 1998 or 1997.
The amortized cost and estimated fair value of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities because some issues have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
------------------------------------ -------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 1,303 $ 1,311 $ 2,500 $ 2,513
Due after one year through five years 4,773 5,016 2,514 2,568
Due after five years through ten years 14,734 15,142 5,726 5,870
Due after ten years 4,592 4,769 8,541 8,594
---------------------------------------------------------------------
25,402 26,238 19,281 19,545
Mortgage-backed securities and
collateralized mortgage obligations 8,857 8,958 88,304 89,034
---------------------------------------------------------------------
Total debt securities $34,259 $35,196 $107,585 $108,579
=====================================================================
</TABLE>
-41-
<PAGE>
Loans and Loan Quality.
Loan Data.
Loans are comprised of the following as of June 30,
1999 and December 31, 1998 and 1997:
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31,
(In thousands) 1999 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial and industrial loans $124,046 $117,997 $ 80,636
Real estate mortgage loans:
Real estate construction-related 16,174 13,523 12,105
Real estate mortgage loans secured by 1-4
family residential properties 133,156 126,542 107,797
Other real estate 120,532 100,585 80,462
----------------------------
Total real estate mortgage loans 269,862 240,650 200,364
Consumer loans:
Monthly payment 30,769 30,498 30,952
Other revolving credit 779 791 1,476
----------------------------
Total consumer loans 31,548 31,289 32,428
Leasing and other 293 173 245
----------------------------
Total loans $425,749 $390,109 $313,673
============================
</TABLE>
-42-
<PAGE>
Maturities and Rate Sensitivity of the Loan Portfolio.
The following table shows the amounts of loans (excluding consumer,
residential real estate and other loans) outstanding as of December 31, 1998
which, based on remaining scheduled repayments of principal, are due in the
periods indicated:
<TABLE>
<CAPTION>
After
Remaining Maturities One Year One To Over
(In thousands) Or Less Five Years Five Years Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic loans:
Commercial, financial and industrial $85,617 $22,579 $ 9,424 $117,620
Real estate construction 8,486 3,971 1,066 13,523
-----------------------------------------
Total $94,103 $26,550 $10,490 $131,143
=========================================
Rate sensitivity:
Predetermined rate $ 3,127 $20,380 $ 9,542 $ 33,049
Floating or adjustable rate 90,976 6,170 948 98,094
-----------------------------------------
Total $94,103 $26,550 $10,490 $131,143
=========================================
</TABLE>
Nonperforming Assets.
Nonperforming assets were comprised of the following at June 30, 1999 and
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nonaccrual loans $ 788 $1,435 $ 740 $ 615
90 days past due still accruing 0 7 33 0
Restructured loans 2,178 1,203 0 1,139
--------------------------------
Nonperforming loans 2,966 2,645 773 1,754
Other real estate 203 148 154 803
--------------------------------
Nonperforming assets $3,169 $2,793 $ 927 $2,557
================================
Nonperforming loans to total loans 0.70% 0.68% 0.25% 0.62%
Nonperforming assets to total assets 0.49% 0.47% 0.18% 0.57%
</TABLE>
As of June 30, 1999, the total recorded investment in impaired loans was
$2.2 million. Nonaccrual loans at June 30, 1999 were $788,000 compared to $1.4
million at December 31, 1998.
Nonaccrual loans were $1.4 million, $740,000 and $615,000 at December 31,
1998, 1997 and 1996, respectively. If interest due on all nonaccrual loans had
been accrued at the original contract rates, it is estimated that income before
taxes would have been greater by $60,000,
-43-
<PAGE>
$56,000 and $37,000 at December 31, 1998, 1997 and 1996, respectively. Accruing
loans which were contractually past due 90 days or more were $7,000, $33,000 and
$0 at December 31, 1998, 1997 and 1996, respectively.
The total recorded investment in impaired loans was $1.7 million and $1.3
million at December 31, 1998 and 1997, respectively. Loans classified as
impaired as a result of troubled debt restructurings which are in compliance
with modified terms recognize interest under the accrual method of accounting.
Interest on all other impaired loans is recognized on the accrual method of
accounting until principal or interest is past due 90 days or more and when full
principal or interest is unlikely. At that time the loans are placed on
nonaccrual status. The average recorded investment in impaired loans during
1998, 1997 and 1996 was $1.7 million, $2.5 million, and $1.8 million,
respectively. The Corporation recognized interest income on impaired loans of
$123,000 in 1998, $233,000 in 1997 and $193,000 in 1996. Interest income
recognized on a cash basis would have been $122,000 in 1998, $206,000 in 1997
and $214,000 in 1996. The recorded reserve for impaired loans as of December
31, 1998 and 1997 was $150,000 and $0, respectively.
Reserve for Loan Losses.
Changes in the reserve for loan losses for the six months ended June 30,
1999 and the years ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Six months
ended June 30, Years ended December 31,
(In thousands) 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1.............................. $3,912 $3,304 $3,130 $2,937
Provision for loan losses....................... 851 1,266 386 645
Charge-offs:
Commercial, financial and industrial........... 500 522 0 25
Real estate.................................... 0 0 0 215
Consumer....................................... 133 235 327 369
--------------------------------------------
Total loans charged-off......................... 633 757 327 609
Recoveries:
Commercial, financial and industrial........... 0 0 32 6
Real estate.................................... 0 0 15 36
Consumer....................................... 21 99 68 115
--------------------------------------------
Total recoveries................................ 21 99 115 157
--------------------------------------------
Net charge-offs................................. 612 658 212 452
Balance, end of period.......................... $4,151 $3,912 $3,304 $3,130
============================================
Reserve for loan losses to total loans.......... 0.97% 1.00% 1.05% 1.11%
Reserve for loan losses to nonperforming loans.. 1.40% 1.48% 4.27% 1.78%
</TABLE>
-44-
<PAGE>
The provision for loan losses was $851,000 for the first half of 1999. This
compares to a provision of $468,000 for the first six months of 1998. The
increase in the provision for loan losses is related to the charge-off of
commercial loans to one borrower and also to the increase in total loans. The
loan loss provision as a percentage of loans was 0.97% at June 30, 1999 compared
to 1.00% at the end of 1998.
The provision for loan losses was $1.3 million, $386,000 and $645,000 for
1998, 1997 and 1996, respectively. Management analyzes the loan portfolio and
the reserve for loan losses each quarter. The analysis estimates loan losses
and determines the required provision. The analysis considers many factors
including charge-off history, loan quality and loan growth. Net charge-offs for
1998, 1997 and 1996 were $658,000, $212,000 and $452,000, respectively. As a
percentage of average loans, net charge-offs were 0.18%, 0.07% and 0.17% in
1998, 1997 and 1996, respectively. Nonaccrual loans as a percentage of total
loans at December 31, 1998, 1997 and 1996 were 0.37%, 0.24% and 0.22%,
respectively. Loans grew $76.4 million, $30.6 million and $27.7 million in
1998, 1997 and 1996, respectively. The reserve for loan losses as a percentage
of loans at December 31, 1998, 1997 and 1996 was 1.00%, 1.05% and 1.11%,
respectively. An increase in net charge-offs, nonaccrual loans and total loans
caused management to increase the 1998 provision. Management believes the
present reserve is adequate to absorb losses in the existing portfolio. A
significant degradation of loan quality, however, could require a change in
estimated losses and cause a material change in net income.
The following table presents the changes in the balance of other real estate
for the six months ended June 30, 1999 and the years ended December 31, 1998,
1997 and 1996:
Six Months
ended June 30, Years Ended December 31,
(In thousands) 1999 1998 1997 1996
- ----------------------------------------------------------------------------
Balance at beginning of year $ 148 $ 154 $ 803 $ 195
Assets acquired by foreclosure
or repossession 252 277 211 822
Dispositions -197 -252 -827 -203
Other 0 -31 -33 -11
-----------------------------------------
Balance at end of year $ 203 $ 148 $ 154 $ 803
=========================================
Other real estate consists of assets which have been repossessed or acquired
through workout situations on defaulted loans.
45
<PAGE>
Deposits.
Average deposits for the first six months of 1999 and for the years 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
YTD 1999 1998 1997
-------------------- ---------------------- ---------------------
(In thousands) Average % of Total Average % of Total Average % of Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 44,849 9.6% $ 41,752 9.8% $ 37,075 9.7%
Interest-bearing deposits:
Demand 52,158 11.2% 45,935 10.8% 42,586 11.2%
Savings 129,053 27.7% 119,555 28.1% 101,312 26.5%
Time 239,680 51.5% 218,759 51.4% 200,623 52.6%
-------------------------------------------------------------------
Total interest-bearing deposits 420,891 90.4% 384,249 90.2% 344,521 90.3%
-------------------------------------------------------------------
Total deposits $465,740 100.0% $426,001 100.0% $381,596 100.0%
===================================================================
</TABLE>
Maturities of time deposits of $100,000 or more outstanding at June 30, 1999
and December 31, 1998 and 1997 are as follows:
June 30, Dec. 31, Dec. 31,
(In thousands) 1999 1998 1997
- -------------------------------------------------------------------
Three months or less $ 6,931 $ 5,983 $ 4,675
Over three months to six months 5,623 4,423 1,598
Over six months to twelve months 8,298 9,175 5,811
Over twelve months 6,743 7,456 8,340
------- ------- -------
Total $27,595 $27,037 $20,424
======= ======= =======
-46-
<PAGE>
Other Borrowings and Lease Commitments.
Other borrowings were comprised of the following at June 30, 1999 and
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
June 30, Dec. 31, Dec. 31,
(In thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes payable to FHLB Pittsburgh:
Due 1998, 5.43% - 6.72% $ 0 $ 0 $ 3,500
Due 1998, variable 0 0 10,000
Due 2000, 6.01% 100 100 100
Due 2000, variable 4,000 4,000 4,000
Due 2002, 5.48% - 5.60%, convertible
quarterly after 1998 20,000 20,000 20,000
Due 2003, 6.40% 400 400 400
Due 2003, 5.13%, convertible quarterly after 2000 8,000 8,000 0
Due 2005, 5.24%, convertible quarterly after 2001 5,000 5,000 0
Due 2008, 4.86% - 4.94%, convertible
quarterly after 1999 15,000 15,000 0
Due 2008, 5.15%, convertible in 2005 5,000 5,000 0
Due 2009, 4.93%, convertible quarterly after 2004 7,000 0 0
Due 2014, 5.60% convertible quarterly 2004 5,000 0 0
Due 2015, 3.75%, amortizing 368 372 378
Note payable to First Union:
Due 2003, 6.53% 4,711 4,805 4,987
--------------------------
74,579 62,677 43,365
Capital lease obligations 130 153 193
--------------------------
$74,709 $62,830 $43,558
==========================
</TABLE>
The Federal Home Loan Bank of Pittsburgh (FHLB) notes payable are secured by
FHLB stock, deposits held by the FHLB and other mortgage collateral. The fair
value of the FHLB stock as of December 31, 1998 and 1997 was $6.7 million and
$5.5 million, respectively. The interest rates on the variable notes reprice
quarterly or more frequently and are based on LIBOR or prime. Borrowings at a
fixed rate until after a specified date are Convertible Select borrowings.
These borrowings include a put option if the FHLB elects to convert the debt to
a variable interest rate. The Corporation also maintains a credit line with the
FHLB secured by the same collateral. The unused credit line totaled $92.1
million at December 31, 1998. The First Union note payable is secured by a
mortgage on the 96 South George Street office building. The note is payable in
monthly installments based on a twenty-year amortization. The amounts of notes
payable and capital leases maturing in the years ended December 31, 1999 through
2003 are as follows: $246,000; $4.4 million; $266,000; $20.3 million and $12.4
million, respectively.
At December 31, 1998 and 1997, the Corporation and its subsidiaries were
obligated under noncancelable leases for premises and equipment. The terms
include various renewal options and provide for rental increases based upon
predetermined factors. The Hellam land
47
<PAGE>
lease contains a purchase option. The rental expense under such leases amounted
to $390,000 in 1998, $270,000 in 1997 and $164,000 in 1996.
Future minimum rental payments under capital leases and noncancelable
operating leases with terms of one year or more at December 31, 1998 were:
Capital Operating
Leases Leases
- ---------------------------------------------------------------
1999...................................... $ 65 $ 422
2000...................................... 65 376
2001...................................... 45 338
2002...................................... 11 342
2003...................................... 0 348
Thereafter................................ 0 1,766
----------------
Total future minimum rental payments...... 186 $3,592
=======
Less interest............................. 33
----
Present value of minimum rental payments.. $153
====
MANAGEMENT
The following table lists senior executive officers of Drovers and the Bank
and the current directors of Drovers and the Bank as of September 24, 1999:
Name Age Positions
- ---- --- ---------
A. Richard Pugh 58 Chairman of the Board, President and CEO of
Drovers and the Bank
Debra A. Goodling 41 Executive Vice President and Treasurer of
Drovers and Executive Vice President and Chief
Financial Officer of the Bank
Michael J. Groft 44 Executive Vice President of Drovers and
Executive Vice President and Senior Loan
Officer of the Bank
-48-
<PAGE>
Shawn A. Stine 44 Executive Vice President of Drovers and
Executive Vice President and Senior Corporate
Banking Officer of the Bank
Michael E. Kochenour 47 Senior Vice President and Senior Investment
Services and Trust Officer of the Bank
John D. Blecher 38 Senior Vice President and Secretary of
Drovers; Senior Vice President, Secretary and
Controller of the Bank
L. Doyle Ankrum 70 Director
J. Samuel Gregory 68 Director
Daniel E. Hess 67 Director
George W. Hodges 48 Director
Herbert D. Lavetan 69 Director
Richard M. Linder 68 Director
David C. McIntosh 70 Director
Frank Motter 71 Director
Robert L. Myers, Jr. 70 Director
Harlowe R. Prindle 56 Director
Basel A. Shorb, III 53 Director
D. John Sparler 50 Director
Gary A. Stewart 51 Director
Robert H. Stewart, Jr. 59 Director
Delaine A. Toerper 55 Director
James S. Wisotzkey 45 Director
-49-
<PAGE>
A. Richard Pugh is Chairman of the Board, President and Chief
Executive Officer of Drovers and the Bank. Mr. Pugh joined the organization in
1988 as Chief Operating Officer, and was appointed President in 1990 and CEO in
1994. He has extensive and diversified experience in bank management.
Debra A. Goodling is Executive Vice President and Treasurer of Drovers
and Executive Vice President, Treasurer and Chief Financial Officer of the Bank.
Ms. Goodling joined the organization in February 1977. She has served in
various financial officer positions since 1981.
Michael J. Groft is Executive Vice President of Drovers and Executive
Vice President and Senior Loan Officer of the Bank. Mr. Groft joined the
organization in March 1978. He has served in various loan officer positions
since 1978.
Shawn A. Stine is Executive Vice President of Drovers and Executive
Vice President and Senior Corporate Banking Officer of the Bank. Mr. Stine
joined the organization in August 1991 in the position of Vice President and
Senior Corporate Banking Officer.
Michael E. Kochenour is Senior Vice President and Senior Investment
Services and Trust Officer of the Bank. Mr. Kochenour joined the Bank in August
1999. Prior to joining the Bank, he was employed by First Union as a Senior
Vice President, Consumer Banking Executive. Prior to the First Union/CoreStates
merger in April 1998, Mr. Kochenour held various positions at CoreStates and was
promoted to Senior Vice President in 1988.
John D. Blecher is Senior Vice President, Secretary and Assistant
Treasurer of Drovers and Senior Vice President, Secretary and Controller of the
Bank. Mr. Blecher joined the organization in February 1987. He has served as
Controller since 1989.
L. Doyle Ankrum has served as a Director since 1979. Mr. Ankrum is a
retired President of Ettline Foods, Inc.
J. Samuel Gregory has served as a Director since 1978. Mr. Gregory is
the Chairman and CEO of AAA Southern Pennsylvania, which provides insurance,
travel and member services.
Daniel E. Hess has served as a Director since 1982. Mr. Hess is
President of Hess Management, Inc., management consultants.
George W. Hodges has served as a Director since 1994. Mr. Hodges is
the President of The Wolf Organization, Inc., distributors of lumber and
building supplies.
Herbert D. Lavetan has been a Director since 1979. Mr. Lavetan
retired in January 1999 from his position as a Director of Lavetan & Associates,
Inc., a provider of postal, business and communication services.
50
<PAGE>
Richard M. Linder has been a Director since 1976. Mr. Linder retired
in March 1996 from his position as Chairman of Drovers and the Bank.
David C. McIntosh has been a Director since 1985. Mr. McIntosh
retired in February 1999 from his position as President of MCD Technologies,
Inc. Mr. McIntosh is currently Chairman of the Susquehanna Area Regional
Airport Authority.
Frank Motter has served as a Director since 1975. Mr. Motter is the
Chairman of the Board and President of Motter Printing Press Co.
Robert L. Myers, Jr. has been a Director since 1968. Mr. Myers is the
President of John H. Myers & Sons, Inc., a lumber and building supplies
business.
Harlowe R. Prindle has been a Director since 1982. Mr. Prindle is
President of York Auto Parts Co. and Chairman and CEO of Shenk & Tittle
Management Co.
Basil A. Shorb, III, has been a Director since 1993. Mr. Shorb is the
President of REH Holdings, Inc., a holding company providing management services
to five wholly owned subsidiaries engaged in steel fabrication, highway sign
manufacturing and specialty construction.
D. John Sparler has been a Director since 1984. Mr. Sparler, who
currently manages his investments, is the former President, Treasurer and Chief
Operating Officer of Yorktowne Paper Mills, Inc., a manufacturer of paperboard
and paperboard products.
Gary A. Stewart has been a Director since 1996. Mr. Gary Stewart is a
partner in Stewart Associates. Until January 1999, he was Chairman and CEO of
Stewart & March, Inc., general contractors.
Robert H. Stewart, Jr. has been a Director since 1987. Mr. Robert
Stewart is the President of York Building Products Co., Inc., a producer of
concrete masonry units, crushed stone and bituminous concrete.
Delaine A. Toerper has been a Director since 1995. Mrs. Toerper is a
self-employed consultant and retired in August 1996 from her position as
Executive Vice President and Chief Operating Officer of Tighe Industries, Inc.,
manufacturers, designers and marketers of dance costume, dance apparel and
gymnastic apparel.
James S. Wisotzkey has been a Director since 1997. Mr. Wisotzkey is
the President and Chief Operating Officer of The Maple Press Company, a book
manufacturing company.
51
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS
The table below sets forth the beneficial ownership of our common
stock as of August 31, 1999, by each person we know to beneficially own 5% or
more of the common stock, each director and executive officer, and all directors
and executive officers of Drovers as a group. The number of beneficially owned
shares includes shares over which the named person, directly or indirectly,
through any contract, arrangement, understanding, relationship or otherwise, has
or shares voting power (which includes the power to vote, or direct the voting
of, such security) or investment power (which includes the power to dispose, or
to direct the disposition of, such security). All shares of a named person are
deemed to be subject to that person's sole voting and investment power unless
otherwise indicated. Shares subject to stock options are included as
outstanding shares of common stock, unless these options are not exercisable
within 60 days:
Percentage
Number of Shares of Outstanding
Name of Beneficial Owner Beneficially Owned Common Stock Owned
- ------------------------ ------------------ ------------------
L. Doyle Ankrum 8,733 (1) *
J. Samuel Gregory 11,093 *
Daniel E. Hess 12,844 *
George W. Hodges 4,391 (2) *
Herbert D. Lavetan 132,914 2.83%
Richard M. Linder 14,587 (3) *
David C. McIntosh 5,309 (4) *
Frank Motter 46,742 *
Robert L. Myers, Jr. 35,967 (5) *
Harlowe R. Prindle 27,241 *
A. Richard Pugh 74,558 (6) 1.59%
Basil A. Shorb, III 98,238 (7) 2.09%
D. John Sparler 15,950 *
Gary A. Stewart 185,343 (8) 3.95%
Robert H. Stewart, Jr. 149,721 (8) 3.19%
Delaine A. Toerper 1,782 *
James S. Wisotzkey 1,653 *
All Directors and Executive Officers
as a Group (22) 895,679 19.06%
- -------------------
* Less than 1%.
(1) Includes 6,540 shares owned by Mr. Ankrum's wife.
52
<PAGE>
(2) Includes 3,839 shares owned by Mr. Hodges' wife.
(3) Includes 406 shares owned by Mr. Linder's wife.
(4) Includes 170 shares owned by Mr. McIntosh's wife.
(5) Includes 5,256 shares held jointly with Mr. Myers' wife and 18,087 shares
held by the Elsbeth M. Myers Trust, of which Mr. Myers is a trustee sharing
investment and voting authority.
(6) Includes 11,143 shares held jointly with Mr. Pugh's wife, 175 shares owned
by Mr. Pugh's children for which he is custodian and 60,223 shares Mr. Pugh
has the right to acquire upon exercise of stock options granted pursuant to
our 1985 Stock Incentive Plan and 1995 Stock Incentive Plan.
(7) Includes 33,122 shares owned by Mr. Shorb's wife, 9,743 shares owned by Mr.
Shorb's son for which he is custodian, 9,728 shares owned by his son for
which Mr. Shorb's wife is custodian and 40,211 shares held by Triple M
Associates of which Mr. Shorb's wife is a partner sharing voting and
investment authority.
(8) Mr. Gary A. Stewart, Mr. Robert H. Stewart, Jr. and other members of the
Stewart family have filed, as a group, a Schedule 13D, as amended, with the
Securities and Exchange Commission. The Schedule 13D disclosed that no
member of such group beneficially owns or has power to vote more than 5% of
our shares. However, as a group such persons may be deemed to beneficially
own approximately 16.16% of our issued and outstanding shares.
53
<PAGE>
DETERMINATION OF OFFERING PRICE
We determined the offering price for the shares of common stock offered by
this Prospectus after considering several factors, including recent trading
prices of the common stock, book value per share, earnings per share, historical
results of operations, assessment of our management and financial condition and
market activity of stock for other financial institutions. Because the offering
is expected to take place over a period of several months, the market price for
the common stock could vary during the offering.
PLAN OF DISTRIBUTION AND HOW TO ORDER
General.
Our goal is to sell approximately $5,000,000 of common stock, before
expenses, or _________ shares. We have registered an additional _______ shares
or approximately $750,000 of common stock that we may issue at our discretion in
order to permit us to satisfy unfilled orders. We may terminate the offering at
any time before or after selling $5,000,000 of common stock.
The initial offering period will end at 5:00 P.M., local time, York,
Pennsylvania, on ________ __, ____, after which a closing will occur as soon as
practicable. If shares remain to be sold after the initial offering period, we
may, at our discretion, continue the offering with the assistance of ______
_______ and any selling group of selected broker-dealers formed by ______
_______ for approximately 30 additional days, unless earlier terminated. We may
extend this additional offering period, at our discretion, but in no event for
more than an additional 30 days. We will have another closing as soon as
practicable after the end of this additional offering period, unless the
offering period is terminated without further sales.
Financial Advisor and Selling Agent.
We have engaged _________________________________________________________, as
our financial advisor and exclusive selling agent with respect to the entire
offering on a "best efforts" basis. If we continue the offering after the
initial offering period, ______________ may sell the shares for our account
through itself or through selected broker-dealers appointed by ______________ as
agents for us.
______________ is a division of ___________________________, a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. Neither ______________ nor any other registered broker-dealer is obligated
to purchase any shares in the offering. In addition to acting as our sales
agent, ______________ will assist in the offering in the following manner: (i)
training and educating our employees regarding the mechanics and regulatory
requirements of
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the offering process; (ii) marketing program development and implementation;
(iii) managing the sales efforts in the offering, including sales and stock
information center operations; and (iv) keeping records of all stock orders.
We have paid ______________ a $20,000 financial advisory fee in connection
with the offering. We will pay ______________ the following additional fees in
connection with the offering:
. 2% of gross proceeds from sales to shareholders during the initial
offering period (other than our directors, officers and employees),
. 3% of gross proceeds from sales to any other persons during the initial
offering period (other than to our directors, officers and employees),
and
. if we sell shares after the initial offering period with the
assistance of ______________ and selected broker-dealers, 6% of gross
proceeds from such sales through ______________ and 6% of gross
proceeds from such sales through selected broker-dealers, of which
4.5% will go to the broker-dealer and 1.5% will go to ______________.
We have agreed to reimburse ______________ for its out of pocket expenses, not
to exceed $5,000 without our written approval, and for its legal fees, not to
exceed $15,000 without our written approval. We have also agreed to indemnify
______________ and certain other persons against certain liabilities, including
liabilities under the Securities Act of 1933.
______________ has in the past provided investment banking services to us for
which it has received customary fees and commissions.
The Amount of Stock You May Purchase.
The minimum you may purchase in the offering is 100 shares, which totals
$________. You may purchase in the offering no more than ________ shares,
representing 5% of the shares offered. In determining whether you have exceeded
the maximum purchase limitation, we will include shares purchased by individuals
on joint accounts with you or having the same address as you on our records, as
well as shares purchased by your related interests or related persons who are
helping you acquire shares. We may decrease or increase the maximum purchase
limitation without notifying you. Our articles of incorporation prohibit our
issuance or delivery of shares of our common stock to 10% or more beneficial
owners without an 85% affirmative shareholder vote or advance waiver by a
majority of our directors in office prior to the time the individual or group
became a 10% beneficial owner.
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How to Order.
During the initial offering period:
During the initial offering period, you may subscribe to purchase shares by
mailing or delivering to us:
. a completed stock order form (which accompanies this Prospectus); and
. making payment of the purchase price in accordance with instructions in
the stock order form.
After the initial offering period:
If we offer shares in the offering after the expiration of the initial
offering period, you may purchase shares through ______________ or a member of
the selling group of selected broker-dealers, who will submit orders to us on
your behalf. During the additional offering period, we may accept orders
submitted to us through a completed stock order form at our discretion.
If you elect to purchase shares through a member of the selling group of
broker-dealers after the initial offering period, any broker-dealer who
participates in the selling group may be required upon receipt of confirmation
by such broker-dealer of your interest in purchasing shares, and following an
acknowledgment by such broker-dealer to you on the business day next following
receipt of confirmation, to debit your account on the third business day next
following receipt of confirmation and to forward the aggregate purchase price to
us on or before 12:00 Noon, prevailing time, of the business day next following
such debiting. If you do not have an account with one of the selling group of
broker-dealers, you will be required to make satisfactory arrangements to pay
for your order in full prior to the closing of the offering.
Stock Information Center:
To obtain further information on ordering during either the initial offering
period or any additional offering period, you may contact the Stock Information
Center at (717) 519-2333.
The mailing address for the Stock Information Center is Drovers Bancshares
Corporation, 30 South George Street, York, PA 17401.
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Payment for Shares.
Payment for shares of common stock may be made (i) in cash, if delivered in
person to us, (ii) by check or money order payable to Drovers Bancshares
Corporation, or (iii) by wire transfer of funds to the escrow account maintained
by us for such purposes at the Bank, Account No. 168955; ABA No. 031301590.
Handling of Funds.
All funds received by us in payment of stock orders will be held in a non-
interest bearing escrow account at the Bank until a subsequent closing of the
offering. Checks received in payment of orders will be deposited in the escrow
account by Noon of the next business day after receipt. Any funds received with
respect to stock orders that are not accepted will be returned, without
interest, promptly after the order is rejected.
As soon as practicable after each closing, we will mail to each of you whose
stock order we have accepted a stock certificate, registered in your name or as
directed by you, for the shares you have purchased. Certificates for shares
purchased through ______________ or another member of the selling group of
broker-dealers will be registered or delivered in accordance with instructions
we receive from the selling group member.
We May Reject Any Subscription or Order.
We have the right to accept or reject any subscription or order for the
purchase of shares, in whole or in part, for any reason. We will notify you in
writing whether we have accepted your order as soon as practicable after we hold
a closing subsequent to receiving your order. An executed stock order form or
order submitted through a member of the selling group, once received by us, may
not be modified, amended or rescinded without our consent.
In the event a stock order form (i) is not received or is received after the
expiration of the initial offering period or (ii) is defectively completed or
executed, we may, but will not be required to, waive any irregularity on any
stock order form or require the submission of corrected stock order forms or the
remittance of full payment for subscribed shares by such date as we may
otherwise specify. The waiver of an irregularity on a stock order form in no
way obligates us to waive any other irregularity on any other stock order form.
Waivers will be considered on a case by case basis. Our interpretation of the
acceptability of any order will be final.
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Filling of Orders.
Shares will be sold pursuant to accepted stock orders at the end of the
offering periods at the related closing. If shares available are
oversubscribed, we may allocate available shares among all subscribers at the
time of a closing. We may allocate shares any way we determine. We may take
into account any factors we think relevant, including the order in which the
stock order is received, our desire to have a broad distribution of stock
ownership and administrative convenience.
Restriction on Sales Activities.
The shares will be offered in the offering principally by the distribution of
this Prospectus and through activities conducted through the Stock Information
Center. The Stock Information Center is expected to operate during normal
business hours throughout the offering. A registered representative employed by
______________ will supervise the operation of the Stock Information Center.
______________ will be responsible for overseeing the mailing of materials
relating to the offering, responding to questions regarding the offering and
processing stock order forms and orders through the selling group of broker-
dealers.
Our directors and executive officers may participate in the solicitation of
offers to purchase common stock in jurisdictions where such participation is not
prohibited. Other employees of Drovers and the Bank may participate in the
offering in ministerial capacities or providing clerical work. Such employees
have been instructed not to solicit offers to purchase shares in the offering or
provide advice regarding the purchase of the shares. Questions of prospective
purchasers will be directed to the Stock Information Center. No officer,
director or employee of Drovers or the Bank will be compensated in connection
with such person's solicitations or other participation in the offering by the
payment of commissions or other remuneration based either directly or indirectly
on transactions in the shares.
Right to Amend or Terminate the Offering.
We expressly reserve the right to amend the terms and conditions of the
offering, whether the terms and conditions are more or less favorable to you.
In the event of a material change to the terms of the offering, we will file a
post-effective amendment to our registration statement of which this Prospectus
is a part and resolicit subscribers to the extent required by the Commission.
We expressly reserve the right, at any time prior to delivery of shares of
common stock offered hereby, to terminate the offering if the offering is
prohibited by law or regulation or if we conclude that it is not in our best
interests to complete the offering under the circumstances. The offering would
be terminated by us by giving oral or written notice thereof to ______________
and making a public announcement thereof. If the offering is terminated without
any sales of shares, all funds received from subscribers will be promptly
refunded, without interest.
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We may also terminate any offering period early, at our discretion, and sell
shares pursuant to orders received and accepted prior to the termination.
DESCRIPTION OF OUR CAPITAL STOCK
The following summary description of our capital stock is qualified in its
entirety by reference to our Articles of Incorporation and Bylaws, each as
amended. Copies of our Articles of Incorporation and the Bylaws are exhibits to
the registration statement of which this Prospectus is a part.
Capital Stock.
We are authorized to issue 15,000,000 shares of common stock, without par
value. As of September 24, 1999, there were 4,698,037 shares of common stock
outstanding and 167,840 shares were reserved for issuance upon exercise of
outstanding stock options.
Rights of Holders of Common Stock.
Dividend Rights.
The holders of our common stock are entitled to receive dividends when, as
and if declared by our Board of Directors. Dividends must be paid out of funds
legally available for the payment of dividends. In addition, funds for the
payment of dividends by us must come primarily from the earnings of the Bank.
Various federal and state laws, regulations and policies limit the ability of
the Bank to pay dividends to us. See the "Market for Common Stock and
Dividends" section of this Prospectus.
Voting Rights.
Each holder of common stock is entitled to one vote per share. The quorum
for shareholders' meetings is a majority of the outstanding shares entitled to
vote represented in person or by proxy.
Amendment of Articles of Incorporation.
Provisions of our Articles of Incorporation providing for the classified
board of directors, restrictions on transactions with 10% or more beneficial
owners and express authorization for directors to consider listed factors in
deciding whether to approve certain transactions may only
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be amended or repealed with the approval of a majority of our directors and the
affirmative vote of at least 85% of the votes which all shareholders are
entitled to cast. See "Election Classification and Removal of Directors,"
"Transactions with 10% or More Beneficial Owners" and "Anti-Takeover Provisions"
below.
Preemptive Rights.
The holders of our common stock do not have preemptive rights to purchase
shares of our common stock.
Election, Classification and Removal of Directors.
Our Articles of Incorporation provide for a classified Board of Directors,
with approximately one-fourth of the entire board being elected each year and
with directors serving for terms of four years. Directors are elected by a
plurality of votes cast. Holders of common stock do not have cumulative voting
rights. Our Bylaws provide that nominations for election to the Board of
Directors, other than those made by the Board of Directors, must be in writing
and delivered not less than 14 days prior to the meeting at which directors are
to be elected, unless the notice is mailed more than 20 days prior to the
meeting, in which case the nomination must be received no later than the seventh
day following mailing of the notice of the meeting. The entire Board of
Directors, any class of directors or any individual director may only be removed
from office by vote of the shareholders for cause.
Transactions with 10% or More Beneficial Owners.
Article X of our Articles of Incorporation requires that certain transactions
involving a shareholder or group of shareholders beneficially owning or
controlling 10% or more of our voting securities (i.e., the common stock)
require the affirmative vote of at least 85% of the shares entitled to vote.
These transactions include:
. any merger, consolidation or sale, lease, exchange or other disposition
of all or a substantial part of our assets involving the 10% or more
beneficial owners of shares; or
. our issuance or delivery to these beneficial owners of any voting
securities (or securities convertible into voting securities) other
than pursuant to a stock option plans for our officers and employees,
a dividend reinvestment plan or any underwritten public offering.
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The requirement that such transactions be approved by an 85% affirmative
shareholder vote will not apply if the transaction is approved in advance by a
majority of our directors then in office who were elected prior to the time the
person or group acquired a 10% or more beneficial ownership.
Approval of Major Transactions.
Except for transactions with a person or group that beneficially owns or
controls 10% or more of our shares, we are able to merge or consolidate with
other corporations or to make a bulk sale of our assets not in the regular
course of business, if the majority of the votes cast at the shareholders
meeting (at which a quorum is present) called for the purpose of considering any
such action are cast in favor of the proposal.
Liquidation Rights.
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to receive equally and pro rata per share any assets
distributable to shareholders, after payment of debts and liabilities.
Other Matters.
Except in connection with certain business combinations and except as noted
below, we can issue new shares of authorized but unissued common stock without
shareholder approval.
The bylaws of the National Association of Securities Dealers, Inc. governing
the Nasdaq National Market, on which the common stock is quoted, require issuers
to obtain shareholder approval for the issuance of securities in connection with
the acquisition of a business, company, assets, property, or securities
representing such interests where the present or potential issuance of common
stock or securities convertible into common stock could result in an increase of
20% or more in the outstanding shares of common stock.
Anti-Takeover Provisions.
The classified board of directors and the restrictions on transactions with
10% or more beneficial owners of our shares (described above under "Transactions
with 10% or More Beneficial Owners") may have the effect of delaying, deferring
or preventing a change of control of Drovers. The restrictions on transactions
with 10% or more beneficial owners does not impact directly upon the ability of
a potential acquirer to accumulate, by tender offer, open-market purchases or
other means, a controlling position in our voting securities, but may have an
effect
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on the extent to which, and the manner in which, the acquirer is able to
exercise that control. For this reason, these restrictions may discourage
potential acquirers from making proposals which certain of our shareholders
would find attractive. Similarly, these restrictions may be viewed as having the
effect of protecting incumbent management and as affording to one or more
shareholders having a substantial minority position a "veto power" over major
corporate actions which would not otherwise exist.
Our Articles of Incorporation set forth express authorization for directors,
in deciding whether to approve, recommend or oppose a tender offer, merger,
consolidation or sale of assets, whether or not the transaction involves a 10%
or more beneficial owner, to consider a list of factors. These factors include
the character of other parties to the proposed transaction, effects of the
proposed transaction upon employees, suppliers, customers and communities,
general desirability of our remaining independent and such other factors as the
directors deem relevant. It is possible that such provisions would deter or
discourage a third party from proposing an acquisition or other transaction to
the Board of Directors.
Because our common stock is registered under the Securities Exchange Act of
1934, we are subject to various provisions of the Pennsylvania corporation law
applicable to "registered corporations" which may have an anti-takeover effect.
The cumulative effect of the statutory anti-takeover provisions and
provisions of our Articles of Incorporation and Bylaws discussed above may be to
deter or discourage a transaction or acquisition of shares that is not
negotiated in advance with the Board of Directors.
Transfer Agent.
Registrar and Transfer Company serves as the transfer agent of our issued and
outstanding common stock.
SEC Position on Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and controlling persons, we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is
therefore, unenforceable.
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SHARES ELIGIBLE FOR FUTURE SALE
The shares of common stock outstanding after this offering, other than shares
held by our "affiliates", will generally be freely tradable.
Shares of common stock held by our "affiliates" may not be sold unless they
are registered under the Act or are sold pursuant to an applicable exemption
from registration, including pursuant to Rule 144. In general, under Rule 144
as currently in effect, an "affiliate" (or persons whose shares are required to
be aggregated with such affiliate) is entitled to sell, within any three-month
period, a number of shares of common stock not exceeding the greater of (a) 1%
of the number of shares of common stock then outstanding or (b) the average
weekly reported volume of trading during the four calendar weeks preceding the
date on which notice of sale is filed with the Securities and Exchange
Commission.
Sales in reliance on Rule 144 must also comply with certain manner of sale
provisions, notice requirements and the availability of current public
information about us. A person or persons whose shares are aggregated who is
not deemed to have been an affiliate of us at any time during the 90 days
preceding a sale would be entitled to sell their shares under Rule 144(k)
without regard to the requirements described above.
No precise predictions can be made of the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
common stock of the Company may adversely affect prevailing market prices.
We have agreed with _____________ to furnish to ____________, prior to the
closing to be held after the end of the initial offering period, an agreement of
each of our officers and directors that they will not offer for sale, sell,
pledge or otherwise dispose of (or enter into any agreement or transaction with
such result) any shares of our common stock or securities convertible or
exchangeable into shares of our common stock in the open market or otherwise,
for a period of 90 days from the date of this Prospectus, without the prior
written consent of ____________.
LEGAL MATTERS
An opinion has been rendered by Rhoads & Sinon LLP, Harrisburg, Pennsylvania,
to the effect that the shares of our common stock offered hereby, when issued
and paid for as contemplated in this Prospectus, will be legally issued, fully
paid and non-assessable. Certain matters will be passed upon for ____________
by ____________________________________________________.
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EXPERTS
Our consolidated financial statements incorporated in this Prospectus by
reference to our Annual Report on Form 10-K for the year ended December 31, 1998
have been audited by Stambaugh . Ness, P.C., independent certified public
accountants, to the extent and for the periods indicated in their report
accompanying our consolidated financial statements, which is incorporated herein
by reference, and have been so incorporated in reliance upon such report and
upon the authority of such firm as experts in accounting and auditing.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we file
with the SEC in other documents. This means that we can disclose important
information to you by referring to other documents that contain that
information. The information may include documents filed after the date of this
prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus.
The following documents of Drovers which have been filed with the SEC are
hereby incorporated by reference in this prospectus:
. Annual Report on Form 10-K for the year ended December 31, 1998;
. Quarterly Report on Form 10-Q for the quarterly period ended March 31,
1999;
. Quarterly Report on Form 10-Q for the quarterly period ended June 30,
1999;
. Current Report on Form 8-K filed on September 20, 1999; and
. The description of our common stock which appears in our registration
statement on Form 8-A under the Exchange Act filed March 1, 1983 with
the SEC, including any amendments or reports filed for the purpose of
updating such description.
We also incorporate by reference all future documents we file with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until we terminate the offering of the common shares.
You may request a copy of these documents, at no cost, by writing to:
Drovers Bancshares Corporation, 30 South George Street, York, PA 17401,
telephone (717) 843-1586, attention: Corporate Secretary.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 (File No.
333-_____) under the Securities Act and the rules and regulations promulgated
thereunder with respect to the common stock offered hereby. This Prospectus,
which is included in the registration statement, omits certain information
contained in the registration statement or in any amendments to the registration
statement, including in exhibits and schedules, and you should look at the
registration statement and the exhibits and schedules thereto for further
information with respect to us and the common stock offered hereby. Statements
contained in this Prospectus concerning the provisions or contents of any
contract, agreement or any other document are not necessarily complete with
respect to each such contract, agreement or document filed as an exhibit to the
registration statement, and reference is made to the exhibit for a more complete
description of the matters involved.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any materials that we file at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. We file information electronically with
the SEC. The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of the SEC's Internet site is
http://www.sec.gov.
Drovers furnishes its shareholders with annual reports containing audited
consolidated financial statements and an opinion thereon expressed by an
independent public accounting firm.
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[LOGO]
DROVERS BANCSHARES CORPORATION
_________ SHARES OF COMMON STOCK
PROSPECTUS
Dated __________ __, ____
These securities are not deposits or accounts of a bank and are not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
You should only rely on the information contained or incorporated by
reference in this Prospectus. Drovers has not authorized anyone to provide you
with information different from that contained in this Prospectus. Drovers is
offering to sell, and soliciting offers to buy, shares of our common stock only
in jurisdictions where offers, sales and solicitations are permitted. The
information contained in this Prospectus is accurate only as of the date of this
Prospectus, regardless of the time of delivery of this Prospectus or of any sale
of common stock.
_____________________________________________
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various estimated expenses in connection
with the sale and distribution of the shares of common stock being registered,
other than underwriting discounts and commissions.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............. $ 1,600
NASD filing fee.................. 1,075
Printing and mailing expense..... 37,000
Fees and expenses of counsel..... 40,000
Accounting and related expenses.. 28,000
Blue Sky fees and expenses....... 15,000
Miscellaneous.................... 27,325
--------
Total............................ $150,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
Pennsylvania Business Corporation Law (the "BCL") provides that a business
corporation may indemnify directors and officers against liabilities they may
incur in such capacities provided certain standards are met, including good
faith and the belief that the particular action is in the best interests of the
corporation. In general, this power to indemnify does not exist in the case of
actions against a director or officer by or in the right of the corporation if
the person entitled to indemnification shall have been adjudged to be liable to
the Corporation unless and only to the extent a court determines that the person
is fairly and reasonably entitled to indemnification. A corporation is required
to indemnify directors and officers against expenses they may incur in defending
actions against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions. The BCL provides that the foregoing
provisions shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under, among other things, any by-law
provision, provided that no indemnification may be made in any case where the
act or failure to act giving rise to the claim for indemnification is determined
by a court to have constituted willful misconduct or recklessness. The BCL
authorizes a corporation to purchase insurance for directors and other
representatives.
The registrant's Bylaws contain the following provisions in connection with
indemnification of directors and officers:
Section 4.01. Indemnification. To the full extent permitted by the laws of
the Commonwealth of Pennsylvania, as they exist on the date hereof or as they
may hereafter be amended, the corporation shall indemnify any person (an
"Indemnitee") who was or is involved in any manner (including, without
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limitation, as a party or witness) in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, legislative or investigative (including, without
limitation, an action, suit or proceeding by or in the right of the Corporation
to procure a judgment in its favor) (a "Proceeding"), or who is threatened with
being so involved, by reason of the fact that he or she is or was a director,
officer or employee of the Corporation or, while serving as a director, officer
or employee of the Corporation, is or was at the request of the Corporation also
serving as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorney's fees), judgments, fines, penalties, excise taxes and
amounts paid in settlement actually and reasonably incurred by the Indemnitee in
connection with such Proceeding, providing that there shall be no
indemnification hereunder with respect to any settlement or other non
adjudicated disposition of any threatened or pending Proceeding unless the
Corporation has given its prior consent to such settlement or disposition. The
right of indemnification created by this Article shall be a contract right
enforceable by an Indemnitee against the Corporation, and it shall not be
exclusive of any other rights to which an Indemnitee may otherwise be entitled.
The provisions of this Article shall inure to the benefit of the heirs and legal
representatives of an Indemnitee and shall be applicable to Proceedings
commenced or continued after the adoption of this Article, whether arising from
acts or omissions occurring before or after such adoption. No amendment,
alteration, change, addition or repeal of or to these Bylaws shall deprive any
Indemnitee of any right under this Article with respect to any act or omission
of such Indemnitee occurring prior to such amendment, alteration, change,
addition or repeal.
Section 4.02. Payment of Expenses. Expenses incurred by an Indemnitee in
defending a Proceeding may be paid by the Corporation in advance of the final
disposition of such Proceeding upon receipt of an undertaking by or on behalf of
such Indemnitee to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation.
Section 4.03. When Indemnification is Not to be Made. Indemnification
pursuant to Section 4.01 shall not be made in any case where the act or failure
to act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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.
As permitted by the Pennsylvania Business Corporation Law, the Company's
Articles provide that a director shall not be personally liable for monetary
damages as such for any action taken, or any failure to take any action, unless
the director breaches or fails to perform the duties of his or her office under
the BCL, and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. These provisions of the Company's Articles,
however, do not apply to the responsibility or liability of a director pursuant
to any criminal statute, or to the liability of a director for the payment of
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taxes pursuant to local, Pennsylvania or federal law. These provisions offer
persons who serve on the Board of Directors of the Company protection against
awards of monetary damages for negligence in the performance of their duties.
The Company's Articles also provide that every person who is or was a director
or executive officer of the Company, or of any corporation which he served as
such at the request of the Company, shall be indemnified by the Company to the
fullest extent permitted by law against all expenses and liabilities reasonably
incurred by or imposed upon him, in connection with any proceeding to which he
may be made, or threatened to be made, a party, or in which he may become
involved by reason of his being or having been a director or executive officer
of the Company or such other company, whether or not he is a director or
executive officer of the Company or such other company at the time the expenses
or liabilities are incurred.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
Exhibit
Number Description of Exhibit
- ------ ----------------------
1.1 Form of Financial Advisory Services and Agency Agreement
1.2 Form of Selected Dealers Agreement
4.1 Articles of Incorporation (incorporated by reference from
Exhibit 3(i) of the Drovers Bancshares Corporation Form 10-Q
for the quarterly period ended June 30, 1999)
4.2 Bylaws (incorporated by reference from Exhibit 3(ii) of the
Drovers Bancshares Corporation Form 10-Q for the quarterly
period ended June 30, 1999)
5.1 Opinion of Rhoads & Sinon LLP
23.1 Consent of Rhoads & Sinon LLP, included in Exhibit 5.1
23.2 Consent of Stambaugh . Ness, P.C.
24.1 Power of Attorney (included in signature page to this
Registration Statement)
99.1 Stock Order Form
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ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933:
(i) the information omitted from the form of a prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed part of
this registration statement as of the time it was declared effective; and
(ii) each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing
-4-
<PAGE>
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the questions 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.
-5-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of York,
Commonwealth of Pennsylvania, on September 30, 1999.
DROVERS BANCSHARES CORPORATION
By: /s/ A. Richard Pugh
--------------------------------------
A. Richard Pugh
Chairman, President and CEO
POWER OF ATTORNEY
We, the undersigned Directors of Drovers Bancshares Corporation, hereby
severally constitute and appoint A. Richard Pugh, Debra A. Goodling, John D.
Blecher and Charles J. Ferry, and each of them, acting individually, with full
power of substitution, our true and lawful attorney and agent, to do any and all
things in our names in the capacities indicated below which said attorney or
attorneys may deem necessary or advisable to enable Drovers Bancshares
Corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with the registration of Drovers Bancshares Corporation common
stock, including specifically, but not limited to, power and authority to sign
for us in our names in the capacities indicated below, the registration
statement and any and all amendments (including post-effective amendments)
thereto; and we hereby ratify and confirm all that said attorney or attorneys
shall do or cause to be done by virtue thereof.
-6-
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ A. Richard Pugh Chairman of Board, President, Chief 9/30/99
- --------------------------- Executive Officer and Director
A. Richard Pugh (Principal Executive Officer)
/s/ Debra A. Goodling Executive Vice President and Treasurer 9/30/99
- --------------------------- (Principal Financial Officer)
Debra A. Goodling
/s/ John D. Blecher Senior Vice President, Secretary and 9/30/99
- --------------------------- Assistant Treasurer (Principal
John D. Blecher Accounting Officer)
/s/ L. Doyle Ankrum Director 9/30/99
- ---------------------------
L. Doyle Ankrum
/s/ J. Samuel Gregory Director 9/30/99
- ---------------------------
J. Samuel Gregory
/s/ Daniel E. Hess Director 9/30/99
- ---------------------------
Daniel E. Hess
/s/ George W. Hodges Director 9/30/99
- ---------------------------
George W. Hodges
/s/ Herbert D. Lavetan Director 9/30/99
- ---------------------------
Herbert D. Lavetan
/s/ Richard M. Linder Director 9/30/99
- ---------------------------
Richard M. Linder
/s/ David C. McIntosh Director 9/30/99
- ---------------------------
David C. McIntosh
-7-
<PAGE>
/s/ Frank Motter Director 9/30/99
- ---------------------------
Frank Motter
/s/ Robert L. Myers, Jr. Director 9/30/99
- ---------------------------
Robert L. Myers, Jr.
- ---------------------------
Harlowe R. Prindle Director --------
/s/ Basil A. Shorb, III Director 9/30/99
- ---------------------------
Basil A. Shorb, III
/s/ D. John Sparler, Jr. Director 9/30/99
- ---------------------------
D. John Sparler, Jr.
/s/ Gary A. Stewart Director 9/30/99
- ---------------------------
Gary A. Stewart
/s/ Robert H. Stewart, Jr. Director 9/30/99
- ---------------------------
Robert H. Stewart, Jr.
/s/ Delaine A. Toerper Director 9/30/99
- ---------------------------
Delaine A. Toerper
/s/ James S. Wisotzkey Director 9/30/99
- ---------------------------
James S. Wisotzkey
-8-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
1.1 Form of Financial Advisory Services and Agency Agreement
1.2 Form of Selected Dealers Agreement
4.1 Articles of Incorporation (incorporated by reference from Exhibit 3(i)
of the Drovers Bancshares Corporation Form 10-Q for the quarterly
period ended June 30, 1999)
4.2 Bylaws (incorporated by reference from Exhibit 3(ii) of the Drovers
Bancshares Corporation Form 10-Q for the quarterly period ended
June 30, 1999)
5.1 Opinion of Rhoads & Sinon LLP
23.1 Consent of Rhoads & Sinon LLP, included in Exhibit 5.1
23.2 Consent of Stambaugh . Ness, P.C.
24.1 Power of Attorney (included in signature page to this Registration
Statement)
99.1 Stock Order Form
<PAGE>
EXHIBIT 1.1
$5,000,000 of Shares
DROVERS BANCSHARES CORPORATION
Common Stock
FINANCIAL ADVISORY SERVICES AND
AGENCY AGREEMENT
----------------
___________ _____, 1999
_______________________________________
________________________________
_____________________________
Gentlemen:
Drovers Bancshares Corporation, a Pennsylvania corporation (the "Company"),
proposes to sell an aggregate of $5,000,000 of shares of the Company's Common
Stock, no par value, plus an additional $750,000 of shares of the Company's
Common Stock, no par value, that the Company may issue in its discretion
(collectively, the "Stock"). The Company is retaining ___________________
___________________________ (the "Selling Agent"), to provide financial advisory
services in connection with the offering of the Stock, and is retaining the
Selling Agent as its exclusive agent in the offering of the Stock and
understands that the Selling Agent is acting on a "best efforts" basis in
connection with the offering of the Stock. This is to confirm the agreement
between the Company and the Selling Agent concerning the offering of the Stock.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees with the Selling Agent that:
(a) A registration statement on Form S-3 and any and all Amendments
thereto with respect to the Stock has been prepared by the Company in conformity
with the requirements of the United States Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and Regulations") of
the United States Securities and Exchange Commission (the "Commission")
thereunder. Copies of such registration statement and the amendments thereto
have been delivered or will be delivered by the Company to the Selling Agent.
As used in this Agreement, "Effective Time" means the date and the time as of
which such registration statement,
<PAGE>
or the most recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the Effective
Time; "Preliminary Prospectus" means each prospectus included in such
registration statement, or amendments thereof, before it became effective under
the Securities Act and any prospectus filed with the Commission by the Company
with the consent of the Selling Agent pursuant to Rule 424(a) of the Rules and
Regulations; "Registration Statement" means such registration statement, as
amended at the Effective Time, including any documents incorporated by reference
therein at such time and all information contained in the final prospectus filed
with the Commission pursuant to Rule 424(b) of the Rules and Regulations and
deemed to be a part of the registration statement as of the Effective Time
pursuant to paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with the Commission
pursuant to paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
Reference made herein to any Preliminary Prospectus or to the Prospectus shall
be deemed to refer to and include any documents incorporated by reference
therein pursuant to Item 12 of Form S-3 under the Securities Act, as of the date
of such Preliminary Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any document filed under the
United States Securities Exchange Act of 1934 (the "Exchange Act") after the
date of such Preliminary Prospectus or the Prospectus, as the case may be, and
incorporated by reference in such Preliminary Prospectus or the Prospectus, as
the case may be; and any reference to any amendment to the Registration
Statement shall be deemed to include any annual report of the Company filed with
the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act after the
Effective Time that is incorporated by reference in the Registration Statement.
(b) The Registration Statement conforms or will conform, and the
Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or are filed with
the Commission, as the case may be, conform in all respects to the requirements
of the Securities Act and the Rules and Regulations and do not and will not, as
of the applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the Prospectus
and any amendment or supplement thereto) contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that no
representation or warranty is made as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company through the Selling
Agent specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the case may be,
conformed in all material respects to the requirements of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and any further
documents so filed and
-2-
<PAGE>
incorporated by reference in the Prospectus, when such documents become
effective or are filed with the Commission, as the case may be, will conform in
all material respects to the requirements of the Securities Act or the Exchange
Act, as applicable, and the rules and regulations of the Commission thereunder
and will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
(d) The Drovers & Mechanics Bank (the "Bank"), Drovers Realty Company
and Drovers Capital Trust I are the only subsidiaries of the Company. Drovers
Investment Company and 96 South George Street Inc. are the only subsidiaries of
the Bank.
(e) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are duly qualified to
do business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification, and have all
power and authority, and all required licenses, permits, clearances,
certifications, registrations, approvals, consents and franchises, necessary to
own or lease and operate their respective properties and to conduct the business
in which they are engaged.
(f) The Bank, as of the date hereof, is subsisting as a Pennsylvania
chartered commercial bank, with full corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus and is qualified to do business in any jurisdiction in which failure
to so qualify would have a material adverse effect on the financial condition,
results of operations or business of the Bank.
(g) The activities of the Bank and the Company are permitted by the
rules, regulations, resolutions and practices of the Board of Governors of the
Federal Reserve System ("FRB"), the Federal Deposit Insurance Company ("FDIC")
and the Pennsylvania Department of Banking (the "Department").
(h) The deposit accounts of the Bank are insured by the FDIC up to
the applicable limits.
(i) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus, and none of
such shares have been issued in violation of any preemptive rights; all of the
issued shares of capital stock of each subsidiary of the Company have been duly
and validly authorized and issued and are fully paid and non-assessable and
except as set forth in the Prospectus are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims; and no
options, warrants or other rights to purchase, agreements or other obligations
to
-3-
<PAGE>
issue or other rights to convert any obligations into shares of capital stock or
ownership interests in any subsidiary of the Company are outstanding.
(j) The offers and sales of the outstanding shares of the Company's
capital stock, whether described in the Registration Statement or otherwise,
were made in conformity with applicable federal and state securities laws.
(k) The shares of the Stock have been duly and validly authorized
and, when issued and delivered against payment therefor as provided herein, will
be duly and validly issued, fully paid and non-assessable and the issuance
thereof will not be subject to any preemptive rights, right of first refusal or
similar rights; and the Stock will conform to the description thereof contained
in the Prospectus.
(l) This Agreement has been duly authorized, executed and delivered
by the Company.
(m) The execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the Company
or any of its subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws or similar governing
instruments of the Company or any of its subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body, domestic
or foreign, having jurisdiction over the Company or any of its subsidiaries or
any of their properties or assets; and except for the registration of the Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the sale and distribution of
the Stock by the Company (including its officers, directors, employees or
affiliates) and the Selling Agent, no consent, approval, authorization or order
of, or filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby.
(n) There are no contracts, agreements or understandings between the
Company and any person granting such person the right (other than rights which
have been waived or satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities of the Company
owned or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration Statement
or in any securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act; and there are no
options or warrants for the purchase of, other outstanding rights
-4-
<PAGE>
to purchase, agreements or obligations to issue or agreements or other rights to
convert or exchange any obligation or security into, capital stock of the
Company or securities convertible into or exchangeable for capital stock of the
Company, except as described in the Prospectus.
(o) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period preceding the
date of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulation D or S of, the Securities Act, other than shares issued pursuant to
employee benefit plans, qualified stock options plans or other employee
compensation plans, or pursuant to dividend reinvestment plans and stock
purchase plans, or pursuant to outstanding options, rights or warrants.
(p) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus, any material loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus;
and, since such date, there has not been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change, in
or affecting the general affairs, management, financial position, shareholders'
equity or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus.
(q) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or included or
incorporated by reference in the Prospectus present fairly the financial
condition and results of operations of the entities purported to be shown
thereby, at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the periods involved; the financial information included in the
Prospectus (including pro forma as adjusted financial information) presents
fairly the information shown therein and has been compiled on a basis consistent
with that of the financial statements of the Company.
(r) Stambaugh Ness, P.C., who have certified certain financial
statements of the Company are independent public accountants as required by the
Securities Act and the Rules and Regulations.
(s) The Company and each of its subsidiaries have good and marketable
title in fee simple to all real property free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or such
as do not materially interfere with the businesses of the Company and its
subsidiaries; all real property and buildings held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases, with such exceptions as do not materially interfere with the businesses
of the Company and its subsidiaries; the executive
-5-
<PAGE>
offices and facilities of the Company and each of its subsidiaries (the
"Premises"), and all operations conducted thereon, are now and, since the
Company and any subsidiary began to use such Premises, always have been and, to
the knowledge of the Company, prior to when the Company and each of its
subsidiaries began to use such Premises, always had been, in compliance with all
U.S. laws concerning or related to the protection of health and the environment,
including all federal, state and local statutes, ordinances, regulations and
rules (collectively, "the Governmental Laws"), except to the extent that any
failure to be in such compliance would not materially adversely affect the
consolidated financial position, results of operations, shareholders' equity,
business or prospectus of the Company and its subsidiaries.
(t) Except as described in the Prospectus, the Company and each of
its subsidiaries carry, or are covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of their respective
businesses and the value of their respective properties and as is customary for
companies engaged in similar businesses in similar industries.
(u) Except as described in the Prospectus, the Company and each of
its subsidiaries own or possess adequate rights to use all material patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses necessary for
the conduct of their respective businesses and have no reason to believe that
the conduct of their respective businesses will conflict with, and have not
received any notice of any claim of conflict with, any such rights of others.
(v) There are no legal or governmental claims, actions or proceedings
pending to which the Company or any of its subsidiaries is a party or of which
any property or assets of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial position,
shareholders' equity, results of operations, business or prospects of the
Company and its subsidiaries; and to the best of the Company's knowledge, no
such claims, actions or proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(w) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(x) The statements in the Registration Statement and the Prospectus,
insofar as they are descriptions of or references to contracts, agreements or
other documents, are accurate in all material respects and present or summarize
fairly, in all material respects, the information required to be disclosed under
the Securities Act or the Rules and Regulations, and there are no statutes,
regulations, contracts or other documents which are required to be described in
the Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or the Rules and Regulations which have not been described in the
Prospectus or filed as exhibits to the Registration Statement or incorporated
therein by reference as permitted by the Rules and Regulations.
-6-
<PAGE>
(y) No relationship, direct or indirect, exists between or among the
Company on the one hand, and the directors, officers, shareholders, customers or
suppliers of the Company on the other hand, which is required to be described in
the Prospectus which is not so described.
(z) No labor dispute or disturbance by the employees of the Company
or any subsidiary of the Company exists or, to the knowledge of the Company, is
imminent which might be expected to have a material adverse effect on the
consolidated financial position, shareholders' equity, results of operations,
business or prospects of the Company and its subsidiaries; and the Company has
no knowledge of any existing or threatened labor disturbance by the employees of
any of the principal suppliers, contractors or customers of the Company or any
of its subsidiaries that would materially adversely affect the consolidated
financial position, shareholders' equity, results of operations, business or
prospectus of the Company and its subsidiaries.
(aa) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plans" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(bb) The Company and each of its subsidiaries has filed all federal,
state, local and foreign income and franchise tax returns required to be filed
through the date hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company or any of its
subsidiaries which has had (nor does the Company have any knowledge of any tax
deficiency which, if determined adversely to the Company or any of its
subsidiaries, might have) a material adverse effect on the consolidated
financial position, shareholders' equity, results of operations, business or
prospects of the Company and its subsidiaries.
(cc) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company has not (i) issued or granted any securities, (ii)
incurred any liability or obligation, direct or contingent, other than
liabilities and obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary course of
business or (iv) declared or paid any dividend on its capital stock, except in
connection with (x) the plans identified in paragraph (o) above and the
-7-
<PAGE>
grant of options pursuant to such plans, (y) the issuance of dividends in the
ordinary course of business, and (z) the issuance of capital securities by
Drovers Capital Trust I.
(dd) All of the loans represented as assets on the most recent
financial statements or selected financial information of the Bank included or
incorporated by reference in the Prospectus meet or are exempt from all
requirements of federal, state or local law pertaining to lending, including
without limitation truth in lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity and all disclosure laws applicable
to such loans, except for violations which, if asserted, would not result in a
material adverse effect on the financial condition, results of operations or
business of the Company or the Bank.
(ee) Neither the Company nor any of its subsidiaries (i) is in
violation of its charter or by-laws or similar governing instruments, (ii) is in
default in any material respect, and no event has occurred which, with notice or
lapse of time or both, would constitute such a default, in the due performance
or observance of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to which any of its
properties or assets is subject or (iii) is in violation in any material respect
of any law, ordinance, governmental rule, regulation or court decree to which it
or its property or assets may be subject or has failed to obtain any material
license, permit, certificate, franchise or other governmental authorization or
permit necessary to the ownership of its property or to the conduct of its
business.
(ff) Neither the Company nor any of its subsidiaries, nor, to the
knowledge of the Company, any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of its subsidiaries,
has used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision of
the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(gg) There has been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, medical
wastes, hazardous wastes or hazardous substances by the Company or any of its
subsidiaries (or, to the knowledge of the Company, any of their predecessors in
interest) at, upon or from any of the property now or previously owned or leased
by the Company or its subsidiaries in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or which would
require remedial action under any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit, except for any violation or remedial action
which would not have, or could not be reasonably likely to have, singularly or
in the aggregate with all such violations and remedial actions, a material
adverse effect on the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries; there has been no material spill, discharge, leak, emission,
-8-
<PAGE>
injection, escape, dumping or release of any kind onto such property or into the
environment surrounding such property of any toxic wastes, medical wastes, solid
wastes, hazardous wastes or hazardous substances due to or caused by the Company
or any of its subsidiaries or with respect to which the Company or any of its
subsidiaries have knowledge, except for any such spill, discharge, leak,
emission, injection, escape, dumping or release which would not have or would
not be reasonably likely to have, singularly or in the aggregate with all such
spills, discharges, leaks, emissions, injections, escapes, dumpings and
releases, a material adverse effect on the general affairs, management,
financial position, shareholders' equity or results of operations of the Company
and its subsidiaries; and the terms "hazardous wastes", "toxic wastes",
"hazardous substances" and "medical wastes" shall have the meanings specified in
any applicable local, state, federal and foreign laws or regulations with
respect to environmental protection.
(hh) Neither the Company nor the Bank is in violation of any
directive from the FRB, the FDIC or the Department to make any material change
in the method of conducting their respective businesses; the Bank has conducted
and is conducting its business so as to comply with all applicable statutes,
regulations and administrative and court decrees (including, without limitation,
all regulations, decisions, directives and orders of the FRB, the FDIC or the
Department) except in such respects as would not have a material adverse effect
upon the Company and/or the Bank.
(ii) There are no engagements or arrangements between the Company and
an investment bank or third party pursuant to which such investment bank or
third party has been granted any rights to underwrite securities of the Company
or would be entitled to receive a fee in the event of a private placement of
securities, public offering of securities or merger or acquisition involving the
Company, except for any rights to underwrite contemplated by this Agreement and
any arrangements for which fees are reflected in Item 14 of Part II of the
Registration Statement.
2. Appointment of Selling Agent; Sale and Delivery of the Stock; Closing.
(a) The Selling Agent hereby agrees to provide to the Company the
following financial advisory services in connection with the offering of the
Stock, all as more particularly described on Appendix A attached hereto and made
a part hereof: (i) project management; (ii) marketing program development and
implementation; (iii) document preparation; (iv) training for directors,
management and employees; and (v) sales center operations.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the Company
hereby appoints the Selling Agent its sales agent and grants the Selling Agent
the exclusive right to offer and sell the Stock during the offering period for
the account and risk of the Company. The Selling Agent accepts such appointment
and agrees to use its best efforts as sales agent, following written or
telegraphic receipt
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of notice of the effective date of the Registration Statement, to offer and sell
the Stock as contemplated by this Agreement and upon the terms and conditions
set forth in the Prospectus; provided, however, that the Selling Agent shall not
be responsible for obtaining purchase orders for any specific number of shares
of Stock, shall not be required to purchase any Stock, and shall not be
obligated to take any action which is inconsistent with any applicable laws,
regulations, decisions or orders. The Company intends to sell the Stock (the
"Initial Offering") during an initial offering period immediately following the
Effective Date to be specified in the Prospectus (the "Initial Offering
Period"). Immediately following the Initial Offering Period, the Company may in
its discretion, continue the offering of the Stock (the "Additional Offering")
for an additional 30 days, unless earlier terminated or extended by the Company
up to an additional 30 days (the "Additional Offering Period").
(c) In offering the Stock for sale, the Selling Agent shall offer the
Stock as agent for the Company, and the offering shall be made upon the terms
and subject to the conditions set forth in the Registration Statement and
Prospectus. The Selling Agent shall commence offering the Stock for sale as
agent for the Company as soon after the Effective Date as the Selling Agent may
deem advisable. During the Additional Offering Period, the Selling Agent may
offer and sell the Stock for the account of the Company through dealers selected
by the Selling Agent (the "Selected Dealers") and the Selling Agent shall have
the authority to appoint the Selected Dealers as agents of the Company. All
sales by the Selected Dealers shall be on behalf of the Company and shall be
made upon the terms and subject to the conditions set forth in the Registration
Statement and the Prospectus.
(d) Each prospective purchaser of Stock in the Initial Offering will
be required, in accordance with the terms of the Prospectus, to complete,
execute and deliver to the Company a stock order form in the form filed as an
exhibit to the Registration Statement and Prospectus (the "Stock Order Form")
and prior to or concurrently with the delivery to the Company of any Stock Order
Form by any purchaser, funds sufficient to purchase the Stock subscribed for and
ordered shall be deposited in a non-interest bearing escrow account to be
maintained by the Company. The Company may accept or reject any Stock Order.
The Selling Agent shall have the right to accept or reject any Stock Order and
any such rejection shall not be deemed a breach of the Selling Agent's agreement
contained herein. Each prospective purchaser of Stock in the Additional
Offering will be required to order and subscribe for shares of Stock and to
deliver the funds therefor in accordance with the terms and conditions set forth
in the Prospectus. The Selling Agent shall make reasonable efforts to assist
the Company in obtaining performance by each purchaser whose offer to purchase
any Stock has been solicited by the Selling Agent and accepted by the Company.
The Selling Agent shall have no liability to the Company in the event any such
purchase is not consummated for any reason. If the Company shall default on its
obligation to deliver any Stock to any purchaser whose offer it has accepted,
the Company shall (i) hold the Selling Agent harmless against any loss, claim or
damage arising from or as a result of such default by the Company and (ii)
notwithstanding such
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default, pay to the Selling Agent any commission to which it would be entitled
in connection with such sale.
(e) At the end of the Initial Offering Period and in accordance with
the terms of the Prospectus, a closing will be held at the offices of Rhoads &
Sinon LLP, Harrisburg, Pennsylvania, at a mutually agreed date and time as soon
as practicable after the delivery of the last of the Stock Order Forms in the
Initial Offering (the "First Closing Date") and shall be subject to each of the
conditions precedent to closing provided for in this Agreement. At the end of
the Additional Offering period, if any, and in accordance with the terms of the
Prospectus, a closing will be held at the offices of Rhoads & Sinon LLP,
Harrisburg, Pennsylvania, at a mutually agreed date and time and shall be
subject to each of the conditions precedent to closing provided for in this
Agreement. Each closing date provided for under this Agreement shall constitute
a "Closing Date." As soon as practicable after each Closing Date, the Company
shall deliver or cause to be delivered by mail to each purchaser of Stock on
such Closing Date a copy of an executed Stock Order Form which indicates thereon
the number of shares of Stock such purchaser has purchased and a stock
certificate representing such shares of Stock, registered in such purchaser's
name.
(f) The Company, in its sole discretion, may terminate the offering
of the Stock at any time. In the event the Company elects to terminate the
offering of the Stock prior to delivery of shares of the Stock (in which case no
Stock shall have been sold in the Offering), this Agreement shall terminate and
no party to this Agreement shall have any obligation to the other hereunder,
except for the obligations of the Company as set forth in Sections 2(j)(i), 4, 6
and 7 and the obligations of the Selling Agent as set forth in Sections 6 and 7.
(g) All funds paid by any prospective purchaser whose Stock Order is
rejected shall be returned to such prospective purchaser without interest. If
the offering is terminated without any Stock being sold, all funds received by
prospective purchasers shall be returned without interest.
(h) If, prior to the Termination Date, the offering is
oversubscribed, the Company may allocate the Stock among the purchasers in such
manner as it shall see fit.
(i) The Company will pay any stock issue and transfer taxes which may
be payable with respect to the sale of the Stock.
(j) In addition to reimbursement of the expenses specified in Section
4 hereof, the Selling Agent will receive the following: (i) a financial
advisory fee of $20,000, which the Company has paid to the Selling Agent in
connection with the offering of the Stock; and (ii) in connection with the
proceeds of the offering of the Stock (x) 2.00% of the gross proceeds of the
sales of Stock sold to existing shareholders of the Company in the Initial
Offering, except for sales of Stock to the officers, directors and employees of
the Company, (y) 3.00% of the gross proceeds of the sales of Stock sold to any
other person in the Initial Offering, except for sales of Stock to the
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officers, directors and employees of the Company, and (z) 6.00% of the gross
proceeds of the sales of Stock made through the Selling Agent and 6.00% of the
gross proceeds of the sales of Stock made through the Selected Dealers, of which
4.50% will be paid to the Selected Dealers and 1.50% will be paid to the Selling
Agent. The fees specified in clause (ii) above shall be due and payable upon the
First Closing Date and the Additional Closing Date, as the case may be.
(k) If this Agreement is terminated by the Selling Agent in
accordance with the provisions of Section 8 hereof, no fees pursuant to Section
2(j)(ii) hereof shall be payable; however, the Company shall reimburse the
Selling Agent for its reasonable expenses incurred in connection with its
engagement hereunder in accordance with Section 4 hereof.
(l) The Company and the Selling Agent agree that any Stock sold by
the Selling Agent shall be sold by the Selling Agent in reliance on the
representations, warranties, covenants and agreements of the Company contained
herein and on the terms and conditions and in the manner provided herein.
3. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form reasonably satisfactory to
the Selling Agent and to file such Prospectus pursuant to Rule 424(b) under the
Securities Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus prior to the last Closing Date
except as permitted herein; to advise the Selling Agent, promptly after it
receives notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the Selling
Agent with copies thereof; to file promptly all reports and any definitive proxy
or information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the delivery of a
prospectus is required in connection with the offering or sale of the Stock; to
advise the Selling Agent, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or the Prospectus or for additional information;
and, in the event of the issuance of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the Selling Agent and to counsel
for the Selling Agent a copy of the Registration Statement as originally filed
with the Commission, and each amendment thereto filed with the Commission,
including all consents and exhibits filed therewith;
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<PAGE>
(c) To deliver promptly to the Selling Agent such number of the
following documents as the Selling Agent shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with the
Commission and each amendment thereto (in each case excluding exhibits other
than this Agreement and any computation of per share earnings), (ii) each
Preliminary Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in the Prospectus
(excluding exhibits thereto); and, if the delivery of a prospectus is required
at any time after the Effective Time in connection with the offering or sale of
the Stock or any other securities relating thereto and if at such time any
events shall have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
to amend or supplement the Prospectus or to file under the Exchange Act any
document incorporated by reference in the Prospectus in order to comply with the
Securities Act or the Exchange Act, to notify the Selling Agent and to file such
document and, upon their request, to prepare and furnish without charge to the
Selling Agent as many copies as the Selling Agent may from time to time
reasonably request of an amended or supplemented Prospectus which will correct
such statement or omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the Prospectus
that may, in the judgment of the Company or the Selling Agent, be required by
the Securities Act or requested by the Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or any Prospectus pursuant to Rule
424 of the Rules and Regulations, to notify the Selling Agent and to furnish a
copy thereof to the Selling Agent and its counsel;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver to the
Selling Agent an earning statement of the Company and its subsidiaries (which
need not be audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Selling Agent copies of all materials furnished by the Company to
its shareholders and all public reports and all reports and financial statements
furnished by the Company to the principal national securities exchange upon
which the Common Stock may be listed pursuant to requirements of or agreements
with such exchange or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder; provided, that so long as such
reports are available
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<PAGE>
through EDGAR or any successor online system of the Commission, no copies need
be provided to the Selling Agent;
(h) Promptly from time to time to take such action as the Selling
Agent may reasonably request to qualify the Stock for offering and sale under
the securities laws of such jurisdictions as the Selling Agent may request and
to comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
distribution of the Stock; provided that in connection therewith the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly, (1) offer for sale, sell, pledge or otherwise dispose of
(or enter into any transaction or device which is designed to, or could be
expected to, result in the disposition by any person at any time in the future
of) any shares of Stock or securities convertible into or exchangeable for Stock
(other than the Stock and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans or dividend
reinvestment and stock purchase plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights or any options issued pursuant
to the foregoing plans subsequent to the date hereof ), or sell or grant
options, rights or warrants with respect to any shares of Stock or securities
convertible into or exchangeable for Stock (other than the grant of options
pursuant to option plans existing on the date hereof), or (2) enter into any
swap or other derivatives transaction that transfers to another, in whole or in
part, any of the economic benefits or risks of ownership of such shares of
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Stock or other securities, in cash or otherwise, in
each case without the prior written consent of the Selling Agent, which consent
shall not be unreasonably withheld, provided, however, the Company may engage in
any transaction described in clause (1) or (2) above in connection with the
purchase by the Company of substantially all of the assets or stock of another
entity, or a merger, consolidation or exchange, provided the Company provides
the Selling Agent with five (5) business days prior written notice thereof; and
to cause each officer and director of the Company to furnish to the Selling
Agent, prior to the First Closing Date, a letter or letters, in form and
substance reasonably satisfactory to counsel for the Selling Agent, pursuant to
which each such person shall agree not to, directly or indirectly, (A) offer for
sale, sell, pledge or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the disposition
by any person at any time in the future of) any shares of Stock or securities
convertible into or exchangeable for Stock or (B) enter into any swap or other
derivatives transaction that transfers to another, in whole or in part, any of
the economic benefits or risks of ownership of such shares of Stock, whether any
such transaction described in clause (A) or (B) above is to be settled by
delivery of Stock or other securities, in cash or otherwise, in each case for a
period of 90 days from the date of the Prospectus, without the prior written
consent of the Selling Agent, which consent shall not be unreasonably withheld;
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<PAGE>
(j) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus;
(k) Prior to the Effective Date, to apply for the listing of the
Stock on the NASDAQ National Market System and to use its best efforts to
complete that listing, subject only to official notice of issuance, prior to the
First Closing Date; and
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
4. Expenses. The Company agrees to pay, whether or not the offering of
the Stock is consummated, (a) the costs incident to the authorization, issuance,
sale and delivery of the Stock and any taxes payable in that connection; (b) the
costs incident to the preparation, printing and filing under the Securities Act
of the Registration Statement and any amendments and exhibits thereto; (c) the
costs of distributing the Registration Statement as originally filed and each
amendment thereto and any post-effective amendments thereof (including, in each
case, exhibits), any Preliminary Prospectus, the Prospectus and any amendment or
supplement to the Prospectus or any document incorporated by reference therein,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the Stock; (e) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of sale of the Stock; (f) any applicable listing or other
fees; (g) the fees and expenses of qualifying the Stock under the securities
laws of the several jurisdictions as provided in Section 3; (h) and of
preparing, printing and distributing a Blue Sky Memorandum (including related
fees and expenses of counsel to the Selling Agent); and (i) all other costs and
expenses incident to the performance of the obligations of the Company under
this Agreement. Further and in addition to the foregoing, the Company shall pay
any and all reasonable out-of-pocket expenses, excepting legal fees which are
provided for below, incurred by the Selling Agent relating to the offering of
the Stock, such reimbursement amount not to exceed $5,000, without the written
approval of the Company. The Company shall also reimburse the Selling Agent for
any and all legal fees and expenses incurred by it in connection with the
Offering of the Stock, such reimbursement amount not to exceed $15,000, without
the written approval of the Company; provided, however, that such maximum
reimbursement amount shall not include the fees and expenses of counsel to the
Selling Agent relating to the preparation and distribution of the Blue Sky
Memorandum, which shall also be reimbursed by the Company to the Selling Agent.
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<PAGE>
5. Conditions of Selling Agent's Obligations. The respective obligations
of the Selling Agent hereunder are subject to the accuracy, when made and on
each Closing Date, of the representations and warranties of the Company
contained herein, to the performance by the Company of their respective
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Registration Statement shall become effective under the Act;
on or prior to the First Closing Date, or any Additional Closing Date, as the
case may be, no Stop Order shall have been issued an no proceeding shall have
been initiated or threatened with respect to a Stop Order; and any request by
the Commission for additional information shall have been complied with by the
Company to the reasonable satisfaction of counsel to the Selling Agent. If
required, the Prospectus shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Act.
(b) The Selling Agent shall not have discovered and disclosed to the
Company on or prior to any Closing Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Duane, Morris & Heckscher LLP, counsel for
the Selling Agent, is material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Stock, the Registration
Statement and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Selling Agent, and the
Company shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
(d) Rhoads & Sinon LLP shall have furnished to the Selling Agent its
written opinion, as counsel to the Company, addressed to the Selling Agent and
dated such as of each Closing Date, in form and substance reasonably
satisfactory to the Selling Agent to the effect that:
(i) The Company and each of its subsidiaries have been duly
incorporated and are subsisting corporations under the laws of their
respective jurisdictions of incorporation, to such counsel's knowledge, are
duly licensed or qualified to do business and are in good standing as
foreign corporations in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective
businesses requires such license or qualification and have all power and
authority necessary to own or hold their respective properties and conduct
the businesses in which they are engaged;
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(ii) The Company has an authorized capitalization as set forth
in the Prospectus under the caption "Capital Stock", and all of the shares
of Stock being delivered on each Closing Date and, to such counsel's
knowledge, all of the other capital stock of the Company, have been duly
and validly authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus, and none of
such shares have been issued in violation of any preemptive rights; to such
counsel's knowledge, all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and issued
and are fully paid, non-assessable and except as set forth in the
Prospectus are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims; to such counsel's
knowledge, all issuances and repurchases of securities by the Company were
exempt from, or compiled in all material respects with, the provisions of
all applicable federal and state securities and state corporate laws;
(iii) There are no preemptive or other rights to subscribe for
or to purchase, nor any restriction upon the voting or transfer of, any
shares of the Stock pursuant to the Company's charter or by-laws or any
agreement or other instrument to which the Company is a party and which is
known to such counsel except as set forth in the Prospectus;
(iv) To such counsel's knowledge, the Company and each of its
subsidiaries have good and marketable title in fee simple to all real
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and all real property and
buildings held under lease by the Company and its subsidiaries are held by
them under valid, subsisting and enforceable leases, with such exceptions
as are not material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its subsidiaries;
(v) To such counsel's knowledge based upon inquiry of the
Company and other than as set forth in the Prospectus, there are no legal
or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property or assets of the company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, might have a material adverse
effect on the consolidated financial position, shareholders' equity,
results of operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such opinion, the
Prospectus was filed with
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the Commission pursuant to the subparagraph of Rule 424(b) of the Rules and
Regulations specified in such opinion on the date specified therein and no
Stop Order suspending the effectiveness of the Registration Statement has
been issued and, to the knowledge of such counsel, no proceeding for that
purpose is pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to any
Closing Date (other than the financial statements and related schedules
therein, as to which counsel need express no opinion) comply as to form in
all material respects with the requirements of the Securities Act and the
Rules and Regulations; the documents incorporated by reference in the
Prospectus and any further amendment or supplement to any such incorporated
document made by the Company prior to such Closing Date (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion), when they became effective or were filed
with the Commission, as the case may be, complied as to form in all
material respects with the requirements of the Securities Act or the
Exchange Act, as applicable, and the rules and regulations of the
Commission thereunder; and to such counsel's knowledge, the Company has
filed all forms, reports and documents required to be filed with the
Commission under the Exchange Act;
(viii) To such counsel's knowledge, there are no contracts or
other documents which are required to be described in the Prospectus or
filed as exhibits to the Registration Statement by the Securities Act or by
the Rules and Regulations which have not been described or filed as
exhibits to the Registration Statement or incorporated therein by reference
as permitted by the Rules and Regulations;
(ix) The Company has full power and authority to enter into
this Agreement; and this Agreement has been duly authorized, executed and
delivered by the Company;
(x) To such counsel's knowledge, the issue and sale of the
shares of Stock being delivered on such Closing Date by the Company and the
compliance by the Company with all of the provisions of this Agreement and
consummation of the transactions contemplated hereby will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will such
actions result in any violation of the provisions of the charter or by-laws
of the Company or any of its subsidiaries or any statute or any order, rule
or regulation known to such counsel of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or any
of their properties or assets;
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and, except for the registration of the Stock under the Securities Act and
such consents, approvals, authorizations, registrations or qualifications
as may be required under the Exchange Act and applicable state securities
laws in connection with the sale and distribution of the Stock by the
Selling Agent and the Company (including, its officers, directors employees
and affiliates), no consent, approval, authorization or order of, or filing
or registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated hereby;
and
(ix) To such counsel's knowledge, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration statement under
the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act.
In rendering such opinion, such counsel may state that its opinion is limited to
matters governed by the Federal laws of the United States of America and the
laws of the Commonwealth of Pennsylvania. Such counsel shall also have
furnished to the Selling Agent a written statement, addressed to the Selling
Agent and dated such Closing Date, in form and substance satisfactory to the
Selling Agent, to the effect that (x) such counsel has acted as counsel to the
Company on a regular basis since September, 1998 (although the Company is also
represented with respect to certain other matters, by other outside counsel),
has acted as counsel to the Company in connection with previous financing
transactions and has acted as counsel to the Company in connection with the
preparation of the Registration Statement, and (y) based on the foregoing, no
facts have come to the attention of such counsel which lead it to believe that
(I) the Registration Statement, as of the Effective Date, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or that the Prospectus contains any untrue statement of a material
fact or omits 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 or (II) any document incorporated by
reference in the Prospectus or any further amendment or supplement to any such
incorporated document made by the Company prior to such Closing Date, when they
became effective or were filed with the Commission, as the case may be,
contained, in the case of a registration statement which became effective under
the Securities Act, any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or, in the case of other documents which were
filed under the Exchange Act with Commission, any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
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not misleading. The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus except for the statements made in the
Prospectus under the captions "Description of Our Capital Stock" insofar as such
statements relate to the Stock and concern legal matters.
(e) [Intentionally Omitted]
(f) [Intentionally Omitted]
(g) The Company shall have furnished to the Selling Agent a
certificate, dated such Closing Date, of its Chief Executive Officer and its
Chief Financial Officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Closing Date; the
Company has complied with all its agreements contained herein; and the
conditions set forth in Sections 5(a) and 5(h) have been fulfilled;
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue statement
of a material fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and (B) since the Effective Date no event has occurred which should have
been set forth in a supplement or amendment to the Registration Statement
or the Prospectus; and
(iii) The financial information contained in the Registration
Statement and the Prospectus is accurate and complete in all respects.
(h) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any loss or interference with its
business from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus or (ii)
since such date there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, shareholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause (i) or
(ii), is, in the judgment of the Selling Agent, so material and adverse as to
make it impracticable or inadvisable to proceed with the public offering or the
delivery of the Stock being delivered on such Closing Date on the terms and in
the manner contemplated in the Prospectus.
-20-
<PAGE>
(i) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock Exchange or in
the over-the-counter market, or trading in any securities of the Company on any
exchange or in the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment of
the Selling Agent, impracticable or inadvisable to proceed with the public
offering or delivery of the Stock being delivered on such Closing Date on the
terms and in the manner contemplated in the Prospectus.
(j) The National Market System shall have approved the Stock for
listing, subject only to official notice of issuance.
(k) The NASD, upon review of the terms of the public offering of the
Stock, shall not have objected to the Selling Agent's participation in such
offering.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Selling Agent.
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless the Selling Agent,
its officers, directors, employees and affiliates and each person, if any, who
controls the Selling Agent within the meaning of the Securities Act (hereinafter
collectively the "Selling Agent Indemnified Parties"), from and against any
loss, claim, damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage, liability or
action relating to purchases and sales of Stock), to which the Selling Agent or
the Selling Agent Indemnified Parties may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or supplement
thereto or (B) in any blue sky application or other document prepared or
executed by the Company (or based upon any written information furnished
-21-
<PAGE>
by the Company) specifically for the purpose of qualifying any or all of the
Stock under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading, or
(iii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Agreement, and shall reimburse each Selling Agent and
each Selling Agent Indemnified Party promptly upon demand for any legal or other
expenses reasonably incurred by the Selling Agent and each Selling Agent
Indemnified Party in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, the gross negligence or intentional
misconduct of the Selling Agent, or upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary Prospectus,
the Registration Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and in conformity
with written information concerning the Selling Agent furnished to the Company
through the Selling Agent specifically for inclusion therein. The foregoing
indemnity agreement is in addition to any liability which the Company may
otherwise have to the Selling Agent or to any Selling Agent Indemnified Party.
The Company hereby consents to personal jurisdiction and to service and venue in
any court in which any claim subject to this indemnification is brought against
the Selling Agent or any Selling Agent Indemnified Party.
(b) In addition to, and without limiting the provisions of Section
(6)(a) hereof, in the event that the Selling Agent or any Selling Agent
Indemnified Party is requested or required to provide documentary evidence or to
appear as a witness or otherwise give testimony in any action, proceeding,
investigation or inquiry brought by or on behalf of or against the Company or
any of its affiliates or any participant in the transactions contemplated hereby
in which the Selling Agent or any Selling Agent Indemnified Party is not named
as a defendant or subject to an investigation or inquiry, the Company agrees to
reimburse the Selling Agent for all reasonable and necessary out-of-pocket
expenses incurred by it in connection with providing any documentary evidence or
preparing or appearing as a witness or otherwise giving testimony and to
compensate the Selling Agent in the amount of $2,000 per day for any sworn
testimony.
(c) In any case in which it is finally judicially determined that
indemnification or reimbursement, as set forth above, may not be enforced or is
otherwise unavailable, then the Company agrees to contribute to the aggregate
claims, liabilities, losses, damages or expenses to which the Selling Agent and
each Selling Agent Indemnified Party may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Selling Agent on the other, from the offering provided for in this
Agreement. Such relative benefits shall be determined by reference to the total
value of the proposed offering in relation to the
-22-
<PAGE>
fee received or that would be received if the offering was consummated by the
Selling Agent, provided, however, that the Company shall contribute any
additional amount necessary to assure that the contribution by the Selling Agent
and the Selling Agent Indemnified Parties does not exceed the amount of the fee
actually received by the Selling Agent under this Agreement.
(d) The Selling Agent shall indemnify and hold harmless the Company,
its officers and employees, each of its directors and each person, if any, who
controls the Company within the meaning of the Securities Act, from and against
any loss, claim, damage or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such loss, claim, damage, liability or action arises out of, or is based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading,
but in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning the Selling Agent furnished to
the Company through the Selling Agent by or on behalf of the Selling Agent
specifically for inclusion therein, and shall reimburse the Company and any such
director, officer or controlling person for any legal or other expenses
reasonably incurred by the Company or any such director, officer or controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred. The foregoing indemnity agreement is in addition to any liability
which the Selling Agent may otherwise have to the Company or any such director,
officer, employee or controlling person.
(e) Each indemnified party shall give written notice as promptly as
reasonably practicable to each indemnifying party of any pending or threatened
claim, or any action or proceeding arising therefrom or commenced against it in
respect of which indemnity is being sought under this Section 6, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have on account of this indemnity agreement or
otherwise. If it so elects, the indemnifying party may assume the defense of
any such action or proceeding with counsel chosen by it, unless the indemnified
party reasonably objects to such assumption on the grounds that there are legal
defenses available to the indemnified party which are different from or in
addition to those available to the indemnifying party, in which case the
indemnifying party shall pay the reasonable fees and expenses of separate
counsel for the indemnified party, provided, however, that in no event shall the
indemnifying party be liable for the fees and expenses of more than one counsel
for the indemnified parties. The indemnifying party may participate at its own
expense in the defense of any such action. No indemnifying party shall (i)
without the prior written consent of the indemnified parties (which consent
shall not be
-23-
<PAGE>
unreasonably withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with the consent of
the indemnifying party or if there be a final judgment of the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
7. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement, or
contained in certificates of officers of the Company submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Selling Agent or any controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Stock.
8. Termination.
(a) The obligations of the Selling Agent hereunder may be terminated
by the Selling Agent by notice given to and received by the Company at any time
at or prior to any Closing Date if any conditions specified in Section 5 hereof
shall not have been fulfilled when and as required to be fulfilled. If the
Registration Statement has not been declared effective, the Company may
terminate the Selling Agent's services at any time after October 30, 1999.
(b) If this Agreement is terminated pursuant to this Section prior to
the First Closing Date, such termination shall be without liability of any party
to any other party except that the provisions of Sections 2(j)(i), 4, 6 and 7
shall survive any termination of this Agreement.
(c) If not earlier terminated, this Agreement shall terminate as of
the last Closing Date provided that the provisions of Sections 2(j), 4, 6 and 7
shall survive termination.
9. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of telecommunication. Notices to the Selling Agent shall be directed to
the Selling Agent at ______________, attention of __________
-24-
<PAGE>
_________, Senior Vice President, with a copy to _________________________
_____________ notices to the Company shall be directed to the Company at Drovers
Bancshares Company, 30 South George Street, York, Pennsylvania, 17401, attention
of Debra A. Goodling, Executive Vice President, with a copy to Charles J. Ferry,
Esq., Rhoads & Sinon LLP, One South Market Square, 12th Floor, Harrisburg,
Pennsylvania 17108-1146.
10. Parties.
This Agreement shall inure to the benefit of and be binding upon the
Selling Agent and the Company and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or Company, other than the Selling Agent and the Company
and their respective successors and their controlling persons and officers and
directors and their heirs and legal representatives, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
herein or therein contained. This Agreement and all conditions and provisions
hereof and thereof are intended to be for the sole and exclusive benefit of the
Selling Agent and the Company and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other persons, firm or Company.
11. Entire Agreement, Amendment.
This Agreement represents the entire understanding of the parties hereto
with reference to the transactions contemplated hereby and supersedes any and
all other oral or written agreements heretofore made, including the letter
agreement dated July 30, 1999. No waiver, amendment or other modification of
this Agreement shall be effective unless in writing and signed by the parties
hereto.
12. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania applicable to agreements made and to be
performed in said Commonwealth without regard to the conflicts of laws
provisions thereof.
13. Severability.
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or
-25-
<PAGE>
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
14. Headings.
Sections headings are not to be considered part of this Agreement, are for
convenience and reference only, and are not to be deemed to be full or accurate
descriptions of the contents of any paragraph or subparagraph.
15. Counterparts.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
but one and the same agreement.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Selling Agent and the Company in accordance with its terms.
Very truly yours,
DROVERS BANCSHARES CORPORATION
By:
---------------------------------------------
Its:
--------------------------------------------
CONFIRMED AND ACCEPTED
as of the date first above written:
______________________________________
By:
---------------------------
Its:
---------------------------
-26-
<PAGE>
APPENDIX A
FINANCIAL ADVISORY SERVICES
PROJECT MANAGEMENT
- ------------------
. Work with management and attorneys in developing and administering a time
and responsibility schedule for the offering of the Stock.
. Function as project manager for the offering of the Stock, working closely
with the Company's management and counsel.
MARKETING PROGRAM DEVELOPMENT AND IMPLEMENTATION
- ------------------------------------------------
. Develop with the Company's management a coordinated marketing program for
the offering of the Stock. The program will include items such as purchase
limitations, community presentations, timing and duration of the offering.
. Work with the Company's management and directors in identifying target
investors for the offering.
. Assist in developing a sales strategy for the offering.
. Review the prospectus and all other offering-related documents from a
marketing perspective.
. Determine all letters and document requirements and work the Company's
management, financial printer and local suppliers in developing a quality
and consistent presentation format at reasonable cost. Such documents
include, but are not limited to: advertisements, news releases, mailing
inserts, internal communications, various selling and response letters,
brochures, lobby displays, order forms, and mailing packages.
. Work with the Company's management and graphics material suppliers in
outlining and developing the format for community presentations. Draft
slides and script for community meetings and assist the Company's
management in rehearsing the presentation.
. Assemble and manage, on a best-efforts basis, a syndicate of selected
broker/dealers to assist in the sale of stock if warranted by market
demand.
<PAGE>
DOCUMENT PREPARATION
- --------------------
. Prepare drafts for all offering-related marketing documents for review by
the Company's management. Usher the finalized documents through the
printing process in conjunction with the financial printer.
. Prepare sales center documents, including phone logs, prospect cards, and
an operations manual to be used as a reference.
TRAINING FOR DIRECTORS, MANAGEMENT AND EMPLOYEES
- ------------------------------------------------
. Directors - Meet with the Company's board in order to review their role in
---------
the marketing effort and overall conduct of the offering process.
. Management - Work closely with designated manager(s) to assure a complete
----------
understanding of the process and his/her role. Meet with senior officers
and branch managers to explain their roles and answer questions.
. Employees - Conduct overall training session(s) for all employees covering
---------
the employees' role in selling effort, what they may not say and defining
unfamiliar terms, etc. Specific sales center training sessions will be
held for the Company's employees for the purpose of familiarizing staff
with the operations of the sales center.
SALES CENTER OPERATIONS
- -----------------------
. Provide procedures manual to be used in the operation of the sales center.
Such procedures include order solicitation and processing, handling of
correspondence and answering inquiries, follow-up with prospective
purchasers, telephone solicitation, branch activity coordination and
assistance and internal controls.
. Determine with the Company's management the most expeditious way to perform
sales center tasks (i.e. manual vs. computer) based on availability and
qualifications of personnel. Develop equipment and supply lists for
setting up the sales center, based upon techniques to be employed.
. Document procedures to be followed and train appropriate personnel to
assure an efficient sales solicitation and processing effort.
<PAGE>
Exhibit 1.2
[______________ Letterhead]
DROVERS BANCSHARES CORPORATION
________ Shares
at $____ per Share
COMMON STOCK
SELECTED DEALER AGREEMENT
-------------------------
Gentlemen:
You have agreed to assist ______________________________________ in
connection with the offer and sale of up to _______ shares (the "Shares") of
Common Stock, No par value, of Drovers Bancshares Corporation (the "Company") to
the general public at the public offering price of $_____ per share (the
"Offering"). The Shares, the terms on which they are being offered and our
engagement as Agent for the Company on a best efforts basis are more fully
described in the Company's Prospectus dated __________, 1999 and the Agency
Agreement dated _______________, 1999.
We are offering to Selected Dealers (of which you are one) the opportunity
to participate in the solicitation of offers from the general public to buy the
Shares in connection with the Offering, and we will pay you a fee in the amount
of four and one half percent (4.5%) of the dollar amount of the Shares sold on
behalf of the Company by you. The dollar amount of Shares sold on behalf of the
Company by you shall be evidenced on a summary letter as prepared by your firm
(the "Summary Letter"). Payment for Shares purchased on behalf of your customers
shall be made by you on such dates and at such places as we advise you, by
certified check, bank cashier's check or wire transfer payable to the order of
____________________, in such clearing house funds as we advise, against
delivery of the Shares. Delivery instruments must be in our hands at the office
of __________________ at such time as we request.
The above payment shall be made by you at the public offering price or, if
we so advise you, at a net price equal to such public offering price less the
Selected Dealer's commission. If payment is made by you at such public offering
price, the Selected
<PAGE>
Dealer's commission payable to you hereunder shall be paid promptly after the
termination of this Agreement (or on such earlier date as we may determine).
You understand that, in accordance with Securities and Exchange Commission
("SEC") Rule 15 c2-4, promulgated under the Securities Exchange Act of 1934 (the
" 1934 Act"), in connection with indications of interest solicited by you, (1)
you will subsequently contact any customer indicating interest to confirm the
interest, (2) you will mail acknowledgments of receipt of orders to each
customer confirming interest on the business day following such confirmation,
(3) you will debit accounts of such customers on the third business day (the
"debit date") following receipt of the confirmation referred to in (1), and (4)
you will forward an executed Summary Letter, together with such funds, to
_______________________ when and as directed by us. You acknowledge that
customers' funds are not required to be in their accounts until the debit date.
It is understood that the Summary Letter must (1) bear the authorized
designation of your firm; (2) indicate the true and correct number of Shares
requested by your customers; and (3) represent that no beneficial owner will be
purchasing 5% or more of the Shares offered in this Offering.
This offer is made subject to the terms and conditions herein set forth and
is made only to Selected Dealers who are (1) members in good standing of the
National Association of Securities Dealers, Inc. ("NASD") who agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation With Respect to Free-Riding and Withholding (IM-2210-1) and
Conduct Rules 2740 or (2) foreign dealers not eligible for membership in the
NASD who agree (A) not to sell any Shares within the United States, its
territories or possessions or to persons who are citizens thereof or resident
therein and (B) in making other sales to comply with (i) the above-mentioned
NASD Interpretation and Conduct Rules 2730, 2740 and 2750 as if they were NASD
members, and (ii) Conduct Rule 2420 as it applies to nonmember brokers or
dealers in a foreign country.
You represent and warrant that at no time prior to the Offering have you
purchased or acquired securities of the Company which have not been registered
under the Securities Act of 1933, as amended.
Subscriptions for Shares will be strictly subject to confirmation and we,
acting on behalf of the Company, reserve the right in our unfettered discretion
to reject any subscription, in whole or in part, to accept or reject
subscriptions in the order of their receipt or otherwise, and to allot Shares
among subscribers. Neither you nor any other person is authorized by the Company
or by us to give any information or make any representations other than those
contained in the Prospectus in connection with the sale of any of the Shares. No
Selected Dealer is authorized to act as agent for us when soliciting offers to
buy the Shares from the public or otherwise. No Selected Dealer shall engage in
any stabilizing activities (as defined in Rule lOb-7 promulgated under the 1934
Act) with respect to the Company's Shares during the Offering.
<PAGE>
We and each Selected Dealer assisting in selling shares pursuant hereto
agree to comply with all federal and state statutes, rules and regulations
applicable to the Offering. addition, we and each Selected Dealer confirm that
the SEC interprets Rule 15c2-8, promulgated under the 1934 Act, as requiring
that a copy of the Prospectus be supplied to each person who is expected to
receive a confirmation of sale at least 48 hours prior to the mailing of such
confirmation and agree to abide by and comply with such rule.
Unless earlier terminated by us, this Agreement shall terminate upon the
closing of the Additional Offering Period (as defined in the Agency Agreement).
We may terminate this Agreement or any provision hereof at any time by written
or telegraphic notice to you. Our obligations hereunder are subject to the
successful completion of the Offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares sold on
behalf of the Company by you under this Agreement. You agree that the Summary
Letter will be delivered to the Company, with copies to us.
We shall have full authority to take such actions as we may deem advisable
in respect of all matters pertaining to the Offering. We shall be under no
liability to you except for lack of good faith and for obligations expressly
assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective Blue Sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Copies of the Prospectus and any supplements thereto will be supplied in
reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, transmitted by telephone facsimile or telegraphed to you at
the address to which this Agreement is mailed.
Terms used herein that are not defined herein but are defined in the
Prospectus shall have the meanings defined therein.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
Please confirm your agreement hereto by signing this letter and returning
it immediately to us at _______________________________, ______________________,
___________, _____________ ____, Attention: _____________________,
<PAGE>
___________________. The enclosed duplicate copy of this letter will evidence
the agreement between us.
Very truly yours,
______________________________
By: _______________________________
_____________________
Senior Vice President
Agreed to and accepted:
(Name of Firm)
By: _________________________
Print Name:
Title:
Date:
<PAGE>
EXHIBIT 5.1
-----------
Opinion and Consent of Rhoads & Sinon LLP
-----------------------------------------
Re: Registration Statement on Form S-3
for Drovers Bancshares Corporation
--------------------------------------
September 30, 1999
Drovers Bancshares Corporation
30 South George Street
York, PA 17401
Gentlemen:
Reference is made to your Registration Statement on Form S-3 to be
filed with the Securities and Exchange Commission regarding the registration of
shares of common stock, no par value, of Drovers Bancshares Corporation (the
"Corporation") with an aggregate purchase price of $5,750,000.
We have examined the records related to the organization of the
Corporation, its Articles of Incorporation, By-Laws and all amendments thereto,
and the records of proceedings of its stockholders and directors.
Based upon the foregoing, and upon the examination of such other
documents as we have deemed necessary to express the opinions hereinafter set
forth, we are of the opinion that:
(1) The Corporation is a corporation duly organized and in good
standing under the laws of the Commonwealth of Pennsylvania; and
(2) The securities to be registered, when issued and paid for as
contemplated by the Prospectus included in the above-referenced registration
statement, will be legally issued and outstanding stock of the Corporation,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
said Registration Statement and to all references to us therein.
In giving such consent, we do not thereby admit that we are experts
within the meaning of Section 7 of the Securities Act of 1933.
Very truly yours,
RHOADS & SINON LLP
By: /s/ Charles J. Ferry
--------------------
Charles J. Ferry
<PAGE>
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated January 15, 1999 accompanying the consolidated
financial statements of Drovers Bancshares Corporation and Subsidiaries
appearing in the 1998 Annual Report to its shareholders and accompanying the
schedules included in the Annual Report on Form 10-K for the year ended December
31, 1998 which are incorporated by reference in this Registration Statement -
Form S-3. We consent to the incorporation by reference in the Registration
Statement of the aforementioned reports and to the use of our name as it appears
under the caption "Experts".
/s/ Stambaugh . Ness, P.C.
York, Pennsylvania
September 30, 1999
<PAGE>
Drovers Bancshares Corporation Exhibit 99.1
Stock Order Form
----------------
[LOGO OF DROVERS BANCSHARES CORPORATION
APPEARS HERE]
Your Properly Completed Stock Order Form Must Be Returned To: Drovers
Bancshares Corporation, Attention: Stock Information Center, 30 South George
Street, York, PA 17401
This Stock Order Form, properly executed and with the correct payment, must be
received before termination of the initial offering period at 5:00 P.M., York,
Pennsylvania time, on ___________ __, ___, or the earlier termination of the
offering at the discretion of the Company, in accordance with provisions
described in the Prospectus. If the Company offers shares after the initial
offering period as described in the Prospectus, this Stock Order Form may be
accepted, at the discretion of the Company, for purchases during such additional
offering period.
Number Of Shares
Fill in the number of shares of Common Stock you wish to purchase and the Total
Purchase Price. The minimum order is 100 shares. The purchase price is $______
per share. The maximum number of shares that may be purchased is ______ shares.
Stock Registration
Print the name(s) in which you want the stock registered. Enter the Social
Security Number or Tax I.D. Number of one of the registered owners. Only one
number is required. Indicate the manner in which you wish to take ownership by
checking the appropriate box. If necessary, check "other" and specify the
registration desired. If stock is purchased for a trust, date of the agreement
and trust title must be included.
Payment
Enclose a check, bank draft or money order made payable to "Drovers Bancshares
Corporation" in the amount of the total purchase price. All stock order funds
received and accepted by the Company will be deposited into a non-interest
bearing escrow account at The Drovers & Mechanics Bank. Payment may be made by
wire transfer to the escrow account, Account No. 168955; ABA No. 031301590.
Telephone Numbers
Please enter a daytime and an evening telephone number where you may be
contacted in the event that we cannot process your Stock Order Form as
received.
Acknowledgment
Please sign and date the Stock Order Form. When subscribing as a custodian,
corporate officer, etc., please add your signature and title.
Total
Number of Price Per Purchase
Shares Share Price
__________ x $______ = $______________
________________________________________________
Name(s) in which the stock is to be registered
________________________________________________
Name(s) in which the stock is to be registered
________________________________________________
Street Address
________________________________________________
City State Zip
________________________________________________
Social Security or Tax ID Number
*PLEASE READ THE BACK OF THIS DOCUMENT
AND SIGN AS INDICATED*
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Form of stock ownership (check one):
[] Individual
[] Joint Tenants WROS
[] Tenants in Common
[] Corporation
[] Fiduciary/Trust Under Agreement dated___________________
[] Partnership
[] Uniform Gift to Minors
[] Individual Retirement Account
[] Other____________________________________________________
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______________________
Daytime Phone
______________________
Evening Phone
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For Office Use Only
Date Received___________________ Batch#______________________
Processor_______________________ Order#______________________
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<PAGE>
This Stock Order Form, properly executed and with the correct payment, must be
received before the termination of the initial offering period. This Stock Order
Form will be deemed received upon the date of delivery of the Stock Order Form,
with payment, to the address set forth on the front of this page. This Stock
Order Form may be returned by mailing it in the postage prepaid envelope. Stock
Order Forms received after termination of the initial offering period may be
accepted, at the discretion of the Company, for purchases during any additional
offering period in accordance with provisions described in the Prospectus.
I (We) (hereinafter referred to as the "Undersigned") acknowledge receipt of the
Prospectus and any supplements thereto. The Undersigned understands that, after
receipt by the Company, this Stock Order Form may not be modified, withdrawn or
revoked without the consent of the Company. The Company has the right to accept
or reject, in whole or in part, this Stock Order Form prior to the consummation
of the offering. If this Stock Order Form is rejected in whole or in part, the
applicable stock order funds will be promptly returned to the prospective
investor, without interest. This Stock Order Form is binding, after acceptance
by the Company, upon the heirs, estate, legal representatives, assigns and
successors of the Undersigned and shall survive the death, disability or
dissolution of the Undersigned. The Undersigned agrees not to transfer or
assign the common stock except in accordance with all applicable laws.
The Undersigned understands that investment in the common stock includes certain
risks, including those set forth under the caption "Risk Factors" in the
Prospectus. No information or representation has been given to the Undersigned
by representatives of the Company or anyone else other than those contained in
such Prospectus and any supplements thereto.
The provisions in this Stock Order Form shall be construed and enforced
according to the laws of the Commonwealth of Pennsylvania. In the event there
is any conflict between the Prospectus and any supplements thereto and this
Stock Order Form, then the terms set forth in the Prospectus and any supplements
thereto shall be controlling. If this Stock Order Form is executed on behalf of
a corporation, partnership, trust or other entity, the Undersigned has been duly
authorized to execute this Order Form and all other instruments in connection
with the purchase of the common stock, and the signature of the Undersigned is
binding upon such corporation, partnership, trust or other entity. The Company
retains the right to request the production of an appropriate certification for
said authorization. This Stock Order Form constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof and may be
amended only in writing executed by the party to be bound thereby.
NASD Affiliation
Under the regulations of the National Association of Securities Dealers, Inc.
("NASD"), certain persons may not be eligible to purchase shares.
If you are an owner, director, officer, partner, agent or employee of a NASD
member firm or an associate or a member of the immediate family of any such
person, please initial the following line. ___________
If you are a senior officer of a bank, savings and loan institution, insurance
company, registered investment company, registered investment advisory firm or
any other institutional type account; or a person who is employed in the
securities department of any such institution or who otherwise may influence the
buying and/or selling of securities by any of such institutions; or a member of
the immediate family of any such person, please initial the following line. ____
____________
Substitute W-9
I (We) am/are not subject to backup withholding either (1) because I (we) am/are
exempt from back-up withholding, (2) I (we) have not been notified that I (we)
am/are subject to back-up withholding as a result of a failure to report all
interest on dividends, or (3) the Internal Revenue Service has notified me (us)
that I (we) am/are no longer subject to back-up withholding. (You must cross
out 2 if the IRS notified you that you are currently subject to backup
withholding.)
Acknowledgment
Under the penalties of perjury, I (we) certify that the information contained
herein, including the Social Security Number or Taxpayer Identification Number
given above, is true, correct and complete.
_____________________________ _______________________________________________
Signature Date Signature (if second signature required) Date
This stock Order Form is not valid unless signed.
For assistance, please call The Stock Information Center at (717) 519-2333
