<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 30, 1997
REGISTRATION NO.: 33-42941
---------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------
COMMUNITY BANKS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA
--------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
6022
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(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION NO.)
23-2251762
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(I.R.S. EMPLOYER IDENTIFICATION NO.)
150 MARKET SQUARE, MILLERSBURG, PENNSYLVANIA 17061 (717) 692-4781
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ERNEST L. LOWE
C.O.O. AND PRESIDENT
COMMUNITY BANKS, INC.
150 MARKET SQUARE
MILLERSBURG, PENNSYLVANIA 17061 (717) 692-4781
---------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
JAMES A. ULSH, ESQUIRE PAUL G. MATTAINI, ESQUIRE
METTE, EVANS & WOODSIDE BARLEY, SNYDER, SENFT & COHEN, LLP
3401 NORTH FRONT STREET 126 EAST KING STREET
P.O. BOX 5950 LANCASTER, PENNSYLVANIA 17602-2893
HARRISBURG, PENNSYLVANIA 17110-0950
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
PUBLIC: As soon as practicable after the effective date of this Registration
Statement, and upon consummation of the merger of Peoples State Bank with and
into PSB Interim Bank, a subsidiary of the Registrant, as described in the
enclosed Joint Proxy Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Par value
$5.00 per share....... 1,410,500 $35.56 $55,786,563.56 $16,905.02
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee and
calculated in accordance with Rule 457(f)(1) on the basis of the average
of the bid and ask prices for common stock of The Peoples State Bank on
the NASD Bulletin Board December 12, 1997 of $35.56 and the estimated
maximum of 1,568,801 shares of such stock to be converted in the merger
described herein into Common Stock of the Registrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATES AS THE COMMISSION
ACTING PURSUANT TO SUCH SECTION 8(a) MAY DETERMINE.
EXPLANATORY NOTE
The purpose of this pre-effective amendment filing is solely to bring the
EDGAR database current. The following pages were inadvertently not included in
the Form S-4 filing submitted on December 22, 1997 (Registration No. 333-42941).
<PAGE>
SUMMARY
The following is a summary of certain information relating to the Merger
which may also be contained elsewhere in this Joint Proxy Statement/Prospectus.
This summary is not intended to be a summary of all information relating to the
Merger and is qualified in its entirety by reference to more detailed
information contained elsewhere in this Joint Proxy Statement/Prospectus,
including the Appendices hereto. All shareholders are urged to review the
entire Joint Proxy Statement and Appendices carefully.
THE PARTIES
PEOPLES
The Peoples State Bank ("Peoples") is an FDIC-insured banking institution
organized on March 17, 1911 under the banking laws of the Commonwealth of
Pennsylvania and headquartered in East Berlin, Pennsylvania. Peoples engages in
commercial banking authorized by the Pennsylvania Banking Code (the "PBC").
This involves accepting demand, time and savings deposits and granting loans
(consumer, commercial, real estate and business) to individuals, corporations,
partnerships, associations and municipalities and other governmental bodies.
Peoples owns one (1) subsidiary, PSB Realty Company.
Peoples Common Stock is registered under the Securities Exchange Act of 1934,
as amended, with the FDIC. Peoples is subject to the supervision of the FDIC
and the Pennsylvania Department of Banking ("PDOB"). Peoples Common Stock is
listed on the NASD Bulletin Board.
As of September 30, 1997, Peoples had six (6) banking offices. Its principal
executive office, which it owns, is located at 100 East King Street, East
Berlin, Pennsylvania 17316, and the telephone number at that address is (717)
259-9510. Peoples is not dependent on any one customer, and the loss of any
customer or a few customers would not have a material adverse effect upon it.
At September 30, 1997, Peoples reported total assets of $244,787,000,
deposits of $194,994,000 and net loans of $169,466,000. Peoples reported net
income of $1.05 per share for the year ended December 31, 1996 and net income
of $1.13 per share for the nine (9) months ended September 30, 1997.
COMMUNITY
Community is a Pennsylvania business corporation which was organized in 1982,
and is headquartered at 150 Market Square, Millersburg, Pennsylvania 17061.
Community is the holding company of Community Banks, N.A. ("CBNA"), currently
its only wholly-owned banking subsidiary. CBNA currently operates twenty-two
(22) offices in Dauphin, Schuylkill, Northumberland and Luzerne Counties, and
will soon have a twenty-third (23rd) office opened in Shamokin Dam, Snyder
County, Pennsylvania. Peoples and CNBA will be operated as separate banking
organizations under the umbrella of Community as the holding company.
In addition, Community owns one hundred (100%) percent of the issued and
outstanding shares of two non- banking subsidiaries, Community Banks Life
Insurance Company and Community Bank Investments, Inc. Community Banks Life
Insurance Company was incorporated on November 12, 1986 under the laws of the
state of Arizona for the purpose of re-insuring credit, life and accident
insurance risks. Community Bank Investments, Inc. is a Delaware corporation
formed for the purpose of investing in and holding securities.
As a bank holding company, Community is registered with the Federal Reserve
Board in accordance with the requirements of the federal Bank Holding Company
Act of 1956, as amended, and is subject to regulation by the Federal Reserve
Board.
1
<PAGE>
Community Common Stock is traded under the symbol "CTY" and is listed on the
American Stock Exchange ("AMEX").
At September 30, 1997, Community reported total assets of $459,546,000,
deposits of $350,602,000, and net loans and leases of $252,227,000. Community
reported net income of $5,632,000, or $1.94 per share for the year ended
December 31, 1996 and net income of $4,756,000, or $1.54 per share for the nine
(9) months ended September 30, 1997.
PSB INTERIM BANK
PSB Interim Bank is a wholly-owned Community subsidiary, and is a
Pennsylvania banking institution which was formed solely for the purpose of the
Merger. Upon consummation of the Merger, Peoples will be merged with and into
PSB Interim Bank, which will be the surviving entity. After consummation of the
Merger, the name of PSB Interim Bank will be changed to The Peoples State Bank,
and the resulting bank will operate as a separate banking subsidiary of
Community.
THE SPECIAL MEETINGS
DATE, PLACE AND TIME OF THE MEETINGS
The special meeting of Shareholders of Community (the "Community Special
Meeting") will be held at 9:00 a.m. on February 10, 1998 at 150 Market Street,
Millersburg, Pennsylvania.
The special meeting of the Shareholders of Peoples (the "Peoples Special
Meeting") will be held at 9:00 a.m. on February 10, 1998 at the East Berlin
Community Center, North and 4th Streets, East Berlin, Pennsylvania.
MATTERS TO BE CONSIDERED AT THE MEETINGS
At their respective meetings, the Shareholders of Community and Peoples will
be asked to approve: (a) an Agreement and Plan of Reorganization and a related
Agreement and Plan of Merger dated October 28, 1997 (collectively the "Merger
Agreement") between Community and Peoples, as well as the merger (the "Merger")
of Peoples with and into PSB Interim Bank, a newly formed wholly-owned
subsidiary of Community, as contemplated therein; (b) a proposal (the
"Adjournment Proposal") to postpone or adjourn their respective meetings to
another time and/or place for the purpose of soliciting additional proxies in
the event that there are not sufficient votes at the time of their respective
meetings to approve the Merger and the Merger Agreement; and (c) such other
business as may properly come before their respective Meetings and/or any
adjournment thereof. Additionally, in conjunction with the Merger, the
shareholders of Community will be asked to consider and vote upon a proposal to
amend the Community Articles of Incorporation to increase the authorized shares
of Community Common Stock from 5,000,000 shares to 20,000,000 shares (the
"Amendment"). See "THE MEETINGS--Matters to be Considered at the Meetings."
RECORD DATE; SHARES OUTSTANDING; QUORUM; VOTE REQUIRED
Only holders of record of shares of Community Common Stock at the close of
business on December 26, 1997 (the "Record Date") will be entitled to vote at
the Community Special Meeting. As of that date, approximately 3,023,202 shares
of Community Common Stock were outstanding, each share being entitled to one
vote. Pursuant to Community's Articles of Incorporation, the affirmative vote
of the holders of 66 2/3% of all outstanding shares of Community Common Stock
is required to approve the Merger, the Merger Agreement and the Amendment. See
"THE MEETINGS--Vote Required."
2
<PAGE>
As of the Record Date indicated above, directors and executive officers of
Community beneficially owned approximately 516,300 shares of Community Common
Stock or approximately 17.07% of the outstanding Community Common Stock
entitled to vote at the Community Special Meeting. The directors and executive
officers of Community have agreed to vote all of such shares in favor of the
Merger, the Merger Agreement and the Amendment. See "THE MEETINGS--VOTES
REQUIRED AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
Only holders of record of shares of Peoples Common Stock at the close of
business on December 26, 1997 (the "Record Date") will be entitled to vote at
the Peoples Special Meeting. At that date, approximately 1,490,313 shares of
Peoples Common Stock were outstanding, each share being entitled to one vote.
The affirmative vote of the holders of two-thirds ( 2/3) of all outstanding
shares of Peoples Common Stock is required to approve the Merger and the Merger
Agreement. See "THE MEETINGS--Vote Required."
As of the Record Date indicated above, directors and executive officers of
Peoples beneficially owned approximately 214,835 shares of Peoples Common Stock
or approximately 14.42% of the outstanding Peoples Common Stock entitled to
vote at the Peoples Special Meeting. Prior to the execution of the Merger
Agreement, the directors and executive officers of Peoples entered into an
agreement with Community that they would vote all of such shares in favor of
the Merger and the Merger Agreement. See "THE MEETINGS--VOTES REQUIRED AND
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."
TERMS OF THE MERGER
Pursuant to the Merger Agreement, Peoples will be merged with and into PSB
Interim Bank. PSB Interim Bank is a wholly-owned Pennsylvania state banking
institution formed solely for the purposes of the Merger, and will be the
surviving corporation. Upon the effective date of the Merger, the name of PSB
Interim Bank will be changed to The Peoples State Bank, and the resulting bank
will operate as a separate banking subsidiary of Community. Each share of
Peoples Common Stock outstanding as of the Effective Date (as defined below) of
the Merger will be converted into and become a right to receive .889 shares
(the "Conversion Factor") of Common Stock of Community, par value $5.00 per
share (the "Community Common Stock"). See "THE MERGER--Terms of the Merger--
Merger Consideration; Conversion Factor."
EXCHANGE PROCEDURE
As soon as practicable after the Effective Date, holders of shares of Peoples
Common Stock will be furnished a form letter of transmittal for the tender of
their shares to Norwest Bank Minnesota, N.A. (the "Exchange Agent") to be
exchanged for certificates for the appropriate number of shares of Community
Common Stock. See "THE MERGER--Exchange Procedure."
PEOPLES' SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES FOR SHARES OF
COMMUNITY COMMON STOCK TO PEOPLES OR COMMUNITY UNTIL THEY HAVE RECEIVED THE
TRANSMITTAL LETTER. PEOPLES' SHAREHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES
WITH THE ENCLOSED PROXY CARD.
OPINIONS OF FINANCIAL ADVISORS
The Berwind Financial Group, L.P. ("Berwind") rendered its opinion to the
Board of Directors of Peoples that, based upon and subject to the various
considerations set forth therein, as of October 28, 1997 (the "October
Opinion"), and as of the date of this Joint Proxy Statement/Prospectus (the
"Proxy Opinion"), the consideration to be received, in the Merger, is fair,
from a financial point of view, to the holders of Peoples Common Stock. Sandler
O'Neill & Partners, L.P. ("Sandler O'Neill") rendered its opinion to the Board
of Directors of
3
<PAGE>
Community dated October 27, 1997 to the effect that the terms of the Merger are
fair from a financial point of view. These opinions, which are attached to this
Joint Proxy Statement/Prospectus as Appendix B and Appendix C, respectively,
should be read in their entirety with respect to the assumptions made and other
matters considered in rendering such opinions. See "THE MERGER--Opinions of
Financial Advisors."
RECOMMENDATION OF THE BOARDS OF DIRECTORS
THE BOARD OF DIRECTORS OF COMMUNITY BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF COMMUNITY'S SHAREHOLDERS, HAS BY UNANIMOUS VOTE APPROVED THE
MERGER AND THE MERGER AGREEMENT AND RECOMMENDS THAT COMMUNITY'S SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER, THE MERGER AGREEMENT AND THE AMENDMENT. See
"THE MERGER--Reasons for the Merger; Recommendations of the Boards of
Directors."
THE BOARD OF DIRECTORS OF PEOPLES BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF PEOPLES' SHAREHOLDERS, HAS BY UNANIMOUS VOTE APPROVED THE MERGER
AND THE MERGER AGREEMENT AND RECOMMENDS THAT PEOPLES' SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AND THE MERGER AGREEMENT. See "THE MERGER--Reasons for
the Merger; Recommendations of the Boards of Directors."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to various conditions, including the
approval of the Merger by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), the Federal Deposit Insurance Corporation (the
"FDIC") and the Pennsylvania Department of Banking (the "Department of
Banking") and its qualification for accounting purposes as a "pooling of
interests." See "THE MERGER--Regulatory Approvals." The Merger is also subject
to satisfaction of various other conditions specified in the Merger Agreement,
including approval of the Merger and the Merger Agreement by the requisite vote
of shareholders of Peoples and Community. See "THE MERGER--Terms of the
Merger--Conditions Precedent."
CLOSING; EFFECTIVE DATE
The Merger Agreement provides that the closing of the Merger (the "Closing")
will be held at the executive offices of Community at 10:00 a.m. on a date to
be designated by Community (the "Effective Date"), which date shall not be
later than thirty (30) business days following the receipt of all governmental
approvals and Shareholder approvals and after the expiration of all applicable
waiting periods. See "THE MERGER--Terms of the Merger--Closing; Effective Date"
and "THE MERGER--Terms of the Merger--Conditions Precedent."
TERMINATION; WAIVER; AMENDMENT
The Merger Agreement may be terminated at any time prior to consummation of
the Merger in a number of circumstances, including, but not limited to: (a) by
mutual consent of the parties; (b) by either party if in its reasonable
opinion, a material adverse change shall have occurred since June 30, 1997, in
the business or financial condition of the other party; (c) by either party if
there has been a failure on the part of the other party to comply with its
obligations under the Merger Agreement; (d) by the Board of Peoples or
Community if the Merger and Merger Agreement are not approved by the
affirmative vote of (i) Peoples' Shareholders holding at least two-thirds (
2/3) of Peoples' outstanding Common Stock, and (ii) Community Shareholders
holding at least 66 2/3% of Community's outstanding Common Stock; and (e) by
the Board of Peoples if, prior to the Effective Date, (i) a change of control
of Community occurs, (ii) Community enters into an agreement to effect a change
of control or (iii) Community enters into any agreement relating to a
transaction which would require
4
<PAGE>
the approval of its shareholders under the BCL or the listing standards of the
AMEX. See "THE MERGER--Terms of the Merger--Termination."
Provisions of the Merger Agreement may be waived or amended under certain
circumstances, as set forth in the Merger Agreement. See "THE MERGER--Terms of
the Merger--Waiver; Amendment."
FEES AND EXPENSES
Except as described below, whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Merger and the Merger
Agreement will be paid by the party incurring such costs, except that in the
event the Merger is not consummated for any reason, Community and Peoples will
each pay one-half of: (a) the aggregate costs theretofore incurred in printing
the Community Registration Statement, Community's Prospectus (the "Prospectus")
and this Joint Proxy Statement/Prospectus; (b) the registration fee for the
Community Registration Statement; and (c) the fees for filing applications for
any government approvals required by the Merger Agreement. See "THE MERGER--
Expenses."
STOCK OPTION AGREEMENT
In connection with the Merger Agreement, Community and Peoples have entered
into a stock option agreement (the "Stock Option Agreement") granting Community
an irrevocable option to purchase up to that number of shares of authorized but
unissued shares of Peoples Common Stock, which, when added to the number of
shares of Peoples Common Stock owned by Community at the time of the exercise
of the option, will represent 19.9% of the issued and outstanding shares of
Peoples Common Stock after exercise of the option, at a purchase price of
$23.50 per share. The option may be exercised upon certain events specified in
the Stock Option Agreement. See "THE MERGER--Stock Option Agreement; No
Solicitation; Pursuit of Other Transactions."
DISSENTERS RIGHTS
Peoples
As required by the Pennsylvania Banking Code ("PBC"), and the Pennsylvania
Business Corporation Law ("BCL"), to which the PBC refers, any shareholder of
Peoples who has voted against the Merger and the Merger Agreement at the
Meeting or has given notice to Peoples in writing at or prior to the Peoples
Special Meeting that such shareholder dissents from the Merger, shall be
entitled to receive the "fair value" of the shares held by that shareholder at
the time the Merger Agreement has been approved by the Pennsylvania Department
of Banking ("PDOB"), the Federal Reserve Board and the FDIC, upon written
request made to Community at any time within 30 days following the Effective
Date, accompanied by the surrender of such shareholder's stock certificates.
The relevant portions of the statutory dissenters procedures are attached to
this Joint Proxy Statement/Prospectus as Appendix D. Shareholders electing to
exercise their dissenters rights under the PBC and BCL may not vote for the
Merger and the Merger Agreement. If a shareholder returns a signed proxy but
does not specify a vote against the Merger and the Merger Agreement or does not
give a direction to abstain, the proxy will be voted for the Merger and the
Merger Agreement, which will have the effect of waiving that shareholder's
dissenters rights. See "THE MERGER--Appraisal Rights of Dissenting
Shareholders."
Community
Community Shareholders will not have statutory dissenters' rights with
respect to the Merger and the Merger Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
It is intended that the Merger will be treated, for federal income tax
purposes, as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that,
5
<PAGE>
accordingly, for income tax purposes: (a) the Merger of Peoples with and into
PSB Interim Bank upon the terms and conditions of the Merger Agreement will not
result in any recognized gain or loss to Community, PSB Interim Bank or
Peoples; (b) except for any cash received in lieu of any fractional share, no
gain or loss will be recognized by holders of Peoples Common Stock who receive
Community Common Stock in exchange for the shares of Peoples Common Stock which
they hold; (c) the holding period of Community Common Stock received in
exchange for Peoples Common Stock will include the holding period of Peoples
Common Stock for which it is exchanged, assuming the shares of Peoples Common
Stock are capital assets in the hands of the holder thereof on the Effective
Date; and (d) the basis of Community Common Stock received in exchange for
Peoples Common Stock will be the basis of Peoples Common Stock for which it is
exchanged, less any basis attributable to fractional shares for which cash is
received.
The obligations of the parties to consummate the Merger are conditioned upon
the receipt of an opinion from Mette, Evans & Woodside, counsel to Community,
substantially to the effect that the federal income tax consequences of the
Merger are as summarized above. See "THE MERGER--Certain Federal Income Tax
Consequences."
EACH SHAREHOLDER IS ENCOURAGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO
PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE AS TO ANY ESTATE, GIFT,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE MERGER AND/OR ANY
SALE THEREAFTER OF SHARES OF COMMUNITY COMMON STOCK RECEIVED IN THE MERGER.
ACCOUNTING TREATMENT
The Merger will be accounted for as, and is conditioned upon its
qualification for treatment as, a "pooling of interests" for accounting and
financial reporting purposes. See "THE MERGER--Accounting Treatment."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain directors and officers of Peoples have interests in the Merger that
are in addition to their interests as shareholders of Peoples generally. These
include Community's agreement to cause PSB Interim Bank to indemnify and to
provide insurance covering Peoples' officers and directors following the
consummation of the Merger. See "THE MERGER--Indemnification of Peoples'
Officers and Directors; Insurance" and "THE MERGER--Interests of Certain
Persons in the Merger." The current members of the Board of Directors of
Peoples will be appointed to and will constitute the Board of Directors of PSB
Interim Bank, and four (4) members of the present Board of Directors of Peoples
will be appointed to Community's Board of Directors. Additionally, Community
has entered into employment agreements which are conditioned upon consummation
of the Merger, and are effective on the Effective Date of the Merger whereby:
(a) Eddie L. Dunklebarger will become President and CEO of PSB Interim Bank and
Community; (b) Anthony N. Leo will become an Executive Vice-President of PSB
Interim Bank and Community; and (c) Jeffrey M. Seibert will become an Executive
Vice-President of Community and Executive Vice-President and Chief Lending
Officer ("CLO") of PSB Interim Bank. See "THE MERGER--Terms of the Merger--
Effect of the Merger" and "THE MERGER--Interests of Certain Persons in the
Merger."
COMPARISON OF SHAREHOLDER RIGHTS
Upon exchange of their shares of Peoples Common Stock in accordance with the
exchange procedures set forth in the Merger Agreement, holders of Peoples
Common Stock will become holders of Community Common Stock. The rights of
shareholders of Community are governed by the BCL and the articles of
incorporation and bylaws of Community. The rights of common shareholders of
Community differ from the rights of Peoples' shareholders with respect to
certain matters. See "COMPARISON OF SHAREHOLDER'S RIGHTS."
6
<PAGE>
ADJOURNMENT OF THE MEETINGS
In the event that there is an insufficient number of votes cast in person or
by proxy at the Community Special Meeting to approve the Merger and the Merger
Agreement, the Board of Directors of Community intends to adjourn the Meeting
to a later date for the solicitation of additional votes in favor thereof. The
affirmative vote of a majority of the shares present, in person or by proxy, at
the Community Special Meeting, even if a quorum is not present, is required in
order to approve any such adjournment. COMMUNITY'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO ADJOURN THE
MEETING IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES TO APPROVE THE
MERGER AND THE MERGER AGREEMENT. See "ADJOURNMENT OF THE MEETING."
In the event that there is an insufficient number of votes cast in person or
by proxy at the Peoples Special Meeting to approve the Merger and the Merger
Agreement, the Board of Directors of Peoples intends to adjourn the Meeting to
a later date for the solicitation of additional votes in favor thereof. The
affirmative vote of a majority of the shares present, in person or by proxy, at
the Peoples Special Meeting, even if a quorum is not present, is required in
order to approve any such adjournment. PEOPLES' BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO ADJOURN THE MEETING IF
NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES TO APPROVE THE MERGER AND
THE MERGER AGREEMENT. See "ADJOURNMENT OF THE MEETING."
MARKET PRICE DATA
Shares of Community Common Stock are included for quotation on the American
Stock Exchange ("AMEX"). The following table sets forth: (a) the closing price
for Community Common Stock on the AMEX on October 27, 1997, the last trading
date prior to the first public announcement of the Merger, (b) the average bid
and ask price for Peoples Common Stock on NASD Bulletin Board on October 27,
1997, and (c) an equivalent per share price for Peoples Common Stock computed
by multiplying the closing sale price for Community Common Stock on October 27,
1997 by the Merger conversion factor of .889 ("Conversion Factor").
<TABLE>
<CAPTION>
LAST EQUIVALENT
PRE-ANNOUNCEMENT PER SHARE
PRICE PRICE
---------------- ----------
<S> <C> <C>
Community Common Stock...................... $42.25 --
Peoples Common Stock........................ $20.25 $37.56
</TABLE>
On [DATE OF PROXY], closing sale price for Community Common Stock was $ .
Using this price, the equivalent per share price for Peoples Common Stock would
have been $ . The average bid and ask price for Peoples Common Stock on
[DATE OF PROXY] was $ .
No assurance can be given as to what the market price of Community Common
Stock will be when and if the Merger is consummated. Because the Merger
Conversion Factor is fixed and because the market price of Community Common
Stock is subject to fluctuation, the value of the shares of Community Common
Stock that holders of Peoples Common Stock will receive in the Merger may
increase or decrease prior to and following the Merger. Community and Peoples'
shareholders are advised to obtain current market quotations for Community
Common Stock and Peoples Common Stock.
7
<PAGE>
Shares of Community Common Stock are included for quotation on the AMEX. The
following table sets forth the high and low bids quotations for shares of
Community Common Stock, and dividends paid, for the periods indicated below.
<TABLE>
<CAPTION>
HIGH LOW DIV.
------ ------ -----
<S> <C> <C> <C>
1995
First Quarter.......................................... $26.00 $23.75 $.164
Second Quarter......................................... 26.75 25.25 .163
Third Quarter.......................................... 26.75 25.25 .163
Fourth Quarter......................................... 27.25 25.44 .179
1996
First Quarter.......................................... 27.50 24.25 .173
Second Quarter......................................... 26.13 22.63 .190
Third Quarter.......................................... 24.13 22.63 .190
Fourth Quarter......................................... 26.13 23.75 .190
1997
First Quarter.......................................... 36.00 25.75 .200
Second Quarter......................................... 36.00 29.75 .210
Third Quarter.......................................... 39.00 32.88 .210
Fourth Quarter(1)...................................... 45.00 37.50 .210
</TABLE>
- --------
(1) Through the close of business on November 30, 1997.
Shares of Peoples Common Stock are listed on the NASD Bulletin Board. The
following table sets forth the stock price range for shares of Peoples Common
Stock, and dividends paid, for the periods indicated below.
<TABLE>
<CAPTION>
HIGH LOW DIV.
------ ------ -----
<S> <C> <C> <C>
1995
First Quarter.......................................... $13.08 $12.15 $.065
Second Quarter......................................... 14.72 12.15 .075
Third Quarter.......................................... 14.95 14.02 .075
Fourth Quarter......................................... 15.65 14.02 .094
1996
First Quarter.......................................... 15.89 14.95 .075
Second Quarter......................................... 17.25 15.50 .080
Third Quarter.......................................... 16.50 15.75 .080
Fourth Quarter......................................... 17.25 15.75 .120
1997
First Quarter.......................................... 17.25 16.25 .090
Second Quarter......................................... 18.75 17.25 .090
Third Quarter.......................................... 22.00 20.00 .100
Fourth Quarter(1)...................................... 35.00 36.12 .140
</TABLE>
- --------
(1) Through the close of business on November 30, 1997.
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth certain selected historical financial
information for Peoples and certain selected consolidated historical financial
information for Community. This data is derived from and should be read in
conjunction with, and is qualified in its entirety by, the consolidated
financial statements of Peoples and the consolidated financial statements of
Community, including the notes thereto, incorporated by reference or appearing
elsewhere in this Joint Proxy Statement/Prospectus.
PEOPLES STATE BANK
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPT. 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income......... $ 13,505 $ 10,667 $ 14,682 $ 12,432 $ 10,384 $ 11,655 $ 12,822
Interest expense........ 7,297 5,774 7,981 6,731 5,306 6,257 7,290
--------- --------- --------- --------- --------- --------- --------
Net interest income..... 6,208 4,893 6,701 5,701 5,078 5,398 5,532
Provision for credit
losses................. 500 450 525 350 1,400 4,500 3,416
--------- --------- --------- --------- --------- --------- --------
Net interest income
after provision for
credit losses.......... 5,708 4,443 6,176 5,351 3,678 898 2,116
Other operating income.. 720 355 417 80 963 374 518
Other operating
expenses............... 4,017 3,444 4,517 4,046 4,100 3,446 2,539
--------- --------- --------- --------- --------- --------- --------
Income (loss) before
income taxes........... 2,411 1,354 2,076 1,385 541 (2,174) 95
Applicable income taxes
(benefit).............. 769 440 724 480 140 (995) (192)
--------- --------- --------- --------- --------- --------- --------
Net income (loss)....... $ 1,642 $ 914 $ 1,352 $ 905 $ 401 $ (1,179) $ 287
========= ========= ========= ========= ========= ========= ========
PER SHARE DATA
Net income (loss)....... $ 1.13 $ 0.72 $ 1.05 $ 0.75 $ 0.37 $ (1.16) $ 0.38
Dividends paid.......... $ 0.28 $ 0.23 $ 0.35 $ 0.31 $ 0.26 $ 0.46 $ 0.45
Book value.............. 13.54 11.69 12.00 11.02 9.80 9.76 11.23
Shares outstanding...... 1,454,000 1,261,000 1,286,321 1,208,677 1,072,556 1,015,510 741,412
BALANCE SHEET DATA
Loans (net of unearned
income and allowance
for loan losses)....... $ 169,466 $ 149,375 $ 155,468 $ 120,481 $ 100,289 $ 105,331 $131,281
Total assets............ 244,787 200,965 219,055 171,503 158,169 163,832 166,393
Total deposits.......... 194,994 174,921 179,346 149,948 135,543 149,606 154,106
Total shareholders'
equity................. 20,175 15,838 16,340 13,596 11,648 10,038 11,280
KEY RATIOS
Return (loss) on average
shareholders' equity... 12.03% 8.59% 9.21% 7.23% 3.80% (10.21%) 3.29%
Return (loss) on average
total assets........... 0.94 0.66 0.71 0.56 0.26 (0.71) 0.19
Dividends declared to
net income (loss)...... 24.79 31.73 33.30 41.40 69.54 39.62 5.79
Average shareholders'
equity to average total
assets................. 7.81 7.68 7.70 7.68 6.83 6.96 5.79
</TABLE>
9
<PAGE>
COMMUNITY BANKS, INC.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPT. 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income......... $ 25,156 $ 22,668 $ 30,593 $ 28,712 $ 25,630 $ 25,159 $ 26,097
Interest expense........ 10,713 9,405 12,687 12,032 10,079 10,769 12,296
--------- --------- --------- --------- --------- --------- ---------
Net interest income..... 14,443 13,263 17,906 16,680 15,551 14,390 13,801
Provision for credit
losses................. 520 630 1,042 728 512 932 858
--------- --------- --------- --------- --------- --------- ---------
Net interest income
after provision for
credit losses.......... 13,923 12,633 16,864 15,952 15,039 13,458 12,943
Other operating income.. 2,379 2,081 2,754 2,710 2,424 2,821 2,288
Other operating
expenses............... 9,644 9,064 12,017 12,257 11,007 10,137 9,505
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... 6,658 5,650 7,601 6,405 6,456 6,142 5,726
Applicable income
taxes.................. 1,902 1,403 1,969 1,591 1,462 1,379 1,359
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 4,756 $ 4,247 $ 5,632 $ 4,814 $ 4,994 $ 4,763 $ 4,367
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA
Net income (loss)....... $ 1.54 $ 1.39 $ 1.84 $ 1.58 $ 1.64 $ 1.57 $ 1.46
Dividends paid.......... $ 0.62 $ 0.55 $ 0.74 $ 0.67 $ 0.60 $ 0.55 $ 0.50
Book value.............. 16.95 16.45 16.64 17.64 15.17 16.93 15.56
Shares outstanding...... 3,078,629 3,058,925 3,053,410 3,041,003 3,039,348 3,024,936 2,994,293
BALANCE SHEET DATA
Loans (net of unearned
income and allowance
for loan losses)....... $ 252,227 $ 244,554 $ 247,213 $ 229,063 $ 206,525 $ 184,012 $ 175,848
Total assets............ 459,546 411,439 432,518 381,822 368,697 345,960 334,616
Total deposits.......... 350,602 341,144 343,256 324,097 307,973 295,267 288,960
Total shareholders'
equity................. 51,139 47,138 47,739 46,000 39,483 38,212 34,975
KEY RATIOS
Return (loss) on average
shareholders' equity... 12.90% 12.25% 12.08% 11.27% 12.61% 12.96% 12.96%
Return (loss) on average
total assets........... 1.45 1.43 1.40 1.28 1.39 1.40 1.37
Dividends declared to
net income (loss)...... 40.13 39.61 40.27 42.11 36.52 35.08 33.96
Average shareholders'
equity to average total
assets................. 10.80 11.50 11.63 11.36 10.99 10.81 10.59
</TABLE>
10
<PAGE>
UNAUDITED PRO FORMA SELECTED FINANCIAL DATA
The following table sets forth unaudited pro forma selected financial data
for Peoples and Community which gives effect to the Merger, accounted for as a
pooling of interest, as if it had been consummated as of January 1, 1994. The
pro forma selected data is not necessarily indicative of the results that would
have been achieved had the transaction been consummated on such date and should
not be construed as representative of future operations. This presentation is
subject to the assumptions set forth in the notes to the Unaudited Pro Forma
Condensed Financial Statements appearing elsewhere in this Joint Proxy
Statement/Prospectus. The information presented should be read in conjunction
with such pro forma financial statements, and the notes thereto, and the
historical financial statements, including the notes thereto, of Peoples, and
the historical consolidated financial statements, including the notes thereto,
of Community incorporated by reference in this Joint Proxy Statement/Prospectus
or appearing elsewhere herein.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPT. 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- ----------------------------------
1997 1996 1996 1995 1994
--------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income......... $ 38,661 $ 33,335 $ 45,275 $ 41,144 $ 36,014
Interest expense........ 18,010 15,179 20,668 18,763 15,385
--------- --------- ---------- ---------- ----------
Net interest income..... 20,651 18,156 24,607 22,381 20,629
Provision for credit
losses................. 1,020 1,080 1,567 1,078 1,912
--------- --------- ---------- ---------- ----------
Net interest income
after provision for
credit losses.......... 19,631 17,076 23,040 21,303 18,717
Other operating income.. 3,099 2,436 3,171 2,790 3,387
Other operating
expenses............... 13,661 12,508 16,534 16,303 15,107
--------- --------- ---------- ---------- ----------
Income (loss) before
income taxes........... 9,069 7,004 9,677 7,790 6,997
Applicable income
taxes.................. 2,671 1,843 2,693 2,071 1,602
--------- --------- ---------- ---------- ----------
Net income (loss)....... $ 6,398 $ 5,161 $ 6,984 $ 5,719 $ 5,395
========= ========= ========== ========== ==========
PER SHARE DATA
Net income (loss)....... $ 1.45 $ 1.17 $ 1.65 $ 1.35 $ 1.28
Dividends paid.......... $ 0.62 $ 0.55 $ 0.78 $ 0.70 $ 0.63
Book value.............. 16.43 -- -- -- --
Shares outstanding...... 4,413,381 4,393,677 4,388,152 4,375,755 4,374,200
BALANCE SHEET DATA
Loans (net of unearned
income and allowance
for loan losses)....... $ 421,693 $ 393,929 $ 402,681 $ 349,544 $ 306,814
Total assets............ 704,333 612,404 651,573 553,325 526,866
Total deposits.......... 545,596 516,065 522,602 474,045 443,516
Total shareholders'
equity................. 71,314 62,976 64,079 59,596 51,131
KEY RATIOS
Return (loss) on average
shareholders' equity... 12.64% 11.38% 11.39% 10.36% 10.76%
Return (loss) on average
total assets........... 1.24 1.17 1.18 1.06 1.05
Dividends declared to
net income (loss)...... 42.36 46.37 46.91 51.27 48.90
Average shareholders'
equity to average total
assets................. 9.79 10.30 10.36 10.25 9.74
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Community
and Peoples and unaudited pro forma combined per share data of Community and
Peoples, based on the assumption that the Merger was effective on January 1,
1994. Such pro forma data is not necessarily indicative of results that would
have been achieved had the Merger been consummated on such date.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS FOR THE YEAR
ENDED SEPT. 30, ENDED DECEMBER 31,
--------------- --------------------
1997 1996 1996 1995 1994
------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
COMMUNITY HISTORICAL
Income per common share.................. $ 1.54 $ 1.39 $ 1.84 $ 1.58 $ 1.64
Dividends declared per common share...... 0.62 0.55 0.74 0.76 0.60
Book value per common share.............. 16.95 16.45 16.64 17.64 15.17
PEOPLES HISTORICAL
Income per common share.................. $ 1.13 $ 0.72 $ 1.05 $ 0.75 $ 0.37
Dividends declared per common share...... 0.28 0.23 0.35 0.31 0.26
Book value per common share.............. 13.54 11.69 12.00 11.02 9.80
PRO FORMA PER COMMUNITY COMMON SHARE
Income per common share.................. $ 1.45 $ 1.17 $ 1.59 $ 1.31 $ 1.23
Dividends declared per common share...... 0.62 0.55 0.74 0.67 0.60
Book value per common share.............. 16.43 -- -- -- --
PRO FORMA EQUIVALENT PER PEOPLES COMMON
SHARE(1)
Income per common share.................. $ 1.29 $ 1.04 $ 1.41 $ 1.16 $ 1.10
Dividends declared per common share...... 0.55 0.49 0.66 0.59 0.53
Book value per common share.............. 14.61 -- -- -- --
</TABLE>
- --------
(1) Pro Forma Equivalent amounts per share were calculated by taking the
corresponding pro forma per share amounts for Community and multiplying
that by the Conversion Factor of .889 shares of Community Common Stock for
each 1 share of Peoples Common Stock.
12
<PAGE>
THE MEETINGS
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to holders of
Peoples Common Stock and Community Common Stock in connection with the
solicitation of proxies by their respective Boards of Directors to be used at
their respective Special Meetings or any adjournment thereof.
DATE, PLACE AND TIME OF THE MEETINGS
The special meeting of Shareholders of Community (the "Community Special
Meeting") will be held at 9:00 a.m. on February 10, 1998 at 150 Market Street,
Millersburg, Pennsylvania.
The special meeting of the Shareholders of Peoples (the "Peoples Special
Meeting") will be held at 9:00 a.m. on February 10, 1998 at the East Berlin
Community Center, North and 4th Streets, East Berlin, Pennsylvania.
MATTERS TO BE CONSIDERED AT THE MEETINGS
Community and Peoples
At their respective meetings, the Shareholders of Community and Peoples will
be asked to approve: (a) an Agreement and Plan of Reorganization and a related
Agreement and Plan of Merger dated October 28, 1997 (collectively the "Merger
Agreement") between Community and Peoples, as well as the merger (the
"Merger") of Peoples with and into PSB Interim Bank, a newly formed, wholly-
owned subsidiary of Community, as contemplated therein; (b) a proposal (the
"Adjournment Proposal") to postpone or adjourn their respective meetings to
another time and/or place for the purpose of soliciting additional proxies in
the event that there are not sufficient votes at the time of their respective
meetings to approve the Merger and the Merger Agreement; and (c) such other
business as may properly come before their respective Meetings and/or any
adjournment thereof.
Community
Additionally, in conjunction with the Merger, the shareholders of Community
will be asked to consider and vote upon a proposal to amend the Community
Articles of Incorporation to increase the authorized shares of Community
Common Stock from 5,000,000 shares to 20,000,000 shares.
Community's Articles of Incorporation, as presently in effect, provide that
the authorized capital of Community shall consist of 5,000,000 shares of
Common Stock, par value $5.00 per share, and 500,000 shares of Preferred Stock
with no par value. As of December 10, 1997, there were 3,020,535 shares of
Common Stock outstanding. In addition, as of that date, 43,868 shares of
Common Stock were being held as Treasury Stock and 165,024 shares of Common
Stock were subject to unexercised options (pursuant to Community's incentive
stock option plan). Thus, approximately 1,770,500 shares of Common Stock are
currently available for future financing, acquisitions and other corporate
purposes. Consummation of the Merger is expected to require the issuance of
approximately 1,410,500 shares of Common Stock. No shares of Preferred Stock
have been issued by Community.
On December 13, 1997, the Board of Directors of Community adopted a proposal
to amend Article 5 of Community's Articles of Incoporation for the purpose of
increasing the number of authorized shares of Common Stock from 5,000,000
shares to 20,000,000 shares. Under the proposed amendment, no change would be
made in the number of authorized shares of preferred stock. The Community
Board of Directors believes that it is desirable to have additional authorized
shares of Common Stock available for issuance for the purpose of raising
additional capital and for use in connection with acquisitions, stock
dividends, stock splits, employee benefit plans and for other general
corporate purposes. Having additional authorized shares of Common Stock
available
13
<PAGE>
for issuance in the future would provide Community with greater flexibility in
pursuing such corporate purposes and would allow additional shares to be
issued without the expense and delay of further amendments to the Articles of
Incorporation, which would require Shareholder approval at an annual or
special Shareholders' meeting.
The additional shares of Community Common Stock for which authorization is
sought would be part of the existing class of Common Stock and, if and when
issued, would have the same rights and privileges as the shares of Community
Common Stock presently outstanding.
If approved by the Shareholders of Community, the proposed amendment will
become effective upon the filing of Articles of Amendment with the Secretary
of State of the Commonwealth of Pennsylvania. Under the Articles of
Incorporation of Community, the affirmative vote of 66 2/3% of the outstanding
shares entitled to vote is required in order to approve the proposed
amendment.
The proposed amendment to increase the number of authorized shares of
Community Common Stock is not proposed to discourage a takeover or change in
control of Community. Nevertheless, in certain instances, a proposal to
increase the amount of authorized stock may have an anti-takeover effect. In
the event that a hostile takeover of Community is threatened, the Board of
Directors of Community could issue shares of Common Stock or Preferred Stock
to dilute stock ownership of persons seeking to obtain control of Community.
RECORD DATE; SHARES OUTSTANDING; QUORUM
Only holders of record of shares of Community Common Stock at the close of
business on December 26, 1997 (the "Community Record Date") will be entitled
to vote at the Community Special Meeting. As of that date, approximately
3,023,202 shares of Community Common Stock were outstanding, each share being
entitled to one vote.
Only holders of record of shares of Peoples Common Stock at the close of
business on December 26, 1997 (the "Peoples Record Date") will be entitled to
vote at the Peoples Special Meeting. At that date, approximately 1,490,313
shares of Peoples Common Stock were outstanding, each share being entitled to
one vote.
VOTES REQUIRED
Community
Pursuant to Community's Articles of Incorporation, the affirmative vote of
the holders of 66 2/3% of all outstanding shares of Community Common Stock is
required to approve the Merger and the Merger Agreement, as well as the
Amendment.
As of the Community Record Date indicated above, directors and executive
officers of Community beneficially owned approximately 516,300 shares of
Community Common Stock or approximately 17.07% of the outstanding Community
Common Stock entitled to vote at the Community Special Meeting. The directors
and executive officers of Community have indicated that they intend to vote
all of such shares in favor of the Merger, the Merger Agreement and the
Amendment.
Peoples
The affirmative vote of the holders of two-thirds ( 2/3) of all outstanding
shares of Peoples Common Stock is required to approve the Merger and the
Merger Agreement.
As of the Peoples Record Date indicated above, directors and executive
officers of Peoples beneficially owned approximately 214,835 shares of Peoples
Common Stock or approximately 14.42% of the outstanding Peoples Common Stock
entitled to vote at the Peoples Special Meeting. Prior to the execution of the
Merger Agreement, the directors and executive officers of Peoples entered into
an agreement with Community that they
14
<PAGE>
would vote all of such shares in favor of the Merger and the Merger Agreement.
See "THE MERGER--Voting Agreements.)
EFFECT OF ABSTENTIONS AND BROKER NONVOTES
Abstentions may be specified on the Merger and the Merger Agreement and the
Adjournment Proposal. Such abstentions will be considered present and entitled
to vote at the Meeting, but will not be counted as votes cast in the
affirmative. ABSTENTIONS BY SHAREHOLDERS WILL HAVE THE EFFECT OF A VOTE
AGAINST THE MERGER AND THE MERGER AGREEMENT AND AGAINST THE ADJOURNMENT
PROPOSAL, AS WELL AS THE AMENDMENT.
[Brokers that are member firms of the New York Stock Exchange ("NYSE") and
who hold shares in street name for customers have authority under the rules of
the NYSE to vote those shares with respect to certain matters if they do not
receive instructions from the beneficial owner. Brokers do not have the
authority to vote shares with respect to approval of the Merger, the Merger
Agreement and the Amendment. Assuming that sufficient shares are present at
the Meeting (so that a quorum may be obtained), a failure of brokers to vote
shares because they have not received instructions from beneficial owners (a
"broker nonvote") will have the effect of a vote against the Merger, the
Merger Agreement and the Amendment. Broker nonvotes will have no effect upon
the approval of the Adjournment Proposal.]
VOTING, REVOCATION AND SOLICITATION OF PROXIES
All shares represented by properly executed proxies received in time for the
Special Meetings will be voted at the Special Meetings in the manner specified
by the holders thereof, unless such proxies are revoked prior to the vote.
Proxies which do not contain voting instructions will be voted in favor of the
Merger and the Merger Agreement and the Adjournment Proposal.
It is not expected that any matter other than those referred to herein will
be brought before the Special Meetings. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters.
A shareholder who executes and returns a proxy on the enclosed form has the
power to revoke it at any time before it is voted. The giving of a proxy does
not affect the right of shareholders to attend the appropriate Special Meeting
and vote in person. A shareholder's presence at a meeting, however, will not
in itself revoke the shareholder's proxy. A shareholder may revoke a proxy at
any time prior to its exercise by filing with the Secretary of Community or
Peoples, as the case may be, a duly executed revocation or a proxy bearing a
later date. Neither attendance nor voting in person at the appropriate Special
Meeting will of itself constitute revocation of a proxy.
In addition to solicitation by mail, directors, officers and employees of
Peoples who will not be specifically compensated for such services may solicit
proxies from the shareholders of Peoples personally or by telephone or
telegram or other forms of communication. Community and Peoples will each bear
its own expenses in connection with the solicitation of proxies for its
Special Meeting.
SHAREHOLDERS OF PEOPLES SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY
CARDS. AS DESCRIBED BELOW UNDER THE HEADING "THE MERGER--EXCHANGE PROCEDURE,"
EACH PEOPLES' SHAREHOLDER WILL BE PROVIDED WITH MATERIALS FOR EXCHANGING
SHARES OF PEOPLES COMMON STOCK AS PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE
DATE.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Boards of Directors of Community and Peoples each recommend that their
respective shareholders vote FOR the approval of the Merger and the Merger
Agreement identified in this Joint Proxy Statement/Prospectus. Additionally,
Community's Board of Directors recommends that Community shareholders vote FOR
the approval of the Amendment identified in this Joint Proxy
Statement/Prospectus.
15
<PAGE>
THE MERGER
The following is a description of the Merger. Such description is not
intended to be a complete description of all facts regarding the Merger and is
qualified in all respects by reference to the Merger Agreement attached hereto
as Appendix A. Shareholders of Community and the Shareholders of Peoples are
urged to read carefully the Merger Agreement. For a summary of the Merger, see
"SUMMARY--The Merger."
INTRODUCTION; BACKGROUND OF THE MERGER
Background of the Merger
In September 1997 management of Community approached the management of
Peoples with respect to a possible combination of the two financial
institutions, believing that such a combination would be in the best interest
of the shareholders, customers, and employees of both entities. In addition,
acquisition of Peoples would assure Community of successor management upon the
retirement of its Chief Executive Officer, Thomas L. Miller, and the
subsequent retirement of Ernest L. Lowe, President and Chief Operating Officer
of Community. Each financial institution retained the services of financial
advisers to aid it in analyzing the proposed combination and to determine a
consideration which would be fair to the shareholders of both institutions
from a financial point of view.
Peoples
The Peoples State Bank ("Peoples") is an FDIC-insured banking institution
organized on March 17, 1911 under the banking laws of the Commonwealth of
Pennsylvania and headquartered in East Berlin, Pennsylvania. Peoples engages
in commercial banking authorized by the Pennsylvania Banking Code (the "PBC").
This involves accepting demand, time and savings deposits and granting loans
(consumer, commercial, real estate and business) to individuals, corporations,
partnerships, associations and municipalities and other governmental bodies.
Peoples owns one (1) subsidiary, PSB Realty Company.
Peoples Common Stock is registered under the Securities Exchange Act of
1934, as amended, with the FDIC. Peoples is subject to the supervision of the
FDIC and the Pennsylvania Department of Banking ("PDOB"). Peoples Common Stock
is listed on the NASD Bulletin Board.
As of September 30, 1997, Peoples had six (6) banking offices. Its principal
executive office, which it owns, is located at 100 East King Street, East
Berlin, Pennsylvania 17316, and the telephone number at that address is (717)
259-9510. Peoples is not dependent on any one customer, and the loss of any
customer or a few customers would not have a material adverse effect upon it.
At September 30, 1997, Peoples reported total assets of $244,787,000
deposits of $194,994,000, and net loans of $169,466,000. Peoples reported net
income of $1.05 per share for the year ended December 31, 1996 and net income
of $1.13 per share for the nine (9) months ended September 30, 1997.
Community
Community is a Pennsylvania business corporation which was organized in
1982, and is headquartered at 150 Market Square, Millersburg, Pennsylvania
17061. Community is the holding company of Community Banks, N.A. ("CBNA"),
currently its only wholly-owned banking subsidiary. CBNA currently operates
twenty-two (22) offices in Dauphin, Schuylkill, Northumberland and Luzerne
Counties, and will soon have a twenty-third (23rd) office opened in Shamokin
Dam, Snyder County, Pennsylvania. Peoples and CNBA will be operated as
separate banking organizations under the umbrella of Community as the holding
company.
In addition, Community owns one hundred (100%) percent of the issued and
outstanding shares of two non- banking subsidiaries, Community Banks Life
Insurance Company and Community Bank Investments, Inc. Community Banks Life
Insurance Company was incorporated on November 12, 1986 under the laws of the
state
16
<PAGE>
of Arizona for the purpose of re-insuring credit, life and accident insurance
risks. Community Bank Investments, Inc. is a Delaware corporation formed for
the purpose of investing in and holding securities.
As a bank holding company, Community is registered with the Federal Reserve
Board in accordance with the requirements of the Federal Bank Holding Company
Act of 1956, as amended, and is subject to regulation by the Federal Reserve
Board.
Community Common Stock is traded under the symbol "CTY" and is listed on the
American Stock Exchange ("AMEX").
At September 30, 1997, Community reported total assets of $459,546,000,
deposits of $350,602,000, and net loans and leases of $252,227,000. Community
reported net income of $5,632,000, or $1.94 per share for the year ended
December 31, 1996 and net income of $4,756,000, or $1.54 per share for the
nine (9) months ended September 30, 1997.
PSB Interim Bank
PSB Interim Bank is a wholly-owned Community subsidiary, and is a
Pennsylvania banking institution which was formed solely for the purpose of
the Merger. Upon consummation of the Merger, Peoples will be merged with and
into PSB Interim Bank, which will be the surviving entity. After consummation
of the Merger, the name of PSB Interim Bank will be changed to The Peoples
State Bank, and the resulting bank will operate as a separate subsidiary of
Community.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The terms of the Merger Agreement are the result of arms-length negotiations
between representatives of Peoples and Community. The Boards of Directors of
Peoples and Community believe that the terms of the Merger and the Merger
Agreement are in the best interests of both Peoples and Community and their
respective shareholders.
In recent years, Peoples has experienced substantial growth and increasing
profitability. Rapid growth has required Peoples to make significant
investments in its operations and infrastructure. While not actively seeking a
merger partner, Peoples has pursued various forms of associations with other
community banking organizations as a means of establishing more effective
competition with regional banking institutions which are able to capitalize
upon economies of scale and alternative forms of funding not generally
available to community banks.
Peoples also desired to make available to its customers new products and
services requiring investments prohibitive for a bank of its size and nature.
At the same time, Peoples continued to experience increasing loan demand.
However, its limited branch office network constrained its ability to gather
low cost deposits. Hence, Peoples' cost of funds necessary to fund loan growth
remained substantially above its peers.
Peoples was approached by Community for several reasons. First, the need for
long-term management succession encouraged Community to seek merger partners
which might offer continuity of management. Secondly, Community's abundance of
core deposits and limited loan demand complemented People's challenges in the
marketplace and offered obvious synergies through combination.
The proposed affiliation with Community also provides Peoples the ability to
offer new and innovative products and services including additional electronic
and investment services. Peoples will be able to serve larger commercial
customers more effectively through loan participations with Community as a
partner. The affiliation also offers People's employees additional
opportunities for training and advancement commensurate with the resources of
a larger organization.
The Merger Agreement with Community provides that after the Effective Date
of Peoples merger with and into PSB Interim Bank, it will operate
independently from Community's other banking subsidiary, CBNA. The
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Board of Directors of Peoples believes this approach will foster community
banking by allowing decisions to be made at the level closest to the customer.
Based upon the foregoing, the Board of Directors of Peoples concluded that
affiliation with Community would provide the best framework for expansion and
continued development of the community banking approach which had been the
foundation of its success and, accordingly, serve the best interests of the
shareholders and customers of Peoples.
In reaching its determination that the Merger and the Merger Agreement are
fair to, and in the best interests of, Peoples and its shareholders, the Board
of Directors of Peoples consulted with its legal and financial advisors, and
considered a number of factors, including, without limitation, the following:
. Peoples' Board of Directors' familiarity with and review of Community's
business, operations, earnings, prospects and financial condition;
. the enhanced opportunities for operating efficiencies (particularly in
terms of integration of operations and support functions) that could
result from the Merger, the enhanced opportunities for growth that the
Merger would make possible and the respective contributions the parties
would bring to the combined institution;
. the financial strength of Community and the composition of its business;
. the geographical location of Peoples and Community;
. the opinion of Berwind that the consideration to be paid in the Merger to
the shareholders is fair from a financial point of view;
. Peoples' Board of Directors' review of alternatives to the Merger
(including the alternatives of remaining independent and growing
internally, remaining independent for a period of time and then selling
the bank, and remaining independent and growing through future
acquisitions);
. the current and prospective economic, regulatory and competitive
constraints facing financial institutions, including Peoples; and
. the structure of the reorganization which will allow Peoples to operate
as a separate institution after the Merger.
Peoples' Board of Directors did not assign any specific or relative weight
to the factors in their consideration.
For Community, the Merger will strengthen its market position in Central
Pennsylvania and provide entry into new markets in the South Central
Pennsylvania counties of Adams and York. Community believes that as a result
of the Merger it will also be able to achieve operating economies and enhanced
revenue growth arising from a wider distribution of its products and services.
Consummation of the Merger will create an institution capable of competitively
providing a broad array of traditional and innovative banking products and
services to the resulting market. These products and services include complete
banking services, discount brokerage, leasing, investment advisory services,
trust services, mutual funds, annuities, and mortgage services. The
combination of the skills, resources and services offered by Community and
Peoples will enable Community, as well as the resulting banking institution,
to more effectively compete with other full service financial institutions in
communities in Peoples' respective markets.
THE RESPECTIVE BOARDS OF DIRECTORS OF PEOPLES AND COMMUNITY HAVE EACH
UNANIMOUSLY APPROVED THE MERGER AND THE MERGER AGREEMENT AND BELIEVE THAT THE
PROPOSED MERGER IS IN THE BEST INTERESTS OF PEOPLES AND COMMUNITY AND
RECOMMENDS THAT THEIR RESPECTIVE SHAREHOLDERS VOTE TO APPROVE THE MERGER AND
THE MERGER AGREEMENT.
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VOTING AGREEMENTS
In connection with the Merger, the Directors of Peoples have entered into
agreements with Community to vote in favor of the Merger all shares of Peoples
Common Stock owned by them as individuals or (to the extent of their
proportionate voting interests) jointly with other persons, and that they will
use their best efforts to cause any other shares of Peoples Common Stock over
which they have or share voting power to be voted in favor of the Merger. In
the aggregate, these agreements commit approximately 200,644 shares of Peoples
Common Stock (13.5%) of the outstanding shares (to be voted in favor of the
Merger).
The agreements further provide that with respect to the shares of Peoples
Common Stock owned by the Directors as individuals or (to the extent of the
Directors' proportionate voting interests) jointly with other persons
(collectively, "shares"), the Directors will not until the Merger has been
consummated or the Merger Agreement has been terminated: (1) vote shares in
favor of any other merger or transaction which would have the effect of a
person other than Community or an affiliate acquiring control of Peoples or
any of its subsidiaries or (2) sell or otherwise transfer shares (i) pursuant
to any tender offer or similar proposal made by a person other than Community
or an affiliate, (ii) to any person other than Community or an affiliate
seeking to obtain control of Peoples or (iii) for the principal purpose of
avoiding the Directors' obligations under the agreement.
The agreements are applicable to the Directors only in their capacities as
shareholders and do not effect the exercise of their responsibilities as
Directors or officers. The agreements also do not apply to any shares of
Peoples Common Stock held by a Director as a trustee or other fiduciary. No
monetary or other compensation was paid to any Peoples Director for entering
into these agreements.
OPINIONS OF FINANCIAL ADVISORS
Peoples--Berwind Opinion
Peoples retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the Merger. Berwind rendered its opinion
to the Board of Directors of Peoples that, based upon and subject to the
various considerations set forth therein, as of October 28, 1997 (the "October
Opinion"), and as of the date of this Joint Proxy Statement/Prospectus (the
"Proxy Opinion"), the consideration to be received, in the Merger, is fair,
from a financial point of view, to the holders of Peoples Common Stock.
The full text of Berwind's Proxy Opinion, which sets forth the assumptions
made, matters considered and limitations of the review undertaken, is attached
as Appendix B to this Joint Proxy Statement/Prospectus, is incorporated by
reference, and should be read in its entirety in connection with this Joint
Proxy Statement/Prospectus. The summary of the opinion of Berwind set forth
herein is qualified in its entirety by reference to the full text of such
opinion attached as Appendix B to this Joint Proxy Statement/Prospectus.
Berwind was selected to act as Peoples' financial advisor in connection with
the Merger based upon its qualifications, expertise and experience. Berwind
has knowledge of, and experience with, Pennsylvania and surrounding banking
markets as well as banking organizations operating in those markets and was
selected by Peoples because of its knowledge of, experience with, and
reputation in the finacial services industry. Berwind, as part of its
investment banking business, is engaged regularly in the valuation of assets,
securities and companies in connection with various types of asset and
security transactions, including mergers, acquisitions, private placements and
valuations for various other purposes, and in the determination of adequate
consideration in such transactions.
On October 28, 1997, Peoples' Board of Directors approved and executed the
Merger Agreement. Prior to such approval, Berwind delivered its October
Opinion to the Board of Directors stating that, as of that date, the
consideration to be received by the shareholders of Peoples pursuant to the
Merger Agreement was fair from a financial point of view. Berwind reached the
same opinion as of the date of its Proxy Opinion. The Berwind Opinion was
based upon economic, market and other conditions in effect as of the date of
the Berwind Opinion. The full text of the Proxy Opinion, which sets forth the
assumptions made, matters considered and limitations of
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the review undertaken, is attached as Appendix B to this Joint Proxy
Statement/Prospectus. No limitations were imposed by the Board of Directors of
Peoples upon Berwind with respect to the investigations made or procedures
followed by them in rendering the October Opinion or the Proxy Opinion.
In rendering the Proxy Opinion, Berwind: (a) reviewed the historical
financial performances, current financial positions and general prospects of
Peoples and Community; (b) reviewed the Merger Agreement; (c) reviewed and
analyzed the stock market performance of Peoples and Community; (d) studied
and analyzed the consolidated financial and operating data of Peoples and
Community; (e) considered the terms and conditions of the proposed Merger
between the parties as compared with the terms and conditions of comparable
bank and bank holding company mergers and acquisitions; (f) met and/or
communicated with certain members of Peoples and Community's senior management
to discuss their respective operations, historical financial statements and
future prospects; (g) in the case of its updated opinion, reviewed a draft of
the Joint Proxy Statement; and (h) conducted such other financial analyses,
studies and investigations as Berwind deemed appropriate.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to Peoples'
financial forecasts reviewed by Berwind in rendering its opinion, Berwind
assumed that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of Peoples as to the future financial performance of Peoples.
Berwind did not make an independent evaluation or appraisal of the assets
(including loans) or liabilities of Peoples or Community nor was it furnished
with any such appraisal. Berwind also did not independently verify and has
relied on and assumed that all allowances for loan and lease losses set forth
in the balance sheets of Peoples and Community were adequate and complied
fully with applicable law, regulatory policy and sound banking practice as of
the date of such financial statements.
The following is a summary of selected analyses prepared by Berwind and
presented to Peoples' Board in connection with the October Opinion and
analyzed by Berwind in connection with its October and Proxy Opinions. In
connection with delivering its Proxy Opinion, Berwind updated certain analyses
described above to reflect current market conditions and events occurring
since the date of the October Opinion. Such reviews and updates led Berwind to
conclude that it was not necessary to change the conclusions it had reached in
connection with rendering the October Opinion
Comparable Companies and Comparable Acquisition Transaction
Analyses. Berwind compared selected financial and operating data for Peoples
with those of a peer group of selected banks and bank holding companies with
assets between $200 million and $300 million, as of the most recent financial
period publicly available, headquartered in Pennsylvania. Financial data and
operating ratios compared in the analysis of the Peoples peer group included
but was not limited to: return on average assets, return on average equity,
shareholders equity to assets ratio and certain asset quality ratios.
Berwind also compared selected financial, operating and stock market data
for Community with those of a peer group of selected commercial banks and bank
holding companies with assets between $300 million and $1 billion, as of the
most recent period publicly available, headquartered in Pennsylvania.
Financial, operating and stock market data, ratios and multiples compared in
the analysis of the Community peer group included but were not limited to:
return on average assets, return on average equity, shareholders equity to
assets ratio, certain asset quality ratios, price to book value, price to
tangible book value, price to earnings (latest twelve months) and dividend
yield.
Berwind also compared the multiples of book value, tangible book value and
latest twelve months' earnings inherent to the Merger with the multiples paid
in recent acquisitions of banks and bank holding companies that Berwind deemed
comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate acquisitions announced during the twelve months
ended as of the date of its Proxy Opinion, in which the selling institution's
assets were between $200 million and $600 million as of the most recent period
publicly available prior to the opinion. No company or transaction used in
this analysis is identical to Peoples, Community
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or the Merger. Accordingly, an analysis of the result of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that would affect the public trading values of the
companies or company to which they are being compared.
Discounted Dividend Analyses. Using discounted dividend analyses, Berwind
estimated the present value of Peoples Common Stock after the five year period
by applying a range of earnings multiples to Peoples' terminal year earnings
under various growth assumptions. The range of multiples used reflected a
variety of scenarios regarding the growth and profitability prospects of
Peoples. The terminal values were then discounted to present value using
discount rates reflecting different assumptions regarding the rates of return
required by holders or prospective buyers of Peoples Common Stock.
Pro Forma Contribution Analysis. Berwind analyzed the changes in the amount
of earnings, book value and dividends represented by 1.0 share of Peoples
Common Stock prior to the Merger and the shares of Community stock to be
received after the Merger resulting form the exchange ratio. The analysis
considered, among other things, the changes that the Merger would cause to
Peoples' earnings per share, book value per share and indicated dividends. In
reviewing the pro forma combined earnings, equity and assets of Community
based on the Merger with Peoples, Berwind analyzed the contribution that
Peoples would have made to the combined company's earnings, equity and assets
as of and for the latest twelve month period ended , 199 . Berwind also
reviewed the percentage ownership that Peoples' shareholders would hold in the
combined company.
In connection with rendering its October and Proxy Opinions, Berwind
performed a variety of financial analyses. Although the evaluation of the
fairness, from a financial point of view, of the consideration to be paid in
the Merger was to some extent a subjective one based on the experience and
judgment of Berwind and not merely the result of mathematical analysis of
financial data, Berwind principally relied on the previously discussed
financial valuation methodologies in its determinations. Berwind believes its
analyses must be considered as a whole and that selecting portions of such
analyses and factors considered by Berwind without considering all such
analyses and factors could create an incomplete view of the process underlying
Berwind's opinion. In its analysis, Berwind made numerous assumptions with
respect to business, market, monetary and economic conditions, industry
performance and other matters, many of which are beyond Peoples' and
Community's control. Any estimates contained in Berwind's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates.
In reaching its opinion as to fairness, none of the analyses performed by
Berwind was assigned a greater or lesser weighting by Berwind than any other
analysis. As a result of its consideration of the aggregate of all factors
present and analyses performed, Berwind reached the conclusion and opinion
that the consideration to be received, as set forth in the Merger Agreement,
is fair from a financial point of view to Peoples and its shareholders.
Berwind's Proxy Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date its Proxy Opinion was delivered; events occurring after the date of its
Proxy Opinion could materially affect the assumptions used in preparing its
Proxy Opinion. Berwind has not undertaken to reaffirm and revise its Proxy
Opinion or otherwise comment upon any events occurring after the date thereof.
Pursuant to the terms of the engagement letter dated October 28, 1997,
Peoples has agreed to pay Berwind $294,070 upon consummation of the Merger for
acting as its financial advisor in connection with the Merger, including
delivering its October and Proxy Opinions. Whether or not the Merger is
consummated, Peoples has also agreed to indemnify Berwind and certain related
persons against certain liabilities relating to or arising out of its
engagement.
The full text of the Proxy Opinion of Berwind dated as the date of this
Joint Proxy Statement/Prospectus, which sets forth the assumptions made and
matters considered, is attached hereto as Appendix B. Peoples'
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shareholders are urged to read the Berwind Opinion in its entirety. Berwind's
Proxy Opinion is directed only to the consideration to be received by Peoples'
shareholders in the Merger and does not constitute a recommendation to any
holder of Peoples Common Stock as to how such holder should vote at the
Peoples Special Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION OF BERWIND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION, WHICH
IS SET FORTH IN APPENDIX B TO THIS PROXY STATEMENT/PROSPECTUS.
Community--Sandler Opinion
Pursuant to a letter agreement dated as of October 23, 1997 (the "Sandler
Agreement"), Community retained Sandler as an independent financial advisor in
connection with Community's consideration of a possible business combination
with Peoples. Sandler is a nationally recognized investment banking firm whose
principal business specialty is banks and savings institutions. In the
ordinary course of its investment banking business, Sandler is regularly
engaged in the valuation of such businesses and their securities in connection
with mergers and acquisitions and other corporate transactions.
In connection with the Merger, the Board of Directors of Community requested
Sandler to render its opinion as to the fairness of the Exchange Ratio (also
referred to as the "Conversion Factor" in this Joint Proxy
Statement/Prospectus) to Community from a financial point of view. At the
October 27, 1997 meeting of Community's Board of Directors at which the Board
considered and approved the Merger, Sandler delivered to the Community Board
of Directors its oral opinion that, as of such date, the Exchange Ratio was
fair to Community from a financial point of view. Sandler has also delivered
to Community's Board of Directors a written opinion dated the date of this
Joint Proxy Statement/Prospectus (the "Sandler Opinion") which is
substantially identical to the October 27, 1997 opinion. THE FULL TEXT OF THE
SANDLER OPINION, WHICH SETS FORTH ASSUMPTIONS MADE, MATERIAL REVIEWED, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW, IS ATTACHED HERETO AS APPENDIX C TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF SUCH OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX C. COMMUNITY'S SHAREHOLDERS ARE URGED TO READ THE
SANDLER OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE
PROPOSE MERGER.
THE SANDLER OPINION WAS PROVIDED TO THE COMMUNITY BOARD OF DIRECTORS FOR ITS
INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE MERGER CONSIDERATION TO HOLDERS OF SHARES OF COMMUNITY COMMON
STOCK. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF COMMUNITY TO
ENGAGE IN THE MERGER OR ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE
A RECOMMENDATION TO ANY HOLDER OF SHARES OF COMMUNITY COMMON STOCK AS TO HOW
SUCH SHAREHOLDER SHOULD VOTE AT THE COMMUNITY SPECIAL MEETING WITH RESPECT TO
THE MERGER OR ANY OTHER MATTER RELATED THERETO.
In connection with rendering the Sandler Opinion, Sandler performed a
variety of financial analyses. The summary of such analyses presented below
does not purport to be a complete description of all of the analyses
underlying Sandler's opinion. The preparation of a fairness opinion is a
complex process involving subject judgments and is not necessarily susceptible
to a partial analysis or summary description. Sandler believes that its
analyses must be considered as a whole and that selecting portions of such
analyses and factors considered therein, without considering all factors and
analyses, could create an incomplete view of those analyses and processes
underlying the Sandler Opinion. In performing its analyses, Sandler made
numerous assumptions with respect to industry performance, business and
economic conditions and various other matters, many of which cannot be
predicted and are beyond the control of Community, Peoples and Sandler. Any
estimates contained in Sandler's analyses are not necessarily indicative of
future results or values, which may be significantly more or less favorable
than such estimates. Estimates on the values of companies do not purport to be
appraisals or necessarily reflect prices at which companies or their
securities may actually be sold. Because such estimates are inherently subject
to uncertainty, none of Community, Peoples or Sandler assumes responsibility
for their accuracy.
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Stock Trading History. Sandler reviewed the history of the reported trading
prices and volume for Community Common Stock and Peoples Common Stock, and the
relationship between the movements in prices of Community Common Stock and
Peoples Common Stock, respectively, to movements in certain stock indices,
including Standard & Poor's 500 Index and the Nasdaq Banking Index and a
selected composite group of publicly traded commercial banks and bank holding
companies in geographic proximity and of similar asset size to Community and
Peoples, respectively.
Comparable Company Analysis. Sandler used publicly available information to
compare selected financial and market trading information, including balance
sheet composition, asset quality ratios, loan loss reserve levels,
profitability, capital adequacy, dividends and trading multiples, for
Community, Peoples and two different groups of selected institutions. The
first group consisted of Peoples and twelve publicly-traded regional
commercial banks (the "Regional Group"): Republic First Bancorp, Inc.,
Commercial National Financial, Oak Hill Financial, Inc., Carrollton Bancorp,
Monocacy Bancshares, Inc., Codorus Valley Bancorp, Inc., Ambassador Bank,
Regent Bancshares Corp., Commerce Bank Harrisburg, N.A., United Bancorp, Inc.,
First Leesport Bancorp, Inc. and First Mariner Bancorp. Sandler also compared
Peoples to a group of eleven publicly-traded commercial banks of comparable
size to Peoples which had a return on equity greater than 15.0% (based on the
last twelve months earnings) and a price-to-tangible book value greater than
200% (the "Highly Valued Group"). The Highly Valued Group was comprised of
Republic First Bancorp, Inc., Oak Hill Financial, Inc., Prestige Financial
Corp., Atlantic Bank & Trust Co., Coast Bancorp, Cascade Bancorp, High Point
Financial Corp., ComSouth Bankshares, Inc., Community Bankshares, Inc.,
Comstock Bancorp and Suburban Bancshares, Inc. The analysis compared publicly
available information as of and for the periods ended December 31, 1992
through December 31, 1996 (although in the case of Community and Peoples and a
few other cases, the information was as of and for the twelve months ended
September 30, 1997).
Analyses of Selected Merger Transactions. Sandler reviewed 249 nationwide
transactions announced from January 1, 1996 to October 20, 1997 (the "Analysis
Period"), involving publicly traded commercial banks as acquired institutions
with transaction values over $15 million ("Nationwide Transactions"); 21
transactions announced during the Analysis Period involving publicly traded
commercial banks in Pennsylvania, Ohio and Maryland with transaction values
over $15 million ("Regional Transactions"); and 9 transactions announced
during the Analysis Period involving publicly traded commercial banks in
Pennsylvania as acquired institutions with transaction values over $15 million
("Pennsylvania Transactions"). Sandler reviewed the ratios of transaction
value to last twelve months' net income, transaction value to tangible book
value, transaction value to book value, tangible book premium to core
deposits, transaction value to total deposits and transaction value to total
assets and computed high, low, mean, and median ratios and premiums for the
respective groups of transactions. These multiples were applied to Peoples'
financial information as of and for the twelve months ended September 30,
1997. Based upon the median multiples for Nationwide Transactions, Sandler
derived an imputed range of values per share for Peoples Common Stock of
$24.74 to $34.87. Based upon the median multiples for Regional Transactions,
Sandler derived an imputed range of values per share on Peoples Common Stock
of $27.16 to $30.72. Based upon the median multiples for Pennsylvania
Transactions, Sandler derived an imputed range of values per share on Peoples
Common Stock of $28.63 to $37.57.
Discounted Dividend Analyses. Sandler also performed an analysis which
estimated the future stream of after-tax dividend flows of Community through
the year 2001 under various circumstances, assuming Community performed in
accordance with the earnings forecast of its management and certain variations
thereof. To approximate the terminal value of Community Common Stock at
December 31, 2001, Sandler applied price to earnings multiples ranging from
10x to 22x and applied multiples of book value ranging from 150% to 400%. The
dividend income streams and terminal values were then discounted to present
values using different discount rates (ranging from 10% to 18%) chosen to
reflect different assumptions regarding required rates of return of holders or
prospective buyers of Community Common Stock. This analysis, assuming the
current dividend payout ratio, indicated an imputed range of values per share
of Community Common Stock between $13.10 and $35.90 when applying the price to
earnings multiples, and an imputed range of values per share of Community
Common Stock between $16.33 and $54.72 when applying multiples of tangible
book value. In connection with
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its analysis, Sandler extensively used sensitivity analyses to illustrate the
effects changes in the underlying assumptions (including variations with
respect to the growth rate of assets, net interest spread, non-interest
income, non-interest expenses and dividend payout ratio) would have on the
resulting present value, and discussed these changes with the Community Board.
Pro Forma Merger Analysis. Sandler analyzed certain pro forma effects of the
Merger on Community, based upon Community's and Peoples' current and projected
income statements and balance sheets provided by the senior managements of
Community and Peoples, respectively, and assumptions and analyses of the
economic environment, accounting and tax treatment of the Merger, operating
efficiencies, revenue enhancements and other adjustments discussed with the
senior managements of Community and Peoples. This analysis indicated that the
Merger would be slightly accretive (approximately 1% to 2%) to Community's
earnings per share, and slightly dilutive (approximately 4% to 2%) to
Community's tangible book value per share for all periods analyzed. The actual
results achieved by Community may vary from the projected results and the
variations may be material.
In connection with rendering its October 27, 1997 opinion, Sandler reviewed,
among other things: (i) the Merger Agreement and the exhibits thereto; (ii)
the Stock Option Agreement; (iii) Community's audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations contained in its annual report to shareholders for the
year ended December 31, 1996; (iv) Peoples' audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations contained in its annual report to shareholders for the
year ended December 31, 1996; (v) Community's unaudited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations contained in its quarterly report on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997; (vi) Peoples' unaudited
consolidated financial statements and management's discussion and analysis of
financial condition and results of operations contained in its quarterly
report on Form F-4 for the quarters ended March 31, June 30 and September 30,
1997; (vii) preliminary financial information prepared by the senior
management of Community concerning Community's financial condition and results
of operations for the quarter ended September 30, 1997; (viii) certain
financial analyses and forecasts of Community and Peoples prepared by and
reviewed with management of Community and Peoples, respectively, and the views
of the senior managements of Community and Peoples regarding their respective
past and current business operations, results thereof, financial condition and
future prospects; (ix) the pro forma impact of the Merger; (x) the publicly
reported historical price and trading activity for the Community Common Stock
and the Peoples Common Stock, including a comparison of certain financial and
stock market information for Community and Peoples with similar publicly
available information for certain other companies the securities of which are
publicly traded; (xi) the financial terms of recent business combinations in
the banking industry, to the extent publicly available; (xii) the current
market environment generally and the banking environment in particular; and
(xiii) such other information, financial studies, analyses and investigations
and financial, economic and market criteria Sandler considered relevant.
In connection with rendering the Sandler Opinion, Sandler confirmed the
appropriateness of its reliance on the analyses used to render its October 27,
1997 oral opinion by performing procedures to update certain of such analyses
and by reviewing the assumptions upon which such analyses were based and the
factors considered in connection therewith.
In performing its reviews, Sandler assumed and relied upon, without
independent verification, the accuracy and completeness of all of the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler does not assume any responsibility or liability therefor. Sandler did
not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities of Peoples or Community or any
of their subsidiaries, or the collectibility of any such assets, nor was it
furnished with any such evaluations or appraisals (relying, where relevant, on
the analyses and estimates of Community and Peoples). With respect to all
financial projections reviewed with each company's management, Sandler assumed
that they had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of the
respective future financial
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performances of Community and Peoples and that such performances will be
achieved. Sandler also assumed that there has been no material change in
Community's and Peoples' assets, financial condition, results of operations,
business, or prospects since the date of the last financial statements filed
pursuant to the requirements of the Exchange Act, that the Merger will be
accounted for as a pooling of interests, that Community and Peoples will
remain as going concerns for all periods relevant to its analyses and that the
conditions precedent in the Merger Agreement are not waived.
Under the Sandler Agreement, Community will pay Sandler a transaction fee in
connection with the Merger, a substantial part of which is contingent upon the
consummation of the Merger. Under the terms of the Sandler Agreement,
Community will pay Sandler a transaction fee equal to $320,000, of which
$170,000 was paid in conjunction with delivery of the Sandler's October 27,
1997 opinion and the balance will be paid when the Merger is consummated.
Community has also agreed to reimburse Sandler for its reasonable out-of-
pocket expenses in connection with its engagement and to indemnify Sandler and
its affiliates and their respective partners, directors, officers, employees,
agents, and controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
Sandler has in the past provided and may in the future provide other
financial advisory services to Community and has received and will receive its
customary compensation for such services. In the ordinary course of its
business, Sandler may actively trade the equity securities of Community and
Peoples and their respective affiliates for its own account and for the
accounts of customers and, may at any time hold a long or short position in
such securities.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE OPINION OF SANDLER AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION, WHICH
IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT/PROSPECTUS.
TERMS OF THE MERGER
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and incorporated by reference herein. Shareholders are
urged to read carefully the Merger Agreement.
Effect of the Merger
Pursuant to the Merger Agreement, Peoples will be merged with and into PSB
Interim Bank, with PSB Interim Bank as the surviving entity (sometimes
referred to as the "Surviving Corporation"). The articles of incorporation and
bylaws of PSB Interim Bank, which are substantially the same as Peoples
articles and bylaws, will remain in effect as the articles of incorporation
and bylaws of the Surviving Corporation. The directors and officers of Peoples
immediately prior to the Merger will remain in office as the directors and
officers of the Surviving Corporation; provided, however, that: (a) Eddie L.
Dunklebarger will become President and CEO of PSB Interim Bank and Community;
(b) Anthony N. Leo will become an Executive Vice-President of PSB Interim Bank
and Community; and (c) Jeffrey M. Seibert will become an Executive Vice-
President of Community and Executive Vice President and CLO of PSB Interim
Bank.
Merger Consideration; Conversion Factor
In connection with the Merger, each share of Peoples Common Stock issued and
outstanding as of the Effective Date, other than shares of Peoples Common
Stock held by persons who have perfected dissenters rights and shares of
Peoples Common Stock held and beneficially owned by Community or any
subsidiary of Community which are not held in a fiduciary or similar capacity
on behalf of others, will be converted into and become a right to receive .889
shares (the "Conversion Factor") of Community Common Stock, par value $5.00
per share.
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Each option to purchase shares of Peoples Common Stock pursuant to the
Peoples Stock Option Plan and the Peoples Directors Stock Option Plan
(collectively, the "Option Plans"), which is outstanding and unexercised
immediately prior thereto (each, an "Outstanding Option"), shall be converted
as to each whole share subject to such Outstanding Option into, at the
Effective Date, an option (each, an "Exchange Option") to purchase such number
of shares of Community Common Stock at such exercise price as set forth in the
Merger Agreement (and otherwise having the same duration and other terms as
the original option). The intention is to place the holders of the Outstanding
Options in the same economic position, taking into consideration the
Conversion Factor, with respect to the Exchange Options after the Effective
Date as they were with respect to Outstanding Options prior to the Effective
Date.
In addition, subsequent to the date of the Merger Agreement but prior to the
Effective Date, whenever: (a) a record date occurs for the purpose of
determining the holders of Community Common Stock entitled to receive a
dividend declared payable in shares of Community Common Stock; (b) Community
subdivides the outstanding shares of Community Common Stock; (c) Community
combines the outstanding shares of Community Common Stock into a smaller
number of shares; or (d) Community issues by reclassification of its shares of
Community Common Stock any shares of stock of Community, the Conversion Factor
will also be adjusted so that each share of Peoples Common Stock thereafter
shall be convertible into and exchangeable for the number of shares of
Community Common Stock which the shares of Peoples Common Stock would have
represented had such shares of Peoples Common Stock been converted into and
exchanged for shares of Community Common Stock prior to the happening of such
event and such Community Common Stock had been entitled to the benefit of the
happening of such event.
Closing; Effective Date
The Merger Agreement provides that the Closing of the Merger will be held at
the executive offices of Community at 10:00 a.m. on the Effective Date which
date shall not be later than thirty (30) days after the receipt of all
required governmental approvals and shareholder approvals and after the
expiration of all applicable waiting periods. See "THE MERGER--Terms of the
Merger--Conditions Precedent" below.
Representations and Warranties
Peoples and Community (with respect to itself, and where applicable,
Community subsidiaries) have made certain representations and warranties as
set forth in the Merger Agreement. The representations and warranties relate
to, among other things, proper organization; articles of association, bylaws
and minute books; powers and qualifications of each corporation; subsidiaries;
capital structures; leases; litigation; insurance; compliance with
environmental laws; material contracts and agreements; classified loans;
employee benefit plans; no material adverse change in financial condition;
title to real property and other assets; the adequacy of the provision for
current taxes payable and other tax matters; authorization of the Merger
Agreement; absence of conflict with other agreements and the consents and
approvals that will be required for the consummation of the Merger; adequacy
of financial statements; brokerage and other fees; the absence of false or
misleading statements in certain financial statements, Joint Proxy Statements,
reports, documents or other written material; and the delivery and filing of
certain tax returns and reports.
Conduct of Business Pending the Merger
Peoples has agreed that prior to the Effective Date of the Merger, it will
conduct its business in the ordinary course as previously conducted and that
it will use its reasonable best efforts: (a) to preserve its respective
business and business organization; (b) to keep available to Community the
services of its present officers (provided, however, that it shall have the
right to terminate the employment of any such officer for cause in accordance
with its established employee procedures); (c) to preserve the good will of
its customers and others having business relations with it; (d) to consult
with Community as to the making of any decisions or the taking of any actions
in matters other than in the ordinary course of business; (e) to maintain its
properties in customary repair, working order and condition (reasonable wear
and tear excepted); (f) to comply with all laws applicable
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to it and the conduct of its business; (g) to keep in force, at not less than
their present limits, all policies of insurance (including Federal Deposit
Insurance Corporation ("FDIC") deposit insurance); (h) to make no material
change in the general terms, policies and conditions upon which it presently
does business other than in the ordinary course of business; (i) to file in a
due and timely manner all reports, tax returns and other documents required to
be filed with federal, state, local and other authorities; and (j) unless it
is contesting the same in good faith and has established reasonable reserves
therefor, to pay when required to be paid all taxes indicated by tax returns
so filed or otherwise lawfully levied or assessed upon it or any of its
properties and to withhold or collect and pay to the proper governmental
authorities or hold in separate bank accounts for such payment all taxes and
other assessments which it believes in good faith to be required by law to be
so withheld or collected.
Community has agreed that prior to the Effective Date of the Merger,
Community and each of its subsidiaries will conduct its respective business in
the ordinary course as previously conducted and use its reasonable best
efforts to: (i) to preserve its respective business and business organization;
(ii) to preserve the good will of its customers and others having business
relations with it; (iii) to maintain its properties in customary repair,
working order and condition (reasonable wear and tear excepted); (iv) to
comply with all laws applicable to it and the conduct of its business; (v) to
keep in force at not less than their present limits all policies of insurance
(including FDIC deposit insurance); (vi) to file in a due and timely manner
all reports, tax returns and other documents required to be filed with
federal, state, local and other authorities; and (vii) unless it is contesting
the same in good faith and has established reasonable reserves therefor, to
pay when required to be paid all taxes indicated by tax returns so filed or
otherwise lawfully levied or assessed upon it or any of its properties and to
withhold or collect and pay to the proper governmental authorities or hold in
separate bank accounts for such payment all taxes and other assessments which
it believes in good faith to be required by law to be so withheld or
collected.
Certain Other Agreements
Pursuant to the Merger Agreement, Peoples has also agreed (except as
expressly permitted by the Merger Agreement or to the extent that Community
otherwise consents in writing), that it will not: (a) amend its articles of
association or bylaws; enter into any shareholder agreement, understanding or
commitment relating to the right to vote its shares of capital stock; or
repurchase, redeem or retire or otherwise acquire any share of, or any
security convertible into shares of, its capital stock or other equity
investment; (b) issue, deliver or sell shares of capital stock or securities
convertible into any such shares, or issue or grant any right, option or other
commitment for the issuance, delivery or sale of any such shares or securities
(other than the exercise of stock options or pursuant to Peoples ESOP, 401(k)
Plan, and Dividend Reinvestment Plan); (c) declare, set aside, or pay any
dividend or other distribution in respect of its capital stock (including,
without limitation, any stock dividend or distribution) other than regular
quarterly cash dividends payable in accordance with customary dividend policy
(which shall mean cash dividends payable with respect to Peoples Common Stock
at a quarterly rate not in excess of $.14 per share for the fourth quarter of
1997 and for each quarter thereafter at a quarterly rate not in excess of
Community's dividend rate multiplied by .889); (d) enter into or amend, or
increase the contribution to or obligation under, any employment contract or
any bonus, stock option, profit sharing, pension, retirement, savings,
incentive, deferral or similar employee benefit program or arrangement, or
authorize the creation of any new or replacement job classifications or staff
positions, pay bonuses or other extraordinary compensation, or grant any
salary or wage increase except normal individual increases in compensation to
employees in accordance with established employee procedures of Peoples
(except options issued to employees--not to exceed 25,000 shares--and
directors--not to exceed 5,500 shares--consistent with past practice at the
fair market value of Peoples Common Stock at the date of the grant); or (e)
other than in the Ordinary Course of Business (as defined below), authorize or
make any material change in its business or operations; incur any material
direct or contingent liabilities or commitments; sell or dispose of any shares
of it capital stock (other than the exercise of stock options or pursuant to
Peoples ESOP, 401(k) Plan, and Dividend Reinvestment Plan) or lease, sell or
dispose of any other material part of its assets; establish any new branch
banking offices, loan production offices or other offices, or make any capital
expenditures in excess in the aggregate of $5,000 (except for ordinary
repairs, renewals or replacements); waive or release any right or cancel or
compromise any of its
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debts or claims; or otherwise enter into any material contract, transaction or
commitment. For purposes of the Merger Agreement, the "Ordinary Course of
Business" consists of the banking business as presently conducted by Peoples
and not prohibited by the PBC.
Peoples has also agreed that: (i) charge-offs and charge-downs of loans will
be taken against its allowance for loan losses in the Ordinary Course of
Business when a potential loss has been quantified by the executive officers
of Peoples; (ii) Community and its counsel, financial advisors and accountants
(all of whom shall be bound by the confidential nature of any of the
following) will be given full access, upon reasonable request, to Peoples'
properties, books, contracts and records, and that Peoples shall furnish all
information concerning its affairs as such persons may reasonably request;
(iii) it shall use its reasonable best efforts to cause the Merger and the
Merger Agreement to be submitted to its shareholders for their consideration
and vote, and that the Board of Directors of Peoples, consistent with their
fiduciary duties in the opinion of counsel, will recommend that the Merger and
the Merger Agreement be approved; (iv) it will deliver to Community a correct
and complete list of Peoples' shareholders; (v) it will, separately and
jointly with Community, use its reasonable best efforts in good faith to take
or cause to be taken as promptly as practicable all steps necessary to obtain
requisite government approvals of the Merger and to cause the Merger to be
consummated; (vi) it will give written notice to Community upon becoming aware
of any impending or threatened occurrence of any event which would cause or
constitute a breach of any of the agreements, representations or warranties of
Peoples contained or referred to in the Merger Agreement and that it will use
its reasonable best efforts to promptly prevent or remedy the same; and (vii)
it will not take any actions with respect to its business or operations that
in its or its accountants' judgment would cause the Merger or any related
transaction to fail to meet the relevant criteria for pooling of interests
accounting treatment. Peoples has also agreed that in co-operation with
Community, it would promptly prepare for inclusion in the Community
Registration Statement (as defined below) this Joint Proxy Statement for the
purpose of submitting the Merger Agreement to the Peoples' shareholders.
Pursuant to the terms of the Merger Agreement, Community has agreed: (a)
that Community will use its reasonable best efforts in good faith to take as
promptly as practicable all steps necessary to cause the Merger to be
consummated as expeditiously as possible; (b) as the sole shareholder of PSB
Interim Bank, Community shall by unanimous shareholder action ratify and
confirm the Merger and cause the Board of Directors of PSB Interim Bank to
approve the Merger; (c) that Community will issue shares of Community Common
Stock in accordance with the Conversion Factor, and that such shares, when
issued and delivered, will be duly authorized and legally and validly issued,
fully paid and nonassessable; (d) that prior to the Effective Date, Community
will appoint Norwest Minnesota, N.A. as Exchange Agent for the purpose of
exchanging certificates in accordance with the terms of the Merger Agreement;
(e) that prior to the Effective Date, separately and jointly with Peoples,
Community will use its reasonable best efforts in good faith to take or cause
to be taken as promptly as possible all steps necessary to obtain (i) the
prior approval of the Merger by the Federal Reserve Board, the FDIC and the
Department of Banking, and (ii) all other consents and approvals of government
agencies as are required by law or otherwise; (f) that Community shall
promptly give written notice to Peoples upon becoming aware of any impending
or threatened occurrence of any event which would cause or constitute a breach
of any of the agreements, representations or warranties of Community contained
or referred to in the Merger Agreement and that it will use its reasonable
best efforts to promptly prevent or remedy the same; (g) that Community and
each of its subsidiaries will give Peoples and its counsel, financial advisors
and accountants (all of whom shall be bound by the confidential nature of any
of the following) full access, upon reasonable request, to its properties,
books, contracts and records, and that they shall furnish all information
concerning their respective affairs as Peoples may reasonably request; (h)
that Community shall cause PSB Interim Bank to employ persons who are
employees of Peoples immediately prior to the Effective Date, with
compensation at least equal to the aggregate compensation that each person was
receiving from Peoples prior to the effective date and use its reasonable best
efforts to provide employee benefits that are substantially equivalent to the
employee benefits which Peoples employees received prior to the effective date
and are no less favorable than the employee benefits afforded to similarly
situated employees of Community and its subsidiaries; and (i) that Community
will not take any actions or engage in any transaction following the Merger
that would cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368 of the Code or fail to qualify for pooling of interests
accounting
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treatment. Community has also agreed that it will promptly prepare and file
with the SEC a registration statement (the "Community Registration Statement")
under and pursuant to the provisions of the Securities Act of 1933 (the
"Securities Act") for the purpose of registering the Community Common Stock to
be issued in connection with the Merger.
Pursuant to the terms of the Merger Agreement, Peoples and Community have
both agreed that: (i) each party to the Merger Agreement shall, and shall
cause its directors, officer, attorneys and advisors, to maintain (unless
otherwise required by applicable law) the confidentiality of all information
obtained in connection with the Merger Agreement which is not otherwise
publicly disclosed by the other party or publicly available; and (ii) both
Community and Peoples shall agree with each other as to the form and substance
of any press release related to the Merger Agreement or the transactions
contemplated thereby, and shall consult with each other as to the form and
substance of other public disclosures related thereto. Peoples and Community
have also agreed that they shall use their reasonable best efforts to have the
Community Registration Statement declared effective under the Securities Act
as soon as may be practicable.
Conditions Precedent
The obligations of Peoples and Community to consummate the Merger are
subject to, among other things, the satisfaction of the following conditions:
(a) the performance by Peoples and Community of each of their respective
obligations under the Merger Agreement and the accuracy of each of Peoples'
and Community's respective representations and warranties contained therein;
(b) the absence of any material adverse change in the financial condition of
each of the respective parties and their subsidiaries; (c) approval of the
Merger Agreement and the transactions contemplated therein by the shareholders
of Peoples and Community; (d) the receipt, by each of the respective parties,
of a certificate from the other party as to matters specifically enumerated in
the Merger Agreement and the opinion of counsel as required therein; (e) the
effectiveness of the Community Registration Statement and the absence of stop
orders suspending the effectiveness; (f) the receipt of all governmental
approvals required by the Merger Agreement; (g) receipt of a letter from
Coopers & Lybrand, LLP dated the effective date of the Community Registration
Statement, as required by the Merger Agreement, subject to satisfaction of the
requirements of Statement on Auditing Standards No. 72 of the American
Institute of Certified Public Accountants, if applicable; (h) the receipt of
an opinion from Mette, Evans & Woodside, special counsel to Community, as to
certain tax matters; and (i) the Merger is accounted for under the pooling of
interests method of accounting.
The obligations of Peoples to consummate the Merger are further subject to:
(i) the listing on the AMEX of shares of Community Common Stock to be issued
in connection with the Merger; and (ii) the receipt of the Berwind Opinion.
The obligations of Community to consummate the Merger are further subject
to: (a) the receipt of a letter from Peoples' litigation counsel on the
Effective Date setting forth pending litigation involving Peoples which was
not previously disclosed in writing to Community; (b) the aggregate number of
shares of Peoples Common Stock held by persons who have taken the steps
required prior to the Effective Date to perfect their right (if any) to be
paid the fair value of such shares under the PBC and BCL ("Dissenting Shares")
are not enough to prevent Community from meeting the continuity of business
enterprise requirement of Section 368(a)(1)(A) of the Code, and the number of
Dissenting Shares, plus the number of shares owned by Community or its
affiliates, together with the aggregate number of fractional shares with
respect to which persons will receive cash in lieu of Community Common Stock
pursuant to the Merger Agreement, shall be less than 10% of the number of
outstanding shares of Peoples Common Stock or such number, if less, which will
allow Community to account for the Merger as a "pooling of interest"; (c) the
receipt by Community of letters from Peoples' affiliates for purposes of Rule
145 under the Securities Act; and receipt of the Sandler O'Neill opinion.
Waiver; Amendment
Any provision of the Merger Agreement may be: (a) waived by the party
benefitted by the provision; or (b) amended or modified at any time by an
agreement in writing duly authorized and executed by each of the parties,
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except that no amendment which would reduce the amount or change the form of
consideration to be delivered to the shareholders of Peoples' or alter or
change any of the terms or conditions of the Merger Agreement so as to
materially adversely affect the shareholders of Peoples or Community, may be
made subsequent to shareholder approvals without obtaining further shareholder
approvals.
Termination
The Merger Agreement provides that it may be terminated by the mutual
consent of both Peoples and Community at any time prior to the consummation of
the Merger.
The Merger Agreement further provides that it may be terminated by the Board
of Directors of Peoples: (a) if, (i) in its reasonable opinion, a material
adverse change has occurred since June 30, 1997 in the business or financial
condition of Community, or (ii) there has been a failure, or prospective
failure, on the part of Community to comply with its obligations or any
conditions applicable to it under the Merger Agreement; (b) on or after June
30, 1998, if (i) any of the conditions to which the obligations of Peoples are
subject under the Merger Agreement have not been fulfilled (provided, however,
that Peoples shall not have the right to terminate the Merger Agreement for a
period of three months if Community is engaged in litigation or an appeal
procedure relating to an attempt to obtain one or more of the government
approvals required by the Merger Agreement), or (ii) such conditions have been
fulfilled or waived but Community shall have failed to complete the Merger;
(c) if the Merger and the Merger Agreement are not approved by the affirmative
vote of Peoples' shareholders owning at least two-thirds of its capital stock
outstanding at the Peoples Special Meeting, including any adjournment thereof;
provided, however, that Peoples and Community may mutually agree to keep the
Merger Agreement in effect to call an additional meeting of the Peoples'
shareholders to obtain such shareholder approval; and (d) if, prior to the
Effective Date, (i) a change of control of Community occurs, (ii) Community
enters into an agreement to effect a change of control or (iii) Community
enters into any agreement relating to a transaction which would require the
appoval of its shareholders under the BCL or the listing standards of the
AMEX.
The Merger Agreement further provides that it may be terminated by the Board
of Directors of Community: (a) on or after June 30, 1998 if (i) any of the
conditions to which the obligations of Community are subject under the Merger
Agreement have not been fulfilled, or (ii) such conditions have been fulfilled
or waived by Community but Peoples shall have failed to complete the Merger;
(b) if (i) in its reasonable opinion a material adverse change has occurred
since June 30, 1997 in the business or financial condition of Peoples, or (ii)
there has been a failure, or prospective failure, on the part of Peoples to
comply with its obligations or any conditions applicable to it under the
Merger Agreement; or (c) if the Merger and the Merger Agreement are not
approved by the affirmative vote of Community shareholders owning at least 66
2/3% of its capital stock outstanding at the Community Special Meeting.
The Merger Agreement further provides that it may be terminated by the Board
of Directors of either Peoples or Community if any material action, proceeding
or investigation is pending or threatened before any court or administrative
agency by any governmental agency or other person challenging, or seeking
material damages in connection with, the Merger.
The Merger Agreement further provides that under the Merger Agreement, the
power of termination may only be exercised by written notice, signed on behalf
of the party by its Chairperson (or President) and Chief Executive Officer, to
the other party. Additionally, termination of the Merger Agreement will not
terminate or affect the obligations of Peoples and Community to pay any
expenses required by the Merger Agreement, or any other agreement reached
between the parties after such termination.
EXPENSES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated therein
shall be paid by the party incurring such costs, except that in the event the
Merger is not consummated for any reason Community and Peoples shall each pay
one-half of:
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(a) the aggregate costs theretofore incurred in printing the Community
Registration Statement, the Prospectus and this Joint Proxy
Statement/Prospectus; (b) the registration fee for the Community Registration
Statement; and (c) the fees for filing applications for any government
approvals required by the Merger Agreement.
STOCK OPTION AGREEMENT; NO SOLICITATION; PURSUIT OF OTHER TRANSACTIONS
In the Merger Agreement, Peoples has agreed that neither it nor any of its
officers or directors shall (and Peoples has agreed to direct and use its
reasonable best efforts to cause its employees, agents and representatives,
including, without limitation, any investment banker, attorney or accountant
retained by it not to) initiate, solicit or encourage, directly or indirectly,
any inquiries for the making of any proposal or offer (including, without
limitation, any proposal or offer to Shareholders of Peoples, but excluding
the transactions contemplated by the Merger Agreement) with respect to a
merger, consolidation, or similar transaction involving, or any purchase of
all or any significant portion of the assets or any equity securities of,
Peoples (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal. Peoples has agreed to
promptly notify Community of any inquiries or proposals regarding an
Acquisition Proposal.
In connection with the Merger Agreement, Community and Peoples have entered
into a stock option agreement (the "Stock Option Agreement") granting
Community an irrevocable option to purchase up to that number of shares of
authorized but unissued shares of Peoples Common Stock, which, when added to
the number of shares of Peoples Common Stock owned by Community at the time of
the exercise of the option will represent 19.9% of the issued and outstanding
shares of Peoples Common Stock after exercise of the option, at a purchase
price of $23.50 per share.
Community may exercise the option upon: (i) the making by a third party of a
tender or exchange offer for at least 19.9% of the outstanding Peoples Common
Stock; (ii) the acquisition by a third party of beneficial ownership of the
right to acquire beneficial ownership of 19.9% or more of the outstanding
Peoples Common Stock; (iii) the making by any third party by public
announcement or communication to Peoples, of a firm proposal to acquire
Peoples (by merger, consolidation or otherwise) or to make any such tender or
exchange offer as described in (i) above; or (iv) the failure of Peoples'
shareholders to approve the Merger if at the time of the Peoples Special
Meeting there has been an announcement by a third party of an offer or
proposal to acquire 19.9% or more of Peoples Common Stock (before giving
effect to any exercise of the option), or to acquire, merge or consolidate
with Peoples, or to purchase all or substantially all of Peoples' assets.
To the extent the option has not been exercised, it shall terminate and be
of no further force and effect on the earlier of (i) the effective date of the
Merger, (ii) the time of termination of the Merger Agreement in accordance
with its terms (other than a termination resulting from a wilful breach by
Peoples of any representation, warranty or covenant contained therein or,
following the occurrence of any events set forth in the preceding paragraph
above, or failure of Peoples' shareholders to approve the Merger by the vote
required by law), (iii) six (6) months after termination of the Merger
Agreement due to a wilful breach by Peoples of representation, warranty or
covenant contained therein or (iv) six (6) months after failure of Peoples'
shareholders to approve the Merger by the vote required by law following the
occurrence of an event set forth in the preceding paragraph above. The Stock
Option Agreement may discourage third parties from making competing offers to
acquire Peoples and is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms set forth in the Merger
Agreement.
The foregoing description is intended only as a summary of the material
provisions of the Stock Option Agreement and does not purport to be complete.
It is qualified in its entirety by reference to the Stock Option Agreement,
which is attached as Appendix E to this Joint Proxy Statement/Prospectus.
CONTINUED EMPLOYMENT OF PEOPLES' EMPLOYEES
Pursuant to the terms of the Merger Agreement, Community has agreed to cause
PSB Interim Bank to employ persons who are employees of Peoples immediately
prior to the Effective Date with compensation at
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least equal to the aggregate compensation that each person was receiving from
Peoples prior to the effective date then use its reasonable best efforts to
provide employee benefits that are substantially equivalent to the employee
benefits which Peoples employees received prior to the effective date and are
no less favorable than the employee benefits afforded to similarly situated
employees of Community and its subsidiaries.
Community has agreed to consider in good faith the implementation of a
Section 401(k) Plan shortly after the effective date. Peoples existing
Employee Stock Ownership Plan (ESOP) and 401(k) Plan will be terminated as of
the Effective Date of the Merger. For vesting and eligibility purposes for
employee benefits, former Peoples employees shall receive credit for years of
service with Peoples. Peoples employees employed by the Interim Bank after the
effective date of the Merger will have titles and duties as are appropriate
and consistent with Peoples existing personnel structure. Eddie L.
Dunklebarger, Anthony E. Leo, and Jeffrey M. Seibert have entered into
employment agreements with Community, which are conditioned upon consummation
of the Merger. See--"Interests of Certain Persons in the Merger." In the event
the Interim Bank terminates the employment (other than as a result of
unsatisfactory performance of their respective duties) of any officers or
employees of Peoples as of the Effective Date within one (1) year of the
Effective Date, Community shall cause the Interim Bank to pay severance pay to
such employees in accordance with such severance policies as may be adopted
from time to time by the Interim Bank with the reasonable consent of
Community.
INDEMNIFICATION OF PEOPLES' OFFICERS AND DIRECTORS; INSURANCE
In the Merger Agreement, Community has agreed to cause PSB Interim Bank to
indemnify and hold harmless, prior to and after the Effective Date, each
present and former director and officer of Peoples determined as of the
Effective Date (the "Indemnified Parties") against any costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, the "Costs") incurred in connection with
any claim, action, suit, proceedings or investigation, whether civil,
criminal, administrative or investigative, arising out of an Indemnified
Matter. Pursuant to the Merger Agreement, an "Indemnified Matter" includes any
matter directly or indirectly involving transactions contemplated by or
required in connection with the Merger Agreement, as well as any matter
existing or occurring at or prior to the Effective Date, whether asserted or
claimed prior to, at or after the Effective Date, to the fullest extent to
which such persons were entitled to be indemnified under Peoples' articles of
incorporation or bylaws in effect as of the date of the Merger Agreement, but
only to the extent permitted by applicable law, and also advance expenses as
incurred to the fullest extent to which such persons were entitled under
Peoples' articles of incorporation and bylaws as in effect on the date of the
Merger Agreement (to the fullest extent permitted under applicable law),
provided the person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification). An Indemnified Matter does not include any
action or omission by an Indemnified Party resulting from such person's gross
negligence or deliberate misconduct. Community has also agreed to cause PSB
Interim Bank, for a period of six years after the Effective Date, to use its
reasonable efforts to cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by Peoples; provided,
however, that PSB Interim Bank may substitute therefor policies of comparable
coverage; and provided further that in no event shall PSB Interim Bank be
obligated to expend any amount per annum in excess of 150% of the total amount
of annual premiums paid as of the date of the Merger Agreement by Peoples for
such insurance (the "Maximum Amount"). If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, Community has agreed to use its reasonable efforts to maintain the
most advantageous policies of directors' and officers' insurance obtainable
for an annual premium equal to the Maximum Amount.
PSB INTERIM BANK SHAREHOLDER APPROVAL
Under the Merger Agreement, Community has agreed to cause PSB Interim Bank
to ratify and confirm the Merger and cause the Board of Directors of PSB
Interim Bank to approve the Merger and the Merger Agreement.
LISTING
The Merger Agreement provides that Community will file an application to
list, on the AMEX, the shares of Community Common Stock to be issued in the
Merger.
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EXCHANGE PROCEDURE
Appointment of Exchange Agent
Prior to the Effective Date, Community will appoint Norwest Bank Minnesota,
N.A. as Exchange Agent for the purpose of exchanging certificates representing
shares of Community Common Stock. Thereafter, Community will issue and deliver
to the Exchange Agent shares of Community Common Stock, and will pay to the
Exchange Agent such amounts of cash as shall be required to be delivered to
holders of shares of Peoples Common Stock entitled to cash in lieu of
fractional shares. Any Community Common Stock and any amounts of cash
delivered to the Exchange Agent and unclaimed at the end of two years from the
Effective Date will be repaid to Community, in which event the persons
entitled thereto shall only look to Community for payment thereof; provided,
however, that if Community shall, as required by law, pay to the Commonwealth
of Pennsylvania any unclaimed Community Common Stock or monies so repaid to
Community, those persons may thereafter look only to the Commonwealth of
Pennsylvania for payment thereof.
Procedure
As soon as practicable after the Effective Date of the Merger, holders of
shares of Peoples Common Stock will be furnished a form letter of transmittal
for the tender of their shares to the Exchange Agent to be exchanged for new
certificates for the appropriate number of shares of Community Common Stock.
Community will be required to issue Community Common Stock only upon the
actual surrender of Peoples shares and will require an indemnity agreement or
a bond from any Peoples' shareholder who is unable to surrender his or her
certificate by reason of loss, theft or destruction of the certificate.
As of the Effective Date of the Merger, Community will issue and deliver to
the Exchange Agent certificates representing a sufficient number of shares of
Community Common Stock issuable in the Merger and a sufficient amount of cash
in lieu of fractional shares payable in the Merger. Upon surrender for
cancellation to the Exchange Agent of one or more certificates for shares of
Peoples Common Stock ("Old Certificates"), accompanied by a duly executed
letter of transmittal in proper form, the Exchange Agent shall, promptly after
the Effective Date of the Merger, deliver to each holder of such surrendered
Old Certificates new certificates representing the appropriate number of
shares of Community Common Stock ("New Certificates"), together with checks
for payment of cash in lieu of fractional interests to be issued in respect of
the Old Certificates.
Until Old Certificates have been surrendered and exchanged for New
Certificates, each outstanding Old Certificate shall be deemed, for all
corporate purposes of Community, to be the number of whole shares of Community
Common Stock into which the number of shares of Peoples Common Stock shown
thereon have been converted. At the option of Community, no dividends or other
distributions which are declared on Community Common Stock will be paid to
persons otherwise entitled to receive the same until the Old Certificates have
been surrendered in exchange for New Certificates in the manner described
above, but upon such surrender, such dividends or other distributions, from
and after the Effective Date of the Merger, will be paid to such persons in
accordance with the terms of such Community Common Stock. In no event shall
the persons entitled to receive such dividends or other distributions be
entitled to receive interest on such dividends or other distributions.
REGULATORY APPROVALS
The approval of the Federal Reserve Board, the FDIC and the Pennsylvania
Department of Banking must also be obtained before the Merger can be
consummated. On , 1997, an application was filed with the Department of
Banking seeking approval of the Merger. Applications for the Federal Reserve
Board's and FDIC's respective approvals will also be filed.
Peoples and Community are not aware of any other governmental approvals or
actions that are required for consummation of the Merger, except as described
above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought.
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The Merger cannot proceed in the absence of the requisite regulatory
approvals. There can be no assurance that all such regulatory approvals will
be obtained, and, if the Merger is approved, there can be no assurance as to
the date of any such approval. There can also be no assurance that any such
approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement.
There can likewise be no assurance that the U.S. Department of Justice or the
state Attorney General will not challenge the Merger, or if such a challenge
is made, as to the result thereof.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of Peoples may
be deemed to be beneficial owners of 214,835 shares of Peoples Common Stock,
or 14.42% of the then outstanding shares of Peoples Common Stock.
Certain directors and officers of Peoples have interests in the Merger that
are in addition to their interests as shareholders of Peoples generally. The
Merger Agreement provides that from and after the Effective Date, Community
will cause PSB Interim Bank to provide indemnification to each person who is
at the Effective Date, or has been at any time prior to the Effective Date, an
officer or director of Peoples against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring
at or prior to the Effective Date, whether asserted or claimed prior to, at or
after the Effective Date, to the fullest extent to which such persons were
entitled under the articles of association or bylaws of Peoples in effect on
the date of the Merger Agreement, to the extent permitted under applicable law
and to advance expenses as incurred to the fullest extent to which such
persons were entitled under the articles of association and bylaws as in
effect on the date of the Merger Agreement, to the extent permitted under
applicable law, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification.
The Merger Agreement also provides that for a period of six years after the
Effective Date, Community shall cause PSB Interim Bank to use all reasonable
efforts to cause to be maintained in effect the current policies of directors'
and officers' liability insurance maintained by Peoples (provided that PSB
Interim Bank may substitute policies of comparable coverage); provided,
however, that in no event will PSB Interim Bank be obligated to expend, in
order to maintain such insurance coverage, any amount per annum in excess of
150% of the total amount of the annual premiums paid as of the date of the
Merger Agreement by Peoples for such insurance.
The current members of the Board of Directors of Peoples will be appointed
to and will constitute the Board of Directors of PSB Interim Bank, and four
(4) members of the present Board of Directors of Peoples will be appointed to
Community's Board of Directors.
Additionally, Community has entered into employment agreements which are
conditioned upon consummation of the Merger, and are effective on the
Effective Date of the Merger whereby: (a) Eddie L. Dunklebarger will become
President and CEO of PSB Interim Bank and Community; (b) Anthony N. Leo will
become an Executive Vice-President of PSB Interim Bank and Community; and (c)
Jeffrey M. Seibert will become an Executive Vice-President of Community and
Executive Vice-President and CLO of PSB Interim Bank.
Eddie L. Dunklebarger
Pursuant to the employment agreement described above, Eddie L. Dunklebarger,
currently the President and CEO of Peoples, will become the President and CEO
of PSB Interim Bank and Community, at an annual salary of $190,000. For a
period of two (2) years (commencing with calendar year 1998), Mr. Dunklebarger
will be paid a bonus equal to the greater of (i) $50,000, or (ii) any bonus to
which he would be entitled to as a participant in Community's existent
executive bonus program. After this two-year period, Mr. Dunklebarger will
participate
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in Community's existent executive bonus program. Additionally, Mr.
Dunklebarger will be entitled to participate in or receive benefits under all
Community employment benefit plans, including the right to receive options for
at least 6,000 shares of Community Common Stock, per year, under Community's
existing stock option plan. Mr. Dunklebarger will also be entitled to other
benefits and perquisites as Community's Board of Directors deems appropriate.
Community will employ Mr. Dunklebarger for a period of five (5) years after
the Effective Date of the Merger. Upon the expiration of the third year of the
five-year period, and upon the expiration of each subsequent year of
employment (each expiration being referred to as the "Expiration Date"), the
period of Mr. Dunklebarger's employment will automatically be extended for an
additional year (resulting in successive three-year terms) unless, no later
than 90 days prior to the Expiration Date either the Board of Directors of
Community or Mr. Dunklebarger gives written notification of its or his
intention not to renew Mr. Dunklebarger's agreement. This notice will have the
effect of causing the agreement to terminate two (2) years after the
Expiration Date.
Mr. Dunklebarger's employment will also be terminated upon his death,
disability (as defined in the agreement) and for cause (as defined in the
agreement). Mr. Dunklebarger may further terminate his employment (a)
voluntarily upon one hundred eighty (180) days notice to Community for any
reason; (b) for certain specified health reasons; and (c) other "good reasons"
including, but not limited to, (i) any assignment or reduction of
responsibilities of Mr. Dunklebarger (without his consent), (ii) any removal
of Mr. Dunklebarger from any of his executive positions, (iii) a reduction of
Mr. Dunklebarger's salary, (iv) any willful and material breach of the
agreement by Community, (v) a change in control of Community, or (vi) a
relocation by Community of Mr. Dunklebarger's offices beyond a certain
distance from East Berlin, Pennsylvania.
Anthony N. Leo
Pursuant to the employment agreement described above, Anthony N. Leo,
currently the Chief General Counsel of Peoples, will become an Executive Vice-
President of PSB Interim Bank and Community, at an annual base salary of not
less than $90,000. Mr. Leo will be entitled to participate in or receive
benefits under all Community employment benefit plans generally available to
executive officers of Community.
Community will employ Mr. Leo for a rolling term of two (2) years commencing
on the Effective Date of the Merger. On each anniversary of the Effective
Date, the period of Mr. Leo's employment will automatically be extended for an
additional one (1) year period unless, no later than sixty (60) days prior to
the such anniversary date either the Board of Directors of Community or Mr.
Leo gives written notification of its or his intention not to renew Mr. Leo's
agreement. Upon the date of any change in control of Community, Mr. Leo's
agreement will automatically renew and be extended for two (2) years from that
date.
Mr. Leo's employment may be terminated (a) at any time by mutual agreement
of Mr. Leo and Community; (b) automatically if Mr. Leo is removed and/or
permanently prohibited from participating in Community's or PSB Interim Bank's
affairs by the appropriate regulatory agency (under Section 8(e) Federal
Deposit Insurance Act, as amended, or any similar state or federal law); (c)
by Community at any time (i) for cause (as defined in the agreement), or (ii)
if in its sole judgment and discretion the continued employment of Mr. Leo
would no longer be beneficial or desirable; or (d) by Mr. Leo (i) upon a
change in control of Community, or (ii) at any time upon thirty (30) days
prior notice to Community.
Jeffrey M. Seibert
Pursuant to the employment agreement described above, Jeffrey M. Seibert,
currently the CLO of Peoples, will become an Executive Vice-President of
Community and Executive Vice-President and CLO of PSB Interim Bank, at an
annual base salary of not less than $90,000. Mr. Seibert will be entitled to
participate in or receive benefits under all Community employment benefit
plans generally available to executive officers of Community.
Community will employ Mr. Seibert for a rolling term of two (2) years
commencing on the Effective Date of the Merger. On each anniversary of the
Effective Date, the period of Mr. Seibert's employment will
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automatically be extended for an additional one (1) year period unless, no
later than sixty (60) days prior to the such anniversary date either the Board
of Directors of Community or Mr. Seibert gives written notification of its or
his intention not to renew Mr. Seibert's agreement. Upon the date of any
change in control of Community, Mr. Seibert's agreement will automatically
renew and be extended for two (2) years from that date.
Mr. Seibert's employment may be terminated (a) at any time by mutual
agreement of Mr. Seibert and Community; (b) automatically if Mr. Seibert is
removed and/or permanently prohibited from participating in Community's or PSB
Interim Bank's affairs by the appropriate regulatory agency (under Section
8(e) Federal Deposit Insurance Act, as amended, or any similar state or
federal law); (c) by Community at any time (i) for cause (as defined in the
agreement), or (ii) if in its sole judgment and discretion the continued
employment of Mr. Seibert would no longer be beneficial or desirable; or (d)
by Mr. Seibert (i) upon a change in control of Community, or (ii) at any time
upon thirty (30) days prior notice to Community.
MANAGEMENT OF COMMUNITY AND PSB INTERIM BANK AFTER THE MERGER
On the Effective Date of the Merger, the Board of Directors of Community
will consist of the persons who were then members of the Board of Directors of
Community plus four (4) of Peoples current Directors (designated by vote of
Peoples Board of Directors prior to the Effective Date, which designation
shall include to the Class to which such Director shall be appointed, only one
(1) of whom shall be an employee of Peoples immediately prior to the Effective
Date). On the Effective Date, in accordance with Community's current
classification of Directors and the designation of Peoples Board of Directors,
Community shall appoint one (1) such Peoples Director as a Class A Director to
continue in office until 2000, one (1) such Peoples Director as a Class B
Director to continue in office until 2001, one (1) such Peoples Director as a
Class C Director to continue in office until 1998 provided that if the
Effective Date occurs prior to Community's 1998 annual meeting of shareholders
the Director must stand for election at the 1998 annual meeting. If the
Effective Date occurs after Community's 1998 annual meeting of shareholders,
this Director shall continue in office until the year 2000, and one (1) such
Peoples Director as a Class D Director to continue in office until 1999.
If any former Peoples Director so appointed to the Community Board shall
cease to serve as a Community Director, the current Peoples Directors who are
then serving as Directors of PSB Interim Bank after the Effective Date shall
have the right to designate one other person then serving on the Board of PSB
Interim Bank to serve as a Community Director.
The Board of Directors of Community shall nominate for re-election each
former Peoples Director whose term as a Community Director expires on or
before the date of the 2001 annual meeting of Community shareholders.
The Executive Committee of Community shall consist of the seven (7) persons
who are members of the Executive Committee as of the Effective Date of the
Merger plus three (3) additional members who are members of Community's Board
of Directors and former non-employee Directors of Peoples.
From and after the Effective Date of the Merger, the officers of Community
shall be those persons who are officers and directors of Community provided
that Eddie L. Dunklebarger shall become the Chief Executive Officer of
Community and Ernest L. Lowe, President of Community, shall become the
Chairman of the Board of Community.
On the Effective Date, Community shall appoint all of the members of the
Board of Directors of Peoples to the Board of Directors of the Interim Bank,
and the acting Directors of the Interim Bank shall resign so that the Board of
Directors of PSB Interim Bank shall be and consist of those persons who were
then members of the Board of Directors of Peoples. From and after the
Effective Date the officers of PSB Interim Bank shall be and consist of those
persons who are then officers of Peoples.
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PRESERVATION OF PEOPLES AS SEPARATE SUBSIDIARY
After the Effective Date, it is Community's intention to preserve the
business structure of PSB Interim Bank as a separate subsidiary or preserve
the name of Peoples (if, following the Effective Date of the Merger, PSB
Interim Bank is merged into Community Banks, N.A.) and to continue in office
the present Directors of Peoples who indicate their desire to serve on the
Board of PSB Interim Bank. Each non-employee Director of Peoples shall
continue to receive fees from PSB Interim Bank on the same basis as he has
prior to the Merger and as such Director was receiving from Peoples prior to
the Effective Date. Each Peoples Director who has reached the age of 72 as of
the Effective Date or who reaches such age within three (3) years thereafter
shall be permitted to serve for a period of three (3) years after the
Effective Date before becoming subject to Community's mandatory retirement
rules for Directors.
It has been further agreed that in the event the PSB Interim Bank and
Community Banks, N.A., or any other banking subsidiary of Community, merge in
the future, representatives of the Peoples Directors (or their successors)
shall be included on the Board of the surviving Bank or, in the alternative,
shall have significant input and authority on lending decisions relating to
the current markets of Peoples.
Notwithstanding the above, Peoples continuing Directors, in their exercise
of their fiduciary duty as to the best interest of Peoples and Community, may
by majority vote of such Directors modify or waive any of the provisions
discussed above.
ACCOUNTING TREATMENT
Community intends to treat the Merger as a "pooling of interests" for
accounting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material federal income tax
consequences of the Merger. Each shareholder's individual circumstances may
affect the tax consequences of the Merger to that shareholder. In addition, no
information is provided herein with respect to the tax consequences of the
Merger under applicable foreign, state or local laws. Consequently, each
shareholder is advised to consult with his or her own tax advisor as to the
specific tax consequences of the Merger.
It is intended that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that, accordingly, for income tax purposes: (i) the Merger of Peoples with
and into PSB Interim Bank upon the terms and conditions of the Merger
Agreement will not result in any recognized gain or loss to Community, PSB
Interim Bank or Peoples; (ii) except for any cash received in lieu of any
fractional share, no gain or loss will be recognized by holders of Peoples
Common Stock who receive Community Common Stock in exchange for the shares of
Peoples Common Stock which they hold; (iii) the holding period of Community
Common Stock received in exchange for Peoples Common Stock will include the
holding period of Peoples Common Stock for which it is exchanged, assuming the
shares of Peoples Common Stock are capital assets in the hands of the holder
thereof on the Effective Date; and (iv) the basis of Community Common Stock
received in exchange for Peoples Common Stock will be the basis of Peoples
Common Stock for which it is exchanged, less any basis attributable to
fractional shares for which cash is received.
The obligations of the parties to consummate the Merger is conditioned upon
the receipt of an opinion from Mette, Evans & Woodside, counsel to Community,
substantially to the effect that the federal income tax consequences of the
Merger are as summarized above.
Assuming that the Merger satisfies all of the requirements of a
reorganization within the meaning of Section 368(a) of the Code, the Merger
will have the following tax consequences to a Peoples' shareholder, except for
any cash received in lieu of any fractional share, no gain or loss will be
recognized by a Peoples' shareholder who exchanges his or her shares for
Community Common Stock. The tax basis of the Community Common Shares received
by a shareholder will be equal to the tax basis of the Peoples Common Shares
exchanged therefor
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(less any basis attributable to fractional shares for which cash is received),
and, if the Peoples Common Shares surrendered were a capital asset in the
hands of the Peoples' shareholder, the holding periods of the Community Common
Shares received by the shareholder will include the holding periods for the
Peoples Common Shares.
EACH SHAREHOLDER IS ENCOURAGED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR AS
TO PARTICULAR FACTS AND CIRCUMSTANCES WHICH MAY BE UNIQUE TO SUCH SHAREHOLDER
AND NOT COMMON TO SHAREHOLDERS AS A WHOLE AND ALSO AS TO ANY ESTATE, GIFT,
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE MERGER AND/OR ANY
SALE THEREAFTER OF SHARES OF COMMUNITY COMMON STOCK RECEIVED IN THE MERGER.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to the BCL, to which the PBC refers, each holder of record of
Peoples Common Stock is entitled to dissent from the Merger and receive "fair
value" for his or her Peoples Common Stock. Peoples Shareholders must comply
with the terms of Subchapter D of Chapter 15 of the BCL ("Subchapter 15D"). A
copy of Subchapter 15D is attached to this Joint Proxy Statement/Prospectus as
Appendix "D".
The following description of the applicable statutory procedures to be
followed by a holder of Peoples Common Stock in order to dissent from the
Merger is not intended to be complete and is qualified in its entirety by
reference to Subchapter 15D, the text of which is set forth in Appendix D
hereto. Any shareholder considering dissenters' rights is advised to review
Appendix D and consult legal counsel because the failure to precisely follow
all the necessary legal requirements may result in the loss of such rights.
Holders of record of Peoples Common Stock who desire to exercise their
appraisal rights must fully satisfy all of the following conditions. Each
holder must not vote to approve the Merger and the Merger Agreement and must
give notice in writing prior to the Peoples Special Meeting that such holder
dissents from the Merger and the Merger Agreement to The Peoples State Bank,
100 East King Street, East Berlin, Pennsylvania 17316, Attention: Sally J.
Lease, Secretary. Additionally, Peoples Shareholders intending to dissent from
the Merger and Merger Agreement must not buy, sell or otherwise transfer
beneficial ownership of any shares of Peoples Common Stock after giving such
notice.
HOLDERS OF PEOPLES COMMON STOCK SHOULD CAREFULLY CONSIDER APPENDIX D AND
SHOULD CONSULT WITH THEIR LEGAL COUNSEL REGARDING THEIR RIGHT TO DISSENT FROM
THE MERGER AND TO RECEIVE FAIR VALUE OF THEIR SHARES OF PEOPLES COMMON STOCK.
FAILURE TO FOLLOW PRECISELY ANY STEP REQUIRED BY SUBCHAPTER 15D IN CONNECTION
WITH THE EXERCISE OF DISSENTERS' RIGHTS MAY RESULT IN TERMINATION OF SUCH
RIGHTS.
REGULATORY MATTERS
GENERAL
Community is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHCA"). As a bank holding company,
Community is subject to the regulation and supervision of the Federal Reserve
Board. Under the BHCA, bank holding companies may not directly or indirectly
acquire ownership or control of more than 5% of the voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board. Additionally, bank holding
companies are generally prohibited by the BHCA from engaging in nonbanking
activities, subject to certain exceptions.
Peoples is a Pennsylvania state chartered banking institution subject to the
regulation and supervision of the PDOB. Peoples is also an "insured depository
institution" as defined in the Federal Deposit Insurance Act, as amended (the
"FDIA"). Peoples is also subject to various requirements and restrictions
under Pennsylvania law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted
and the interest that may be charged thereon and limitations on the types of
investments that
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may be made and the types of services that may be offered. Various consumer
laws and regulations also affect the operations of Peoples. In addition to the
impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money
supply and credit availability in order to influence the economy.
RESTRICTIONS ON RESALES BY AFFILIATES
The shares of Community common stock to be issued to Peoples shareholders in
the Merger have been registered under the Securities Act. Such shares may be
traded freely and without restriction by those shareholders not deemed to be
"affiliates" of Peoples as that term is defined by the Securities Act. Any
subsequent transfer of such shares, however, by any person who is an affiliate
of Peoples at the time of the Merger is submitted for vote of the Peoples
shareholders will, under existing laws, require either (a) the further
registration under the Securities Act of the shares of Community Common Stock
to be transferred (b) compliance with Rule 145 of the Securities Exchange
Commission promulgated under the Securities Act (permitting limited sales
under certain circumstances), or (c) the availability of another exemption
from registration. An "affiliate" of Peoples, as defined by the rules
promulgated pursuant to the Securities Act, is a person who, directly or
indirectly, through one or more intermediaries controls or is controlled by or
is under common control with Peoples.
The foregoing restrictions are expected to apply to the Directors, executive
officers, and the holders of ten percent (10%) or more of Peoples Common Stock
(and of certain relatives or the spouse of any such person in any trusts,
estates, corporations, or other entities in which any such person has a ten
percent (10%) or greater equity interest). Stock transfer instructions will be
given by Community to the transfer agent, Norwest Bank, Minnesota, N.A., with
respect to the shares of Community Common Stock to be received by persons
subject to the restrictions described above, and the certificates for such
Community Common Stock will be appropriately legended. Peoples has agreed to
obtain from each of those individuals identified by Peoples as affiliates
appropriate agreements that such individual will not make any further sale of
Community Common Stock received upon consummation of the Merger, except in
compliance with the restrictions described above.
PAYMENT OF DIVIDENDS
Community is a Pennsylvania business corporation, and as such, is subject to
the provisions of the BCL. The BCL provides that a corporation is generally
permitted to pay dividends unless, after giving effect thereto, the
corporation would be unable to pay its debts as they become due in the usual
course of business or the total assets of the corporation would be less than
the sum of its total liabilities plus the amount that would be needed upon
dissolution to satisfy the preferential rights of shareholders whose
preferential rights on dissolution are superior to those receiving the
dividends.
It is important to note that Community is also a legal entity separate and
distinct from its banking and other subsidiaries. The principal source of cash
flow of Community, including cash flow to pay dividends on Community Common
Stock, is dividends from CBNA and Community's other subsidiaries. As discussed
below, there are statutory and regulatory limitations on the payment of
dividends by CBNA.
Capital Limitations
Generally, federal law prohibits national banks from withdrawing, or
permitting to be withdrawn, either in the form of dividends or otherwise, any
portion of its capital. Federal law also provides that if losses are sustained
at any time by a national bank equal to or exceeding its undivided profits
then on hand (as defined and interpreted by regulation), no dividend may be
made. Additionally, no dividend may be made by a national bank while it
continues its banking operations, in an amount greater than its net profits
then on hand (as defined and interpreted by regulation), less its losses and
bad debts (as defined and interpreted by regulation). These capital
limitations do not apply to a national bank's preferred stock dividends (if
any); however, if the undivided profits of a national bank are not sufficient
to cover a proposed dividend on its preferred stock, the proposed dividend
will constitute a reduction in capital under federal regulations.
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Earnings Limitations
Federal law also provides that a national bank may declare a dividend equal
to a certain amount of its net profits (as defined and interpreted by
regulation) as it judges expedient, except that until its respective surplus
fund equals its common capital, no dividends may be declared unless not less
than one-tenth part of its net profits of the preceding half year (in the case
of quarterly or semiannual dividends) or not less than one-tenth part of its
net profits of the preceding two consecutive half years (in the case of annual
dividends) has been carried to the surplus fund.
Under federal laws, national banks are also required to receive the approval
of the OCC before declaring a dividend if the amount of all dividends (common
and preferred), including the proposed dividend, declared by it in any
calendar year exceeds the total of its net profits of that year to date,
combined with its retained net profits of the preceding two years, less any
required transfers to surplus or a fund for the retirement of any preferred
stock. National banks are also required to receive the prior approval of the
OCC for the payment of dividends if the total of all dividends declared by its
board of directors in any year will exceed the total of its net profits (as
defined and interpreted by regulation) of that year, combined with its
retained net profits (as defined and interpreted by regulation) of the
preceding two years, less any required transfers to surplus or a fund for the
retirement of any preferred stock. These earning limitations also apply to
dividends on national bank preferred stock (if any).
Other Limitations
The FDIC has indicated that paying dividends that deplete a bank's capital
base to an inadequate level would be an unsafe and unsound banking practice.
Under the Federal Deposit Insurance Corporation Improvements Act of 1991
("FDICIA"), an insured bank may not pay any dividend if payment would cause it
to become undercapitalized. In addition, no dividend payments are permitted
once an insured bank is undercapitalized. See "REGULATORY MATTERS--FEDERAL
DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991." Moreover, the Federal
Reserve Board, the OCC and the FDIC have issued policy statements which
provided that bank holding companies and FDIC insured banks should generally
only pay dividends out of current operating earnings.
HOLDING COMPANY STRUCTURE
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to its subsidiary banks and to make
capital injections into a troubled subsidiary bank, and the Federal Reserve
Board may charge the bank holding company with engaging in unsafe and unsound
practices for failure to commit resources to a subsidiary bank when required.
A required capital injection may be called for at a time when the holding
company does not have the resources to provide it. Any capital loans by a
holding company to its subsidiary bank would be subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary bank.
In addition, under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), depository institutions insured by the
FDIC can be held liable for any losses incurred by, or reasonably anticipated
to be incurred by, the FDIC after August 9, 1989 in connection with: (a) the
default of a commonly controlled FDIC-insured depository institution; or (b)
any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default. "Default" is defined generally as
the appointment or a conservator or a receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured depository institution of Community
causes a loss to the FDIC, other insured subsidiaries of Community could be
required to compensate the FDIC by reimbursing it for the estimated amount of
such loss.
For a description of certain other requirements relating to capital
distributions between depository institutions and bank holding companies and
the potential obligation of a bank holding company to guarantee
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the capital restoration plans of any of its undercapitalized depository
institution subsidiaries, see "REGULATORY MATTERS--Federal Deposit Insurance
Corporation Improvement Act of 1991."
CAPITAL ADEQUACY
Bank holding companies are required to comply with risk-based capital
guidelines established by the Federal Reserve Board. The guidelines, which
were fully phased in at the end of 1992, establish a framework that is
intended to make regulatory capital requirements more sensitive to differences
in risk profiles among banking organizations and take off-balance sheet
exposures into explicit account in assessing capital adequacy. The risk-based
ratios are determined by allocating assets and specified off-balance sheet
commitments into four risk-weight categories, with higher levels of capital
being required for categories perceived as representing greater risk.
Generally, under applicable guidelines, a banking organization's capital is
divided into two tiers. "Tier 1", or core capital, includes common equity,
perpetual preferred stock (excluding auction rate issues) and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and
other intangibles, subject to certain exceptions. "Tier 2", or supplementary
capital, includes, among other things, perpetual preferred stock (subject to
certain exceptions), hybrid capital instruments, qualifying subordinated debt,
and the allowance for loan and lease losses, subject to certain limitations
and less required deductions. "Total capital" is the sum of Tier 1 and Tier 2
capital. The Tier 1 component must comprise at least 50% of the qualifying
total capital.
Banking organizations that are subject to the guidelines are required to
maintain a ratio of Tier 1 capital to risk-weighted assets of at least 4% and
a ratio of total capital to risk-weighted assets of at least 8%. The
appropriate regulatory authority may set higher capital requirements when an
organization's particular circumstances warrant.
The Federal Reserve Board, the FDIC and the OCC have also adopted leverage
capital guidelines to which Community, CBNA and Peoples are subject. The
guidelines provide for a minimum leverage ratio (Tier 1 capital to adjusted
total assets) of 3% for financial institutions that have the highest
regulatory examination ratings and are not experiencing or anticipating
significant growth. Financial institutions not meeting these criteria are
required to maintain leverage ratios of at least one to two percentage points
higher.
On August 9, 1995, the federal banking agencies issued a Final Rule and
Policy Statement ("Final Rule") revising the risk-based capital rules to take
account of interest rate risk. The Final Rule offers alternative approaches
for determining the additional amount of capital, if any, that a bank may be
required to have for interest rate risk. The first approach is to reduce a
bank's risk-based capital ratios by an amount based on its measured exposure
to interest rate risk in excess of a specified threshold. The second approach
is to assess the need for additional capital on a case-by-case basis,
considering both the level of measured exposure and qualitative risk factors.
Peoples and Community cannot assess, at this point, the impact that these
proposals will have on their respective capital requirements.
On December 23, 1994, the federal banking agencies issued a Final Rule on
their respective risk-based capital requirements that explicitly identifies
concentration of credit risk with certain risks arising from nontraditional
activities, and the management of such risks, as important factors to consider
in assessing an individual's overall capital adequacy. The Final Rule does
not, however, mandate any specific adjustments to the risk-based capital
calculations as a result of such factors.
On December 23, 1994, the Federal Reserve Board amended its risk-based
capital standards to increase the amount of capital required under such
standards for long-dated interest rate and exchange rate contracts and for
derivative contracts based on equity securities and indexes, precious metals
(other than gold) and other commodities. The amendment permits banking
institutions to recognize the effect of bilateral netting arrangements in
calculating their exposure to derivative contracts for risk-based capital
purposes. Community does not expect this amendment to have a material effect
on its financial condition or results of operations.
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Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority
of a capital directive to increase capital, and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "REGULATORY MATTERS--Federal Deposit Insurance
Corporation Improvement Act of 1991" below, as applicable to undercapitalized
institutions.
The following table sets forth, as of September 30, 1997, the capital ratios
of Peoples and Community:
<TABLE>
<CAPTION>
PEOPLES COMMUNITY REQUIRED
------- --------- --------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio................... 12.6% 16.92% 4%
Total risk-based capital ratio.................... 13.96% 17.94% 8%
Leverage Ratio.................................... 8.3% 10.56% 3-5%
</TABLE>
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December, 1991, Congress enacted FDICIA which substantially revised the
bank regulatory and funding provisions of the FDIA and made significant
revisions to several other federal banking statutes. FDICIA provides for,
among other things: (a) a recapitalization of the Bank Insurance Fund of the
FDIC (the "BIF") by increasing the FDIC's borrowing authority and providing
for adjustments in its assessment rates; (b) annual on-site examinations of
federally-insured depository institutions by banking regulators; (c) publicly
available annual financial and management reports for financial institutions,
including audits by independent accountants; (d) the establishment of uniform
accounting standards by federal banking agencies; (e) the establishment of a
"prompt corrective action" system of regulatory supervision and intervention,
based on capitalization levels, with more scrutiny and restrictions placed on
depository institutions with lower levels of capital; (f) additional grounds
for the appointment of a conservator or receiver; (g) a requirement that the
FDIC use the least-cost method of resolving cases of troubled institutions in
order to keep the costs to insurance funds at a minimum; (h) more
comprehensive regulation and examination of foreign banks; (i) consumer
protection provisions including a Truth-in-Savings Act; (j) a requirement that
the FDIC establish a risk-based deposit insurance assessment system; (k)
restrictions or prohibitions on accepting brokered deposits, except for
institutions which significantly exceed minimum capital requirements; and (l)
certain additional limits on deposit insurance coverage.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository
institutions that do not meet minimum capital requirements. Pursuant to
FDICIA, the federal bank regulatory authorities have adopted regulations
setting forth a five-tiered system for measuring the capital adequacy of the
depository institutions that they supervise. Under these regulations, a
depository institution is classified in one of the following capital
categories: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." A
depository institution is "well capitalized" if it has: (i) total risk-based
capital ratio or 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6%
or greater; (iii) a leverage ratio of 5% or greater; and (iv) is not subject
to any order, regulatory agreement or written directive to meet and maintain a
specific capital level for any capital measure. An "adequately capitalized"
institution is defined as one that has: (a) a total risk-based capital ratio
of 8% or greater; (b) a Tier 1 capital ratio of 4% or greater; and (c) a
leverage ratio of 4% or greater (or 3% or greater in the case of a bank with a
composite CAMEL rating of 1). A depository institution is considered: (i)
"under-capitalized" if it has (a) a total risk-based capital ratio of less
than 8%; (b) a Tier 1 risk-based capital ratio of less than 4%; or (c) a
leverage ratio of less than 4% (or 3% in the case of an institution with a
CAMEL rating of 1); (ii) "significantly undercapitalized" if it has: (a) a
total risk-based capital ratio of less than 6%; (b) a Tier 1 risk-based
capital ratio of less than 3%; or (c) a leverage ratio of less than 3%; and
(iii) "critically undercapitalized" if it has a ratio of tangible equity to
total assets equal to or less than 2%. An institution may be deemed by
regulators to be in a capitalization category that is lower than is indicated
by its actual capital position if, among other things, it receives an
unsatisfactory examination rating with respect to asset quality, management,
earnings or liquidity.
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FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit capital restoration plans. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company in respect of any capital restoration plan is limited
to the lesser of: (a) an amount equal to 5% of the depository institution's
total assets at the time it became under capitalized; and (b) the amount which
is necessary (or would have been necessary) to bring the institution into
compliance with all capital standards applicable with respect to such
institution as of the time it fails to comply with the plan. If a depository
institution fails to submit an acceptable plan, it is treated as if it is
significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of other requirements and restrictions, including orders to sell
sufficient voting stock in order to become adequately capitalized,
requirements to reduce total assets and order to stop accepting deposits from
or correspondent banks. Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator, generally within 90 days of
the date such institution is determined to be critically undercapitalized.
FDICIA also provides for increased funding of the FDIC insurance funds. The
FDIC has adopted final rules implementing, for assessment periods commencing
January 1, 1994, risk-based insurance premiums. Under the assessment system,
each depository institution is assigned to one of nine risk classifications
based upon certain capital and supervisory measures and, depending upon its
classification, will be assessed premiums ranging from .23% to .31% of
domestic deposits. In adopting the risk-based assessment system, the FDIC
indicated that, if future conditions so warrant, it may reconsider certain
aspects of the rate schedules and of the risk classification categories. In
addition, the FDIC has authority to impose special assessments from time to
time.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply
with capital or other standards. Such action may include the termination of
deposit insurance or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
COMPARISON OF SHAREHOLDERS' RIGHTS
INTRODUCTION
Upon consummation of the Merger, holders of Peoples Common Stock, whose
rights presently are governed by the PBC and Peoples' articles of association
(the "Peoples Articles") and bylaws (the "Peoples Bylaws"), will become
shareholders of Community Common Stock. Accordingly, their rights will be
governed by the Bank Holding Company Act of 1956, as amended (the "BHCA"), the
BCL and Community's articles of incorporation (the "Community Articles") and
bylaws (the "Community Bylaws"). Certain differences arise from differences
between the Peoples and Community Articles and Bylaws, as well as from
differences in treatment under the PBC, the BHCA and the BCL. The following
discussion is not intended to be a complete statement of all differences
affecting the rights of shareholders, but summarizes material differences and
is qualified in its entirety by reference to applicable national laws,
Pennsylvania corporate and banking laws and the articles of incorporation and
bylaws of Peoples and Community.
DIVIDENDS
Peoples
The ability of Peoples to pay dividends is governed by the PBC and the
regulations of the PDOB thereunder. See "REGULATORY MATTERS--Payment of
Dividends" for a general discussion.
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Community
The ability of Community to pay dividends is governed by the BCL and certain
other statutory and regulatory limitations applicable to bank holding
companies. See "REGULATORY MATTERS--Payment of Dividends" for a general
discussion.
VOTING RIGHTS GENERALLY
Peoples
With respect to all matters on which shareholders are entitled to vote,
shareholders of Peoples Common Stock are entitled to one vote per share.
Pursuant to the PBC and the Peoples Articles and Bylaws, shareholders of
Peoples have cumulative voting rights in the election of directors.
Accordingly, in such elections, each shareholder of Peoples is entitled to as
many votes as shall equal the number of shares owned, multiplied by the number
of directors to be elected, and may cast all such votes for a single nominee
or may distribute them among two or more nominees.
Except in cases where by law a larger vote is required (i.e., the Merger),
any action to be taken by vote of the Peoples shareholders shall be authorized
upon receipt of the affirmative vote of a majority of the shares of Peoples
Common Stock represented and entitled to vote at a shareholders' meeting.
Community
With respect to all matters on which shareholders are entitled to vote,
holders of shares of Community Common Stock are entitled to one vote per
share. According to the BCL, shareholders do not have a right to cumulate
their votes for directors unless the articles of incorporation so provide. The
Community Articles provide that no cumulative voting shall exist. As required
by Section 1722 of the BCL, members of the Community Board of Directors do not
have to consist of Community shareholders. The election of the Board may be
accomplished by the affirmative vote of a majority of the shares of Community
Common Stock represented and entitled to vote at a shareholders' meeting. The
amendment of the Community Articles or the authorization of any corporate
action (defined by the Community Articles to include the amendment of certain
articles of the Community Articles, the removal of one or more directors, or
any Business Combination (as that term is defined in the Community Articles))
may only be accomplished by the affirmative vote of at least 75% of the votes
which all shareholders are entitled to cast thereon; provided, however, that
if 66 2/3% of the entire Board of Directors of Community recommends approval
of an amendment or the corporate action, the corporate action will be
authorized if there are cast in its favor at least 66 2/3% of the votes which
all shareholders are entitled to cast thereon.
CLASSIFIED BOARD OF DIRECTORS
Peoples
The Peoples Bylaws provide that the Board of Directors of Peoples be divided
into four classes of directors as nearly equal in number as possible. At each
annual meeting of shareholders, one class of directors is elected for a four-
year term. Classification of directors has the effect of making it more
difficult for shareholders to change the composition of the board of
directors. At least three annual meetings of shareholders, instead of one,
will generally be required to effect a change in the majority of the Board of
Directors of Peoples.
Community
The BCL permits a corporation's board of directors to be divided into
various classes serving staggered terms of office. The Community Bylaws
provide that the Board of Directors of Community be divided into four classes
of directors as nearly equal in number as possible. At each annual meeting of
shareholders, one class of directors is elected for a four-year term.
Classification of directors has the effect of making it more difficult for
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shareholders to change the composition of the board of directors. At least
three annual meetings of shareholders, instead of one, will generally be
required to effect a change in the majority of the Board of Directors of
Community. Such classification provisions could also have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to obtain control of Community.
NUMBER OF DIRECTORS; TERM
Peoples
In accordance with the PBC, the Peoples Bylaws establish the number of
directors to be no less than five and no more than twenty-five. The exact
number of members of the Board of Directors of Peoples is determined by the
affirmative vote of a majority of the shareholders entitled to vote.
Currently, there are 12 persons serving on Peoples' Board of Directors. The
term of office for each director is four years with the term of office of at
least one class expiring each year.
Community
The Community Bylaws establish the number of directors to be no less than
five and no more than twenty- five. The exact number of members of the Board
of Directors of Community is determined by the Board of Directors of
Community. The term of office for each director is four years with the term of
office of at least one class expiring each year.
REMOVAL OF DIRECTORS
Peoples
The PBC provides that the entire board of directors, or an individual
director, may be removed, without cause, by the vote of shareholders entitled
to cast at least a majority of the votes which all shareholders would be
entitled to cast at an annual election of directors. If, in the case of an
individual director, votes of a sufficient number of shares, which if
cumulatively voted at an annual election would be enough to elect one or more
directors, are cast against the resolution for removal, that director shall
not be removed.
Community
The BCL provides that shareholders may remove one or more directors, with or
without cause, unless the articles of incorporation provide that directors may
be removed only for cause. The Community Articles provide that one or more
directors may be removed (with no express requirement that such removal be for
cause only) by the shareholders of Community if at least 75% of the votes
which all shareholders are entitled to cast thereon are cast in favor of the
removal, or, alternatively, if 66 2/3% of the entire Board of Directors of
Community recommend such removal, if at least 66 2/3% of the votes which all
shareholders are entitled to cast thereon are cast in favor of the removal.
QUALIFICATIONS OF DIRECTORS
Peoples
The PBC requires that every director of a state bank be a citizen of the
United States; provided however, that this requirement may be waived for not
more than twenty (20%) percent of the directors with the prior written
approval of the PDOB, and at least two-thirds of the directors must have
resided in Pennsylvania, or at least within 100 miles of the location the
bank's office, for at least one year immediately preceding their election, and
must reside in Pennsylvania or within a 100 mile territory of the location of
the bank during their continuation in office. The Peoples Articles and Bylaws
do not require any additional qualifications for Peoples' directors.
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Community
The BCL provides that a director of a business corporation must be a natural
person of full age. However, the BCL does not require that a director be a
resident of Pennsylvania or a shareholder of the corporation, unless otherwise
provided in a corporation's articles or bylaws. The Community Bylaws require
that its directors be shareholders of the corporation. Additionally, the
Community Bylaws limit the age of the corporation's directors to 75.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Both the Peoples Bylaws and the Community Bylaws provide that vacancies
occurring on the board of directors, including vacancies resulting from an
increase in the number of directors, may be filled by the affirmative vote of
a majority of the remaining directors even if the number of remaining
directors constitutes less than a quorum. Any director so chosen shall have a
term of office continuing only until the next election of directors.
CALL OF SPECIAL SHAREHOLDERS' MEETINGS
Peoples
Special meetings of the shareholders of Peoples may be called by: (a) the
President, (b) the Board of Directors; or (c) the request of shareholders
owning, in the aggregate, not less than one-fifth ( 1/5) of the shares of
Peoples entitled to vote at the particular meeting.
Community
Special meetings of the shareholders of Community may be called by: (a) the
President; (b) the Chairperson of the Board of Directors; (c) a majority of
the Board of Directors; or (d) shareholders entitled to cast at least one-
third of the votes which all shareholders are entitled to cast at any
particular meeting. Such meeting shall be called by the Secretary no later
than ten days and no more than sixty days following the request for such
meeting.
NOTICE OF SHAREHOLDERS' MEETINGS
Peoples
Notice of a Peoples shareholders' meeting must be delivered at least twenty-
five (25) days in advance of any meeting for the election of Directors, and at
least five (5) days before the date of any other meeting, unless a longer
period is required by the PBC. Such notice must contain the time, place and
purpose of the meeting.
Community
Notice of a Community shareholders' meeting must be delivered at least five
days in advance of the scheduled meeting. Such notice must contain the time,
place, day and purpose of the meeting.
QUORUM REQUIREMENTS AND ADJOURNMENT OF MEETINGS
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares entitled to vote at a meeting constitutes a quorum for both
a Peoples shareholders' meeting and a Community shareholders' meeting.
Shareholders present at a duly convened Peoples or Community meeting may
continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum. In the case of
a Peoples or Community meeting called for the election of directors, such
meeting may be adjourned for any period not exceeding fifteen days; those
Peoples or Community shareholders who attend the meeting which had previously
been adjourned shall, even if they are less than a quorum, constitute a quorum
for the purpose of electing directors, but for no other purpose.
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If a quorum is not present at a Peoples or a Community shareholders meeting,
no business may be transacted except to adjourn to a future time.
DISSENTERS RIGHTS
Peoples
Under the PBC, shareholders are generally entitled to the same dissenters'
rights as provided under the BCL. The BCL provides that shareholders are
generally entitled to dissent from, and demand payment of the fair value of
their shares in connection with, a plan of merger, consolidation, share
exchange, asset transfer or division.
Community
Under the BCL, shareholders are generally entitled to dissent from, and
demand payment of the fair value of their shares in connection with, a plan of
merger, consolidation, share exchange, asset transfer or division.
Additionally, Subchapter 25E of the BCL, which applies to Community, provides
shareholders of a registered corporation remedies similar to dissenters rights
where a person or group acquires 20% or more of the voting shares of the
registered corporation.
LIMITATIONS ON DIRECTORS' LIABILITY
Both the Peoples Bylaws and the Community Bylaws provide that directors
shall not be personally liable to the corporation or its shareholders for
monetary damages for any action taken, or any failure to take any action,
unless the director has breached or failed to perform the duties of his or her
office under applicable Pennsylvania law and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. These
provisions, however, do not apply to the responsibility or liability of a
director for the payment of taxes pursuant to local, state or federal law.
INDEMNIFICATION
Peoples
Peoples provides in its bylaws for the indemnification of directors,
officers and employees for expenses reasonably incurred in actions to which
the directors, officers or employees are parties or potential parties by
reason of the performance of their official duties.
Community
Sections 1741 and 1742 of the BCL generally provide that a corporation may
indemnify directors and officers against liabilities they may incur as such,
provided that the particular person acted in good faith and in a manner he or
she reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. In the case of actions
against a director or officer by or in the right of the corporation, the power
to indemnify extends only to expenses (not judgments and amounts paid in
settlement) and such power generally does not exist if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
corporation unless it is judicially determined that, despite the adjudication
of liability but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnification for specified expenses.
Section 1743 of the BCL also requires a corporation to indemnify
representatives of the corporation 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.
Section 1746 of the BCL also grants a corporation broad authority to
indemnify its directors, officers and other agents for liabilities and
expenses incurred in such capacity, except in circumstances where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful
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misconduct or recklessness. Pursuant to the authority of Section 1746 of the
BCL, the Community Bylaws provide for indemnification of directors, officers
and other agents of the corporation to the extent otherwise permitted by
Section 1741 of the BCL and also in certain circumstances not otherwise
permitted by Sections 1741 and 1742 of the BCL.
Peoples and Community
Specifically, both the Peoples and Community Bylaws provide indemnification
for any director, officer or employee, or any former director, officer or
employee, who was or is a party to, or is threatened to be made a party to, or
who is called as a witness in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of Peoples or
Community) by reason of the fact that such person is or was a director,
officer or employee of Peoples or Community, or is or was serving at the
request of Community as a director, officer, employee or agent of another
bank, partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of Peoples
or Community, as the case may be, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not of itself create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be
in, or not opposed to, the best interests of Peoples or Community, and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
In addition, both the Peoples and Community Bylaws provide indemnification
for any officer, director or employee, present or former, who was or is a
party to, or is threatened to be made a party to, or who is called as a
witness in connection with any threatened, pending or completed action, suit
or proceeding, by or in the right of Peoples or Community, as the case may be,
to procure a judgment in its favor by reason of the fact that such person is
or was a director, officer or employee of Peoples or Community, or is or was
serving at the request of Peoples or Community as a director, officer,
employee or agent of another bank, partnership, joint venture, trust or other
enterprise, against amounts paid in settlement and expenses (including
attorney's fees), actually and reasonably incurred by him or her in connection
with the defense or settlement of, or serving as a witness in, such action or
suit if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of Peoples or
Community, and except that no indemnification shall be made in respect of any
such claim, issue or matter as to which such person shall have been adjudged
to be liable for misconduct in the performance of his or her duty to Peoples
or Community, as the case may be.
Except as may be otherwise ordered by a court, there shall be a presumption
that any director, officer or employee of Peoples or Community is entitled to
indemnification as provided by their respective Bylaws, unless either a
majority of the members of the Board who are not involved in such proceedings
("disinterested directors") or, if there are less than three disinterested
directors, then the holders of one-third of the outstanding shares of Peoples
or Community determine that the person is not entitled to such presumption by
certifying such determination in writing to the Secretary of Peoples or
Community, as appropriate. In such event the disinterested director(s) or, in
the event of certification by shareholders, the Secretary of Peoples or
Community, shall request of independent counsel, who may be the outside
general counsel of Peoples or Community, as appropriate, a written opinion as
to whether or not the parties involved are entitled to indemnification under
the Peoples or Community Bylaws.
Also, expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by Peoples or Community, as the case may be, in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director, officer or employee to repay such
amount if it shall ultimately be determined that he or she is not entitled to
be indemnified by Community.
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The indemnification provided by Peoples or Community shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under any agreement, vote of shareholders, or disinterested
directors, or otherwise, both as to action in his or her official capacity
which serving as a director, officer, or employee, or as to any action in
another capacity while holding such office. The respective Boards of Directors
may, by resolution, provide for additional indemnification or advancement of
expenses to or for any director, officer, or employee provided said
indemnification is not inconsistent with the provisions of the applicable
Bylaws, Articles, applicable provisions of the PBC or BCL or other applicable
provisions of law. Indemnification shall continue as to a person who has
ceased to be a director, officer or employee and shall inure to the benefit of
the heirs and personal representatives of such person.
The Peoples and Community Bylaws also provide that no director shall be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, in the director's capacity as a director of
Peoples or Community or pursuant to the request of Peoples or Community
unless: (a) the director has breached or failed to perform the duties of his
or her office as set forth in the BCL; or (b) the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness.
ANTI-TAKEOVER LAW PROVISIONS
Peoples
The PBC provides that a merger or consolidation by a state bank, such as
Peoples, must be approved by a majority of the Directors of Peoples and by the
vote of the holders of at least two-thirds of its capital stock.
Community
Article 10 of the Community Articles provides that the Community Board of
Directors, in its sole discretion, may oppose any offer, proposed or attempted
by any corporation or other business entity, person or group to: (a) make any
tender or other offer to acquire any of Community's securities; (b) merge or
consolidate Community with or into another entity; (c) purchase or otherwise
acquire all or substantially all of Community's assets; or (d) make any
transaction similar in purpose or effect to any of the above. In considering
whether to oppose, recommend or remain neutral with respect to any such
offers, proposals or plans, the Community Board of Directors must evaluate
what is in the best interests of Community, and may, but is not legally
obligated to, consider any pertinent factors, including, but not limited to:
(i) whether the offering price is adequate and acceptable based upon both the
current market price of Community's securities and the historical and present
operating results or financial condition of the corporation; (ii) whether a
more fordable price to the shareholders may be obtained now or in the future;
(iii) the impact the offer would have on the employees, depositors, clients
and customers of Community and its subsidiaries and the communities which they
serve; (iv) the present and historical financial position of the offeror, its
reputation and related factors; (v) an analysis of the value of securities (if
any) offered in exchange for Community's securities; and (vi) any anti-trust
or other legal or regulatory issues raised by the offer.
The Change in Bank Control Act and the BHCA prohibit a person or group from
acquiring "control" of a bank holding company unless the Federal Reserve Board
has been given sixty days' prior written notice of the proposed acquisition
and within that time period the Federal Reserve Board has not issued a
disapproval or extended for up to another thirty days the period during which
such a disapproval may be issued.
The BCL contains certain "anti-takeover" provisions that are only applicable
to registered corporations. These provisions do not apply to Peoples. Because
Community is a registered corporation, however, certain of these provisions
are applicable to Community.
Subchapter 25E of the BCL is a "cash-out" anti-takeover statute which
generally provides that if any person or group acquires 20% or more of the
voting shares of a corporation, the remaining shareholders may demand from
such person or group the fair value of their shares, including a proportionate
amount of any control premium.
49
<PAGE>
Under Subchapter 25F of the BCL, Community is prohibited from engaging in
specified business combination transactions with an interested stockholder
(defined in general as any beneficial owner of at least 20% of Community's
outstanding voting shares) during the five-year period following the date such
person became an interested stockholder unless: (a) the business combination
or share acquisition is approved by the Board of Directors of Community prior
to the date such person becomes an interested stockholder; (b) the business
combination is approved by unanimous vote of the holders of all outstanding
common stock; or (c) the interested shareholder owns at least 80% of
Community's outstanding voting shares, the business combination is approved by
a majority of the holders of Community voting shares (not including shares
held by the interested shareholder), and the interested shareholder complies
with specified procedural and minimum fair price criteria. After the five-year
period, a business combination may be effected if: (i) the transaction is
approved by a majority of the outstanding Community voting shares (not
including shares held by the interested shareholder); or (ii) the transaction
is approved by a majority of the outstanding Community voting shares
(including shares held by the interested shareholder) and the interested
shareholder complies with specified procedural and minimum fair price
criteria. Community is also subject to another somewhat similar Pennsylvania
law provision, Section 2538 of the BCL, which requires certain fundamental
transactions with an interested shareholder to be approved by a majority of
the corporation's directors who are unaffiliated with such shareholder.
Pennsylvania's control share acquisition statute (Subchapter 25G of the BCL)
provides that: (i) the restoration of voting rights of control shares requires
the vote of both the majority of the disinterested shares and the majority of
all outstanding shares; and (ii) a Pennsylvania corporation may redeem the
control shares at the market price of the corporation's shares rather than the
"fair value".
Subchapter 25H of the BCL requires persons who acquire 20% of the voting
power of a corporation, or who announce that they may acquire control of the
corporation and then sell shares within 18 months thereafter, to disgorge to
the corporation profits made from such transactions.
AMENDMENT OF ARTICLES OF INCORPORATION
Peoples
As required by the PBC, amendment of the Peoples Articles requires the
affirmative vote of a majority of the votes which all shareholders are
entitled to cast thereon.
Community
Amendment of the Community Articles 5, 7-12 require shareholder approval by
the affirmative vote of 75% of the votes of all shareholders entitled to vote;
provided, however, that if 66 2/3% of the entire Board of Directors recommends
approval of the amendment of the Community Articles, such action shall be
authorized if shareholder approval by the affirmative vote of 66 2/3% of the
votes which all shareholders entitled to cast is obtained. Pursuant to Section
1714 of the BCL, most of the remainder of the articles of the Community
Articles may be amended upon receipt of the affirmative vote of a majority of
the votes cast by all Community shareholders. Certain minor amendments, such a
change in corporate name or providing for perpetual corporate existence, for
example, only require approval by the Board of Directors and do not require
shareholder approval.
AMENDMENT OF BYLAWS
Peoples
Amendments to the Peoples Bylaws may be made at any meeting of the Board of
Directors by an affirmative vote of the majority of the members of Board of
Directors of Peoples.
Community
Amendments to the Community Bylaws may be made by the affirmative vote of
75% of the outstanding shares of Community Common Stock at any regular or
special meeting duly convened after notice to the
50
<PAGE>
shareholders of that purpose, or by a majority vote of the members of the
Board of Directors at any regular or special meeting thereof duly convened
after notice to the directors of that purpose, subject to the power of the
shareholders to change such action of the Board by the affirmative vote of the
holders of 75% of the outstanding shares of Community Common Stock.
51
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
assume a business combination between Community and Peoples that qualifies as
a pooling of interests for financial reporting purposes. Under this method of
accounting, the recorded assets and liabilities of Community and Peoples are
carried forward to Community at their recorded amounts, income of Community
includes income of Community and Peoples for the entire fiscal year in which
the Merger occurs, and the reported income of Community and Peoples for prior
periods is combined and restated as income of Community. The pro forma
combined condensed financial statements are based upon the respective
historical consolidated financial statements of Community and Peoples and
should be read in conjunction with such historical financial statements and
the notes thereto, which are incorporated by reference in this Joint Proxy
Statement/Prospectus. The unaudited pro forma combined condensed balance sheet
data are presented as if the Merger occurred on the date thereof. The
unaudited pro forma combined condensed statements of earnings data are
presented as if the Merger occurred at the beginning of the earliest period
presented.
The unaudited pro forma financial information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
at the beginning of the earliest period presented with respect to the
unaudited pro forma combined condensed statements of income or with respect to
the pro forma combined condensed balance sheets, nor is it necessarily
indicative of the future operating results or financial position of Community.
The pro forma information does not give effect to any synergies that may occur
due to the integration of Community's and Peoples' operations. Additionally,
the unaudited pro forma financial information excludes the transaction costs
of the Merger, and the nonrecurring costs and expenses associated with
integrating the operations of the businesses.
Certain material, nonrecurring adjustments will be recorded in conjunction
with the Merger, but the amounts of these adjustments cannot be determined
until Community reviews all facilities, operations and systems of Peoples and
finalizes its plans with respect to integrating the businesses. The aggregate
amount of these adjustments will include costs associated with consolidating
operations and systems, severance pay for involuntary termination, early
retirement and related employee benefits; conforming accounting practices; and
expenses incurred in connection with the Merger. Community has not yet
quantified any of these adjustments. The impact of these adjustments, except
for conforming accounting principles, are expected to be recorded in 1997.
52
<PAGE>
COMMUNITY AND PEOPLES
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
----------------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income.......... $ 25,156 $ 13,505 $ 38,661
Total Interest expense......... 10,713 7,297 18,010
---------- ---------- ---------- ----------
Net interest income before
Provision for loan losses..... 14,443 6,208 20,651
Provision for credit losses.... 520 500 1,020
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 13,923 5,708 19,631
Total non-interest income...... 2,379 720 3,099
Total non-interest expense..... 9,644 4,017 13,661
---------- ---------- ---------- ----------
Income (loss) before income
taxes......................... 6,658 2,411 9,069
Provision for income taxes..... 1,902 769 2,671
---------- ---------- ---------- ----------
Net income (loss).............. $ 4,756 $ 1,642 $ 6,398
========== ========== ========== ==========
Earnings (loss) per share...... $ 1.54 $ 1.13 $ 1.45
========== ========== ========== ==========
Weighted average number of
shares outstanding............ 3,078,629 1,454,000 (1,454,000)A 4,413,381
1,334,752 A
========== ========== ========== ==========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
----------------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income.......... $ 22,668 $ 10,667 $ 33,335
Total Interest expense......... 9,405 5,774 15,179
Net interest income before
Provision for loan losses..... 13,263 4,893 18,156
Provision for credit losses.... 630 450 1,080
Net interest income after
provision for loan losses..... 12,633 4,443 17,076
Total non-interest income...... 2,081 355 2,436
Total non-interest expense..... 9,064 3,444 12,508
---------- ---------- ---------- ----------
Income (loss) before income
taxes......................... 5,650 1,354 7,004
Provision for income taxes..... 1,403 440 1,843
---------- ---------- ---------- ----------
Net income (loss).............. $ 4,247 $ 914 $ 5,161
========== ========== ========== ==========
Earnings (loss) per share...... $ 1.39 $ 0.72 $ 1.17
========== ========== ========== ==========
Weighted average number of
shares outstanding............ 3,058,925 1,261,000 (1,261,000)A 4,393,677
1,334,752 A
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma financial information
53
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income.......... $ 30,593 $ 14,682 $ 45,275
Total Interest expense......... 12,687 7,981 20,668
---------- ---------- ---------- ----------
Net interest income before
Provision for loan losses..... 17,906 6,701 24,607
Provision for credit losses.... 1,042 525 1,567
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 16,864 6,176 23,040
Total non-interest income...... 2,754 417 3,171
Total non-interest expense..... 12,017 4,517 16,534
---------- ---------- ---------- ----------
Income (loss) before income
taxes......................... 7,601 2,076 9,677
Provision for income taxes..... 1,969 724 2,693
---------- ---------- ---------- ----------
Net income (loss).............. $ 5,632 $ 1,352 $ 6,984
========== ========== ========== ==========
Earnings (loss) per share...... $ 1.84 $ 1.05 $ 1.59
========== ========== ========== ==========
Weighted average number of
shares outstanding............ 3,053,400 1,286,321 (1,286,321)A 4,388,152
1,334,752 A
========== ========== ========== ==========
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income.......... $ 28,712 $ 12,432 $ 41,144
Total Interest expense......... 12,032 6,731 18,763
---------- ---------- ---------- ----------
Net interest income before
Provision for loan losses..... 16,680 5,701 22,381
Provision for credit losses.... 728 350 1,078
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 15,952 5,351 21,303
Total non-interest income...... 2,710 80 2,790
Total non-interest expense..... 12,257 4,046 16,303
---------- ---------- ---------- ----------
Income (loss) before income
taxes......................... 6,405 1,385 7,790
Provision for income taxes..... 1,591 480 2,071
---------- ---------- ---------- ----------
Net income (loss).............. $ 4,814 $ 905 $ 5,719
========== ========== ========== ==========
Earnings (loss) per share...... $ 1.58 $ 0.75 $ 1.31
========== ========== ========== ==========
Weighted average number of
shares outstanding............ 3,041,003 1,208,677 (1,208,677)A 4,375,755
1,334,752 A
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma financial information
54
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
----------------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income.......... $ 25,630 $ 10,384 $ 36,014
Total Interest expense......... 10,079 5,306 15,385
---------- ---------- ---------- ----------
Net interest income before
Provision for loan losses..... 15,551 5,078 20,629
Provision for credit losses.... 512 1,400 1,912
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses..... 15,039 3,678 18,717
Total non-interest income...... 2,424 963 3,387
Total non-interest expense..... 11,007 4,100 15,107
---------- ---------- ---------- ----------
Income (loss) before income
taxes......................... 6,456 541 6,997
Provision for income taxes..... 1,462 140 1,602
---------- ---------- ---------- ----------
Net income (loss).............. $ 4,994 $ 401 $ 5,395
========== ========== ========== ==========
Earnings (loss) per share...... $ 1.64 $ 0.37 $ 1.23
========== ========== ========== ==========
Weighted average number of
shares outstanding............ 3,039,448 1,072,556 (1,072,556)A 4,374,200
1,334,752 A
========== ========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma financial information
55
<PAGE>
COMMUNITY AND PEOPLES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks............ $ 14,880 $ 4,792 $ 19,672
Investment securities, available
for sale.......................... 172,055 60,184 232,239
Loans, net......................... 252,227 169,466 421,693
Premises and equipment, net........ 8,386 4,790 13,176
Goodwill........................... 967 967
Other real estate owned............ 463 731 1,194
Loans held for sale................ 3,332 3,332
Accrued interest receivable and
other assets...................... 7,236 4,824 12,060
-------- -------- -------- --------
TOTAL ASSETS................... $459,546 $244,787 $ 0 $704,333
======== ======== ======== ========
LIABILITIES
Deposits........................... $350,602 $194,994 $545,596
Short-term borrowings.............. 3,766 5,708 9,474
Long-term debt and capital notes... 50,000 21,289 71,289
Accrued interest payable and other
liabilities....................... 4,039 2,621 6,660
-------- -------- -------- --------
TOTAL LIABILITIES.............. $408,407 $224,612 $633,019
======== ======== ======== ========
STOCKHOLDERS' EQUITY
Preferred stock no par value....... -- -- --
Common stock....................... 15,301 1,490 ($1,490)A 21,922
6,621 A
Surplus............................ 17,939 15,067 (15,067)A 27,875
9,936 A
Retained Earnings.................. 17,864 3,250 21,114
Net unrealized loss on investment
securities available for sale..... 1,151 368 1,519
Less: Treasury stock at cost....... (1,116) (1,116)
-------- -------- -------- --------
TOTAL STOCKHOLDERS' EQUITY..... $ 51,139 $ 20,175 $ 0 $ 71,314
======== ======== ======== ========
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY............ $459,546 $244,787 $ 0 $704,333
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial information.
56
<PAGE>
COMMUNITY AND PEOPLES
UNAUDITED
PRO FORMA CAPITAL SCHEDULE
AS OF SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------
PRO FORMA PRO FORMA
COMMUNITY PEOPLES ADJUSTMENTS COMBINED
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
SHORT-TERM AND LONG-TERM DEBT
Short-term borrowings................. $ 3,766 $ 5,708 $ 9,474
Long-term debt........................ 50,000 21,289 71,289
------- ------- ------- -------
SHORT-TERM AND LONG-TERM DEBT..... $53,766 $26,997 $ 0 $80,763
======= ======= ======= =======
STOCKHOLDERS' EQUITY
Preferred stock no par value.......... -- -- --
Common stock.......................... $15,301 $ 1,490 ($1,490)A $21,922
6,621 A
Surplus............................... 17,939 15,067 (15,067)A 27,875
9,936 A
Retained Earnings..................... 17,864 3,250 21,114
Net unrealized loss on investment
securities available for sale........ 1,151 368 1,519
Less: Treasury stock at cost.......... (1,116) (1,116)
------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY........ $51,139 $20,175 $71,314
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited pro forma financial information.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1. BASIS OF PRESENTATION
Pursuant to the Merger, each share of Peoples Common Stock outstanding at
the effective time will be converted into .889 shares of Community Common
Stock. The Merger is to be accounted for under the pooling of interests
method. Accordingly, recorded assets and liabilities are carried forward to
the combined company at their historical values.
The unaudited pro forma financial information does not give effect to any
synergies that are expected to occur due to the integration of Peoples and
Community operations. Additionally, the unaudited pro forma financial
information excludes the transaction costs of the Merger, and the nonrecurring
costs and expenses associated with integrating the operations of the
businesses.
Certain material, nonrecurring adjustments may be recorded in conjunction
with the Merger, but the amounts of these adjustments cannot be determined
until Community reviews all facilities, operations and systems of Peoples and
finalizes its plans with respect to integrating the businesses. The aggregate
amount of these adjustments will include costs associated with consolidating
operations and systems; severance pay for involuntary termination, early
retirement and related employee benefits; conforming accounting practices; and
expenses incurred in connection with the Merger. Community has not yet
quantified any of these adjustments. The impact of these adjustments, if any,
is expected to be recorded in 1997.
For consistency of presentation, certain amounts in the historical financial
statements have been reclassified in the unaudited pro forma combined
condensed financial statements.
NOTE 2. PRO FORMA ADJUSTMENTS
A. Stockholders' Equity and related Per Share Data
The average number of shares of Community Common Stock outstanding during
the periods presented and per common share and net earnings per common share
have been adjusted for each period presented by multiplying the applicable
number of shares of Peoples Common Stock by .889.
The combined equity account of Community reflected the combination of the
equity accounts for Community and Peoples. Shares of Community Common Stock
have a par value of $5. Based on the exchange ratio discussed in Note 1 above,
Community will exchange approximately 1,324,182 shares of Community Common
Stock for approximately 1,489,518 shares of Peoples Common Stock, calculated
as of September 30, 1997, and will pay cash in lieu of the issuance of
fractional shares of Peoples Common Stock.
58
<PAGE>
BUSINESS OF PEOPLES
DESCRIPTION OF BUSINESS
Peoples is a banking institution organized in 1911 under the banking laws of
the Commonwealth of Pennsylvania and headquartered in East Berlin,
Pennsylvania. Peoples engages in commercial banking authorized by the
Pennsylvania Banking Code ("PBC"). This involves accepting demand, time and
savings deposits and granting loans (consumer, commercial, real estate and
business) to individuals, corporations, partnerships, associations and
municipalities and other governmental bodies. Peoples owns one subsidiary, PSB
Realty Company.
Peoples is not dependent on any one customer, and the loss of any customer
or a few customers would not have a material adverse effect upon it.
PROPERTIES
As of September 30, 1997, Peoples had six (6) banking offices. Its principal
executive office, which it owns, is located at 100 East King Street, East
Berlin, Pennsylvania 17316, and the telephone number at that address is (717)
259-9510.
Its other branch offices are located at: (a) 3421 Carlisle Road, Dover,
Pennsylvania 17315; (b) 1191 Eichelberger Street, Hanover, Pennsylvania 17331;
(c) 155 Glen Drive, Manchester, Pennsylvania 17345; (d) 600 Carlisle Street,
Hanover, Pennsylvania 17331; and (e) 1345 Baltimore Street, Hanover,
Pennsylvania 17331.
LEGAL PROCEEDINGS
There are no material proceedings to which Peoples or any of its directors
or officers are a party. All legal proceedings presently pending against
Peoples involve routine litigation incidental to the business of Peoples and
are either not material in respect to the amount in controversy or are fully
covered by insurance.
59
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF PEOPLES
To the knowledge of Peoples, on the Record Date, no shareholders are
entitled to cast more than 5% of the total votes to be cast at the Meeting.
The table below sets forth, as of the Record Date, approximate information
regarding the beneficial ownership of Peoples Common Stock by each director
and executive officer of Peoples.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF
PEOPLES COMMON STOCK
---------------------------
NUMBER PERCENT
OF SHARES OF TOTAL
--------------- -----------
<S> <C> <C>
DIRECTORS:
Todd E. Elgin....................................... 16,736 1.12%
John A. Haar........................................ 11,826 .79%
Carlton Jacobs...................................... 12,678 .85%
J. Raymond Miller................................... 9,630 .65%
Earl Mummert........................................ 26,088 1.75%
Thomas M. Bross, III................................ 200 .013%
Wayne H. Mummert.................................... 57,356 3.85%
Sharon E. Myers..................................... 1,324 .089%
Harry B. Nell....................................... 24,064 1.62%
Alan J. Stock....................................... 7,535 .51%
John R. Wisler...................................... 2,204 .15%
Eddie L. Dunklebarger............................... 30,934 2.08%
EXECUTIVE OFFICERS:
Eddie L. Dunklebarger............................... * See above.
President & CEO
Anthony N. Leo...................................... 2,530 .17%
Chief General Counsel
Jeffrey M. Seibert.................................. 11,730 .79%
--------------- -------
CLO
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP:.... 214,835 14.4%
</TABLE>
OTHER 5% SHAREHOLDERS: None.
60
<PAGE>
ADJOURNMENT OF THE MEETING
If there is an insufficient number of votes cast in person or by proxy at
either of the Special Meetings to approve the Merger and the Merger Agreement,
the respective Boards of Directors of Peoples or Community, as the case may
be, intends to adjourn the Special Meeting to a later date for the
solicitation of additional votes in favor of the Merger and the Merger
Agreement. The affirmative vote of a majority of the shares present, in person
or by proxy, at the Meeting, even if a quorum is not present, is required in
order to approve any such adjournment. The place and date to which the Special
Meeting would be adjourned would be announced at the Special Meeting.
THE RESPECTIVE BOARDS OF DIRECTORS OF PEOPLES AND COMMUNITY RECOMMEND THAT
THEIR RESPECTIVE SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO ADJOURN THE MEETING
IF NECESSARY TO PERMIT FURTHER SOLICITATION OF PROXIES TO APPROVE THE MERGER
AND THE MERGER AGREEMENT.
EXPERTS
COMMUNITY
The consolidated balance sheets of Community as of December 31, 1996 and
1995 and the related consolidated statements of income, stockholders' equity
and cash flows for each of the two years in the period ended December 31,
1996, incorporated by reference in this Joint Proxy Statement/Prospectus, have
been incorporated herein in reliance on the report of Coopers & Lybrand,
L.L.P., independent accountants to Community, given on the authority of that
firm as experts in auditing and accounting.
PEOPLES
The consolidated balance sheets of Peoples as of December 31, 1996 and 1995
and the related statements of income, changes in shareholders' equity and cash
flows for each of the two years in the period ended December 31, 1996
incorporated by reference in this Proxy Statement/Prospectus, have been
incorporated herein in reliance on the report of Stambaugh Ness, P.C.,
independent accountants to Peoples, given on the authority of that firm as
experts in auditing and accounting.
LEGAL OPINIONS
The legality of the Community Common Stock issued in connection with the
Merger and the tax consequence of the Merger were passed upon by Mette, Evans
& Woodside, Harrisburg, Pennsylvania, legal counsel to Community. Certain
legal matters relating to Peoples were passed upon at the effective time of
the Merger by Barley, Snyder, Senft & Cohen, LLP, Lancaster, Pennsylvania,
legal counsel to Peoples.
OTHER BUSINESS
No other business is expected to be brought before the Special Meetings for
consideration by the shareholders.
By Order of the Board of Directors,
--------------------------------------
Ernest L. Lowe, President
61
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MILLERSBURG,
PENNSYLVANIA, ON , 1997.
Community Banks, Inc.
By: /s/ Thomas L. Miller
----------------------------------
THOMAS L. MILLER CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS THOMAS L. MILLER AND
ERNEST L. LOWE, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL ATTORNEY-
IN-FACT, WITH FULL POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES,
TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ANY OR ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION
STATEMENT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH,
AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID ATTORNEY-IN-FACT OR HIS
SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Chairman and Chief , 1997
- ------------------------------------- Executive Officer
THOMAS L. MILLER and a Director
/s/ President and Chief , 1997
- ------------------------------------- Operations Officer
ERNEST L. LOWE and a Director
/s/ Executive Vice- , 1997
- ------------------------------------- President and Chief
TERRY L. BURROWS Financial Officer
/s/ Director , 1997
- -------------------------------------
RONALD E. BOYER
/s/ Director , 1997
- -------------------------------------
SAMUEL E. COOPER
/s/ Director , 1997
- -------------------------------------
KENNETH L. DEIBLER
/s/ Director , 1997
- -------------------------------------
PETER DESOTO
II-4
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Director , 1997
- -------------------------------------
LEON E. KOCHER
/s/ Director , 1997
- -------------------------------------
RAY N. LEIDICH
/s/ Director , 1997
- -------------------------------------
THOMAS W. LONG
/s/ Director , 1997
- -------------------------------------
DONALD L. MILLER
/s/ Director , 1997
- -------------------------------------
SUSAN K. NENSTIEL
/s/ Director , 1997
- -------------------------------------
ROBERT W. RISSINGER
/s/ Director , 1997
- -------------------------------------
ALLEN SHAFFER
/s/ Director , 1997
- -------------------------------------
WILLIAM C. TROUTMAN
/s/ Director , 1997
- -------------------------------------
JAMES A. ULSH
II-5
