<PAGE>
As filed with the Securities and Exchange Commission January , 2001
Registration No.:
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMMUNITY BANKS, INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 6022 23-2251762
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification No.)
of incorporation or Classification No.)
organization) ---------------
150 Market Square, Millersburg, Pennsylvania 17061 (717) 692-4781
(Address, including zip code, and telephone number, including area code, or
registrant's principal executive offices)
EDDIE L. DUNKLEBARGER
CEO and President
COMMUNITY BANKS, INC.
150 Market Square
Millersburg, Pennsylvania 17061 (717) 692-4781
(Name, address and telephone number of Agent for Service)
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Copies to:
JAMES A. ULSH, ESQUIRE MICHAEL L. HUND, ESQUIRE
METTE, EVANS & WOODSIDE REED SMITH LLP
3401 North Front Street 213 Market Street
P.O. Box 5950 Harrisburg, Pennsylvania 17101
Harrisburg, Pennsylvania 17110-0950
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Approximate date of commencement of proposed sale of the securities to
public: As soon as practicable after the effective date of this Registration
Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount Maximum Maximum
Title of Each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered(1) Per Unit Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$5.00 per share........ 1,259,457 $12.16 $16,313,053(2) $4,306.65
</TABLE>
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(1) The number of common shares, with a par value of $5.00 each, of Community
Banks, Inc., a Pennsylvania corporation, to be registered pursuant to
this Registration Statement is based upon the number of common shares,
with a par value of $2.00 each, of The Glen Rock State Bank, a
Pennsylvania state chartered banking institution, presently outstanding
multiplied by the exchange ratio of .900 Community Banks, Inc. common
shares for each of The Glen Rock State Bank common share, plus an
additional 52,076 shares for issuance in the event of an increase in the
exchange ratio.
(2) This amount is arrived at pursuant to Rule 457(f)(2) under the Securities
Act and solely for purpose of calculating the registration fee. The
proposed maximum aggregate offering price is equal to the book value of
The Glen Rock State Bank shares of common stock to be canceled in the
merger, which is calculated as the product of (i) $12.16, the per share
book value of The Glen Rock State Bank common stock as of the September
30, 2000 quarterly report of The Glen Rock State Bank, and (ii)
1,341,534, the estimated maximum number of shares that will be canceled
in the merger.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
THE GLEN ROCK STATE BANK
TO THE STOCKHOLDERS OF THE GLEN ROCK STATE BANK
YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Community Banks, Inc. ("Community") and The Glen
Rock State Bank ("Glen Rock") have agreed to a merger. On November 7, 2000
Glen Rock and Community signed an Agreement and Plan of Merger ("Merger
Agreement"), the details of which are described in this Proxy
Statement/Prospectus. A copy of the Merger Agreement, not including the
schedules, is attached to this Proxy Statement/Prospectus as Appendix A.
If the merger is completed, Glen Rock will merge into Peoples State Bank, a
subsidiary of Community and you will receive .900 shares of Community common
stock for each share of Glen Rock common stock you own, subject to possible
adjustments that are described in the Proxy Statement/Prospectus. The merger
has been structured so that you will not recognize any gain or loss for
federal income tax purposes as a result of the merger, except for tax payable
because of cash you received instead of fractional shares of Community common
stock or exercise of your dissenters' rights.
Based on market prices on November 7, 2000, the last full trading day before
Community and Glen Rock announced their merger, the exchange of shares would
give you Community shares of common stock valued at $21.125 for each Glen Rock
share, which is a 37% premium over the price of Glen Rock shares of common
stock on that day. Based on market prices on , 2001, the exchange of shares
would give you Community shares of common stock valued at $ per share,
which is a % premium over the price of a Glen Rock common share on that day.
For a discussion of risks in connection with the Merger, see "Risk Factors"
beginning on page 13.
Community common stock is traded on the American Stock Exchange ("AMEX")
under the trading symbol "CTY". On November 7, 2000, the last full trading day
before the announcement of the merger, the closing price of Community's common
stock was $21.125 per share. On , 2001 the closing price of Community
common stock was $ per share.
The Board of Directors has determined that the terms of the Merger Agreement
and the Merger are fair to and in the best interests of the Glen Rock
shareholders and has unanimously approved and adopted the Merger Agreement.
THEREFORE, THE GLEN ROCK BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GLEN
ROCK SHAREHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Glen Rock will hold a special meeting at which Glen Rock will ask its
shareholders to approve the merger. Information about the special meeting is
contained in the Proxy Statement/Prospectus. We urge you to read this document
carefully and in its entirety.
Whether or not you plan to attend the special meeting of Glen Rock
shareholders, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you need assistance in voting your shares,
please call Robert G. Coradi of Glen Rock at 717-235-1146.
The date, time, and place of the special meeting of Glen Rock shareholders
is: , 2001, at a.m./p.m. at .
_____________________________________
Robert G. Coradi
President and Chief Executive
Officer
THE SHARES OF COMMUNITY COMMON STOCK TO BE ISSUED IN THIS MERGER ARE NOT
SAVINGS ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND, OR ANY OTHER
GOVERNMENTAL AGENCY.
<PAGE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated , 2001, and is being first
mailed to shareholders on or about , 2001.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
WHERE YOU CAN FIND MORE INFORMATION..................................... v
INCORPORATION BY REFERENCE.............................................. v
QUESTIONS AND ANSWERS................................................... 1
SUMMARY................................................................. 3
The Parties........................................................... 3
Glen Rock........................................................... 3
Community........................................................... 3
The Special Meeting................................................... 4
Date, Place and Time of the Meeting................................. 4
Matters to be Considered at the Meeting............................. 4
Record Date; Shares Outstanding; Quorum; Vote Required.............. 4
Terms of the Merger................................................... 4
Exchange Procedure.................................................... 4
Opinion of Financial Advisor.......................................... 5
Recommendation of the Glen Rock Board of Directors.................... 5
Conditions to the Merger--Regulatory Approval......................... 5
Closing; Effective Date............................................... 5
Termination; Waiver; Amendment........................................ 5
Fees and Expenses..................................................... 6
Stock Option Agreement................................................ 6
Dissenters' Rights.................................................... 6
Certain Federal Income Tax Consequences of the Merger................. 6
Accounting Treatment.................................................. 7
Interests of Certain Persons in the Merger............................ 7
Comparison of Shareholder Rights...................................... 7
Adjournment of the Meeting............................................ 7
Market Price Data..................................................... 7
Selected Historical Financial Data.................................... 8
Glen Rock........................................................... 9
Community........................................................... 10
Unaudited Pro Forma Selected Financial Data........................... 11
Historical and Pro Forma Comparative Per Share Data................... 12
RISK FACTORS............................................................ 13
THE SPECIAL MEETING..................................................... 15
General............................................................... 15
Date, Place and Time of the Meeting................................... 15
Matters to be Considered at the Meeting............................... 15
Record Date; Shares Outstanding; Quorum............................... 15
Vote Required......................................................... 15
Effect of Abstentions and Broker Nonvotes............................. 15
</TABLE>
i
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<TABLE>
<CAPTION>
Page(s)
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<S> <C>
Voting, Revocation and Solicitation of Proxies....................... 16
Recommendation of the Board of Directors............................. 16
THE MERGER............................................................. 17
Introduction; Background of the Merger............................... 17
Reasons for the Merger; Recommendation of the Board of Directors..... 20
Voting Agreements.................................................... 21
Opinions of Independent Financial Advisor............................ 22
Terms of the Merger.................................................. 26
Effect of the Merger............................................... 26
Merger Consideration; Conversion Factor............................ 26
Adjustments to Conversion Factor................................... 26
Effect of Merger on Glen Rock Options.............................. 28
Reclassification or Reorganization of Shares....................... 28
Closing; Effective Date............................................ 28
Representations and Warranties..................................... 28
Conduct of Business Pending the Merger............................. 29
Certain Other Agreements........................................... 30
Conditions Precedent............................................... 32
Waiver; Amendment.................................................. 33
Termination........................................................ 33
Expenses............................................................. 34
Stock Option Agreement; No Solicitation; Pursuit of Other
Transactions........................................................ 34
Continued Employment of Glen Rock's Employees........................ 35
Indemnification of Glen Rock's Officers and Directors; Insurance .... 35
Peoples Shareholder Approval......................................... 36
Listing.............................................................. 36
Exchange Procedure................................................... 36
Appointment of Exchange Agent...................................... 36
Procedure.......................................................... 36
Regulatory Approvals................................................. 37
Interests of Certain Persons in the Merger........................... 37
Management of Community and Peoples after the Merger................. 38
Accounting Treatment................................................. 38
Certain Federal Income Tax Consequences.............................. 38
Rights of Dissenting Shareholders.................................... 39
COMPARISON OF SHAREHOLDERS' RIGHTS..................................... 40
Introduction......................................................... 40
Dividends............................................................ 40
Glen Rock.......................................................... 40
Community.......................................................... 40
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page(s)
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<S> <C>
Voting Rights Generally............................................. 40
Glen Rock......................................................... 40
Community......................................................... 40
Classified Board of Directors....................................... 41
Glen Rock......................................................... 41
Community......................................................... 41
Number of Directors; Term........................................... 41
Glen Rock......................................................... 41
Community......................................................... 41
Removal of Directors................................................ 41
Glen Rock......................................................... 41
Community......................................................... 42
Qualifications of Directors......................................... 42
Glen Rock......................................................... 42
Community......................................................... 42
Filling Vacancies on the Board of Directors......................... 42
Call of Special Shareholders' Meetings.............................. 42
Glen Rock......................................................... 42
Community......................................................... 42
Notice of Shareholders' Meetings.................................... 43
Glen Rock......................................................... 43
Community......................................................... 43
Quorum Requirements and Adjournment of Meetings..................... 43
Dissenters Rights................................................... 43
Glen Rock......................................................... 43
Community......................................................... 43
Limitations on Directors' Liability................................. 43
Indemnification..................................................... 44
Anti-Takeover Law Provisions........................................ 45
Glen Rock......................................................... 45
Community......................................................... 45
Amendment of Articles of Incorporation.............................. 46
Glen Rock......................................................... 46
Community......................................................... 46
Amendment of Bylaws................................................. 47
Glen Rock......................................................... 47
Community......................................................... 47
UNAUDITED PRO FORMA FINANCIAL INFORMATION............................. 47
BUSINESS OF GLEN ROCK................................................. 54
Description of Business.............................................
Properties..........................................................
Legal Proceedings...................................................
GLEN ROCK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................ 54
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GLEN
ROCK................................................................. 54
ADJOURNMENT OF THE MEETING............................................ 54
EXPERTS............................................................... 55
Community........................................................... 55
Glen Rock........................................................... 55
</TABLE>
iii
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Page(s)
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<S> <C>
LEGAL OPINIONS........................................................ 55
OTHER BUSINESS........................................................ 55
APPENDIX A--MERGER AGREEMENT.......................................... A-1
APPENDIX B--OPINION OF BERWIND FINANCIAL, L.P. ....................... B-1
APPENDIX C--STATUTORY PROVISIONS CONCERNING DISSENTERS' RIGHTS FOR
SHAREHOLDERS OF PEOPLES.............................................. C-1
APPENDIX D--STOCK OPTION AGREEMENT.................................... D-1
</TABLE>
iv
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Community filed a registration statement on Form S-4 on January 17, 2001 to
register with the Securities and Exchange Commission its shares of common
stock to be issued to Glen Rock shareholders in the merger. This Proxy
Statement/Prospectus is a part of that registration statement and constitutes
Community's prospectus in addition to being Glen Rock's proxy statement for
the Glen Rock special shareholders' meeting. The registration statement,
including the attached exhibits and schedules, contains additional relevant
information. As allowed by Securities and Exchange Commission rules, this
Proxy Statement/Prospectus incorporates important business and financial
information about Community that is not included in or delivered with this
document.
Community files annual, quarterly, and special reports, proxy statements,
and other information with the Securities and Exchange Commission. You may
read and copy any reports, statements, or other information filed by Community
at the Securities and Exchange Commission's public reference room at the
following location:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, DC 20549
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the operation of the public reference room. Securities
and Exchange Commission filings by Community are also available to the public
from commercial document retrieval services and at the web site maintained by
the Securities and Exchange Commission at http://www.sec.gov.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement/Prospectus to decide how to vote on the
merger. Community and Glen Rock have not authorized anyone to provide you with
information that is different from or in addition to what is contained in this
Proxy Statement/Prospectus. Therefore, if anyone gives you information of this
sort, you should not rely on it. If you live in a jurisdiction where it is
unlawful to offer to exchange or sell or to ask for offers to exchange or buy
the securities offered by this Proxy Statement/Prospectus or to ask for
proxies, or if you are a person to whom it is unlawful to direct those
activities, then the offer presented in this Proxy Statement/Prospectus does
not extend to you. The information contained in this Proxy
Statement/Prospectus speaks only as of its date unless the information
specifically indicates that another date applies. This Proxy
Statement/Prospectus is dated , 2001.
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows Community to "incorporate by
reference" information into this Proxy Statement/Prospectus, which means that
we can disclose important information to you by referring you to other
information that has been filed with the Securities and Exchange Commission.
The information incorporated by reference is considered to be part of this
Proxy Statement/Prospectus, except for any information superseded by
information contained in subsequent incorporated filings or by information in
this Proxy Statement/Prospectus.
v
<PAGE>
This Proxy Statement/Prospectus incorporates by reference the Community
documents set forth below that Community previously filed with the Securities
and Exchange Commission. These documents contain important information about
Community. You should read this Proxy Statement/Prospectus together with the
information incorporated by reference.
<TABLE>
<S> <C>
COMMUNITY SEC FILINGS (FILE NO. 001-11663) PERIOD OR DATE FILED:
1. ANNUAL REPORT ON FORM 10-K YEAR ENDED:1999
2. QUARTERLY REPORT ON FORM 10-Q QUARTERS ENDED: 3/31/00, 6/30/00, 9/30/00
3. THE DESCRIPTION OF COMMUNITY'S COMMON STOCK WHICH APPEARS IN THE REGISTRATION
STATEMENT COMMUNITY FILED WITH THE FEDERAL RESERVE SYSTEM PURSUANT TO SECTION 12(G)
OF THE SECURITIES EXCHANGE ACT OF 1934, WHICH REGISTRATION STATEMENT BECAME EFFECTIVE
ON OR ABOUT OCTOBER 7, 1994, INCLUDING ANY AMENDMENTS OR REPORTS FILED FOR THE
PURPOSE OF UPDATING SUCH DESCRIPTION.
</TABLE>
Community is also incorporating by reference any additional documents that it
files with the Securities and Exchange Commission between the initial filing of
this Proxy Statement/Prospectus and the date of effectiveness of this Proxy
Statement/Prospectus or the date of the Glen Rock special meeting. These
documents include periodic reports, such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as
proxy statements.
This Proxy Statement/Prospectus incorporates by reference documents that are
not delivered with it. You may request a free copy of any or all of these
documents, including exhibits that are specifically incorporated by reference
into these documents, by writing to or calling the appropriate party at the
following address or telephone number:
<TABLE>
<S> <C>
Patricia Hoch
Corporate Secretary Corporate Secretary
Community Banks, Inc. The Glen Rock State Bank
150 Market Square 57-59 Main Street
P.O. Box 350 Glen Rock, PA 17327
Millersburg, PA 17061 Telephone: (717) 235-1146
Telephone: (717) 692-4781
</TABLE>
If you would like to request documents, please do so no later than five (5)
days before you must make your investment decision.
Glen Rock supplied all of the information contained or incorporated by
reference in this Proxy Statement/Prospectus relating to Glen Rock.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE
CERTAIN STATEMENTS THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. FORWARD-
LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING POSSIBLE OR ASSUMED
FUTURE RESULTS OF OPERATIONS OF COMMUNITY AND ITS SUBSIDIARIES, OR THE COMBINED
BUSINESS OF COMMUNITY AND GLEN ROCK. WHEN WE USE WORDS SUCH AS "BELIEVES",
"EXPECTS", "ANTICIPATES", OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD-LOOKING
STATEMENTS. FORWARD-LOOKING STATEMENTS ARE ALSO STATEMENTS THAT ARE NOT
STATEMENTS OF HISTORICAL FACT. THESE FORWARD LOOKING STATEMENTS INVOLVE RISKS
AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE CONTEMPLATED BY THESE FORWARD LOOKING STATEMENTS INCLUDE, AMONG
OTHERS, THE FOLLOWING POSSIBILITIES:
vi
<PAGE>
--EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED;
--DEPOSIT ATTRITION, CUSTOMER LOSS, OR REVENUE LOSS FOLLOWING THE MERGER IS
GREATER THAN EXPECTED;
--COMPETITIVE PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY;
--COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF GLEN ROCK'S AND
COMMUNITY'S BUSINESSES ARE GREATER THAN EXPECTED;
--CHANGES OCCUR IN THE INTEREST RATE ENVIRONMENT WHICH REDUCE MARGINS; AND
--GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE AREA IN WHICH
THE COMPANIES WILL BE DOING BUSINESS ARE LESS FAVORABLE THAN EXPECTED.
IF ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCURS OR IF THE UNDERLYING
ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS IN
2001 AND BEYOND COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN, OR IMPLIED
BY, THE FORWARD-LOOKING STATEMENTS.
FURTHER INFORMATION ON OTHER FACTORS THAT COULD AFFECT THE FINANCIAL RESULTS
OF COMMUNITY AFTER THE MERGER IS INCLUDED IN THE SECURITIES AND EXCHANGE
COMMISSION FILINGS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS.
FOR A DISCUSSION OF CERTAIN RISKS RELATED TO THE MERGER, SEE "RISK FACTORS"
BEGINNING ON PAGE 13.
vii
<PAGE>
QUESTIONS AND ANSWERS ABOUT COMMUNITY/GLEN ROCK MERGER
Q. What are Glen Rock Shareholders being asked to approve?
A. At a special meeting of Glen Rock stockholders you will be asked to
consider the proposed merger of Glen Rock with and into Peoples State Bank,
a wholly-owned subsidiary of Community Banks, Inc. and the Agreement of
Merger by which this transaction will occur. The questions and answers set
forth below provide more details with respect to the proposal.
Q. Why does the Board of Directors of Glen Rock recommend shareholder approval
of the merger with Peoples?
A. The Board of Directors of Glen Rock believes that the merger provides Glen
Rock with an opportunity to combine with another community bank allowing it
to expand its market in York County, thereby strengthening Glen Rock's
competitive position, allowing additional banking and financial products to
be offered to its customers and enhance shareholder value. Glen Rock's
financial advisor, Berwind Financial L.P., has rendered an opinion to Glen
Rock's Board of Directors that the exchange ratio is fair to Glen Rock
shareholders from a financial point of view.
Q. What should I do?
A. After carefully reading this Proxy Statement and the information
incorporated into the Proxy Statement by reference, sign your Proxy Card
and return it in the enclosed return envelope as soon as possible to allow
your shares to be voted at the special meeting of shareholders. The meeting
will take place on February , 2001. Glen Rock's Board of Directors
unanimously recommends that you vote for the merger. If you abstain from
voting or do not vote, it will count as a vote against approval of the
merger.
Q. What percentage of Glen Rock's shareholders is required to approve the
merger?
A. Approval of the merger requires the affirmative vote of eighty percent
(80%) of the outstanding shares of common stock held by Glen Rock's
shareholders entitled to vote at the special meeting. For this reason, it
is important that you sign and send in your Proxy Card in a timely fashion.
Q. Can I change my vote after I have mailed my signed Proxy Card?
A. Yes. Just send in a later-dated, signed Proxy Card before the meeting or
attend the meeting in person and vote. You may send a new Proxy Card to the
following address:
The Glen Rock State Bank
Attn: Secretary
57-59 Main Street
Glen Rock, PA 17327
Q. If my shares are held in "Street Name" by my broker, will my broker vote my
shares for me?
A. Your broker may vote your shares only if you provide instructions on how to
vote. Please tell your broker how you would like him or her to vote your
shares. If you do not tell your broker how to vote, your shares will not be
voted by your broker.
Q. Should I send in my stock certificates now?
A. No. After the merger is completed, Community will send you written
instructions for exchanging your stock certificates.
Q. When do you expect the Merger to be completed?
A. We are working to complete the Merger as quickly as possible. We hope to
complete it by March 31, 2001, assuming all shareholder and applicable
governmental approvals have been received by that date.
1
<PAGE>
Q.What if I have questions?
A. If you have questions, please call Robert G. Coradi, President and Chief
Executive Officer of Glen Rock, at (717) 235-1200.
2
<PAGE>
SUMMARY
The following is a summary of certain information relating to the Merger
which may also be contained elsewhere in this 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 Proxy Statement/Prospectus, including
the Appendices hereto. All shareholders are urged to review the entire Proxy
Statement and Appendices carefully.
The Parties
Glen Rock
Glen Rock is an FDIC-insured banking institution organized in 1910 under the
banking laws of the Commonwealth of Pennsylvania and headquartered in Glen
Rock, Pennsylvania. Glen Rock engages in commercial banking authorized by the
Pennsylvania Banking Code (the "PBC") and certain federal banking laws. This
involves accepting demand, time and savings deposits, granting loans (consumer,
commercial, real estate and business) to individuals, corporations,
partnerships, associations and municipalities and other governmental bodies,
and selling non-deposit retail investment products in its branch offices.
Glen Rock Common Stock is not registered under the Securities Exchange Act of
1934, as amended. Glen Rock is subject to the supervision of the FDIC and the
Pennsylvania Department of Banking ("PDOB"). Glen Rock Common Stock is not
listed for trading on a securities exchange or an authorized quotation system.
As of September 30, 2000, Glen Rock had four (4) banking offices. The fifth
office opened in October 2000. Its principal executive office, which it owns,
is located at 57-59 Main Street, Glen Rock, Pennsylvania 17327, and the
telephone number at that address is (717) 235-1146. Glen Rock 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, 2000, Glen Rock reported total assets of $184,099,000,
liabilities of $167,824,000, and net loans of $121,877,000. Glen Rock reported
net income of $1.11 per share for the year ended December 31, 1999 and net
income of $0.82 per share for the nine (9) months ended September 30, 2000.
Community
Community is a Pennsylvania business corporation which was organized in 1982,
and is headquartered at 150 Market Square, Millersburg, Pennsylvania 17061
(717-692-4781). Community is the holding company of Community Banks, N.A.
("CBNA") and The Peoples State Bank ("Peoples"), currently its only wholly-
owned banking subsidiaries. CBNA currently operates twenty-five (25) offices in
Dauphin, Schuylkill, Cumberland, Northumberland, Snyder, and Luzerne Counties,
and will soon open its twenty-sixth (26th) office on the Jonestown Road in
Harrisburg, Dauphin County. Peoples currently operates ten (10) offices in
Adams and York Counties, Pennsylvania.
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 financial 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.
3
<PAGE>
Community Common Stock, par value $5.00 per share (the "Community Common
Stock"), is traded under the symbol "CTY" and is listed on the American Stock
Exchange ("AMEX").
At September 30, 2000, Community reported total assets of $1,109,023,000,
deposits of $791,829,000 and net loans and leases of $676,757,000. Community
reported net income of $11,803,000, or $1.73 per share, for the year ended
December 31, 1999, and net income of $9,516,000, or $1.34 per share, for the
nine (9) months ended September 30, 2000.
The Special Meeting
Date, Place and Time of the Meeting
The special meeting of the Shareholders of Glen Rock (the "Glen Rock Special
Meeting") will be held at a.m. on , 2001 at , Glen Rock,
Pennsylvania.
Matters to be Considered at the Meeting
At the meeting, the Shareholders of Glen Rock will be asked to approve: (a)
an Agreement and Plan of Merger dated November 7, 2000 (the "Merger Agreement")
among Community, Peoples, and Glen Rock, providing for the merger of Glen Rock
into Peoples as contemplated therein; (b) a proposal (the "Adjournment
Proposal") to postpone or adjourn its meeting 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 the meeting to approve the Merger; and (c) such
other business as may properly come before the Glen Rock Special Meeting and/or
any adjournment thereof. See "THE SPECIAL MEETING--Matters to be Considered at
the Meeting."
Record Date; Shares Outstanding; Quorum; Vote Required
Only holders of record of shares of Glen Rock Common Stock at the close of
business on , 200 (the "Record Date") will be entitled to vote at the
Glen Rock Special Meeting. On that date, approximately 1,341,534 shares of Glen
Rock Common Stock were outstanding, each share being entitled to one vote. The
affirmative vote of the holders of eighty percent (80%) of all outstanding
shares of Glen Rock Common Stock is required to approve the Merger. See "THE
SPECIAL MEETING--Vote Required."
As of the Record Date indicated above, directors and executive officers of
Glen Rock beneficially owned approximately 101,873 shares of Glen Rock Common
Stock or approximately 7.5% of the outstanding Glen Rock Common Stock entitled
to vote at the Glen Rock Special Meeting. Prior to the execution of the Merger
Agreement, the directors of Glen Rock entered into an agreement with Community
that they would vote all of their shares in favor of the Merger. See "THE
SPECIAL MEETING--Votes Required."
Terms of the Merger
Pursuant to the Merger Agreement, Glen Rock will be merged with and into
Peoples. Peoples is a wholly-owned Pennsylvania state banking institution and
will be the surviving corporation. Each share of Glen Rock Common Stock
outstanding as of the Effective Date (as defined below) of the Merger will be
converted into and become a right to receive 0.900 shares (the "Conversion
Factor") of 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 Glen
Rock Common Stock will be furnished a form letter of transmittal for the tender
of their shares to Wells Fargo Shareowner Services (the
4
<PAGE>
"Exchange Agent") to be exchanged for certificates for the appropriate number
of shares of Community Common Stock. See "THE MERGER--Exchange Procedure."
GLEN ROCK'S SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES FOR SHARES OF
COMMUNITY COMMON STOCK TO THE EXCHANGE AGENT OR COMMUNITY UNTIL THEY HAVE
RECEIVED THE TRANSMITTAL LETTER. GLEN ROCK'S SHAREHOLDERS SHOULD NOT RETURN
STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Opinion of Financial Advisor
Berwind Financial L.P. ("Berwind") rendered its opinion to the Board of
Directors of Glen Rock that, based upon and subject to the various
considerations set forth therein, as of November 6, 2000 (the "November
Opinion"), and as of the date of this Proxy Statement/Prospectus (the "Proxy
Opinion"), the exchange ratio in the Merger is fair, from a financial point of
view, to the holders of Glen Rock Common Stock. The Proxy Opinion, which is
attached to this Proxy Statement/Prospectus as Appendix B, should be read in
its entirety with respect to the assumptions made and other matters considered
in rendering such opinions. See "THE MERGER--Opinion of Independent Financial
Advisor."
Recommendation of the Glen Rock Board of Directors
THE BOARD OF DIRECTORS OF GLEN ROCK BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF GLEN ROCK'S SHAREHOLDERS, HAS BY UNANIMOUS VOTE APPROVED THE
MERGER AND THE MERGER AGREEMENT, AND RECOMMENDS THAT GLEN ROCK'S 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--Regulatory Approval
Consummation of the Merger is subject to various conditions, including notice
to or 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 qualification of the Merger 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 by the requisite vote of
shareholders of Glen Rock. 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 September 30, 2000, in the business or
financial condition of the other party;
5
<PAGE>
(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; and
(d) by the Board of Glen Rock or Community if the Merger and Merger
Agreement are not approved by the affirmative vote of Glen Rock
Shareholders holding at least eighty percent (80%) of Glen Rock's
outstanding Common Stock.
Each party may also terminate the Agreement if the price of Community's stock
increases or decreases by certain amounts, subject to the right of Community to
adjust the Conversion Factor. See "THE MERGER--Terms of the Merger--
Termination" and "THE MERGER--Terms of the Merger--Adjustment of Conversion
Factor".
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. See "THE MERGER--
Expenses."
Stock Option Agreement
In connection with the Merger Agreement, Community and Glen Rock have entered
into a stock option agreement (the "Stock Option Agreement") granting Community
an irrevocable option to purchase up to that number of authorized but unissued
shares of Glen Rock Common Stock, which, when added to the number of shares of
Glen Rock 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 Glen Rock
Common Stock after exercise of the option, at a purchase price of $16.16 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
As required by the Pennsylvania Banking Code ("PBC"), and the Pennsylvania
Business Corporation Law ("BCL"), to which the PBC refers, any shareholder of
Glen Rock who has voted against the Merger or has given notice to Glen Rock in
writing at or prior to the Glen Rock 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 PDOB, the Federal Reserve Board, and the FDIC, upon written
request made to Community at any time within thirty (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 Proxy Statement/Prospectus as Appendix C. 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--Rights of Dissenting
Shareholders."
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, accordingly,
for income tax purposes:
6
<PAGE>
(a) the Merger of Glen Rock with and into Peoples upon the terms and
conditions of the Merger Agreement will not result in any recognized
gain or loss to Community, Glen Rock, or Peoples;
(b) except for any cash received in lieu of any fractional share, no gain
or loss will be recognized by holders of Glen Rock Common Stock who
receive Community Common Stock in exchange for the shares of Glen Rock
Common Stock which they hold;
(c) the holding period of Community Common Stock received in exchange for
Glen Rock Common Stock will include the holding period of Glen Rock
Common Stock for which it is exchanged, assuming the shares of Glen
Rock 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 Glen Rock
Common Stock will be the basis of Glen Rock 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 Glen Rock have interests in the Merger that
are in addition to their interests as shareholders of Glen Rock generally.
These include Community's agreement to cause Peoples to indemnify and to
provide insurance covering Glen Rock officers and directors following the
consummation of the Merger. See "THE MERGER--Indemnification of Glen Rock
Officers and Directors; Insurance" and "THE MERGER--Interests of Certain
Persons in the Merger." The current members of the Board of Directors of Glen
Rock will be appointed to the Board of Directors of Peoples. Additionally, Glen
Rock has entered into Change in Control Agreements with Robert G. Coradi and J.
Scott Sturgill, and the Merger could, under certain circumstances, result in
benefits to Messrs. Coradi and Sturgill under those agreements. 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 Glen Rock Common Stock in accordance with
the exchange procedures set forth in the Merger Agreement, holders of Glen Rock
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 Glen Rock shareholders with respect to
certain matters. See "COMPARISON OF SHAREHOLDERS' RIGHTS."
7
<PAGE>
Adjournment of the Meeting
In the event that there is an insufficient number of votes cast in person or
by proxy at the Glen Rock Special Meeting to approve the Merger and the Merger
Agreement, the Board of Directors of Glen Rock 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 Glen Rock Special Meeting, even if a quorum is not present, is required in
order to approve any such adjournment. Glen Rock'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.
Market Price Data
Shares of Community Common Stock are included for quotation on the AMEX. The
following table sets forth: (a) the closing price for Community Common Stock on
the AMEX on November 7, 2000, the last trading date prior to the first public
announcement of the Merger, and (b) an equivalent per share price for Glen Rock
Common Stock computed by multiplying the closing sale price for Community
Common Stock on November 7, 2000 by the Conversion Factor of 0.900.
<TABLE>
<CAPTION>
Last Equivalent
Pre-Announcement Per Share
Price Price
---------------- ----------
<S> <C> <C>
Community Common Stock............................. $21.125 --
Glen Rock Common Stock............................. $ 13.25 $19.01
</TABLE>
On [DATE OF PROXY], the closing sale price for Community Common Stock was $
. Using this price, the equivalent per share price for Glen Rock Common
Stock would have been $ .
Selected Historical Financial Data
The following tables set forth certain selected historical financial
information for Glen Rock 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 financial
statements of Glen Rock, which are either included in this Proxy
Statement/Prospectus or may be obtained from Glen Rock, and the consolidated
financial statements of Community, including the notes thereto, incorporated by
reference or appearing elsewhere in this Proxy Statement/Prospectus.
8
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF GLEN ROCK STATE BANK
<TABLE>
<CAPTION>
For the Nine Months
Ended Sept. 30, For the Years Ended December 31,
-------------------- -----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- --------- --------- ---------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income......... $ 9,840 $ 9,146 $ 12,275 $ 12,053 $ 12,188 $ 11,765 $ 11,414
Interest expense........ 5,509 4,634 6,221 6,127 6,137 5,639 5,718
--------- --------- --------- --------- --------- --------- ---------
Net interest income..... 4,331 4,512 6,054 5,926 6,051 6,126 5,696
Provision for credit
losses................. 115 215 290 590 500 480 420
--------- --------- --------- --------- --------- --------- ---------
Net interest income
after provision for
credit losses.......... 4,216 4,297 5,764 5,336 5,551 5,646 5,276
Other operating income.. 680 670 906 614 459 158 311
Other operating
expenses............... 3,407 3,427 4,607 4,421 3,975 3,894 3,429
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... 1,489 1,540 2,063 1,529 2,035 1,910 2,158
Applicable income taxes
(benefit).............. 391 458 576 348 567 597 635
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... 1,098 1,082 1,487 1,181 1,468 1,313 1,523
========= ========= ========= ========= ========= ========= =========
Per Share Data
Net income (loss)....... 0.82 0.81 1.11 0.89 1.10 1.00 1.16
Dividends paid.......... 0.34 0.30 0.40 0.30 0.30 0.26 0.26
Book value.............. 12.16 11.49 11.40 11.57 10.79 9.87 8.96
Shares outstanding...... 1,338,846 1,335,716 1,335,716 1,332,908 1,328,764 1,319,380 1,314,352
Balance Sheet Data
Loans (net of unearned
income and allowance
for loan losses)....... 121,877 114,696 117,181 115,834 105,905 100,996 101,111
Total assets............ 184,099 174,515 179,520 171,733 160,758 150,701 143,897
Total deposits.......... 135,116 130,724 132,731 132,048 125,720 126,083 124,780
Total shareholders'
equity................. 16,275 15,351 15,228 15,417 14,333 13,016 11,781
Key Ratios..............
Return (loss) on average
shareholders' equity... 9.3% 9.2% 9.5% 7.9% 10.7% 10.4% 14.0%
Return (loss) on average
total assets........... 0.80% 0.83% 0.85% 0.67% 0.94% 0.90% 1.08%
Dividends declared to
net income (loss)...... 42.1% 37.0% 35.9% 33.8% 27.0% 26.4% 22.7%
Average shareholders'
equity to average total
assets................. 8.5% 9.0% 8.9% 9.1% 8.7% 8.7% 7.7%
</TABLE>
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA FOR
COMMUNITY BANKS, INC.
<TABLE>
<CAPTION>
For the Nine Months
Ended Sept. 30, For the Years Ended December 31,
---------------------- ----------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Interest income......... $ 58,261 $ 48,431 $ 66,264 $ 57,000 $ 52,287 $ 45,275 $ 38,755
Interest expense........ 30,280 23,478 32,213 26,887 24,423 20,668 16,374
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income..... 27,981 24,953 34,051 30,113 27,864 24,607 22,381
Provision for credit
losses................. 1,429 787 1,298 1,464 1,317 1,567 1,078
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
credit losses.......... 26,552 24,166 32,753 28,649 26,547 23,040 21,303
Other operating income.. 5,555 4,229 5,668 4,960 4,229 3,171 2,790
Other operating
expenses............... 19,385 17,019 22,937 20,025 19,360 16,534 16,303
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 12,722 11,376 15,484 13,584 11,416 9,677 7,790
Applicable income
taxes.................. 3,206 2,668 3,681 3,534 3,491 2,693 2,071
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)....... 9,516 8,708 11,803 10,050 7,925 6,984 5,719
========== ========== ========== ========== ========== ========== ==========
Per Share Data
Net income (loss)
(diluted).............. 1.32 1.19 1.62 1.36 1.08 0.95 0.78
Dividends paid.......... 0.47 0.45 0.60 0.56 0.44 0.37 0.33
Book value.............. 10.97 10.32 9.95 10.96 10.26 8.93 8.30
Shares outstanding...... 7,037,000 7,161,000 7,144,000 7,197,000 7,214,000 7,176,000 7,180,000
Balance Sheet Data
Loans (net of unearned
income and allowance
for loan losses)....... 676,757 561,255 581,859 495,308 437,761 402,681 349,544
Total assets............ 1,109,023 948,381 971,824 851,674 719,462 651,573 553,325
Total deposits.......... 791,829 693,029 693,436 595,905 549,755 522,602 474,045
Total shareholders'
equity................. 77,227 73,898 71,081 78,876 74,013 64,079 59,596
Key Ratios
Return (loss) on average
shareholders' equity... 17.13% 15.05% 15.41% 13.04% 11.49% 11.39% 10.36%
Return (loss) on average
total assets........... 1.23% 1.29% 1.29% 1.31% 1.16% 1.18% 1.06%
Dividends declared to
net income (loss)...... 35.55% 37.37% 36.80% 40.83% 39.66% 39.02% 42.68%
Average shareholders'
equity to average total
assets................. 7.17% 8.58% 8.35% 10.06% 10.12% 10.36% 10.25%
</TABLE>
10
<PAGE>
Unaudited Pro Forma Selected Financial Data
The following table sets forth unaudited pro forma selected financial data
for Glen Rock and Community which gives effect to the Merger, accounted for as
a pooling of interest, as if both companies had been combined for the periods
shown. 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
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 Proxy
Statement/Prospectus or appearing elsewhere herein.
<TABLE>
<CAPTION>
For the Nine Months
Ended Sept. 30, For the Years Ended December 31,
---------------------- ----------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income......... $ 68,101 $ 57,577 $ 78,539 $ 69,053 $ 64,475
Interest expense........ 35,789 28,112 38,434 33,014 30,560
---------- ---------- ---------- ---------- ----------
Net interest income..... 32,312 29,465 40,105 36,039 33,915
Provision for credit
losses................. 1,544 1,002 1,588 2,054 1,817
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
credit losses.......... 30,768 28,463 38,517 33,985 32,098
Other operating income.. 6,235 4,899 6,574 5,574 4,688
Other operating
expenses............... 22,792 20,446 27,544 24,446 23,335
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 14,211 12,916 17,547 15,113 13,451
Applicable income
taxes.................. 3,597 3,126 4,257 3,882 4,058
---------- ---------- ---------- ---------- ----------
Net income (loss)....... 10,614 9,790 13,290 11,231 9,393
========== ========== ========== ========== ==========
Per Share Data
Net income (loss)
(diluted).............. 1.26 1.15 1.56 1.31 1.10
Dividends paid.......... 0.46 0.44 0.58 0.54 0.42
Book value.............. 11.34 10.67 10.34 11.22 10.49
Shares outstanding...... 8,242,000 8,366,000 8,349,000 8,402,000 8,419,000
Balance Sheet Data
Loans (net of unearned
income and allowance
for loan losses)....... 798,634 675,951 699,040 611,142 543,666
Total assets............ 1,293,122 1,122,896 1,151,344 1,023,407 880,220
Total deposits.......... 926,945 823,753 826,167 727,953 675,475
Total shareholders'
equity................. 93,502 89,249 86,309 94,293 88,346
Key Ratios
Return (loss) on average
shareholders' equity... 15.77% 14.05% 14.40% 12.21% 11.36%
Return (loss) on average
total assets........... 1.16% 1.22% 1.22% 1.21% 1.12%
Dividends declared to
net income (loss)...... 36.22% 37.32% 36.70% 40.09% 37.69%
Average shareholders'
equity to average total
assets................. 7.37% 8.65% 8.44% 9.89% 9.86%
</TABLE>
11
<PAGE>
Historical and Pro Forma Comparative Per Share Data
The following table sets forth certain historical per share data of Community
and Glen Rock. It also includes unaudited pro forma combined per share data of
Community and Glen Rock as if the two companies had been combined on the dates
shown. Such pro forma data is not necessarily indicative of results that would
have been achieved had the Merger been consummated on such dates.
<TABLE>
<CAPTION>
For the Years
For the Nine Months Ended December 31,
Ended Sept. 30, ------------------
2000 1999 1998 1997
------------------- ------ ----- -----
<S> <C> <C> <C> <C>
Community Historical
Income per common share (diluted)...... $ 1.32 $ 1.62 $1.36 $1.08
Dividends declared per common share.... .47 .60 .56 .44
Book value per common share............ 10.97 9.95 -- --
Glen Rock Historical
Income per common share................ 0.82 1.11 0.89 1.10
Dividends declared per common share.... 0.345 0.40 0.30 0.30
Book value per common share............ 12.16 11.40 -- --
Pro Forma Per Glen Rock Common Share
Income per common share (diluted)(1)... 1.13 1.40 1.18 .99
Dividends declared per common share.... .41 .52 .49 .38
Book value per common share............ 10.21 9.31 -- --
Pro Forma Equivalent Per Community
Common Share
Income per common share (diluted)...... 1.26 1.56 1.31 1.10
Dividends declared per common share.... .46 .58 .54 .42
Book value per common share............ 11.34 10.34 -- --
</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 .900 shares of Community Common Stock for
each 1 share of Glen Rock Common Stock.
12
<PAGE>
RISK FACTORS
In addition to other information contained in or incorporated by reference
into this Proxy Statement/Prospectus, including the matters addressed under
the caption "Information Regarding Forward-Looking Statements" on page vi, you
should carefully consider the following risk factors in deciding whether to
vote for adoption of the Merger Agreement.
Because the market price of Community Common Stock may fluctuate, you cannot
be sure of the market value of the common stock that you will receive in the
Merger.
Upon completion of the Merger, each share of Glen Rock Common Stock will be
converted into .900 shares of Common Stock of Community. As explained later in
this Proxy Statement/Prospectus (see "THE MERGER-- Adjustments to Conversion
Factor" on page 26), this exchange ratio may be adjusted for changes in the
market price of Community Common Stock. Any change in the price of Community
Common Stock prior to the Merger will affect the value that Glen Rock Common
Stock holders will receive on the date of the Merger. Stock price changes may
result from a variety of factors, including general market and economic
conditions, changes in our businesses, operations and prospects and regulatory
considerations, many of which factors are beyond our control.
The price of Community Common Stock at the closing of the Merger may vary
from its price on the date the Merger Agreement was executed, on the date of
this Proxy Statement/Prospectus, and on the date of the Glen Rock Special
Meeting. As a result, the value represented by the Conversion Factor ratio
will also vary, and the Conversion Factor itself may be adjusted as
illustrated on page 27. On November 7, 2000, the last full trading day before
public announcement of the Merger, the closing price of Community Stock was
$21.125. On January , 2001, the price of Community Common Stock was $ .
Under the Merger Agreement, this fluctuation in price would not have resulted
in an adjustment to the Conversion Factor, but the value at which Community
Common Stock could be exchanged for Glen Rock Common Stock changed from a high
of $19.01 to a low of $ . Because we anticipate that the date that the
Merger is completed will be later than the Special Meeting, you will not know
the market value of the Community Common Stock that you will hold upon
completion of the Merger.
Community may not achieve the anticipated benefits of the Merger.
The success of the Merger will depend, in part, on the ability of Community
and Peoples to realize the anticipated growth opportunities and cost savings
from combining the businesses of Community, Peoples, and Glen Rock. To realize
the anticipated benefits from the Merger, Community and Peoples must
successfully combine their businesses with Glen Rock's in a manner that
permits those growth opportunities and cost savings to be realized. If the
management of Community and Peoples is not able to achieve these objectives
successfully, the anticipated benefits of the Merger may not be realized fully
or at all or may take longer to realize than expected.
Directors and Management of Glen Rock may have potential conflicts of
interest.
All of the Directors of Glen Rock have agreed to vote in favor of the
Merger, and they unanimously recommend that you vote in favor of the Merger
also. Robert G. Coradi, President and Chief Executive Officer of Glen Rock,
also recommends that you vote in favor of the Merger. These individuals may
have interests in completion of the Merger that are different than yours. For
example, if the Merger is completed, all of the individuals who are Directors
of Glen Rock at the time of the Merger will become Directors of Peoples. As
Directors of Peoples, they will be entitled to compensation for their
services. Mr. Coradi may become an officer of Peoples after completion of the
Merger, and he is currently party to a contract with Glen Rock which could,
under certain circumstances, result in the payment of benefits to him in
connection with the Merger. These interests may create potential conflicts of
interest. (See "THE MERGER--Interests of Certain Persons in the Merger" at
page 37.)
13
<PAGE>
Community may be subject to adverse regulatory conditions.
Before completion of the Merger, Community and Peoples must obtain the
approvals of or submit notifications to the Federal Reserve Board, the Federal
Deposit Insurance Corporation, the Pennsylvania Department of Banking, and
other anti-trust authorities. Such approvals may impose conditions on the
completion of the Merger or require changes to the terms of the Merger. These
conditions or changes could have the effect of delaying completion of the
Merger or imposing additional costs on or limiting the revenues of Community,
any of which might have a material adverse effect on Community following the
Merger.
The Market Price of Community Stock after the Merger may be affected by market
and business factors.
The value of Community Stock upon completion of the Merger and thereafter is
likely to be affected by its earnings. The interest income of Community is
generally dependent on the difference between the interest Community pays on
deposits held at its subsidiary banks, or other costs of funds, and interest
that the banks earn on loans and investments. This interest spread, in turn,
can be affected by factors which are beyond the control of Community, such as
interest rate adjustments made by the Federal Reserve Board, interest rates
charged and earned by other banks in the market and the setting of interest
rates on deposits and loans by non-bank financial service providers.
Community's non-interest income, such as fees earned by the bank's trust
department, will be affected by intense competition among banks and non-bank
financial service providers for such business. All of these factors could have
a material adverse effect on the income of Community and, consequently, the
value of Community Common Stock.
Adverse conditions in Community's market area may have an adverse effect.
Substantially all of Community's business is with customers located within
the counties where branches of Community's subsidiary banks are located, and
contiguous counties. The businesses to which Community makes loans are small
and medium sized and are dependent upon the regional economy. Adverse economic
and business conditions in the market area could affect borrowers, their
ability to repay their loans, and consequently Community's financial condition
and performance.
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THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to holders of Glen Rock
Common Stock in connection with the solicitation of proxies by Glen Rock's
Board of Directors to be used at the Special Meeting or any adjournment
thereof.
Date, Place and Time of the Meeting
The special meeting of the Shareholders of Glen Rock (the "Glen Rock Special
Meeting") will be held at a.m. on , 2001 at , Glen Rock,
Pennsylvania.
Matters to be Considered at the Meeting
The Shareholders of Glen Rock will be asked to approve: (a) the Merger
Agreement by and among Community, Glen Rock, and Peoples, providing for the
merger of Glen Rock with and into Peoples, a wholly-owned subsidiary of
Community, as contemplated therein; (b) a proposal (the "Adjournment
Proposal") to postpone or adjourn its meeting 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 its meeting to approve the Merger Agreement;
and (c) such other business as may properly come before the Special Meeting
and/or any adjournment thereof.
Record Date; Shares Outstanding; Quorum
Only holders of record of shares of Glen Rock Common Stock at the close of
business on December , 2000 (the "Glen Rock Record Date") will be
entitled to vote at the Glen Rock Special Meeting. At that date, approximately
1,341,534 shares of Glen Rock Common Stock were outstanding, each share being
entitled to one vote.
Vote Required
The affirmative votes of eighty percent (80%) of all outstanding shares of
Glen Rock Common Stock are required to approve the Merger Agreement.
As of the Glen Rock Record Date indicated above, directors and executive
officers of Glen Rock beneficially owned approximately 101,873 shares of Glen
Rock Common Stock or approximately 7.5% of the outstanding Glen Rock Common
Stock entitled to vote at the Glen Rock Special Meeting. The directors of Glen
Rock have entered into agreements with Community that they will vote all of
such shares in favor of the Merger Agreement. (See "THE MERGER--Voting
Agreements.)
Effect of Abstentions and Broker Nonvotes
Abstentions may be specified with respect to 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.
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 Agreement.
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 Non-Vote") will have
the effect of a vote against the Merger Agreement. Broker Non-Votes will have
no effect upon the approval of the Adjournment Proposal.
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Voting, Revocation and Solicitation of Proxies
All shares represented by properly executed proxies received in time for the
Special Meeting will be voted at the Special Meeting 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 Agreement and the Adjournment Proposal.
It is not expected that any matter other than those referred to herein will
be brought before the Special Meeting. 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 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 Glen Rock a duly
executed revocation or a proxy bearing a later date. Neither attendance nor
voting in person at the Special Meeting will of itself constitute revocation
of a proxy.
In addition to solicitation by mail, directors, officers and employees of
Glen Rock who will not be specifically compensated for such services may
solicit proxies from the shareholders of Glen Rock personally or by telephone
or telegram or other forms of communication. Glen Rock will bear its own
expenses in connection with the solicitation of proxies for its Special
Meeting.
SHAREHOLDERS OF GLEN ROCK SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR
PROXY CARDS. AS DESCRIBED BELOW UNDER THE HEADING "THE MERGER--EXCHANGE
PROCEDURE," EACH GLEN ROCK SHAREHOLDER WILL BE PROVIDED WITH MATERIALS FOR
EXCHANGING SHARES OF GLEN ROCK COMMON STOCK AS PROMPTLY AS PRACTICABLE AFTER
THE EFFECTIVE DATE.
Recommendation of the Board of Directors
The Board of Directors of Glen Rock recommends that the shareholders vote
FOR the approval of the Merger Agreement identified in this Proxy
Statement/Prospectus.
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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 (Appendix A does not include the schedules that were part of the
Merger Agreement). Shareholders of Glen Rock are urged to read carefully the
Merger Agreement. For a summary of the Merger, see the preceding "SUMMARY."
Introduction; Background of the Merger
Background of the Merger
Glen Rock's management and Board of Directors have historically maintained a
policy of independence, based on their belief that the best interests of Glen
Rock and its shareholders, as well as the community in which Glen Rock
operates, would be served best if Glen Rock continued to do business as an
independent entity. Glen Rock's Board of Directors and management believed
that by remaining independent, Glen Rock's growth in earnings and profits
would create greater value, over time, than would be created if Glen Rock were
sold and shareholders received a premium for their shares of Glen Rock Common
Stock in connection with such sale. The policy of independence was
consistently applied over the years and was cited several times in recent
years in response to certain requests that originated with members of
management of Glen Rock's competitors, including Community, who expressed
interest in discussing a merger, sale or similar transaction. Both Robert G.
Coradi, Glen Rock's President and Chief Executive Officer, and Robert L.
Williams, Mr. Coradi's predecessor, received preliminary requests from Eddie
L. Dunklebarger, Chief Executive Officer of Community, and from other local
financial institutions who requested that Glen Rock engage in discussions
concerning a possible merger, sale or similar transaction. Believing such
discussions to be inconsistent with Glen Rock's policy of independence, such
requests were not formally pursued beyond the preliminary stage.
In January 2000, the Board of Directors began to reconsider whether Glen
Rock's policy of independence should be reevaluated. At its meeting on January
19, 2000, the Board of Directors reviewed the preliminary earnings results for
the year ended December 31, 1999. Members of the Board of Directors and
management continued to express disappointment with Glen Rock's lack of growth
as compared to the previous year. There was continuing disappointment over the
fact that, even after having worked through most of the more significant
problem loans that had affected earnings in recent years, growth in assets and
revenues was relatively flat and Glen Rock's earnings in 1999 also remained
flat. While not prepared to reverse immediately its long-standing policy of
independence, Glen Rock's Board of Directors proceeded to reevaluate whether,
in light of current circumstances and projected future results, the policy of
remaining independent continued to serve the best interests of Glen Rock's
shareholders and other constituencies. At its meeting on February 2, 2000, the
Board of Directors resolved to retain investment bankers to provide assistance
to the Board of Directors as it began the process of analyzing Glen Rock's
current situation. Management was directed to formally retain an investment
banking firm to assist in this process. On February 25, 2000, Berwind
Financial, L.P. was retained to assist the Board of Directors in their review
of Glen Rock's financial performance, both historical and projected, in
comparison to the results of its peers. The Board of Directors was also
interested in evaluating the current market environment for mergers and
acquisitions of institutions like Glen Rock and whether or not there was
likely to be any interest, on the part of potential acquirors, in a
transaction involving a sale of or merger with Glen Rock.
At its meeting on March 1, 2000, the Board of Directors was advised by
management of Glen Rock that Eddie L. Dunklebarger remained interested in
discussing a transaction leading to a possible sale of Glen Rock to Community
and/or one of its subsidiaries. The Board resolved to consider Mr.
Dunklebarger's level of interest as part of Glen Rock's strategic reevaluation
of its policy of independence.
At its meeting on March 15, 2000, Glen Rock's Board of Directors considered
various strategic alternatives available to Glen Rock to potentially enhance
shareholder value, including a sale or merger of the Bank. The Board of
Directors considered the impact on the Glen Rock shareholders under various
alternatives. After
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deliberation, the Board of Directors elected to postpone any decision as to
whether or not to alter Glen Rock's longstanding policy of independence until
the Board of Directors reconvened in April.
At its meeting on April 19, 2000, the Board of Directors once again
discussed alternatives available to Glen Rock and the potential values that
might possibly be achieved under various alternatives. After careful
consideration, the Board of Directors elected to continue the Bank's policy of
independence. As a result, the Board of Directors resolved to advise Mr.
Dunklebarger that the Bank's policy of independence remains in effect.
Management was also directed to develop a plan to show how Glen Rock's growth
plans would meet the expectations for growth that the Board of Directors
believed would be required to meet the goals and objectives of promoting
shareholder value.
At its meeting on August 2, 2000, after having considered Glen Rock's actual
and projected earnings growth and determining that shareholder value would not
necessarily be maximized by remaining independent, Glen Rock's Board of
Directors resolved to request that Berwind begin the process of undertaking
preliminary discussions with potential acquirors of Glen Rock. With the
assistance of Berwind, management identified sixteen potential acquirors or
"Transaction Partners" who might possibly have an interest in discussing such
a transaction with Glen Rock. Berwind was directed to confidentially contact
each institution to determine if it would have an interest in entering into a
potential transaction with Glen Rock. Berwind and members of Glen Rock's
management and Board of Directors met with several of the potential
Transaction Partners over the next several weeks to exchange information and
discuss the feasibility of a potential transaction.
At its meeting on September 26, 2000, Berwind and Management reported back
to the Board of Directors regarding their confidential inquires. Of the
Transaction Partners identified, seven indicated that they had an interest in
pursuing further discussions and also presented a preliminary indication of
interest, including the proposed financial terms that they contemplated
offering Glen Rock's shareholders to acquire all of the outstanding shares of
the Glen Rock Common Stock. The Board of Directors evaluated a variety of
empirical information concerning each of these seven Transaction Partners who
expressed interest in pursuing discussions. The Board of Directors analyzed
the earnings of each such Transaction Partner, as well the amounts of
dividends historically paid by each, book value per share, trading prices and
trading volume information for the common stock of each such Transaction
Partner. The Board of Directors also considered the fact that the level of
growth in assets and earnings that would be required in order to deliver
shareholder value that was as great as the value apparently being offered by
the Transaction Partners would likely present an insurmountable obstacle as
such growth levels had never before been achieved and there was no basis upon
which to assume that it could be achieved in the future.
Upon considering the various preliminary indications of interest and the
empirical data of each prospective Transaction Partner, the Board of Directors
requested that Berwind hold further discussions with Community and three other
Transaction Partners and to advise the remaining three that further
discussions would not be undertaken at that time. The Board of Directors also
authorized Management to provide access to the Bank's records in order for the
four Transaction Partners to complete due diligence investigations on Glen
Rock. In addition, the Board instructed Berwind to have the Transaction
Partners resubmit indications of interest upon completing due diligence.
At its meeting on October 19, 2000, the Board of Directors was advised by
Berwind that of the four Transaction Partners previously favored by the Board,
two had elected, after further consideration, to terminate discussions.
Community and one other Transaction Partner remained interested and each
resubmitted indications of interest outlining the terms and conditions of a
transaction. Only Community indicated a potential willingness to increase the
consideration it was willing to offer Glen Rock from its earlier indication of
interest. After a review of the two proposals by Berwind and careful
consideration by the Board of Directors, the Board elected to proceed with
final negotiations with Community in light of the fact that the consideration
being offered by Community was greater, and the long-term prospects for
shareholder value were deemed superior, to those of the other Transaction
Partner.
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At its meeting on November 6, 2000, the Board of Directors considered the
terms being offered by Community pursuant to the Merger Agreement, the results
of due diligence conducted on Community by Management and Berwind, and the
Fairness Opinion from Berwind to the effect that the exchange ratio set forth
in the Merger Agreement is fair, from a financial point of view, to the
holders of Glen Rock Common Stock. The Board unanimously approved the Merger
Agreement and directed management to execute the Merger Agreement upon
Community's correction of a few of its provisions. The Merger Agreement was
corrected and then executed on November 7, 2000.
The Parties--Glen Rock
The Glen Rock State Bank ("Glen Rock") is an FDIC-insured banking
institution organized in 1910 under the banking laws of the Commonwealth of
Pennsylvania and is headquartered in Glen Rock, Pennsylvania. Glen Rock
engages in commercial banking authorized by the Pennsylvania Banking Code (the
"PBC") and applicable federal banking laws. This involves accepting demand,
time and savings deposits, granting loans (consumer, commercial, real estate
and business) to individuals, corporations, partnerships, associations and
municipalities and other governmental bodies, and selling non-deposit retail
investment products in its branch offices.
Glen Rock Common Stock is not registered under the Securities Exchange Act
of 1934, as amended. Glen Rock is subject to the supervision of the FDIC and
the Pennsylvania Department of Banking ("PDOB").
As of September 30, 2000, Glen Rock had four (4) banking offices. The fifth
office opened in October 2000. Its principal executive office, which it owns,
is located at 57-59 Main Street, Glen Rock, Pennsylvania 17327, and the
telephone number at that address is (717) 235-1146. Glen Rock 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, 2000, Glen Rock reported total assets of $184,099,000,
liabilities of $167,824,000, and net loans of $121,877,000. Glen Rock reported
net income of $1.11 per share for the year ended December 31, 1999 and net
income of $0.82 per share for the nine (9) months ended September 30, 2000.
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") and
The Peoples State Bank ("Peoples"), currently its only wholly-owned banking
subsidiaries. CBNA currently operates twenty-five (25) offices in Dauphin,
Schuylkill, Northumberland, Cumberland, Snyder, and Luzerne Counties and plans
to open a twenty-sixth (26th) office soon. Peoples currently operates ten (10)
offices in Adams and York Counties. Peoples and CBNA are 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 financial 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, 2000, Community reported total assets of $1,109,023,000,
deposits of $791,829,000, and net loans and leases of $676,757,000. Community
reported net income of $11,803,000, or $1.73 per share, for
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the year ended December 31, 1999 and net income of $9,516,000, or $1.34 per
share, for the nine (9) months ended September 30, 2000.
Reasons for the Merger; Recommendation of the Board of Directors
Glen Rock
The Glen Rock Board believes that the Merger is fair to, and in the best
interests of, Glen Rock and its shareholders. Accordingly, the Glen Rock Board
has unanimously approved the Merger Agreement and unanimously recommends that
the Glen Rock shareholders vote for the adoption of the Merger Agreement.
In making this determination, the Board considered a number of factors,
including the following:
1. The Glen Rock Board's familiarity with Glen Rock's business, financial
condition, earnings and prospects;
2. The Board's conclusion that, in view of the trend toward consolidation
in the financial services industry, particularly the community banking
portion thereof, the Merger would provide Glen Rock's shareholders with an
opportunity for continued equity participation in an enterprise that is
larger and has common stock that is more actively traded than the Glen Rock
Common Stock;
3. The Board's understanding of the business, operations, financial
condition, earnings and prospects of Community;
4. The consideration that Glen Rock's shareholders will receive, if the
Merger is completed, and the likelihood that the Merger would deliver
greater value to Glen Rock's shareholders than can reasonably be expected
if Glen Rock were to retain its historical policy of independence;
5. The presentation of Berwind to the Board on November 6, 2000 including
Berwind's opinion that the exchange ratio in the Merger is fair to Glen
Rock's shareholders from a financial point of view as of that date;
6. The complementary nature of Glen Rock's and Community's businesses,
services and products and the opportunity to create a wider array of
products and services to Glen Rock's customers and an enhanced ability to
attract new customers;
7. The fact that Community's markets are less geographically focused than
is the case with Glen Rock, meaning that Community's growth in deposits and
other assets might be rendered more readily achievable;
8. The historical performance of Community's Common Stock and Community's
historical financial performance;
9. The Board's review of the indications of interest received from
potential Transaction Partners other than Community;
10. The terms and conditions of the Merger Agreement, including the fact
that the Merger will be accomplished on a tax-free basis for Glen Rock's
shareholders for federal income tax purposes;
11. Community's and Glen Rock's historical dividend payment amounts;
12. The likelihood that the Merger will be approved by all appropriate
regulatory authorities;
13. The likelihood of a smooth integration of Glen Rock's business with
that of Community's;
14. The treatment of the Merger as a pooling of interests for financial
and accounting purposes and the likelihood that such accounting treatment
will likely be eliminated in the future, leading to the possible softening
of the market for mergers of companies in the financial services industry;
and
15. The anticipated impact of the Merger on Glen Rock's customers,
employees and other constituencies.
The foregoing discussion of the information and factors considered by Glen
Rock's Board is not intended to be exhaustive, but reflects all material
factors considered by the Glen Rock Board. In reaching its
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determination to approve and recommend the Merger, Glen Rock's Board did not
assign any relative or specific weights to the foregoing factors and
individual directors may have weighed factors differently.
THE GLEN ROCK BOARD BELIEVES THAT THE MERGER IS IN THE BEST INTERESTS OF
GLEN ROCK AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT GLEN ROCK'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
Community/Peoples
In approving the acquisition of Glen Rock and the merger of Glen Rock with
Peoples, the Community and Peoples Boards of Directors considered the
following major factors:
(i) Glen Rock's five banking locations in southern York County, a
rapidly growing market, are a natural extension of Peoples' existing
branch network in York County.
(ii) Expansion of Peoples' locations in York County has been a strategic
goal of the Board, and the Merger will enable that expansion to
occur more quickly and at less cost than would be involved in the
establishment and construction of new branches.
(iii) The Merger will result in better utilization of both banks' branch
facilities and will result in increased convenience for the
customers of both banks, especially considering Peoples' existing
network of over 50 ATM locations.
(iv) Although there is no geographic overlap among the branches of the
merging banks and, therefore, no expected closings, the Merger will
result in certain operating and administrative efficiencies that
should increase profitability.
(v) Existing and future investments in technology and new products and
services can be spread over a larger asset base and market area.
This should also enable more rapid revenue enhancements and more
efficient marketing coverage.
(vi) Peoples and Glen Rock have similar banking philosophies, products,
and services. This should make integration of the two banks more
efficient, faster and non-disruptive to Glen Rock customers, all of
which should result in enhanced shareholder value.
(vii) The proposed Merger will enhance the capital position of the
combined entity.
(viii) The Merger will strengthen Peoples' overall market coverage in the
York County area, which should facilitate future transition into
other adjacent markets.
On the basis of these factors, the Community and Peoples Boards of Directors
believe that the Merger is in the best interests of their respective
organizations and the shareholders of Community.
Voting Agreements
In connection with the Merger, the Directors of Glen Rock have entered into
agreements with Community to vote in favor of the Merger all shares of Glen
Rock 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 Glen Rock 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 101,873 shares of Glen
Rock Common Stock (7.5%) of the outstanding shares (to be voted in favor of
the Merger).
The agreements further provide that with respect to the shares of Glen Rock
Common Stock owned by the Directors as individuals or (to the extent of the
Directors' proportionate voting interests) jointly with other persons
(collectively, "Shares") until the Merger has been consummated or the Merger
Agreement has been terminated the Directors will not: (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 Glen Rock or any of
its subsidiaries or (2) sell or otherwise transfer Shares (i) pursuant to any
tender offer or similar proposal made by a
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person other than Community or an affiliate, (ii) to any person other than
Community or an affiliate seeking to obtain control of Glen Rock 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 Glen
Rock Common Stock held by a Director as a trustee or other fiduciary. No
monetary or other compensation was paid to any Glen Rock Director for entering
into these agreements.
Opinion of Independent Financial Advisor
Glen Rock 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 Glen Rock that, based upon and subject to the
various considerations set forth therein, as of November 6, 2000 (the
"November Opinion"), and as of [date] (the "Proxy Opinion"), the exchange
ratio in the Merger is fair, from a financial point of view, to the holders of
Glen Rock 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 Proxy Statement/Prospectus, is incorporated herein by
reference, and should be read in its entirety in connection with this Proxy
Statement/Prospectus. The summary of the opinion of Berwind set forth herein
is qualified in its entirety by reference to the full text of such opinion,
which sets forth assumptions made, matters considered, and limits on the
review undertaken, attached as Appendix B to this Proxy Statement/Prospectus.
Berwind was selected to act as Glen Rock's financial advisor in connection
with the Merger based upon its qualifications, expertise and experience.
Berwind has knowledge of, and experience with the Pennsylvania and surrounding
banking markets as well as banking organizations operating in those markets.
Berwind was selected by Glen Rock because of its knowledge of, experience
with, and reputation in the financial services industry. As part of its
investment banking business, Berwind is engaged regularly in the valuation of
assets, securities and companies in connection with various types of asset and
securities transactions, including mergers, acquisitions, private placements,
and valuations for various other purposes, and in the determination of
adequate consideration in such transactions.
On November 6, 2000, Glen Rock's Board of Directors approved the Merger
Agreement and directed that it be executed. The Merger Agreement was then
executed on November 7, 2000. Prior to such approval, Berwind delivered its
November Opinion to Glen Rock's Board stating that, as of November 6, 2000,
the exchange ratio pursuant to the Merger Agreement was fair to the
shareholders of Glen Rock from a financial point of view. Berwind reached the
same opinion as of the date of its Proxy Opinion. No limitations were imposed
by Glen Rock's Board of Directors upon Berwind with respect to the
investigations made or procedures followed by Berwind in rendering the
November Opinion or the Proxy Opinion.
In arriving at its opinion, Berwind, among other things:
(i) reviewed the historical financial performance, current financial
position and general prospects of Glen Rock and Community and
reviewed certain internal financial analyses and forecasts prepared
by the management of Glen Rock and Community,
(ii) reviewed the Merger Agreement,
(iii) reviewed and analyzed the stock market performance of Glen Rock and
Community,
(iv) studied and analyzed the consolidated financial and operating data of
Glen Rock and Community,
(v) considered the terms and conditions of the proposed Merger between
Glen Rock and Community as compared with the terms and conditions of
comparable bank, bank holding company and financial holding company
mergers and acquisitions,
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(vi) met and/or communicated with certain members of Glen Rock's and
Community's senior management to discuss their respective
operations, historical financial statements and future prospects,
and
(vii) conducted such other financial analyses, studies and investigations
as it deemed appropriate.
In delivering its November Opinion and Proxy Opinion, Berwind assumed that,
in the course of obtaining the necessary regulatory and governmental approvals
for the Merger, no restriction will be imposed on Community or Glen Rock that
would have a material adverse effect on the contemplated benefits of the
Merger. Berwind also assumed that there will not occur any change in
applicable law or regulation that would cause a material adverse change in the
prospects or operations of Community after the Merger.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinions. With respect to Glen Rock's
and Community's financial forecasts and other information reviewed by Berwind
in rendering its opinions, Berwind assumed that such information was prepared
on a basis which reasonably reflected the most current estimates, the most
accurate judgments of the management of Glen Rock and Community as to their
most likely future performance and the cost savings, and other potential
synergies (including the amount, timing and achievability thereof) anticipated
to result from the Merger. Berwind did not make an independent evaluation or
appraisal of the assets (including loans) or liabilities of Glen Rock or
Community nor was it furnished with any such appraisal. Berwind did not
independently verify whether all allowances for loan and lease losses set
forth in the balance sheets of Glen Rock and Community were adequate and has
relied on and assumed, based upon information which the banks provided, that
such allowances are adequate and comply fully with applicable law, regulatory
policy and sound banking practice as of the date of such financial statements.
In addition, Berwind did not review credit files of either Glen Rock or
Community.
The following is a summary of selected analyses prepared by Berwind and
presented to Glen Rock's Board in connection with the November Opinion, and
analyzed by Berwind in connection with the November and Proxy Opinions. In
connection with delivering its Proxy Opinion, Berwind updated its analyses as
described in (i) through (vii) above to reflect current market conditions and
events occurring since the date of the November 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 November Opinion.
Comparable Companies and Comparable Acquisition Transaction
Analyses. Berwind compared selected financial and operating data for Glen Rock
with those of two peer groups. The first group consisted of non-SEC reporting
banks, bank holding companies, and financial holding companies headquartered
in Pennsylvania with assets between $175 million and $195 million, as of the
most recent financial period publicly available. Financial and operating
ratios compared in the analysis of this Glen Rock peer group included, but
were not limited to:
-- return on average assets
-- return on average shareholders' equity
-- shareholders' equity to assets ratio and certain asset quality ratios.
The second group consisted of SEC reporting banks, bank holding companies, and
financial holding companies headquartered in Pennsylvania with assets between
$125 million and $275 million, as of the most recent financial period publicly
available. Financial, operating, and stock market data, ratios and multiples
compared in the analysis of this Glen Rock peer group included, but were not
limited to:
-- return on average assets
-- return on average shareholders' equity
-- shareholders' equity to asset ratios
-- certain asset quality ratios
-- price to book value
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<PAGE>
-- price to tangible book value
-- price to earnings and dividend yield.
Berwind also compared selected financial, operating and stock market data
for Community with those of a peer group of selected SEC reporting banks, bank
holding companies, and financial holding companies headquartered in
Pennsylvania, Maryland, and New Jersey with assets greater than $700 million
and less than $1.5 billion, as of the most recent period publicly available.
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 shareholders' equity
-- shareholders' equity to asset ratios
-- certain asset quality ratios
-- price to book value
-- price to tangible book value
-- price to earnings and dividend yield.
Berwind also compared the multiple of the latest twelve months' earnings as
well as other industry standard multiples inherent to the Merger with the
multiples paid in recent acquisitions of banks, bank holding companies and
financial holding companies that Berwind deemed comparable. The transactions
deemed comparable by Berwind included both interstate and intrastate bank,
bank holding company and financial holding company acquisitions announced
after June 30, 1999, in which the selling institution's assets were between
$125 million and $300 million as of the most recent period publicly available
prior to announcement.
No company or transaction, however, used in this analysis is identical to
Glen Rock, Community 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 Glen Rock's Common Stock after a five (5) year
period by applying a range of earnings multiples to Glen Rock's terminal year
earnings under various growth assumptions. The range of multiples used
reflected a variety of scenarios regarding the growth and profitability
prospects of Glen Rock. The terminal values were then discounted to present
value using a range of discount rates reflecting the rate of return required
by holders or prospective buyers of Glen Rock's Common Stock.
Using discounted dividend analyses, Berwind also estimated the present value
of Community's Common Stock after a five year period by applying a range of
earnings multiples to Community's terminal year earnings under various growth
assumptions. The range of multiples used reflected a variety of scenarios
regarding the growth and profitability prospects of Community. The terminal
values were then discounted to present value using a range of discount rates
reflecting the rate of return required by holders or prospective buyers of
Community's Common Stock. These present values were then multiplied by the
transaction exchange ratio to determine the pro forma value of Glen Rock
Common Stock.
Pro Forma Relative Value Contribution Analyses. Berwind analyzed the changes
in the amount of earnings, book value and dividends represented by one share
of Glen Rock Common Stock prior to the Merger and the number of shares of
Community Common Stock after the Merger resulting from the exchange ratio. The
analysis considered, among other things, the effect that the Merger would have
on Glen Rock's earnings per share, book value per share and indicated cash
dividends. In reviewing the pro forma combined earnings, equity and assets of
Community based on the Merger with Glen Rock, Berwind analyzed the
contribution that Glen
24
<PAGE>
Rock would have made to the combined company's earnings, equity and assets as
of and for the most recent quarterly period ended as of the date of the Proxy
Opinion. Berwind also reviewed the percentage ownership that Glen Rock
shareholders would hold in the combined company.
Hurdle Rate Analysis. Using a range of discount rates and earnings
multiples, Berwind estimated the compound annual earnings growth rate required
over a five (5) year period to allow Glen Rock to reach a valuation level
comparable to the consideration offered by Community on an independent basis
at the end of five years. Berwind then compared this earnings growth rate with
Glen Rock's historical and estimated future earnings growth rates.
In connection with rendering its November Opinion and Proxy Opinion, Berwind
performed a variety of financial analyses. Although the evaluation of the
fairness, from a financial point of view, of the consideration to be paid in
the 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 opinions. 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 Glen Rock's 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 or factors
considered by Berwind was assigned any greater 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 that
the exchange ratio pursuant to the Merger Agreement was fair to the
shareholders of Glen Rock from a financial point of view and opined
accordingly.
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 February 24, 2000, Glen
Rock has paid Berwind $30,000 for serving as financial advisor and delivering
its November Opinion. Glen Rock has also agreed to pay Berwind approximately
$112,000 upon the consummation of the Merger for acting as financial advisor
in connection with the Merger. Whether or not the Merger is consummated, Glen
Rock has also agreed to reimburse Berwind for all reasonable out-of-pocket
expenses incurred in connection with the services provided by Berwind and to
indemnify Berwind and certain related persons against certain liabilities
relating to or arising out of its engagement.
The full text of Berwind's Proxy Opinion dated as of the date of this Proxy
Statement/Prospectus, which sets forth assumptions made and matters
considered, is attached hereto as Appendix B. Glen Rock's shareholders are
urged to read the Proxy Opinion in its entirety. Berwind's Proxy Opinion is
directed only to the exchange ratio pursuant to the Merger Agreement from a
financial point of view, is for the information of the board of directors of
Glen Rock, and does not address any other aspect of the Merger and does not
constitute a recommendation to any holder of Glen Rock Common Stock as to how
such holder should vote at the Glen Rock Special Meeting.
The foregoing provides only a summary of Berwind's Proxy Opinion 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.
25
<PAGE>
Terms of the Merger
The description of the Merger Agreement set forth below does not purport to
be complete and is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and incorporated by reference herein. Shareholders are
urged to read carefully the Merger Agreement.
Effect of the Merger
Pursuant to the Merger Agreement, Glen Rock will be merged with and into
Peoples, with Peoples as the surviving entity (sometimes referred to as the
"Surviving Corporation"). The Articles of Incorporation and Bylaws of Peoples
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 all of Glen Rock's Directors
will become Directors of Peoples on the Effective Date, so that Peoples' Board
of Directors will be increased in number from 14 to 22.
Merger Consideration; Conversion Factor
In connection with the Merger, each share of Glen Rock Common Stock issued
and outstanding as of the Effective Date, other than shares of Glen Rock
Common Stock held by persons who have perfected dissenters' rights and shares
of Glen Rock 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
0.900 shares (the "Conversion Factor") of Community Common Stock, par value
$5.00 per share, subject to adjustment of the Conversion Factor under certain
circumstances as summarized herein and as set forth in detail in the Merger
Agreement.
Adjustments to Conversion Factor
The Merger Agreement provides for the adjustment of the Conversion Factor
under two scenarios. Under the first scenario, Community would have the right
to increase the Conversion Factor if (a) the average trading prices of the
Community Common Stock decrease by more than 15% during the relevant
measurement period prior to the date on which the Merger is scheduled to
close, and (b) if such decrease in the average trading prices of the Community
Common Stock exceeds by more than 15%, the corresponding decrease, if any, in
the average trading prices of 15 publicly traded financial institutions
comprising an index (the "Comparable Banks") during the same time frame. The
Comparable Banks were selected because of their relative similarities to
Community. They are named in the Merger Agreement that is attached to this
Proxy Statement/Prospectus as Appendix A. If the price of Community Common
Stock decreases in this manner, Glen Rock will have the right to terminate the
Merger Agreement, unless prior to Glen Rock exercising its right to terminate,
Community elects to adjust the Conversion Factor. Community would have the
right to adjust the Conversion Factor to a quotient that is obtained by
dividing the product of eighty-five hundredths (.85), the price of Community
stock on November 7, 2000, and the Conversion Factor by the average closing
price of Community stock for the twenty (20) trading days prior to the date
that is 25 business days prior to the date on which the Merger is scheduled to
close (the "Determination Date"). If Community adjusts the Conversion Factor
as prescribed in the Merger Agreement, and described in summary fashion
herein, and gives notice to the Glen Rock Board of Directors of the adjustment
within five (5) days of receiving notice from the Glen Rock Board of Directors
that Glen Rock intends to terminate the Merger Agreement, then Glen Rock may
not terminate the Merger Agreement and the Merger will proceed on the basis of
the adjusted Conversion Factor. The following table illustrates how Community
would be able to adjust the Conversion Factor in two downward fluctuation
situations. The table is for illustration purposes only and does not
constitute a prediction by Community or Glen Rock concerning a change in the
price of Community Common Stock prior to the Merger.
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<PAGE>
Examples of Downward Fluctuations
<TABLE>
<CAPTION>
Hypothetical %
Hypothetical Average Decrease in Average
Closing Price of Price of Comparable
Closing Price of Community Stock for Bank Stocks between
Community Stock on 20 Trading Days prior November 7, 2000 and Hypothetical New
November 7, 2000 to Determination Date the Determination Date Conversion Factor
------------------ --------------------- ---------------------- -----------------
<S> <C> <C> <C>
Illustration #1:
;$21.125 ($21 1/8)...... $17.42 1% .9277(1)
Illustration #2:
$21.125 ($21 1/8)....... $16.90 3% .9563(2)
</TABLE>
--------
(1) .85 X $21.125 X .900
_____________________
= .9277
$17.42
(2) .85 X $21.125 X .900
____________________
= .9563
$16.90
Under the second scenario, Community would have the right to offer to
decrease the Conversion Factor if (a) the average trading prices of Community
Common Stock increase by more than 20% during the relevant measurement period,
which period consists of the twenty (20) trading days prior to the
Determination Date, as compared to the price of Community Common Stock on
November 7, 2000; and (b) the average trading prices of the Comparable Banks
increase more than fifteen (15%) percent between November 7, 2000 and the
Determination Date. If the price of Community Common Stock increases in this
manner, Community will have the right under the Merger Agreement to terminate
the Merger Agreement and the Merger, or within a prescribed number of days
following the Determination Date to make an offer to the Glen Rock Board of
Directors of a decreased Conversion Factor, which would be the quotient
obtained by dividing the product of 1.20, the price of Community stock on
November 7, 2000, and the Conversion Factor by the average closing price of
Community stock for the twenty (20) trading days prior to the Determination
Date.
Upon receipt of such an offer, the Glen Rock Board of Directors would have
five (5) days to accept the offer without seeking further shareholder
approval, but Glen Rock would not be obligated to accept the offer. If the
Glen Rock Board of Directors accepted the offer of a decreased Conversion
Factor, the Merger would proceed on the basis of the adjusted Conversion
Factor. If Community did not offer the decreased Conversion Factor, or if
Community offered the decreased Conversion Factor and Glen Rock did not accept
the offer, then Community would have the right to terminate the Merger
Agreement and the Merger. If Community has merged or agreed to merge with
another entity, the foregoing right to offer to decrease the Conversion Factor
shall not apply. The following table demonstrates the calculation of a
decreased Conversion Factor in the event of an upward fluctuation. The table
is for illustration purposes only, and it is not a prediction by Community or
Glen Rock of any change to the price of Community Common Stock prior to the
Merger.
Examples of Upward Fluctuations
<TABLE>
<CAPTION>
Hypothetical % Decrease
Hypothetical Average in Average Price of
Closing Price of Comparable Bank Stocks
Closing Price of Community Stock for between November 7,
Community Stock on 20 Trading Days prior 2000 and the Hypothetical New
November 7, 2000 to Determination Date Determination Date Conversion Factor
------------------ --------------------- ----------------------- -----------------
<S> <C> <C> <C>
Illustration #1:
$21.125 ($21 1/8)....... $25.56 16% .8926(1)
Illustration #2:
$21.125 ($21 1/8)....... $26.41 16% .8639(2)
</TABLE>
--------
(1) 1.20 X $21.125 X .900
_____________________
= .8926
$25.56
(2) 1.20 X $21.125 X .900
_____________________
= .8639
$26.41
27
<PAGE>
Effect of Merger on Glen Rock Options
Each option to purchase shares of Glen Rock Common Stock pursuant to the
Glen Rock Stock Option Plan and the Glen Rock Directors Stock Option Plan
(collectively, the "Option Plans"), which is outstanding and unexercised
immediately prior to the Merger (each, an "Outstanding Option"), shall be
converted on the Effective Date into an option ("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 Outstanding 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.
Reclassification or Reorganization of Shares
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 Glen Rock Common Stock thereafter
shall be convertible into and exchangeable for the number of shares of
Community Common Stock which the shares of Glen Rock Common Stock would have
represented had such shares of Glen Rock 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 be no later than thirty (30) days after the receipt of all required
governmental approvals and shareholder approval and after the expiration of
all applicable waiting periods. See "THE MERGER--Terms of the Merger--
Conditions Precedent" below.
Representations and Warranties
Glen Rock 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:
(a) proper organization;
(b) articles of association, bylaws and minute books;
(c) powers and qualifications of each corporation;
(d) subsidiaries;
(e) capital structures;
(f) leases;
(g) litigation;
(h) insurance;
(i) compliance with environmental laws;
(j) material contracts and agreements;
(k) classified loans;
(l) employee benefit plans;
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<PAGE>
(m) no material adverse change in financial condition;
(n) title to real property and other assets;
(o) the adequacy of the provision for current taxes payable and other tax
matters;
(p) authorization of the Merger Agreement;
(q) absence of conflict with other agreements and the consents and
approvals that will be required for the consummation of the Merger;
(r) adequacy of financial statements; brokerage and other fees;
(s) the absence of false or misleading statements in certain financial
statements, proxy statements, reports, documents or other written
material; and
(t) the delivery and filing of certain tax returns and reports.
Conduct of Business Pending the Merger
Glen Rock 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 to:
(a) preserve its business and business organization;
(b) 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) preserve the good will of its customers and others having business
relations with it;
(d) consult with Community prior to the making any decisions or taking any
actions in matters other than those made or taken in the ordinary
course of business;
(e) maintain its properties in customary repair, working order and
condition (reasonable wear and tear excepted);
(f) comply with all laws applicable to it and the conduct of its business;
(g) keep in force, at no less than the present limit, all policies of
insurance (including FDIC deposit insurance);
(h) 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) 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, 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) preserve its business and business organization;
(ii) preserve the good will of its customers and others having business
relations with it;
(iii) maintain its properties in customary repair, working order and
condition (reasonable wear and tear excepted);
(iv) comply with all laws applicable to it and the conduct of its
business;
29
<PAGE>
(v) keep in force at not less than their present limits all policies of
insurance (including FDIC deposit insurance);
(vi) 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, 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, Glen Rock 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 Glen Rock's Dividend Reinvestment Plan, as defined in the
Merger Agreement);
(c) declare, set aside, or pay any dividend or other distribution in
respect to 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 Glen Rock's Common Stock at a
quarterly rate not to exceed $0.115 per share for the fourth quarter
of 2000 and for each quarter thereafter);
(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 with the exception of normal individual increases in
compensation to employees in accordance with established employee
procedures of Glen Rock; or
(e) other than in the Ordinary Course of Business (as defined below),
(i) authorize or make any material change in its business or
operations;
(ii) incur any material direct or contingent liabilities or
commitments;
(iii) sell or dispose of any shares of its capital stock (other than
the exercise of stock options or pursuant to Glen Rock's
Dividend Reinvestment Plan) or lease, sell or dispose of any
other material part of its assets;
(iv) establish any new branch banking offices, loan production
offices or other offices, or make any capital expenditures in
excess in the aggregate of $50,000 (except for ordinary repairs,
renewals or replacements);
(v) waive or release any right or cancel or compromise any of its
debts or claims; or
(vi) 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 Glen Rock and not
prohibited by the PBC.
30
<PAGE>
Glen Rock has also agreed to the following:
(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 Glen
Rock;
(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
Glen Rock's properties, books, contracts and records, and that Glen
Rock 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
Agreement to be submitted to its shareholders for their
consideration and vote, and that the Directors of Glen Rock,
consistent with their fiduciary duties in the opinion of counsel,
will recommend that the Merger Agreement be approved;
(iv) it will deliver to Community a correct and complete list of Glen
Rock's 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 Glen Rock 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.
Glen Rock has also agreed that in co-operation with Community, it would
promptly prepare for inclusion in the Community Registration Statement (as
defined below) and this Proxy Statement/Prospectus for the purpose of
submitting the Merger Agreement to Glen Rock's shareholders.
Pursuant to the terms of the Merger Agreement, Community has agreed to the
following:
(a) 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 Peoples, Community shall by unanimous
shareholder action ratify and confirm the Merger and cause the Board
of Directors of Peoples to approve the Merger;
(c) 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 non-assessable;
(d) prior to the Effective Date, Community will appoint Wells Fargo
Shareowner Services as Exchange Agent for the purpose of exchanging
certificates in accordance with the terms of the Merger Agreement;
(e) prior to the Effective Date, separately and jointly with Glen Rock,
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) all necessary regulatory approvals, including but not
necessarily limited to, prior approval of the Merger by the Federal
Reserve Board, the FDIC, and the PDOB, and (ii) all other consents and
approvals of government agencies as are required by law or otherwise;
(f) Community shall promptly give written notice to Glen Rock 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;
31
<PAGE>
(g) Community will cause Peoples to give Glen Rock 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 Glen Rock may reasonably request; and
(h) 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 treatment.
Community has also agreed that it will promptly prepare and file a
registration statement with the Securities and Exchange Commission (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 which will be issued in connection with
the Merger.
Pursuant to the terms of the Merger Agreement, Glen Rock and Community have
both agreed that: (i) each party to the Merger Agreement shall, and shall
cause its directors, officers, 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 Glen Rock 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. Glen Rock 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 Glen Rock and Community to consummate the Merger are
subject to, among other things, the satisfaction of the following conditions:
(a) the performance by Glen Rock and Community of each of their respective
obligations under the Merger Agreement and the accuracy of each of
Glen Rock's 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 Glen Rock;
(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 and other approvals required by the
Merger Agreement;
(g) receipt of letters from each party's independent auditor 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, counsel to
Community, as to certain tax matters; and
(i) confirmation that the Merger will be accounted for under the pooling
of interests method of accounting.
The obligation of Glen Rock to consummate the Merger is 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.
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<PAGE>
The obligation of Community to consummate the Merger is further subject to:
(a) the receipt of a letter from Glen Rock's litigation counsel on the
Effective Date setting forth pending litigation involving Glen Rock which was
not previously disclosed in writing to Community; (b) confirmation that the
aggregate number of shares of Glen Rock's 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 ten percent
(10%) of the number of outstanding shares of Glen Rock's Common Stock or such
number, if less, which will allow Community to account for the Merger as a
"pooling of interest"; and (c) the receipt by Community of letters from Glen
Rock's affiliates (as defined in the Merger Agreement) for purposes of Rule
145 under the Securities Act.
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,
except that no amendment which would reduce the amount or change the form of
consideration to be delivered to the shareholders of Glen Rock (except for
adjustments to the Conversion Factor, as described above in "Terms of the
Merger; Adjustments to Conversion Factor") or alter or change any of the terms
or conditions of the Merger Agreement so as to materially adversely affect the
shareholders of Glen Rock or Community, may be made subsequent to shareholder
approvals without obtaining the requisite shareholder approval.
Termination
The Merger Agreement provides that it may be terminated by the mutual
consent of both Glen Rock 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 Glen Rock: (a) if, (i) in its reasonable opinion, a material
adverse change has occurred since September 30, 2000 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, 2001, if (i) any of the conditions to which the obligations of Glen
Rock are subject under the Merger Agreement have not been fulfilled (provided,
however, that Glen Rock 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 Agreement is not approved by the
affirmative vote of Glen Rock's shareholders owning at least eighty (80%)
percent of its capital stock outstanding at the Glen Rock Special Meeting,
including any adjournment thereof; provided, however, that Glen Rock and
Community may mutually agree to keep the Merger Agreement in effect to call an
additional meeting of the Glen Rock shareholders to obtain such shareholder
approval; and (d) upon the occurrence of a Downward Fluctuation (as described
above in "Terms of Merger; Adjustments to Conversion Factor"), provided,
however, that Community may prevent termination of the Merger Agreement in the
event of a Downward Fluctuation by agreeing to increase the Conversion Factor
as prescribed in the Merger Agreement.
The Merger Agreement further provides that it may be terminated by the Board
of Directors of Community: (a) on or after June 30, 2001 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 Glen Rock shall have failed to complete the Merger;
(b) if (i) in its reasonable opinion a material adverse change has occurred
since September 30, 2000 in the business or financial condition of Glen Rock,
or (ii) there has been a failure, or prospective failure, on the part of Glen
Rock to comply with its obligations or
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any conditions applicable to it under the Merger Agreement; and (c) upon the
occurrence of an Upward Fluctuation (as described above in "Terms of Merger;
Adjustments to Conversion Factor").
The Merger Agreement further provides that it may be terminated by the Board
of Directors of either Glen Rock 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 Chief Executive Officer, to the other party. Additionally,
termination of the Merger Agreement will not terminate or affect the
obligations of Glen Rock 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.
Stock Option Agreement; No Solicitation; Pursuit of Other Transactions
In the Merger Agreement, Glen Rock has agreed that neither it nor any of its
officers or directors shall (and Glen Rock 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 Glen Rock, 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 Glen
Rock (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. Glen Rock has agreed
to promptly notify Community of any inquiries or proposals regarding an
Acquisition Proposal.
In connection with the Merger Agreement, Community and Glen Rock 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 Glen Rock Common Stock, which, when added to
the number of shares of Glen Rock 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 Glen Rock Common Stock after exercise of the option, at
a purchase price of $16.16 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 Glen Rock 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
Glen Rock Common Stock;
(iii) the making by any third party by public announcement or communication
to Glen Rock, of a firm proposal to acquire Glen Rock (by merger,
consolidation or otherwise) or to make any such tender or exchange
offer as described in (i) above; or
(iv) the failure of Glen Rock's shareholders to approve the Merger if at
the time of the Glen Rock Special Meeting there has been an
announcement by a third party of an offer or proposal to acquire
19.9% or more of Glen Rock's Common Stock (before giving effect to
any exercise of the option), or to acquire, merge or consolidate with
Glen Rock, or to purchase all or substantially all of Glen Rock's
assets.
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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
Glen Rock 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 Glen Rock's 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 Glen Rock of the representations,
warranties, or covenants contained therein or (iv) six (6) months after
failure of Glen Rock's 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 Glen Rock 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 D to this Proxy Statement/Prospectus.
Continued Employment of Glen Rock's Employees
Upon completion of the Merger, all persons employed by Glen Rock as of the
date of Merger will be employed upon terms and conditions (including benefits)
which are no less favorable with respect to their employment by Peoples than
those generally afforded to other employees of Peoples holding similar
positions, subject to the terms and conditions under which those employee
benefits are made available to such employees. For purposes of determining
eligibility for vesting of such employee benefits only (and not for pension
benefit accrual purposes), determining levels of short-term disability
benefits, vacation benefits, and severance benefits under any severance pay
arrangement and, if applicable, for purposes of satisfying any waiting periods
concerning pre-existing conditions, service with Glen Rock prior to the
Effective Date will be treated as service with the then "employer" to the same
extent as if such persons had been employees of Peoples. In addition, any co-
payments and expenses paid by Glen Rock employees prior to the Effective Date
under Glen Rock's medical benefit plans will be treated as if paid under
Peoples medical benefit plans for purposes of determining satisfaction of co-
payment and deductible requirements under Peoples medical benefit plans.
The Merger Agreement provides that in the event Peoples terminates the
employment (other than as a result of unsatisfactory performance of their
respective duties) of any persons who were officers or employees of Glen Rock
on the Effective Date within six (6) months of the Effective Date, Peoples
will pay severance benefits to such employees in accordance with such
severance policies as Peoples may from time to time adopt and modify with the
reasonable consent of Community, which policies may in Peoples' discretion
require full releases and covenants not to sue from any employees to whom
severance benefits are paid.
Indemnification of Glen Rock's Officers and Directors; Insurance
In the Merger Agreement, Community has agreed to cause Peoples to indemnify
and hold harmless, prior to and after the Effective Date, each present and
former director and officer of Glen Rock 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 Glen Rock's 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 Glen
Rock's 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
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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 Peoples, for a
period of six years (6) 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 Glen Rock; provided, however,
that Peoples may substitute therefor policies of comparable coverage; and
provided further that in no event shall Peoples 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 Glen Rock 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.
Peoples Shareholder Approval
Under the Merger Agreement, Community has agreed to approve the Merger as
sole shareholder of Peoples.
Listing
The Merger Agreement provides that Community will file an application to
list the shares of Community Common Stock to be issued in the Merger on the
AMEX.
Exchange Procedure
Appointment of Exchange Agent
Prior to the Effective Date, Community will appoint Wells Fargo Shareowner
Services 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 Glen Rock 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 Glen Rock 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 Glen Rock shares and will require an
indemnity agreement or a bond from any Glen Rock 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
Glen Rock 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.
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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 Glen Rock 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 FDIC and the PDOB must be obtained before the Merger can
be consummated. In addition, the Federal Reserve Board is also required to
receive notice of the Merger.
Glen Rock 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.
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 Glen Rock may
be deemed to be beneficial owners of 101,873 shares of Glen Rock Common Stock,
or 7.5% of the then outstanding shares of Glen Rock Common Stock.
Certain directors and officers of Glen Rock have interests in the Merger
that are in addition to their interests as shareholders of Glen Rock
generally. The Merger Agreement provides that from and after the Effective
Date, Community will cause Peoples 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 Glen Rock 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 Glen Rock 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 Peoples to use all reasonable efforts to
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by Glen Rock (provided that Peoples
may substitute policies of comparable coverage); provided, however, that in no
event will Peoples 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 Glen Rock for
such insurance.
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The current members of the Board of Directors of Glen Rock will be appointed
to the Board of Directors of Peoples, and they will receive compensation for
their service as Peoples directors. Additionally, Glen Rock is a party to
change-in-control agreements with Robert G. Coradi, president and CEO of Glen
Rock, and J. Scott Sturgill. Mr. Coradi's agreement is currently scheduled to
expire on December 18, 2003. In the event of a change of control and a
corresponding demotion, loss of title, office, or significant authority,
reduction in annual compensation, or relocation of his principal place of
employment by more than thirty (30) miles from its location immediately prior
to the change of control or the failure to continue in effect certain employee
benefit plans in which he is participating prior to the change of control, Mr.
Coradi has the right to terminate his employment voluntarily and to receive a
sum equal to the product of 2.99 and the average salary, bonuses, and any
other cash or deferred compensation paid to Mr. Coradi in the three years
prior to his termination. Mr. Coradi is also entitled to receive such benefits
following a change of control if his employment is terminated involuntarily,
other than a "termination for cause". "Change of Control" is defined to
include, among other things, a merger in which Glen Rock is not the surviving
entity. Mr. Coradi's cash compensation, including bonuses, for 1999 was
approximately $103,000. Mr. Sturgill's agreement is currently set to expire on
February 16, 2003. Pursuant to the agreement, Mr. Sturgill is entitled to
voluntarily terminate his employment following a change of control for the
same reasons contained in Mr. Coradi's agreement. If Mr. Sturgill voluntarily
terminates his employment for one of the stated reasons in the contract or if
his employment is involuntarily terminated, but is not a "termination for
cause", Mr. Sturgill is entitled to be paid a sum equal to the product of 1.5
and the base salary, bonuses, and other cash or deferred compensation due to
Mr. Sturgill in the year in which the termination occurs. Mr. Sturgill's cash
compensation, including bonuses, for 1999 was approximately $80,000. In the
Merger Agreement, it is one of the conditions of Community's and Peoples'
obligations to close the Merger that Glen Rock execute modifications of
Messrs. Coradi's and Sturgill's change in control agreements. Such
modifications will not affect the amount of any consideration to which Messrs.
Coradi and Sturgill are entitled under the change in control agreements.
Management of Community and Peoples 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.
From and after the Effective Date of the Merger, the officers of Community
and Peoples shall be those persons who are officers of Community and Peoples,
respectively, provided that Robert G. Coradi and J. Scott Sturgill may become
officers of Community and/or Peoples. On the Effective Date, Community shall
appoint all of the then members of the Board of Directors of Glen Rock to the
Board of Directors of Peoples so that the Board of Directors of Peoples shall
be and consist of those persons who were then members of the Board of
Directors of Glen Rock plus those persons who were the members of the Board of
Directors of Peoples.
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 Glen Rock
with and into Peoples upon the terms and conditions of the Merger Agreement
will not result in any recognized gain or loss to Community, Peoples or Glen
Rock; (ii) except for any cash received in lieu of any
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fractional share, no gain or loss will be recognized by holders of Glen Rock
Common Stock who receive Community Common Stock in exchange for the shares of
Glen Rock Common Stock which they hold; (iii) the holding period of Community
Common Stock received in exchange for Glen Rock Common Stock will include the
holding period of Glen Rock Common Stock for which it is exchanged, assuming
the shares of Glen Rock 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 Glen Rock Common Stock will be the basis of
Glen Rock Common Stock for which it is exchanged, less any basis attributable
to fractional shares for which cash is received.
The obligation 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 Glen Rock shareholder: except
for any cash received in lieu of any fractional share, no gain or loss will be
recognized by a Glen Rock shareholder who exchanges his or her shares for
Community Common Stock. The tax basis of the Community Common Stock received
by a shareholder will be equal to the tax basis of the Glen Rock Common Stock
exchanged therefor (less any basis attributable to fractional shares for which
cash is received), and, if Glen Rock Common Stock surrendered were a capital
asset in the hands of the Glen Rock shareholder, the holding periods of the
Community Common Stock received by the shareholder will include the holding
periods for the Glen Rock Common Stock.
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 Glen
Rock Common Stock is entitled to dissent from the Merger and receive "fair
value" for his or her Glen Rock Common Stock. Glen Rock 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 Proxy Statement/Prospectus
as Appendix C.
The following description of the applicable statutory procedures to be
followed by a holder of Glen Rock 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 C
hereto. Any shareholder considering dissenters' rights is advised to review
Appendix C 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 Glen Rock Common Stock who desire to exercise their
dissenters' 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 Glen Rock Special Meeting that such holder
dissents from the Merger and the Merger Agreement to The Glen Rock State Bank,
57-59 Main Street, Glen Rock, Pennsylvania 17327, Attention: Secretary.
Additionally, Glen Rock shareholders intending to dissent from the Merger and
Merger Agreement must not buy, sell or otherwise transfer beneficial ownership
of any shares of Glen Rock Common Stock after giving such notice.
HOLDERS OF GLEN ROCK COMMON STOCK SHOULD CAREFULLY CONSIDER APPENDIX C AND
SHOULD CONSULT WITH THEIR LEGAL COUNSEL REGARDING THEIR RIGHT TO
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DISSENT FROM THE MERGER AND TO RECEIVE THE FAIR VALUE OF THEIR SHARES OF GLEN
ROCK 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.
COMPARISON OF SHAREHOLDERS' RIGHTS
Introduction
Upon consummation of the Merger, holders of Glen Rock Common Stock, whose
rights presently are governed by the PBC and Glen Rock's articles of
association (the "Glen Rock Articles") and bylaws (the "Glen Rock 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 Glen Rock 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 Glen Rock and Community.
Dividends
Glen Rock
The ability of Glen Rock to pay dividends is governed by the PBC and the
regulations of the PDOB thereunder.
Community
The ability of Community to pay dividends is governed by the BCL and certain
other statutory and regulatory limitations applicable to financial holding
companies. See "REGULATORY MATTERS--Payment of Dividends" for a general
discussion.
Voting Rights Generally
Glen Rock
With respect to all matters on which shareholders are entitled to vote,
shareholders of Glen Rock Common Stock are entitled to one vote per share.
Pursuant to the PBC and the Glen Rock Articles and Bylaws, shareholders of
Glen Rock have cumulative voting rights in the election of directors.
Accordingly, in such elections, each shareholder of Glen Rock 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 Glen Rock shareholders shall be
authorized upon receipt of the affirmative vote of a majority of the shares of
Glen Rock 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
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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
Glen Rock
The Glen Rock Bylaws provide that the Board of Directors of Glen Rock be
divided into three classes of directors as nearly equal in number as possible.
At each annual meeting of shareholders, one class of directors is elected for
a three-year term. Classification of directors has the effect of making it
more difficult for shareholders to change the composition of the board of
directors. At least two annual meetings of shareholders, instead of one, will
generally be required to effect a change in the majority of the Board of
Directors of Glen Rock.
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
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
Glen Rock
In accordance with the PBC, the Glen Rock Bylaws establish the number of
directors to be no less than 5 and no more than 25. The exact number of
members of the Board of Directors of Glen Rock is determined by the
affirmative vote of a majority of the shareholders entitled to vote.
Currently, there are 8 persons serving on the Glen Rock Board of Directors.
The term of office for each director is one 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
Glen Rock
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
41
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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
Glen Rock
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 Glen Rock Articles and
Bylaws do not require any additional qualifications for Glen Rock's directors.
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 Glen Rock 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 expiration of the term of office to
which the director was appointed.
Call of Special Shareholders' Meetings
Glen Rock
Special meetings of the shareholders of Glen Rock may be called by: (a) the
President, (b) a majority of the Board of Directors or of its Executive
Committee; or (c) by five or more shareholders entitled to cast at least 30%
of the shares of Glen Rock 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
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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
Glen Rock
Notice of a Glen Rock shareholders' meeting must be delivered at least
twenty (20) days in advance of any meeting other than adjourned meetings,
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 Glen Rock shareholders' meeting and a Community shareholders' meeting.
Shareholders present at a duly convened Glen Rock 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 Glen Rock or Community meeting called for the election of directors, such
meeting may be adjourned for any period not exceeding fifteen days; those Glen
Rock 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.
If a quorum is not present at a Glen Rock or a Community shareholders
meeting, no business may be transacted except to adjourn to a future time.
Dissenters' Rights
Glen Rock
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 Glen Rock 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.
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Indemnification
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 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.
Specifically, both the Glen Rock 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
Glen Rock or Community) by reason of the fact that such person is or was a
director, officer or employee of Glen Rock 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 Glen Rock 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 Glen Rock 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 Glen Rock 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 Glen Rock 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 Glen Rock or Community, or is or
was serving at the request of Glen Rock 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 Glen Rock 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 Glen Rock
or Community, as the case may be.
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Except as may be otherwise ordered by a court, there shall be a presumption
that any director, officer or employee of Glen Rock 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 Glen
Rock or Community determine that the person is not entitled to such
presumption by certifying such determination in writing to the Secretary of
Glen Rock or Community, as appropriate. In such event the disinterested
director(s) or, in the event of certification by shareholders, the Secretary
of Glen Rock or Community, shall request of independent counsel, who may be
the outside general counsel of Glen Rock or Community, as appropriate, a
written opinion as to whether or not the parties involved are entitled to
indemnification under the Glen Rock or Community Bylaws.
Also, expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by Glen Rock 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.
The indemnification provided by Glen Rock 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 Glen Rock 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 Glen
Rock 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
Glen Rock
The articles of incorporation of Glen Rock provide that a merger or
consolidation must be approved by the votes of the holders of at least eighty
percent (80%) 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
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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 Glen Rock.
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 twenty percent (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.
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
Glen Rock
Amendment of certain anti-takeover provisions in the Glen Rock Articles
requires the affirmative vote of the holders of at least 80% 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
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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 as 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
Glen Rock
Amendments to the Glen Rock Bylaws may be made at any meeting of the
shareholders of Glen Rock called for such purpose by the affirmative vote of a
majority of such shareholders or at any meeting of the Board of Directors
called for such purpose by an affirmative vote of the majority of the members
of Board of Directors of Glen Rock, except that the Directors may not make any
amendment to the bylaws fixing their qualification, classification, or term of
office.
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 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.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
assume a business combination between Community and Glen Rock that qualifies
as a pooling of interests for financial reporting purposes. Under this method
of accounting, the recorded assets and liabilities of Community and Glen Rock
are carried forward to Community at their recorded amounts, income of
Community includes income of Community and Glen Rock for the entire fiscal
year in which the Merger occurs, and the reported income of Community and Glen
Rock 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, which
are incorporated by reference in this Proxy Statement/Prospectus, and the
historical financial statements of Glen Rock, which are attached to this Proxy
Statement/Prospectus, and should be read in conjunction with such historical
financial statements and the notes thereto.
The unaudited pro forma combined condensed balance sheet data are presented
as if the Merger occurred on the dates 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 Glen Rock's 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.
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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 Glen Rock
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, 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 2001.
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COMMUNITY AND GLEN ROCK
PRO FORMA UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
--------------------------------------------
Pro Forma Pro Forma
Community Glen Rock Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income............ $ 58,261 $ 9,840 $ 68,101
Total Interest expense........... 30,280 5,509 35,789
---------- ---------- -------- ----------
Net interest income before
Provision for loan losses....... 27,981 4,331 32,312
Provision for credit losses...... 1,429 115 1,544
---------- ---------- -------- ----------
Net interest income after
provision for loan losses....... 26,552 4,216 30,768
Total non-interest income........ 5,555 680 6,235
Total non-interest expense....... 19,385 3,407 22,792
---------- ---------- -------- ----------
Income (loss) before income
taxes........................... 12,722 1,489 14,211
Provision for income taxes....... 3,206 391 3,597
---------- ---------- -------- ----------
Net income (loss)................ $ 9,516 $ 1,098 $ 10,614
========== ========== ======== ==========
Earnings (loss) per share
(diluted) (1)................... $ 1.32 $ 0.82 $ 1.26
========== ========== ======== ==========
Weighted average number of shares
outstanding (diluted)........... 7,195,000 1,337,000 (134,000) 8,398,000
========== ========== ======== ==========
<CAPTION>
Nine Months Ended September 30, 1999
--------------------------------------------
Pro Forma Pro Forma
Community Glen Rock Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income............ $ 48,431 $ 9,146 $ 57,577
Total Interest expense........... 23,478 4,634 28,112
---------- ---------- -------- ----------
Net interest income before
Provision for loan losses....... 24,953 4,512 29,465
Provision for credit losses...... 787 215 1,002
---------- ---------- -------- ----------
Net interest income after
provision for loan losses....... 24,166 4,297 28,463
Total non-interest income........ 4,229 670 4,899
Total non-interest expense....... 17,019 3,427 20,446
---------- ---------- -------- ----------
Income (loss) before income
taxes........................... 11,376 1,540 12,916
Provision for income taxes....... 2,668 458 3,126
---------- ---------- -------- ----------
Net income (loss)................ $ 8,708 $ 1,082 $ 9,790
========== ========== ======== ==========
Earnings (loss) per share
(diluted) (1)................... $ 1.19 $ 0.81 $ 1.15
========== ========== ======== ==========
Weighted average number of shares
outstanding (diluted)........... 7,314,000 1,334,000 (133,000) 8,515,000
========== ========== ======== ==========
</TABLE>
--------
(1) Per share data has been restated to reflect stock dividends and splits.
49
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<TABLE>
<CAPTION>
Year Ended December 31, 1999
--------------------------------------------
Pro Forma Pro Forma
Community Glen Rock Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income............ $ 66,264 $ 12,275 $ 78,539
Total Interest expense........... 32,213 6,221 38,434
---------- ---------- -------- ----------
Net interest income before
Provision for loan losses....... 34,051 6,054 40,105
Provision for credit losses...... 1,298 290 1,588
---------- ---------- -------- ----------
Net interest income after
provision for loan losses....... 32,753 5,764 38,517
Total non-interest income........ 5,668 906 6,574
Total non-interest expense....... 22,937 4,607 27,544
---------- ---------- -------- ----------
Income (loss) before income
taxes........................... 15,484 2,063 17,547
Provision for income taxes....... 3,681 576 4,257
---------- ---------- -------- ----------
Net income (loss)................ $ 11,803 $ 1,487 $ 13,290
========== ========== ======== ==========
Earnings (loss) per share
(diluted) (1)................... $ 1.62 $ 1.11 $ 1.56
========== ========== ======== ==========
Weighted average number of shares
outstanding (diluted)........... 7,305,000 1,334,000 (133,000) 8,506,000
========== ========== ======== ==========
<CAPTION>
Year Ended December 31, 1998
--------------------------------------------
Pro Forma Pro Forma
Community Glen Rock Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income............ $ 57,000 $ 12,053 $ 69,053
Total Interest expense........... 26,887 6,127 33,014
---------- ---------- -------- ----------
Net interest income before
Provision for loan losses....... 30,113 5,926 36,039
Provision for credit losses...... 1,464 590 2,054
---------- ---------- -------- ----------
Net interest income after
provision for loan losses....... 28,649 5,336 33,985
Total non-interest income........ 4,960 614 5,574
Total non-interest expense....... 20,025 4,421 24,446
---------- ---------- -------- ----------
Income (loss) before income
taxes........................... 13,584 1,529 15,113
Provision for income taxes....... 3,534 348 3,882
---------- ---------- -------- ----------
Net income (loss)................ $ 10,050 $ 1,181 $ 11,231
========== ========== ======== ==========
Earnings (loss) per share
(diluted) (1)................... $ 1.36 $ 0.89 $ 1.31
========== ========== ======== ==========
Weighted average number of shares
outstanding (diluted)........... 7,368,000 1,331,000 (133,000) 8,566,000
========== ========== ======== ==========
</TABLE>
--------
(1) Per share data has been restated to reflect stock dividends and splits.
50
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<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------
Pro Forma Pro Forma
Community Glen Rock Adjustments Combined
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Total Interest income............ $ 52,287 $ 12,188 $ 64,475
Total Interest expense........... 24,423 6,137 30,560
---------- ---------- -------- ----------
Net interest income before
Provision for loan losses....... 27,864 6,051 33,915
Provision for credit losses...... 1,317 500 1,817
---------- ---------- -------- ----------
Net interest income after
provision for loan losses....... 26,547 5,551 32,098
Total non-interest income........ 4,229 459 4,688
Total non-interest expense....... 19,360 3,975 23,335
---------- ---------- -------- ----------
Income (loss) before income
taxes........................... 11,416 2,035 13,451
Provision for income taxes....... 3,491 567 4,058
---------- ---------- -------- ----------
Net income (loss)................ $ 7,925 $ 1,468 $ 9,393
========== ========== ======== ==========
Earnings (loss) per share
(diluted) (1)................... $ 1.08 $ 1.10 $ 1.10
========== ========== ======== ==========
Weighted average number of shares
outstanding (diluted)........... 7,364,000 1,329,000 (133,000) 8,560,000
========== ========== ======== ==========
</TABLE>
--------
(1)Per share data has been restated to reflect stock dividends and splits.
51
<PAGE>
COMMUNITY AND GLEN ROCK
UNAUDITED PRO FORMA
COMBINED CONDENSED BALANCE SHEET
As of September 30, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
--------------------------------------------
Glen Pro Forma Pro Forma
Community Rock Adjustments Combined
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks......... $ 33,532 $ 5,765 $ 39,297
Investment securities, available
for sale....................... 346,944 45,651 392,595
Loans, net...................... 676,757 121,877 798,634
Premises and equipment, net..... 17,475 3,047 20,522
Goodwill........................ 243 -- 243
Other real estate owned......... 555 23 578
Loans held for sale............. 4,197 --Z 4,197
Accrued interest receivable and
other assets................... 29,320 7,736 37,056
---------- -------- ------ ----------
Total Assets................ 1,109,023 184,099 1,293,122
========== ======== ====== ==========
Liabilities
Deposits........................ 791,829 135,116 926,945
Short-term borrowings........... 13,261 8,000 21,261
Long-term debt and capital
notes.......................... 218,725 23,358 242,083
Accrued interest payable and
other liabilities.............. 7,981 1,350 9,331
---------- -------- ------ ----------
Total Liabilities........... 1,031,796 167,824 1,199,620
---------- -------- ------ ----------
Stockholders' Equity
Preferred stock no par value.... -- -- --
Common stock.................... 36,695 2,678 (2,678)A 42,720
6,025 A
Surplus......................... 29,107 2,943 (2,943)A 29,107
Retained Earnings............... 26,037 11,135 (404)A 36,768
Net accumulated other
comprehensive income (loss).... (8,650) (481) (9,131)
Less: Treasury stock at cost.... (5,962) -- (5,962)
---------- -------- ------ ----------
Total Stockholders' Equity.. 77,227 16,275 93,502
---------- -------- ------ ----------
Total Liabilities and
Stockholder's Equity....... 1,109,023 184,099 1,293,122
========== ======== ====== ==========
</TABLE>
--------
(A) Reflects the exchange of 1,205,000 shares of Community Banks, Inc. common
stock for 1,339,000 shares of Glen Rock State Bank common stock. Shares of
Community Banks, Inc. and Glen Rock State Bank have par values of $5 and
$2, respectively.
52
<PAGE>
COMMUNITY AND GLEN ROCK
UNAUDITED
PRO FORMA CAPITAL SCHEDULE
As of September 30, 2000
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
------------------------------------------
Pro Forma Pro Forma
Community Glen Rock Adjustments Combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Short-Term and Long-Term Debt
Short-term borrowings.............. $ 13,261 $ 8,000 $ 21,261
Long-term debt..................... 218,725 23,358 242,083
-------- ------- ------- --------
Short-Term and Long-Term Debt.. $231,986 $31,358 $263,344
======== ======= ======= ========
Stockholders' Equity
Preferred stock no par value....... -- -- -- --
Common stock....................... $ 36,695 $ 2,678 $(2,678)A $ 42,720
6,025 A
Surplus............................ 29,107 2,943 (2,943)A 29,107
Retained Earnings.................. 26,037 11,135 (404)A 36,768
Accumulated other comprehensive
income (loss)..................... (8,650) (481) (9,131)
Less: Treasury stock at cost 5,962 -- (5,962)
-------- ------- ------- --------
Total Stockholders' Equity..... $ 77,227 $16,275 $ 93,502
======== ======= ======= ========
</TABLE>
53
<PAGE>
BUSINESS OF GLEN ROCK
GLEN ROCK MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's discussion and analysis of Glen Rock's financial condition and
results of operations are contained in the 1999 Glen Rock annual report, which
is included in this Proxy Statement/Prospectus at pages .
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF GLEN ROCK
To the knowledge of Glen Rock, 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 Glen Rock Common Stock by each director
and executive officer of Glen Rock.
<TABLE>
<CAPTION>
Beneficial Ownership
of
Glen Rock Common Stock
----------------------
Number of Percent of
Shares(/1/) Total
----------- ----------
<S> <C> <C>
Directors and Executive Officers:
Janie Busch.............................................. 39,549 2.9%
Robert G. Coradi......................................... 14,239 1.1
Harold Shaffer........................................... 15,560 1.2
James Holley............................................. 3,000 0.2
Gordon Shive............................................. 3,200 0.2
David Hogg............................................... 4,194 0.3
Gregory Saubel........................................... 8,104 0.6
Robert Williams.......................................... 9,823 0.7
J. Scott Sturgill........................................ 4,204 0.3
------- ---
101,873 7.5%
</TABLE>
--------
(1) These numbers include options held. One-third of the options held by
Coradi (6,142) and Sturgill (4,204) are immediately exercisable and could
be voted at the Special Meeting.
ADJOURNMENT OF THE MEETING
If there is an insufficient number of votes cast in person or by proxy at
the Glen Rock Special Meeting to approve the Merger and the Merger Agreement,
the Board of Directors of Glen Rock 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 Glen Rock Special Meeting, even if a
quorum is not present, is required in order to approve any such adjournment.
The place and date to which the Glen Rock Special Meeting would be adjourned
would be announced at the Glen Rock Special Meeting.
The Board of Directors of Glen Rock recommends that the Glen Rock
shareholders vote "FOR" the proposal to adjourn the Glen Rock Special Meeting
if necessary to permit further solicitation of proxies to approve the Merger
and the Merger Agreement.
54
<PAGE>
EXPERTS
Community
The consolidated financial statements of Community incorporated in this
Proxy Statement/Prospectus by reference to the Annual Report on Form 10-K for
the year ended December 31, 1999 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
Glen Rock
The consolidated financial statements of Glen Rock included in this Proxy
Statement/Prospectus at pages by reference to the Annual Report for the
year ended December 31, 1999 have been so included in reliance on the report
of Stambaugh Ness, P.C., independent accountants, given on the authority of
said firm as experts in accounting and auditing. The opinion of independent
financial advisor included as Appendix B to this Proxy Statement/Prospectus
has been so included in reliance on the authority of Berwind Financial, LP as
experts in the field of financial services and investment banking.
LEGAL OPINIONS
The legality of the Community Common Stock issued in connection with the
Merger and the tax consequence of the Merger will be passed upon by Mette,
Evans & Woodside, Harrisburg, Pennsylvania, legal counsel to Community.
Certain legal matters relating to Glen Rock will be passed upon at the
effective time of the Merger by Reed Smith LLP, Harrisburg, Pennsylvania,
legal counsel to Glen Rock.
OTHER BUSINESS
No other business is expected to be brought before the Glen Rock Special
Meeting for consideration by the shareholders.
By Order of the Board of Directors,
_________________________________
Harold E. Shaffer, Chairman
Glen Rock State Bank
55
<PAGE>
1999 Annual Report
The Glen Rock State Bank
The Neighbor You Can Count On
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<S> <C>
Janie C. Busch President of York Stenographic Services, Inc.
Robert G. Coradi President and CEO, The Glen Rock State Bank
James Hemminger Owner of Trail Tool, Inc.
David H. Hogg President of Springwood Management Corp.
James R. Holley President of James R. Holley & Associates
Gregory V. Saubel President of Saubels, Inc.
Harold E. Shaffer Chairman of the Board
Owner, Shaffer's Sales & Service
Gordon D. Shive Lutheran Brotherhood Insurance
Robert L. Williams Retired President of Glen Rock State Bank
OFFICERS
Harold E. Shaffer Chairman of the Board
Robert G. Coradi President and CEO
J. Scott Sturgill Executive Vice President and COO
Robert W. Krebs Senior Vice President, Operations and
Residential Mortgage Lending
Gary Townsend Vice President, Commercial Loan Officer
Mary-clair Bolth CRCM Assistant Vice President, Controller
Shirley M. Shaw Assistant Vice President, Branch Administrator
Mary L. Snyder Assistant Vice President, Human Resources
Richard E. Snyder Auditor
Joyce E. Markel Assistant Vice President, Loan Review
Susan J. Batzer Community Office Manager
Jay L. Good Community Office Manager
Kimberly P. Griffin Community Office Manager
Glenn M. Snyder Community Office Manager
Tina M. Miller Community Office Assistant Manager
Tammy L. Ream Community Office Assistant Manager
Jane Stiffler Community Office Assistant Manager
Melissa Sweitzer Community Office Assistant Manager
</TABLE>
CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Management's Discussion and Analysis................................. 59-65
Independent Auditors' Report......................................... 66
Financial Statements
Balance Sheets..................................................... 67
Statements of Income............................................... 68
Statements of Stockholders' Equity................................. 69
Statements of Cash Flow............................................ 70
Notes to Financial Statements...................................... 71
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS
We concluded a successful year in 1999 as the quality of the Bank's loan
portfolio continued to improve, revenues generated from non-traditional
sources increased, and costs were contained. Net income for the year grew to
$1,487,000, a $306,000 or 25.9% increase over levels achieved in 1998.
Earnings per share in 1999 rose to $1.11 per share from $.89 per share in
1998, a 24.7% increase. Total dividends declared in 1999 were $.40 per share,
compared to $.30 per share in 1998, a 33% increase. Return on average core
equity improved to 9.45% in 1999 from 8.02% in 1998. Total balance sheet
growth slowed in 1999, with total assets increasing by 4.5% to $179.5 million
from $171.7 million in 1998. This was due to a highly competitive market for
loans and deposits as well as a challenging interest rate environment.
Interest rates moved higher in 1999, due in part to tightening by the Fed in
its attempt to slow the growing economy. This has led to a decline in the
market value of the Bank's fixed income security portfolio, and is reflected
in accumulated other comprehensive income on the balance sheet. We encourage
you to read Management's Discussion and Analysis which provides more
significant detail on the Bank's financial performance in 1999.
As has been indicated previously, the Bank's growth must accelerate in order
to sustain higher earnings in the future. Management is committed to growing
The Glen Rock State Bank franchise through entering new markets and by taking
advantage of technology. Later this year we will begin construction on a new
office in Red Lion, a growing area in York County that promises an exciting
future. In addition, we will be offering Internet Banking in the very near
future with a full complement of home banking features, including bill
presentment.
While 1999 was an excellent year for earnings in the banking industry, bank
stocks were clearly out of favor. This was due in part to higher interest
rates, more investor interest in the technology sector, and a decline in the
merger premiums that were previously built into share prices. Shares of The
Glen Rock State Bank as well as other local bank stocks have not been immune
to softer pricing. Looking ahead, we believe investors will be rewarded by
holding our stock as we follow through on our business plan to expand the
franchise and build a more diversified financial services company.
We are pleased to have been able to enter the new millennium smoothly
without any significant problems. Preparedness for the year 2000 date change
required a significant focus on internal system and customer delivery issues
over the past two years. We are confident that both the Bank's employees and
customers will benefit from these extensive efforts, as our systems were
assessed under a variety of scenarios and alternatives were considered in an
objective manner.
We wish to thank our dedicated team of employees for their hard work and
efforts in the past year. As we move our way through the next stage of the
Bank's business plan, our employees will be called on to continue their
enthusiastic support of all initiatives, including the delivery of
technological capabilities to customers which serve to enhance our expanding
array of products and services.
While there are near term challenges including the current interest rate
environment that is continuing to put downward pressure on the Bank's net
interest margin due to our liability sensitive position, we are confident that
2000 will be a good year. Our business plan prioritizes the importance of
building value for shareholders. We strongly believe that shareholder value
will be enhanced through attaining our business objectives.
Sincerely, Sincerely,
[LOGO] [LOGO]
Robert G. Coradi Harold E. Shaffer
President & CEO Chairman of the Board
58
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Bank posted income of $1,487,000 in 1999, an increase of $306,000, or
25.9% over 1998. Earnings per share increased $.22 per share or 24.7% to $1.11
in 1999 from $.89 in 1998. Return on average core equity rose to 9.45% in 1999
from 8.02% in 1998. These increases are due primarily to lower provisions for
loan losses and higher fee-based income in 1999 when compared to 1998. Non-
interest expenses rose 4.2% or $186,000 in 1999 over 1998 levels. These
increases were due primarily to higher personnel and advertising costs. In
addition, depreciation costs were higher as the depreciation schedules on
computers, software and other equipment were shortened during the year in
order to more accurately reflect the estimated useful life of these assets.
Net Interest Income
The difference between interest income earned on loans and investment
securities and the expense incurred on deposits and borrowings, or net
interest income, is the Bank's primary revenue source. Net interest income is
affected by the changes in asset and liability volume, the changes in the
relative mix of individual asset and liability components, and their
respective yields and costs.
TABLE 1
Volume and Rate Analysis
<TABLE>
<CAPTION>
1999 compared to
1998
Increase
(Decrease) due to
--------------------
Volume Rate Net
------ ----- -----
(000's)
<S> <C> <C> <C>
Interest Income
Loans.................................................. $ 537 $(446) $ 91
Investment Securities.................................. 322 (200) 122
Federal Funds Sold and Other........................... 22 (413) 9
----- ----- -----
Total Interest Income................................ 881 (659) 222
----- ----- -----
Interest Expense
NOW Accounts........................................... 16 (442) 14
Money Market Funds..................................... 162 41 203
Savings Accounts....................................... (111) 0 (1)
Certificates of Deposit................................ (117) (333) (450)
Borrowed Funds......................................... 412 (484) 328
----- ----- -----
Total Interest Expense............................... 472 (378) 94
----- ----- -----
NET INTEREST INCOME...................................... $ 409 $(281) $ 128
===== ===== =====
<CAPTION>
1998 compared to
1997
Increase
(Decrease) due to
--------------------
Volume Rate Net
------ ----- -----
(000's)
<S> <C> <C> <C>
Interest Income
Loans.................................................. $ 339 $ 527 $(188)
Investment Securities.................................. 34 (27) 7
Federal Funds Sold and Other........................... 12 34 46
----- ----- -----
Total Interest Income................................ 385 (520) (135)
----- ----- -----
Interest Expense
NOW Accounts........................................... 30 (9) 21
Money Market Funds..................................... 20 44 64
Savings Accounts....................................... (12) (59) (71)
Certificates of Deposit................................ 10 (206) (196)
Borrowed Funds......................................... 199 (427) 172
----- ----- -----
Total Interest Expense............................... 247 (257) (10)
----- ----- -----
NET INTEREST INCOME...................................... $ 138 $(263) $(125)
===== ===== =====
</TABLE>
59
<PAGE>
Net interest income increased $128,000 in 1999 from 1998 despite a lower net
interest margin. While the net interest margin declined from 3.93% in 1998 to
3.73% in 1999, net interest income was favorably impacted by income gained as
the result of a $9.8 million rise in average earning assets. Average earning
assets were $162.2 million in 1999 versus $152.4 million in 1998. Market
interest rates moved up in the third and fourth quarters of 1999 due in part
to monetary tightening action initiated by the Federal Reserve. The higher
interest rate environment which ensued in the second half of the year served
to put downward pressure on the Bank's net interest margin as interest-bearing
liabilities repriced upward at a quicker pace than interest-earning assets. In
addition, we relied more heavily on borrowings from the Federal Home Loan Bank
of Pittsburgh to purchase investment securities, thereby generating a
comparatively narrow spread which also put downward pressure on the net
interest margin. However, the net interest income earned through this
leveraging activity positively impacts average return on equity and earnings
per share.
Provision for Loan Losses
In 1999, the Bank's loan loss provision decreased by $300,000 or 50.8% from
1998's level, to $290,000. The Bank was able to reduce the provision for 1999
due to the improvement in the quality of the loan portfolio.
Other Income
Other income rose $292,000 or 47.5% in 1999 when compared to 1998. Fee based
income increased in most areas of the Bank's business. Dividend income on
Federal Home Loan Bank Stock increased by $40,000 as higher average borrowings
required the purchase by the Bank of additional stock in the Federal Home Loan
Bank of Pittsburgh. Earnings on life insurance policies purchased on members
of senior management in 1998 reflect a full year of income in 1999 when
compared to 1998. Other operating income increased by $127,000 or 136.6% in
1999 to $220,000 from $93,000 in 1998, due primarily to income generated over
a full year by our third party investment brokerage arrangement with LM
Financial Partners.
Other Expenses
Other expenses increased by 4.2% or $186,000 in 1999. Personnel expenses
were up $147,000 or 6.2%, due primarily to $90,000 in costs associated with
terminating the Bank's defined benefit pension plan. Higher furniture and
equipment expenses resulted from more aggressive depreciation schedules
deployed on certain investments in technology to more accurately reflect the
estimated useful lives of those assets. Other operating expenses declined by
$88,000 in 1999 as comparatively more equipment was taken out of service and
subsequently written-off in 1998, when compared to 1999.
Income Taxes
The Bank's effective tax rate is driven primarily by tax free income
generated by state and municipal investments and loans. In 1999, the effective
tax rate of 27.9% was higher than 1998's 22.8% rate due to the relatively
lower impact of loan charge-offs which totaled $431,000 in 1999 versus
$1,204,000 in 1998.
Analysis of 1998 Compared to 1997
The Bank earned $1,181,000 in 1998, a decrease of $287,000, or (19.6%) from
1997. Earnings per share decreased $.21 per share or 19.0% to $.89 from $1.10
in 1997, taking into account the two-for-one stock split issued in the form of
a dividend in April 1999. These decreases were attributed to a combination of
factors, including a lower net interest margin due to the competitive
environment, a change in the composition of the loan portfolio, with a larger
portion being deployed in consumer installment loans rather than mortgage and
commercial loans where earning yields have traditionally been higher. Higher
levels of non-accrual loans in 1998 also contributed to the lower net interest
margin. Loan loss provisions increased $90,000 in 1998 from 1997 due to higher
levels of non-performing loans. The increase in the provision was deemed
necessary to cover higher levels of non-performing loans in 1998, including
loans to one borrower which required a total charge-off by the Bank of
approximately $731,000 in 1998.
60
<PAGE>
Other income increased $207,000 or 50.9% in 1998 when compared to 1997,
netting out the impact of investment security gains in 1997. Fee based income
increased in all areas of the Bank's business in 1998, including service
charges on deposit accounts as well as other income and fees on loans. Other
operating income increased by $53,000 or 132.5% in 1998 to $93,000 from
$40,000 in 1997, due primarily to income generated by the Bank's third party
investments arrangement with LM Financial Partners. Also, tax-free income
generated by life insurance policies purchased on members of senior management
in 1998 replacing other insurance policies previously in effect had a
favorable impact on other operating income. Income earned from the Bank's
arrangement with LM Financial Partners and on the new life insurance
arrangement was generated in the second half of the year.
In addition, non-interest expenses increased 11.2% or $446,000 in 1998 over
1997 levels. These increases were due primarily to higher expenses associated
with opening the Bank's fourth branch location in York New-Salem, and to
expenses incurred due to the write-off and disposition of older computer
equipment.
The Bank's effective tax rate of 22.8% in 1998 was lower than 1997's rate of
27.9% due to the impact of loan charge-offs which totaled $1,204,000 in 1998.
Financial Condition--Balance Sheet Review
The Bank's total assets increased $7.8 million, or 4.5% in 1999, to $179.5
million from $171.7 million in 1998. Higher levels of investment securities
and loans were funded primarily through new borrowings from the Federal Home
Loan Bank.
Loans
Total loan growth in 1999 was minimal at $1.2 million, or 1.0% and comprised
primarily of higher residential mortgage and consumer loan activity offsetting
lower levels of commercial loans.
Investment Securities
The investment securities portfolio provides a substantial revenue stream to
the Bank, which is second only to the loan portfolio. In addition, investment
securities provide liquidity, as well as collateral for deposits of local
government entities and borrowings at the Federal Home Loan Bank and the
Federal Reserve. Investment securities purchases and sales are supported by a
policy which includes liquidity, interest rate sensitivity, and credit risk
standards. In addition, the investment policy emphasizes long-term objectives,
while providing the flexibility to prudently manage near-term interest rate
risk, liquidity, and overall balance sheet strategies. Total investment
securities were $5.5 million higher in 1999 when compared to 1998 due
primarily to the purchases of U.S. Government Agency and Mortgage-backed
securities which served to more than offset securities which matured or were
called due to the availability of comparatively lower cost funding.
The investment securities portfolio and the respective gains and losses, net
of applicable taxes, are accounted for under FASB Statement of Financial
Accounting Standards No. 115.
Bank Premises and Equipment
Bank premises and equipment declined by approximately $322,000 in 1999, to
$2.4 million, due primarily to depreciation on furniture, fixtures and
equipment. The tract of land which was originally purchased to accommodate the
construction of an operations facility is under contract, subject to the buyer
attaining a satisfactory feasibility study for the intended use and subject
further to various government approvals.
Other Assets
Other assets totaled $7.4 million at December 31, 1999, increasing by
approximately $870,000 over 1998, due primarily to a higher level of Federal
Home Loan Bank stock. Other assets at December 31, 1999 include
61
<PAGE>
$2.7 million in officers' life insurance, $2.2 million in Federal Home Loan
Bank stock, and $1.1 million in accrued interest. In addition, assets
designated as other real estate owned totaled $210,000. A commercial property
located adjacent to the Bank's Loganville office was foreclosed upon in 1999
and transferred into the Bank Premises and Equipment category, subsequent to
the end of the year. It is the Bank's intention to use the property to
accommodate future growth for the Bank's operations area.
Funding Sources
Deposits
The Bank's primary source of funding for its loan and investment portfolios
is its deposit base. Total deposits grew marginally by .52% in 1999 as
competition for time deposits was very strong in the Bank's local market.
Lower time deposit balances were offset by higher money market accounts, due
primarily to growth in a tiered money market account which offers higher rates
tied to a treasury index.
Borrowed Funds
Borrowings have become an increasingly important source of funding and serve
to support the Bank's loan growth strategies. In addition, borrowed funds are
used from time to time to take advantage of investment opportunities. As
indicated previously, borrowings from the Federal Home Loan Bank have funded
the purchase of investment securities, thereby generating a relatively narrow
spread for a specified period of time, while still serving to enhance return
on average equity and earnings per share. Certain borrowings have a guaranteed
fixed interest rate for a period of time, after which the interest rate floats
with a variable index until maturity. An additional provision of these
borrowings allows for the Bank to pay off the respective advance upon its
conversion to a variable rate of interest.
Stockholders' Equity
The Bank's total stockholders' equity was $15.2 million at December 31,
1999, down $.2 million from December 31, 1998. This decrease is due to a $1.2
million decline in accumulated other comprehensive income which reflects lower
valuations in the Bank's investment portfolio net of the income tax impact due
to the higher interest rates at the end of 1999 versus 1998. The increase in
the amounts reflected as common stock is the result of funds being transferred
from retained earnings in order to account for the two-for-one stock split
issued in the form of a 100% stock dividend in 1999.
Dividends declared increased 33%, or $.10 per share in 1999 over the amount
declared in 1998. The dividend payout ratio also increased, however by a
smaller amount, from 33.8% in 1998 to 35.9% as net income was higher in 1999.
The Bank maintains a dividend reinvestment plan for stockholders, providing
them the opportunity to invest their cash dividends and cash payments limited
to $500 per quarter in the Bank's shares of common stock.
The Bank maintains capital adequacy ratios in excess of the limits defined
as "Well Capitalized," pursuant to the Federal Deposit Insurance Corporation
Improvement Act of 1991.
Risk Management
Credit Quality
The Bank maintains a loan policy with established loan underwriting
standards and guidelines. Loans are made to individuals and to business
borrowers located primarily in York County, Pennsylvania and Northern
Maryland. Management recognizes that there are inherent risks associated with
lending activities, and as a result, these risks are continually monitored.
62
<PAGE>
Commercial borrowers experiencing operating difficulties and/or declining
financial trends are placed on the Bank's watch list, and monitored on a
regular basis. The watchlist includes loans which are already past-due for
contractual payments and loans to borrowers believed by management to be at
risk of encountering payment problems in the future. Consumer borrowers are
added to the watch list typically when their individual loans have become
past-due. Part of management's analysis and monitoring process includes an
ongoing assessment of the underlying collateral securing the watch list loans.
This process allows management to determine the relative probability of full
collection of the loan if repossession and liquidation of the collateral
becomes necessary. This information is used to measure the adequacy of the
Bank's loan loss reserve, which is explained further under the heading,
Allowance for Loan Losses.
Nonperforming assets are reflected in Table 2. Assets classified as
nonperforming include loans on non-accrual, loans accruing interest which are
past due by 90 days or more, and real estate and other assets which have been
foreclosed upon and are in the process of liquidation. Loans are generally
placed on non-accrual status when payments are past due by 90 days or more, or
earlier if it is believed by management that full collection of interest and
principal is in doubt. At such time that a loan is placed on non-accrual, any
accrued and unpaid interest accrued in the current year is reversed out of
income in the current year. Unpaid interest accrued in the prior year is
charged to the allowance for loan losses. A loan may be returned to accrued
status if the borrower has performed satisfactorily over a period of time
since the loan was placed on non-accrual, and if management believes that
satisfactory performance will continue going forward.
TABLE 2
Nonperforming Assets
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans.......................... $1,900 $2,070 $2,142 $1,657 $ 526
Accruing loans past due 90 days or more.... 0 5 67 1,459 2,699
Other real estate & other repossessed
assets.................................... 210 278 300 457 0
------ ------ ------ ------ ------
TOTAL NONPERFORMING ASSETS................. $2,110 $2,353 $2,509 $3,573 $3,225
------ ------ ------ ------ ------
Impaired Loans............................. $2,303 $2,160 $2,949 $3,086 $3,319
====== ====== ====== ====== ======
</TABLE>
Non-accrual loans at December 31, 1999 were $1.9 million, slightly less than
the amount reported one year earlier. Throughout 1999, non-accrual loans were
substantially less than 1998, averaging $1.8 million, down from a $3.0 million
average in 1998. Average non-accrual loans were higher in 1998 due primarily
to one borrower whose loans exceeded $1 million and were placed on non-accrual
in the second quarter of 1998. The assets securing the Borrower's loans were
subsequently liquidated in the fourth quarter of 1998 and required a charge-
off by the Bank of approximately $731,000.
Loans reported as impaired under FASB Statement of Financial Accounting
Standards No. 114 include all non-accrual loans and those loans identified by
management where non-compliance with loan terms in the future is deemed
probable.
Allowance for Loan Losses
The allowance for loan losses is used to absorb potential losses incurred on
the Bank's loan portfolio. Charged-off loans are charged directly to the
allowance and recoveries of charged-off loans serve to increase the allowance.
Loans are considered for charge-off when payments from the borrower are 90
days delinquent and are not being received on a regular basis, and when
repayment through repossession and subsequent liquidation of the collateral is
deemed by management to be insufficient to cover the full principal balance.
Please refer to Note E in the Financial Statements which sets forth a five
year history of the Bank's allowance for loan losses. As indicated in Note E,
total charge-offs declined by $773,000 in 1999 from 1998, to
63
<PAGE>
$431,000. The commercial loan category accounted for 94.4% of total loan
charge-offs in 1999, and consisted primarily of three borrowers, with charged-
off amounts ranging between $62,000 and $200,000 per borrower. Commercial
loans accounted for 96.8% of total loan charge-offs in 1998, led by the
$731,000 charge-off discussed earlier. Six borrowers, with charged-off amounts
ranging between $9,000 and $174,000 accounted for the remaining commercial
loan charge-offs in 1998.
Evaluation of the allowance for loan losses is performed periodically by
management to determine the relative adequacy of the allowance to cover future
loan losses. The adequacy test is based on several factors, which include past
and current trends, economic conditions, portfolio composition, delinquency
levels, and estimated collateral valuation of problem loans. Loan categories
(commercial, residential, consumer) are assigned factors based on past charge-
off history and current local and national trends. Using the total loan
balance of each loan category, a dollar amount is computed which serves as an
allocated portion of the allowance. Specific problem loans, which include non-
accrual and impaired loans are evaluated based on the estimated liquidation
value of the underlying collateral. The difference between the specific
problem loan principal balance and the estimated liquidation value of the
collateral is also allocated within the allowance for loan losses. Based on
all relevant information available, management believes the allowance for loan
losses as stated at December 31, 1999 is adequate to cover potential future
loan losses arising from the loan portfolio but there can be no assurance that
the allowance will prove to be adequate or that significant additions to the
allowance will not be required.
Liquidity
The Bank's ability to generate funds needed to support loan volume and
deposit withdrawals are monitored by the Asset and Liability Management
Committee.
Sources of liquidity include regular monthly cashflows from loan repayments,
prepayments of loans which typically increase in a declining interest rate
environment, and the sale of residential mortgage loans. Other sources include
cashflows generated from the investment portfolio, either through established
maturities, prepayments or call provisions, and from an increasing level of
capital due primarily to retained profits. In addition, the Bank maintains
borrowing relationships with correspondent banks, and the Federal Home Loan
Bank of Pittsburgh and at the discount window through the Federal Reserve Bank
of Philadelphia. Borrowing capacity from the Federal Home Loan Bank of
Pittsburgh on December 31, 1999 was approximately $37.3 million, thereby
providing substantial funds availability to meet liquidity needs.
Market Risk--Interest Rate Sensitivity
Interest rate risk can result from a variety of factors including timing
differences in the maturity/repricing of the Bank's assets and liabilities,
the effect of loan prepayments and deposit withdrawals, and the differences in
the behavior of lending and funding rates, sometimes referred to as basis
risk.
The Bank uses gap and simulation analysis to measure interest rate risk.
Under a gap analysis, interest earning assets and interest bearing liabilities
are measured by time frame which reflects scheduled maturity and/or repricing
dates. Estimates on prepayments of the loan and securities portfolios are
projected through evaluation of their respective prepayment histories and
current market conditions in the simulation analysis. Typically, prepayments
on loans and mortgage-backed securities accelerate in periods of declining
rates; and conversely, prepayments typically slow down in a rising interest
rate environment. Table 3 reflects the Bank's simulation analysis as of
December 31, 1999 which includes estimated principal cashflows of the Bank's
interest-bearing assets and liabilities. Estimates of prepayments on loans and
mortgage-backed securities and call activity on other debt instruments are
built into the analysis. Certain interest-bearing liabilities, including NOW
and savings accounts are treated as core deposits in the simulation. Other
variable rate deposits are analyzed with deposits and borrowings that are
scheduled to mature within one year. Current market interest rates as of
December 31, 1999 were used in the simulation. As of December 31, 1999, the
Bank is in a liability sensitive position with liabilities maturing or re-
pricing within one year exceeding assets that mature or re-price in one year
by approximately $43 million. On a cumulative basis, interest sensitive assets
as a percentage of interest
64
<PAGE>
sensitive liabilities are 49.7% within a one year period. It should be noted
that although certain assets and liabilities may share certain similar
characteristics with respect to maturity, repricing, and historical prepayment
velocity, they may react differently in the future based on circumstances and
events at that time, including market and economic conditions as well as the
prevailing level of competition for loans and deposits. In addition, there can
be no assurance that the Bank's assets and liabilities will behave as
estimated in the simulation analysis due to the inherent uncertainty of the
assumptions employed in the model.
TABLE 3
December 31, 1999--Expected Cash Flows (in thousands)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
-------- -------- -------- -------- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Fed Funds Sold
variable rate.......... $ 332 $ -- $ -- $ -- $ -- $ -- $ 332
avg. int. rate......... 5.50% -- -- -- -- -- 5.50%
Debt securities
available for sale
Fixed rate............. 7,699 4,932 3,236 3,393 8,526 15,810 43,596
avg. int. rate......... 6.77% 6.10% 6.52% 6.68% 6.54% 7.14% 6.76%
var. rate.............. 3,899 -- -- -- -- -- 3,899
avg. int. rate......... 7.12% -- -- -- -- -- 7.12%
Loans
Fixed rate............. 21,432 16,807 16,987 14,194 11,933 25,853 107,206
avg. int. rate......... 7.99% 7.99% 8.40% 8.40% 8.16% 7.68% 7.95%
var. rate.............. 9,934 -- -- -- -- -- 9,934
avg. int. rate......... 9.39% -- -- -- -- -- 9.39%
Total interest-bearing
assets
Fixed rate............. 29,131 21,739 20,223 17,587 20,459 41,663 150,802
avg. int. rate......... 7.67% 7.56% 7.79% 7.78% 7.49% 7.47% 7.61%
var. rate.............. 14,165 -- -- -- -- -- 14,165
avg. int. rate......... 8.68% -- -- -- -- -- 8.68%
Liabilities
Interest-bearing
deposits
Fixed rate............. $ 44,870 $ 22,662 $ 1,053 $ 987 $ 688 $ -- $70,260
avg. int. rate......... 4.85% 5.37% 5.15% 5.25% 5.28% -- 5.03%
var. rate.............. 21,333 -- -- -- -- 30,649 51,982
avg. int. rate......... 4.21% -- -- -- -- 1.69% 2.72%
Borrowed funds
Fixed rate............. 19,480 5,017 18 4,018 19 278 28,830
avg. int. rate......... 5.51% 4.75% 3.75% 5.19% 3.75% 3.75% 5.32%
var. rate.............. 1,445 -- -- -- -- -- 1,445
avg. int. rate......... 5.80% -- -- -- -- -- 5.80%
Total interest-bearing
liabilities
Fixed rate............. 64,350 27,679 1,071 5,005 707 278 99,090
avg. int. rate......... 5.05% 5.26% 5.12% 5.20% 5.24% 3.75% 5.11%
var. rate.............. 22,778 -- -- -- -- 30,649 53,427
avg. int. rate......... 4.31% -- -- -- -- 1.69% 2.81%
Interest Rate
Sensitivity Gap:
Cumulative Total....... $(43,832) $(49,772) $(30,620) $(18,038) $1,714 $12,450
Cumulative interest-
earning assets as a
percentage of
cumulative deposits and
cumulative deposits and
borrowings............. 49.7% 56.6% 73.6% 85.1% 101.4% 108.2%
</TABLE>
65
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Glen Rock State Bank
We have audited the accompanying balance sheets of The Glen Rock State Bank
as of December 31, 1999 and 1998, and the related statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Glen Rock State Bank
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1999,
in conformity with generally accepted accounting principles.
York, Pennsylvania
February 3, 2000
66
<PAGE>
THE GLEN ROCK STATE BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
-------- --------
In thousands
<S> <C> <C>
ASSETS
ASSETS
Cash and due from banks................................... $ 5,110 $ 4,546
Interest-bearing deposits in other banks.................. 332 126
Federal funds sold........................................ 863 1,279
Securities:
Available-for-sale...................................... 46,206 40,667
Loans receivable, net..................................... 117,181 115,834
Bank premises and equipment............................... 2,394 2,716
Other assets.............................................. 7,434 6,565
-------- --------
$179,520 $171,733
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand.................................................. $ 11,127 $ 10,517
NOW..................................................... 13,322 13,163
Money market funds...................................... 20,688 15,955
Savings................................................. 17,648 18,191
Certificates of deposit................................. 69,946 74,222
-------- --------
132,731 132,048
Federal Home Loan Bank advances and other borrowings...... 30,275 22,872
Other liabilities......................................... 1,286 1,396
-------- --------
164,292 156,316
STOCKHOLDERS' EQUITY
Common stock, $2 par; authorized 2,000,000 shares; issued
and outstanding 1,335,716 shares, 1999 and 666,454
shares, 1998............................................. 2,671 1,333
Additional paid-in-capital................................ 2,909 2,863
Retained earnings......................................... 10,498 10,880
Accumulated other comprehensive income.................... (850) 341
-------- --------
15,228 15,417
-------- --------
$179,520 $171,733
======== ========
</TABLE>
See notes to financial statements.
67
<PAGE>
THE GLEN ROCK STATE BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1999 1998 1997
-------- -------- --------
In thousands, except per
share data
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........................ $ 9,439 $ 9,348 $ 9,536
Interest on securities:
Taxable......................................... 2,220 2,065 2,051
Tax-exempt...................................... 394 427 434
Other............................................. 222 213 167
-------- -------- --------
12,275 12,053 12,188
INTEREST EXPENSE....................................
Deposits.......................................... 4,894 5,128 5,310
Interest on Federal Home Loan Bank advances and
other borrowings................................. 1,327 999 827
-------- -------- --------
6,221 6,127 6,137
-------- -------- --------
Net interest income........................... 6,054 5,926 6,051
PROVISION FOR LOAN LOSSES........................... 290 590 500
-------- -------- --------
Net interest income after provision for loan
losses....................................... 5,764 5,336 5,551
OTHER INCOME........................................
Service charges on deposit accounts............... 205 216 141
Other service charges and fees.................... 187 157 138
Dividends on Federal Home Loan Bank Stock......... 143 103 88
Earnings on insurance policies.................... 151 45 --
Securities gains.................................. -- -- 52
Other operating income............................ 220 93 40
-------- -------- --------
906 614 459
OTHER EXPENSES......................................
Salaries and employee benefits.................... 2,500 2,353 2,244
Occupancy expense................................. 208 227 156
Furniture and equipment expenses.................. 485 389 295
Provision for loss on sale of other real estate... 43 84 101
Advertising....................................... 169 91 80
Bank shares tax................................... 136 123 111
Other operating expenses.......................... 1,066 1,154 988
-------- -------- --------
4,607 4,421 3,975
-------- -------- --------
Income before income taxes...................... 2,063 1,529 2,035
INCOME TAXES........................................ 576 348 567
-------- -------- --------
NET INCOME.................................... $ 1,487 $ 1,181 $ 1,468
======== ======== ========
BASIC EARNINGS PER SHARE............................ $ 1.11 $ .89 $ 1.10
======== ======== ========
</TABLE>
See notes to financial statements.
68
<PAGE>
THE GLEN ROCK STATE BANK
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Retained Comprehensive
Stock Capital Earnings Income Total
------ ---------- -------- ------------- -------
In thousands
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997..... $ 660 $2,661 $ 9,692 $ 3 $13,016
Comprehensive income:
Net income................. -- -- 1,468 -- 1,468
Net change in unrealized
gain on securities
available-for-sale, net of
income taxes.............. -- -- -- 109 109
------ ------ ------- ------- -------
Total comprehensive
income.................. 1,577
------ ------ ------- ------- -------
Cash dividends declared, $.30
per share................... -- -- (397) -- (397)
Two-for-one stock split in
form of 100% stock
dividend.................... 665 -- (665) -- --
Stock issued (2,346 shares).. 4 133 -- -- 137
------ ------ ------- ------- -------
BALANCE, DECEMBER 31, 1997... 1,329 2,794 10,098 112 14,333
Comprehensive income:
Net income................. -- -- 1,181 -- 1,181
Net change in unrealized
gain on securities
available-for-sale, net of
income taxes.............. -- -- -- 33 33
Transfer of held-to-
maturity securities to
available-for-sale
securities, net of income
taxes..................... -- -- -- 196 196
------ ------ ------- ------- -------
Total comprehensive
income.................. 1,410
------ ------ ------- ------- -------
Cash dividends declared, $.30
per share................... -- -- (399) -- (399)
Stock issued (2,072 shares).. 4 69 -- -- 73
------ ------ ------- ------- -------
BALANCE, DECEMBER 31, 1998... 1,333 2,863 10,880 341 15,417
Comprehensive income:
Net income................. -- -- 1,487 -- 1,487
Net change in unrealized
gain on securities
available-for-sale, net of
income taxes.............. -- -- -- (1,191) (1,191)
------ ------ ------- ------- -------
Total comprehensive
income.................. 296
------ ------ ------- ------- -------
Cash dividends declared, $.40
per share................... -- -- (534) -- (534)
Two-for-one stock split in
form of 100% stock
dividend.................... 1,335 -- (1,335) -- --
Stock issued (1,404 shares).. 3 46 -- -- 49
------ ------ ------- ------- -------
BALANCE, DECEMBER 31, 1999... $2,671 $2,909 $10,498 $ (850) $15,228
====== ====== ======= ======= =======
</TABLE>
See notes to financial statements.
69
<PAGE>
THE GLEN ROCK STATE BANK
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
In thousands
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income..................................... $ 1,487 $ 1,181 $ 1,468
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation................................. 383 275 210
Amortization and accretion on securities..... 2 (10) 34
Provision for loan losses.................... 290 590 500
Deferred income taxes (benefit).............. 170 337 (96)
Realized (gains) losses on sales of:
Available-for-sale securities.............. -- -- (52)
Equipment.................................. 22 80 --
Other real estate owned.................... 43 54 1
Loans held for resale...................... (20) (2) (2)
Increase in other assets..................... (420) (2,902) (894)
Decrease in other liabilities................ (44) (580) (178)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.............................. 1,913 (977) 991
INVESTING ACTIVITIES
Net decrease (increase) in:
Interest-bearing deposits in other banks..... (206) (14) 98
Federal funds sold........................... 416 (579) 2,815
Proceeds from sales and maturities of:
Available-for-sale securities................ 12,141 7,884 14,827
Held-to-maturity securities.................. -- 3,042 1,935
Purchases of:
Available-for-sale securities................ (19,487) (5,459) (11,610)
Held-to-maturity securities.................. -- (4,423) (9,900)
Net increase in loans.......................... (2,154) (10,952) (5,811)
Purchases of bank premises and equipment....... (104) (335) (1,049)
Proceeds from sale of other real estate owned.. 510 809 178
Proceeds from sale of equipment................ -- 2 --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES.... (8,884) (10,025) (8,517)
FINANCING ACTIVITIES
Net increase (decrease) in:
Deposits..................................... $ 683 $ 6,328 $ (363)
Federal Home Loan Bank advances and other
borrowings.................................. 7,403 4,143 9,231
Issuance of common stock....................... 49 73 137
Cash dividends paid............................ (600) (399) (347)
-------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. 7,535 10,145 8,658
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 564 (857) 1,132
Cash and cash equivalents at beginning of year... 4,546 5,403 4,271
-------- -------- --------
Cash and cash equivalents at end of year......... $ 5,110 $ 4,546 $ 5,403
======== ======== ========
</TABLE>
See notes to financial statements.
70
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
Note A--Summary of Significant Accounting Policies
Nature of Operations
The Glen Rock State Bank operates four branches in suburban communities in
south central Pennsylvania. The Bank primarily provides financial services to
small and middle market businesses and to individuals.
Management Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and, to a
much lesser extent, the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of the allowances for losses on loans and foreclosed real estate, management
obtains independent appraisals for significant properties.
Securities
The Bank currently accounts for its investments in equity securities that
have readily determinable fair values and for all investments in debt
securities in accordance with the provisions of Statement of Financial
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". All affected investment securities are classified at the
time of acquisition as either trading, available-for-sale, or held-to-maturity
and such classifications are reevaluated at each balance sheet date or more
frequently if deemed necessary. Trading securities are carried at fair value
with realized and unrealized gains and losses included in net income. At
December 31, 1999, 1998 and 1997, there were no securities held in the
portfolio classified as trading.
Available-for-sale securities are carried at fair value with unrealized
gains and losses reported as a component of stockholders' equity. Held-to-
maturity securities are carried at cost adjusted for amortization of premiums
and accretion of discounts, both computed on the interest method. Held-to-
maturity securities primarily consist of debt securities. Interest and
dividends on securities are recognized as income when earned. Gains or losses
on the sale of securities are determined using the specific identification
method. At December 31, 1999 and 1998 there were no securities held in the
portfolio classified as held-to-maturity.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends on the intended use of the derivative and the resulting
designation. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge
of the exposure to variable cash flows of a forecasted transaction, or (c) a
hedge of certain foreign currency exposures. This statement was to become
effective for fiscal years beginning after June 15, 1999. Earlier adoption was
encouraged. In June 1999 SFAS No. 137 was issued deferring the effective date
of SFAS No. 133 to all years beginning after June 15, 2000. The Bank had
adopted SFAS No. 133 in its fourth fiscal quarter of
71
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
1998, including its provision for the potential reclassification of
investments, resulting in a $15,084,000 transfer of securities from held-to-
maturity to available-for-sale and an increase of $196,000 of unrealized
gains, net of taxes, on securities available-for-sale. The adoption of this
statement did not affect operating results of the Bank. As of December 31,
1999 the Bank had not entered into any derivative instruments which would
require these accounting and reporting standards to be effective in light of
the Bank's early adoption of SFAS No. 133.
Loan Revenue Recognition
Interest on loans is accrued and credited to operations based upon principal
amounts outstanding.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and amortized as an adjustment of the related loan's yield,
generally over the contractual life of the related commitments or loans.
Loans are generally placed on a nonaccrual basis when principal or interest
is past due 90 days or more and when, in the opinion of management, full
collection of principal or interest is unlikely. After a loan is placed on
nonaccrual status, income is recognized only to the extent of cash received if
collection of principal is not in doubt.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate to
absorb potential loan losses. The determination of the adequacy of the
allowance is based upon reviews of individual loans, recent loss experience,
current economic conditions, the risk characteristics of the various
categories of loans and other pertinent factors. Loans deemed uncollectible
are charged to the allowance. Provisions for loan losses and recoveries on
loans previously charged off are added to the allowance.
Other Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are
initially recorded at fair value at the date of foreclosure establishing a new
cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of the Bank's cost or
fair value less estimated costs to sell. Revenue and expenses from operations
and additions to the valuation allowance are included in losses on other real
estate.
Bank Premises and Equipment
Land is carried at cost. Bank premises and furniture and equipment are
carried at cost, less accumulated depreciation and amortization computed
principally on the straight-line method over the estimated useful lives of the
various assets.
Change in Accounting Estimate
During 1999, the Bank reviewed the estimated useful lives of certain
technology equipment. Previously these fixed assets were being depreciated
over a period of four to ten years. These assets are now being depreciated
over three years to better reflect the estimated periods during which such
assets will remain in service. The change had the effect of increasing
depreciation expense and decreasing income before income taxes by $59,000.
72
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Income Taxes
Income taxes include federal income taxes currently payable and those
deferred or prepaid because of temporary differences between financial
statement and tax basis of assets and liabilities.
Deferred income tax assets and liabilities are determined based on the
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities. These differences are measured at the enacted
tax rates expected to be in effect when these differences reverse. As changes
in tax laws or rates are enacted, deferred income tax assets and liabilities
are adjusted through the provision for income taxes.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business the Bank has entered into off-balance-
sheet financial instruments consisting of commitments to extend credit,
commercial letters of credit, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they are funded.
Basic Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted-
average number of common shares outstanding during the year. The weighted-
average shares outstanding, giving effect to the two-for-one stock split
effected in the form of a stock dividend, were as follows: 1999, 1,335,716
shares; 1998, 1,330,454 shares; and 1997, 1,328,764 shares. The Bank does not
have dilutive potential common shares outstanding during any of the years.
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" was adopted as of January 1,
1998. Accounting principles generally require that recognized revenue,
expenses, gains and losses be included in income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available-for-
sale securities, are reported as a separate component of the equity section on
the balance sheet, such items, along with net income, are components of
comprehensive income. The adoption of SFAS No. 130 had no effect on the Bank's
net income or shareholders' equity other than expanded disclosure.
Reclassifications
Certain amounts in the 1998 and 1997, financial statements have been
reclassified for comparative purposes to conform with the presentation in the
1999 financial statements.
Note B--Supplemental Cash Flows Disclosures
Cash payments of interest expense and income taxes were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
In thousands
<S> <C> <C> <C>
Interest paid......................................... $6,335 $6,680 $6,123
====== ====== ======
Income taxes paid..................................... $ 503 $ 305 $ 545
====== ====== ======
</TABLE>
73
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Excluded from the statements of cash flows was the effect of certain noncash
investing activities. Such exclusions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ---- ----
In thousands
<S> <C> <C> <C>
Unrealized gain (loss) on securities available-for-
sale:
Net change in unrealized gain (loss) on securities
available-for-sale, net of income taxes (benefit) of
($614,000), 1999, $118,000, 1998, and $56,000,
1997................................................ $(1,191) $229 $109
======= ==== ====
Real estate acquired as a result of foreclosure of
loans................................................. $ 537 $434 $404
======= ==== ====
</TABLE>
Note C--Restrictions on Cash and Due From Bank Accounts
The Bank is required to maintain certain average reserve balances as
established by the Federal Reserve Bank and other correspondent banks. The
average amounts of these restricted balances for the years ended December 31,
1999 and 1998 were $1,025,000. Balances at correspondent banks normally exceed
federal deposit insurance limits with individual institutions. Management
periodically reviews the financial stability of these institutions.
Note D--Securities
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
In thousands
<S> <C> <C> <C> <C>
December 31, 1999
Available-for-sale securities:
U.S. Treasury................ $ 4,748 $-- $ 52 $ 4,696
U.S. Government agencies..... 11,675 -- 417 11,258
State and political
subdivisions................ 8,073 21 289 7,805
Mortgage-backed.............. 19,099 4 438 18,665
Corporate notes and bonds.... 3,899 -- 117 3,782
------- ---- ------ -------
$47,494 $ 25 $1,313 $46,206
======= ==== ====== =======
December 31, 1998
Available-for-sale securities:
U.S. Treasury................ $ 6,257 $135 $ -- $ 6,392
U.S. Government agencies..... 4,050 22 -- 4,072
State and political
subdivisions................ 8,150 201 -- 8,351
Mortgage-backed.............. 17,727 334 39 18,022
Corporate notes and bonds.... 3,966 -- 136 3,830
------- ---- ------ -------
$40,150 $692 $ 175 $40,667
======= ==== ====== =======
</TABLE>
The amortized cost and fair value of securities at December 31, 1999, as
presented in the following table, are segregated by contractual maturity.
Applicable contractual principal amortization schedules were utilized,
adjusted for annual prepayment assumptions based on actual experience.
Expected maturities may differ from
74
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
contractual maturities because the issuers of the securities may have the
right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
U.S. Treasury and Other
U.S. Government
Agencies and State and Mortgage-Backed Corporate Notes
Political Subdivisions Securities and Bonds Total
------------------------ ------------------- ------------------- -------------------
Estimated Estimated Estimated
Amortized Estimated Amortized Fair Amortized Fair Amortized Fair
Cost Fair Value Cost Value Cost Value Cost Value
----------- ----------- --------- --------- --------- --------- --------- ---------
In thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale:
Due in one year or
less................. $ 1,909 $ 1,909 $ -- $ -- $ -- $ -- $ 1,909 $ 1,909
Due after one year
through five years... 13,489 13,251 1,663 1,632 -- -- 15,152 14,883
Due after five years
through ten years.... 3,097 3,063 3,135 3,104 -- -- 6,232 6,167
Due after ten years... 6,001 5,536 14,301 13,929 3,899 3,782 24,201 23,247
----------- ----------- ------- ------- ------ ------ ------- -------
$ 24,496 $ 23,759 $19,099 $18,665 $3,899 $3,782 $47,494 $46,206
=========== =========== ======= ======= ====== ====== ======= =======
</TABLE>
Securities with an amortized cost of $11,988,000 on December 31, 1999 and
$3,995,000 on December 31, 1998 were pledged to secure public deposits and for
certain other purposes as required by law.
Gross realized gains and losses of securities were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
In thousands
<S> <C> <C> <C>
Available-for-sale securities:
Gross realized gains...................................... $-- $-- $52
Gross realized losses..................................... -- -- --
---- ---- ---
$-- $-- $52
==== ==== ===
</TABLE>
Note E--Loans Receivable
The major components of the loan portfolio at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
In thousands
<S> <C> <C>
Commercial, financial and agricultural................. $ 58,235 $ 61,811
Real estate, construction.............................. 535 229
Real estate, mortgage.................................. 25,935 23,978
Home equity lines of credit............................ 1,540 1,443
Installment loans to individuals....................... 29,154 27,146
Student loans.......................................... 3,644 3,242
-------- --------
119,043 117,849
Less:
Deferred fees, net................................... (342) (361)
Allowance for loan losses............................ (1,520) (1,654)
-------- --------
$117,181 $115,834
======== ========
</TABLE>
75
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The primary market area for the Bank's loan originations is south central
Pennsylvania and northern Maryland. The commercial loan portfolio has been
evaluated by management to determine if any significant concentrations of
credit risk exist based upon standard industry codes. The results of this
evaluation revealed no group of loans in similar industries that exceeded ten
percent (10%) of the Bank's commercial loan portfolio at December 31, 1999.
The evaluation revealed a concentration in residential real estate investment
of 10.4% at December 31, 1998. These results differ from the grouping of real
estate investment, real estate development and restaurant loans in one group
that had been used in prior years.
Non-accrual loans at December 31, 1999 and 1998 were $1,900,000 and
$2,070,000, respectively.
Interest income that would have been recorded under the original terms of
nonaccrual loans totaled $245,000, $359,000, and $254,000 for 1999, 1998 and
1997, respectively. Interest income on these loans, which is recorded only
when received and collection of principal is not in doubt, was $0, $12,000 and
$36,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
An analysis of the allowance for loan losses for the years ending December
31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
In thousands
<S> <C> <C> <C> <C> <C>
Balance at beginning of year............. $1,654 $2,265 $1,977 $1,619 $1,474
Charge-offs............................
Commercial........................... 407 1,166 230 93 221
Residential.......................... -- 25 -- 34 50
Consumer............................. 24 13 17 8 6
------ ------ ------ ------ ------
Total charge-offs.................... 431 1,204 247 135 277
Recoveries........................... 7 3 35 13 2
------ ------ ------ ------ ------
Net charge-offs/(recoveries)......... 424 1,201 212 122 275
Provision charged to operations...... 290 590 500 480 420
------ ------ ------ ------ ------
Balance at year-end...................... $1,520 $1,654 $2,265 $1,977 $1,619
====== ====== ====== ====== ======
</TABLE>
Impairment of loans having recorded investments of approximately $2,303,000
at December 31, 1999 and $2,160,000 at December 31, 1998 has been recognized.
The total allowance related to these loans was $303,000 and $370,000 at
December 31, 1999 and 1998, respectively. Interest income on impaired loans of
approximately $42,000, $81,000 and $171,000 was recognized for cash payments
received in 1999, 1998, and 1997 respectively. Management has determined that
the average recorded investment in impaired loans during 1999 and 1998 is
approximately $2,355,000 and $4,021,000, respectively.
The Bank services mortgage loans that it has sold to Fannie Mae. As of
December 31, 1999 and 1998, the principal balance of loans the Bank was
servicing was $8,734,000 and $9,216,000, respectively. Servicing fee income
for the years ended December 31, 1999, 1998, and 1997 were $23,000, $26,000,
and $13,000, respectively. As of December 31, 1999 and 1998, the Bank did not
have any mortgage loans that were classified as available-for-sale.
Certain directors and executive officers of the Bank and their affiliates
are customers of the Bank. Any transactions with such parties, including loans
and commitments, were in the ordinary course of business at normal terms,
including interest rates and collateralization, prevailing at the time
consummated and did not represent more than normal risks. The aggregate amount
of loans and commitments to such related parties at
76
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
December 31, 1999 and 1998 were $409,000 and $380,000, respectively. During
1999, new loans and commitments to such related parties were $300,000 and
repayments aggregated $271,000.
Note F--Bank Premises and Equipment
A summary of bank premises and equipment is as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
In thousands
<S> <C> <C>
Land..................................................... $ 478 $ 500
Buildings and improvements............................... 1,900 1,897
Furniture and equipment.................................. 1,840 1,851
------- -------
4,218 4,248
Accumulated depreciation................................. (1,824) (1,532)
------- -------
$ 2,394 $ 2,716
======= =======
</TABLE>
Note G--Deposits
The aggregate amounts of certificates of deposit with a minimum denomination
of $100,000 were approximately $7,366,000 and $8,460,000 at December 31, 1999
and 1998, respectively. Interest expense on certificates of deposit with a
minimum denomination of $100,000 amounted to approximately $416,000 in 1999,
$455,000 in 1998, and $514,000 in 1997.
At December 31, 1999, the scheduled maturities of certificates of deposits
are as follows:
<TABLE>
<CAPTION>
Amount
------------
In thousands
<S> <C>
2000.......................................................... $44,549
2001.......................................................... 22,669
2002.......................................................... 1,053
2003.......................................................... 988
2004.......................................................... 687
-------
$69,946
=======
</TABLE>
77
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Note H--Federal Home Loan Bank (FHLB) Advances and Other Borrowings
Borrowings consist of the following:
<TABLE>
<CAPTION>
Maturity Interest Rate 1999 1998
-------- ----------------------- ------- -------
In thousands
<S> <C> <C> <C>
1999 5.09%, fixed $ -- $ 5,000
2000 4.06%, variable 1,445 --
2000 6.25%, fixed 2,880 --
2000 5.73%, fixed 2,000 --
2000 5.73%, fixed 585 --
2000 5.66%, fixed 5,000 --
2000 5.82%, fixed 1,500 --
2002 5.51%, fixed until 1999 -- 5,000
2008 5.15%, fixed until 2000 5,000 5,000
2008 4.70%, fixed until 2000 2,500 2,500
2008 4.75%, fixed until 2001 5,000 5,000
2009 5.20%, fixed until 2003 4,000 --
2015 3.75%, fixed 365 372
------- -------
$30,275 $22,872
======= =======
</TABLE>
All borrowings are with the FHLB except for the $2,880,000 borrowing with
Bear Stearns, which is secured by a pledged security. The borrowings that are
due in 2008 and 2009 have an option for the FHLB to convert the rate to a
floating rate after expiration of the fixed rate period. The subsequent
floating rate is subject to quarterly adjustments until maturity. The Bank has
the option to pay off the loan on each quarterly adjustment date. The loan due
in 2015 is the only loan that requires principal payments. Principal payments
scheduled for 2000, 2001, 2002, 2003, and 2004 and thereafter are $8,000,
$8,000, $8,000, $8,000, and $333,000, respectively. The FHLB notes are secured
by qualifying assets. Included in other assets is the value of FHLB stock of
$2,259,000 at December 31, 1999.
The FHLB of Pittsburgh has an established credit policy which permits the
borrowing of amounts up to the Bank's MBC (Maximum Borrowing Capacity) which
is calculated on the "Qualifying Collateral" assets at a negotiated interest
rate. At December 31, 1999 and 1998, additional borrowings available under
this policy were approximately $37,268,000 and $44,600,000, respectively.
A credit agreement with the Federal Reserve Bank of Philadelphia permits the
Bank to borrow to meet short-term liquidity requirements in amounts up to
$800,000. At December 31, 1999 and 1998, there were no borrowings under this
credit agreement.
The Bank arranged for a special credit agreement with the Federal Reserve
Bank of Boston whereby the Bank could borrow to meet short-term liquidity
requirements in amounts up to $6,000,000. This arrangement was to address any
liquidity needs that might arise in connection with the Year 2000 issues. This
arrangement provided funding for a short time before and after December 31,
1999. At December 31, 1999, there were no borrowings under this credit
agreement.
78
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Note I--Income Taxes
Federal income taxes consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
In thousands
<S> <C> <C> <C>
Current payable........................................... $499 $ 11 $663
Deferred taxes (benefit).................................. 77 337 (96)
---- ---- ----
Total income taxes...................................... $576 $348 $567
==== ==== ====
</TABLE>
The provision for income taxes includes $18,000 in 1997, of applicable
income tax related to gains on sales of securities of $52,000.
Deferred income taxes result from temporary differences in the recognition
of income and expense for tax and financial statement reporting purposes. The
source of those temporary differences and the related tax effect are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- -----
In thousands
<S> <C> <C> <C>
Loan fee income........................................ $ 5 $ 29 $ 27
Loan losses............................................ 57 290 (132)
Depreciation........................................... (6) (3) 7
Pension................................................ (25) 14 45
Earnings on insurance policies......................... 37 11 --
Other.................................................. 9 (4) (43)
---- ---- -----
Deferred taxes (benefit)............................... $ 77 $337 $ (96)
==== ==== =====
</TABLE>
Income tax expense is different from the amounts computed by applying the
statutory federal income tax rate to income before income taxes because of the
following:
<TABLE>
<CAPTION>
Percentage of
Income Before
Income Taxes
-----------------
1999 1998 1997
---- ----- ----
<S> <C> <C> <C>
Income tax expense at federal statutory rate............ 34.0% 34.0% 34.0%
Tax-exempt interest income.............................. (6.1) (10.5) (6.1)
Effect of graduated tax brackets........................ -- (.7) --
---- ----- ----
Effective tax rate...................................... 27.9% 22.8% 27.9%
==== ===== ====
</TABLE>
79
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
In thousands
<S> <C> <C>
Deferred tax assets:
Deferred loan fees........................................ $ -- $ 2
Allowance for loan losses................................. 365 422
Collateral mortgage obligations........................... 18 17
Alternative minimum tax................................... -- 93
Securities valuation adjustment........................... 438 --
Interest income on nonaccrual loans....................... 62 68
------ ------
883 602
Deferred tax liabilities:
Depreciation and amortization............................. 102 108
Pension liability......................................... -- 25
Investment accretion...................................... 18 11
Securities valuation adjustment........................... -- 176
Earnings on insurance policies............................ 48 11
------ ------
168 331
------ ------
Net deferred tax asset.................................. $ 715 $ 271
====== ======
</TABLE>
Management has determined that a valuation reserve for the net deferred tax
asset is not required since it is more likely than not that the net deferred
tax asset can be realized through carry back to taxable income in prior years
and future reversals of existing taxable temporary differences.
Note J--Stock Incentive Plan
A stock incentive plan was established in 1999. The plan was approved by
shareholders in 1999 authorizing 140,000 shares for grants of options, as
restated for the two for one stock split in the form of a 100% stock dividend
in 1999. Options granted under the plan are subject to ten year terms and vest
and become fully exercisable at the end of three years of continued
employment. The plan is accounted for in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25. Therefore, no compensation
cost has been recognized in the financial statements. Had the Bank applied the
provisions of Statement of Financial Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", the Bank would have recognized compensation expense
based on the prevailing fair value of the options on their respective grant
dates. The Bank's net income and earnings per share for 1999 would have been
reduced to the pro forma amounts as shown below.
<TABLE>
<CAPTION>
In Thousands
------------
<S> <C>
Net Income
As reported................................................. $1,487
Pro forma................................................... $1,428
Earnings per Share
As reported................................................. $ 1.11
Pro forma................................................... $ 1.07
</TABLE>
80
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Fair value of the options is determined using the Black-Scholes option
pricing model, which requires certain significant assumptions as follows:
<TABLE>
<S> <C>
Risk-free interest rate........................................... 6.0%
Expected life..................................................... 10 Years
Expected volatility............................................... 9.22%
Expected dividends................................................ 2.5%
</TABLE>
Following is a summary of the options granted under the plan.
<TABLE>
<CAPTION>
Exercise
Options Price
------- --------
<S> <C> <C>
Granted, December 1, 1999................................. 18,692 $16.00
Exercised................................................. -- --
Forfeited................................................. -- --
------ ------
Outstanding, December 31, 1999............................ 18,692 $16.00
====== ======
Exercisable, December 31, 1999............................ -- --
====== ======
</TABLE>
Note K--Dividend Reinvestment Plan
The Bank has a Dividend Reinvestment and Common Stock Purchase Plan which
provides each stockholder of fifty or more shares of common stock a method of
purchasing additional common shares without payment of any brokerage
commission, service charge, or other similar expense. A participant in the
Plan may direct any cash dividends paid on their shares of common stock toward
automatic investment in additional shares of common stock. All participants
who are eligible to participate in the Plan may also elect to make voluntary
cash payments of not less than $100 or more than $500 per quarter. A
participant may withdraw from the Plan at any time.
The Plan Agent may purchase shares from the Bank or in the open market for
the Reinvestment and Purchase Plan. The price of shares purchased from the
Bank by a participant in the Plan will be the average of the low bid and high
asked quotations for the shares obtained by the Plan Agent on the purchase
date or, if no such bid and asked prices are quoted on that date, the most
recent prior date on which such prices were quoted. The purchase price per
share allocated to each participant will be the participant's pro rata portion
of the actual price of all shares purchased under the Plan at each dividend
date.
Note L--Retirement Plan
The Bank has a defined contribution retirement plan which covers a
significant number of its employees. The Plan provides for a qualified
matching contribution by the Bank. The Plan is intended to provide retirement
benefits in return for services rendered, to provide an individual account for
each participant, and to have terms that specify how contributions to the
participant's account are to be determined rather than the amount of pension
benefits the participant is to receive. Beginning in the fourth quarter of
1999, the Bank increased the amount of the qualified matching contribution.
The expense for the defined contribution plan was $24,000, $17,000 and $14,000
in 1999, 1998 and 1997, respectively.
The Bank's noncontributory defined benefit pension plan was terminated as of
September 30, 1999. The Bank has filed for government approvals for the plan
termination and intends to pay out the assets as Plan benefits once those
approvals are received. A complete curtailment of benefits has occurred and
the actual settlement of the Plan benefits is expected to take place during
the second or third quarter of 2000.
81
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The following table provides a reconciliation of the change in the plan's
benefit obligations and fair value of assets as of September 30, 1999, the date
of Plan termination.
<TABLE>
<CAPTION>
Before Effect of After
Termination Termination Termination
----------- ----------- -----------
In thousands
<S> <C> <C> <C>
Assets and obligations:
Accumulated benefit obligation..... $(1,619) $ 1,619 $ --
------- ------- -----
Effects of projected future
compensation...................... (28) 28 --
------- ------- -----
Projected benefit obligation....... (1,647) 1,647 --
Plan assets at fair value.......... 1,446 (1,446) --
Cash contribution.................. (173) --
Items not yet recognized:
Unrecognized net gain............ 28 (28) --
------- ------- -----
Accrued pension expense............ $ (173) $ -- $ --
======= ======= =====
</TABLE>
The net periodic pension expense for the years ending December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
In thousands
<S> <C> <C> <C>
Service costs............................................ $ 71 $ 81 $ 81
Interest cost............................................ 72 87 75
Expected return on assets................................ (71) (76) (68)
Net amortization and deferral............................ -- (8) (7)
Net loss from curtailment................................ 101 -- --
---- ---- ----
Net periodic pension expense........................... $173 $ 84 $ 81
==== ==== ====
</TABLE>
The following rates were used in determining the actuarial present value of
the projected benefit obligations:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Discount rate.............................................. 6.00% 6.25%
Rate of increase in future compensation.................... 3.00% 3.00%
Expected return on plan assets............................. 6.50% 6.25%
Note M--Financial Instruments With Off-Balance-Sheet Risk
Financial instruments with off-balance-sheet risk are summarized as follows:
<CAPTION>
1999 1998
------- ------
In thousands
<S> <C> <C>
Commitments to extend credit:
Loan origination commitments............................. $ 4,125 $ 812
Unused lines of credit................................... 8,755 8,310
------- ------
$12,880 $9,122
======= ======
Standby letters of credit.................................. $ 594 $ 773
======= ======
</TABLE>
82
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of conditions established in the commitment agreement.
Commitment agreements generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amount does not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case basis using
the same credit policies in making commitments and conditional obligations as
it does for on-balance-sheet instruments. The amount of collateral obtained,
if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation and generally consists of receivables,
inventory, and real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers. The Bank holds collateral, when deemed
necessary, supporting those commitments.
Note N--Disclosures About Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments". The estimated fair
value amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that could be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The information presented is based on pertinent information available to
management as of December 31, 1999 and 1998. Although management is not aware
of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued since that time
and current estimated fair value of these financial instruments may have
changed significantly.
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
In thousands
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks............ $ 5,110 $ 5,110 $ 4,546 $ 4,546
Interest-bearing deposits in other
banks............................. 332 332 126 126
Federal funds sold................. 863 863 1,279 1,279
Securities, available-for-sale..... 46,206 46,206 40,667 40,667
Loans receivable, net.............. 117,181 115,923 115,834 116,156
Interest receivable................ 1,066 1,066 934 934
Financial liabilities:
Demand deposits.................... 11,127 11,127 10,517 10,517
NOW deposits....................... 13,322 13,322 13,163 13,163
Money market funds deposits........ 20,688 20,688 15,955 15,955
Savings deposits................... 17,648 17,648 18,191 18,191
Certificates of deposit............ 69,946 69,986 74,222 74,639
Federal Home Loan Bank advances and
other borrowings.................. 30,275 29,760 22,872 22,872
Interest payable................... 844 844 850 850
</TABLE>
83
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which it is practicable to estimate
that value. For short-term instruments, the carrying amount is a reasonable
estimate of fair value. The fair value of investment securities is based on
quoted market prices, dealer quotes and prices obtained from independent
pricing services. For floating rate loans which experienced no significant
change in credit risk and for deposits with floating interest rates, it is
presumed that estimated fair values generally approximate the carrying amount.
The fair value of fixed rate loans and time deposits is estimated by
discounting cash flows using estimated market discount rates. Management
believes that the risk factor embedded in the currently offered rates results
in a fair valuation of the loan portfolio. The primary risks included in the
risk factor are credit risk and prepayment risk. Rates currently available to
the Bank for debt with similar terms and remaining maturities are used to
estimate fair value of other borrowings.
There is no material difference between the notional amount and the
estimated fair value of off-balance-sheet items which total approximately
$13,474,000. Off-balance-sheet items are primarily comprised of unfunded loan
commitments, which are generally priced at market at the time of funding.
Note O--Contingent Liabilities
The Bank is a party to litigation and claims arising in the normal course of
business. Management, after consultation with legal counsel, believes that the
liabilities, if any, arising from such litigation and claims will not be
material.
Note P--Regulatory Capital Requirements
Quantitative measures established by regulation to ensure capital adequacy
requires maintaining minimum amounts and ratios of total and Tier 1 capital to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1999, that the Bank meets capital adequacy
requirements to which they are subject. Tier 1 Capital includes common stock,
additional paid in capital and retained earnings. Tier 2 includes the
allowance for loan loss, up to a maximum of 1.25% of risk-weighted assets. The
leverage ratio divides Tier 1 capital by total assets.
The following table presents the total risk-based, Tier 1 risk-based and
Tier 1 leverage requirements for the Bank as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
In thousands
<S> <C> <C>
Tier 1 capital.......................................... $ 16,078 $ 15,076
Tier 2 capital.......................................... 1,498 1,655
-------- --------
$ 17,576 $ 16,731
======== ========
Risk-weighted on-balance sheet assets................... $110,511 $104,716
Risk-weighted off-balance sheet exposure................ 9,349 9,083
-------- --------
Total risk-weighted assets.............................. $119,860 $113,799
======== ========
Ratios:
Tier 1 risk-weighted capital ratio...................... 13.4% 13.2%
Minimum required for December 31........................ 4.0% 4.0%
Total risk-weighted capital ratio....................... 14.7% 14.7%
Minimum required for December 31........................ 8.0% 8.0%
Tier 1 leverage ratio................................... 9.0% 8.8%
Minimum required for December 31........................ 4.0% 4.0%
</TABLE>
84
<PAGE>
THE GLEN ROCK STATE BANK
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1999, 1998 and 1997
Note Q--Year 2000 Matters
The Year 2000 matter has passed without any disruptions of business. We have
not become aware of any third party vendors or commercial customers that
reported any significant problems. Cash inventories were increased at the end
of 1999 to be prepared for possible customer withdrawals. The Bank experienced
no liquidity problems and excess cash was reduced through the course of
regular business activity. In addition, excess cash was returned to the
Federal Reserve Bank within the first ten business days of January 2000. The
Bank will continue to monitor its systems, third party vendors and commercial
customers. The full impact of the Year 2000 issues, if any, may not be
determinable until later in 2000.
85
<PAGE>
CUSTOMER SERVICE STAFF
<TABLE>
<S> <C> <C>
Glen Rock Office Ruth A. Baer, Head Teller Gloria Hammerstein
Teila Eveler Pamela J. McKnight
Christine E. Goodling Llewella Tracey
New Freedom Office Robin G. Neutzel, Head Teller Fern V. Boyer
Sherri Badders Renee Edwards
Marci Bostdorf
Linda Brose
Loganville Office Deborah A. Rush, Head Teller Marie Lewis
Vardella Diehl Lorraine McClain
Amanda Gentzler Linda A. Markey
Salem Heights Office Crystal Torbert, Head Teller
Heidi Ferree
Bethany Walker
Floating Tellers Daisy Brenneman
Mindy Sweitzer
LM Financial Partners, Inc.
At The Glen Rock State Bank
John Russell
Linda Deveney
</TABLE>
OPERATIONS CENTER STAFF
Deposit Processing Supervisor Data Processing Supervisor
Shirley M. Wilt Carla J. Rebert
Loan Processing Supervisor Branch Support Specialist
Tammy S. Meckley Lois Glatfelter
Deposit Processor I Deposit Processor II
Sandra Bortner Mya Krebs
Candace S. Riley Luann Mundis
Sandra Nafe Brenda Talley
Tanna Sechrist Joyce Whitcraft
Loan Processors Data Processors
Sandra M. Roginski Leah Thomason
Carolyn Smith Laurie Winemiller
Linda M. Yoakum
Credit Officer
Mortgage Underwriter/Processor Kyna Sechrist
Lori Hohman
Kim Raffensperger Compliance/Resource Recovery Officer
Cara Lynn Clabaugh
Communications Staff
Mary Bondurant Courier Service
Elsie Joines Robert Schlaline
Cindy Miller L. Gene McCullough, Assistant
NOTICE TO SHAREHOLDER
ANNUAL DISCLOSURE STATEMENT--Notice of Availability
Financial information about this bank (The Glen Rock State Bank) is
available to our shareholders, customers and general public on request.
In accordance with Federal regulations to facilitate more informed
decision making by depositors, investors and the general public, we
will provide an ANNUAL DISCLOSURE STATEMENT containing financial
information for this bank for the previous two years. This information
will be updated annually and available as of March 31.
TO OBTAIN A COPY OF THE ANNUAL DISCLOSURE STATEMENT please contact:
Robert G. Coradi
The Glen Rock State Bank
P.O. Box 127
Glen Rock, PA 17327
(717) 235-1200
<PAGE>
September 30, 2000 Quarterly Report
The Glen Rock State Bank
The Neighbor You Can Count On
Glen Rock Office Loganville Office
57-59 N. Main St. 234 N. Main St.
8:30 to 5:00 Monday thru Thursday 8:30 to 5:00 Monday thru Wednesday
8:30 to 8:00 Friday 8:30 to 7:00 Thursday and Friday
(717) 235-1200 (717) 428-1199 or (717) 235-1200
New Freedom York New Salem
Office Salem Heights Office
Corner of Susquehanna Trail Corner of Noss Road
and Freedom Road and Rt. 616
8:30 to 5:00 Monday thru Wednesday 8:30 to 5:00 Monday thru Wednesday
8:30 to 7:00 Thursday and Friday 8:30 to 7:00 Thursday and Friday
8:30 to 12:00 Saturday 8:30 to 12:00 Saturday
(717) 235-1200 (717) 792-7797
Coming Soon--Our Red Lion Community Office
Email: First Initial & Last [email protected] or
[email protected]
<PAGE>
THE GLEN ROCK STATE BANK
The Neighbor You Can Count On
Glen Rock Office
57-59 N. Main St.
8:30 to 5:00 Monday thru Thursday
8:30 to 8:00 Friday
(717) 235-1200
Loganville Office
234 N. Main St.
8:30 to 5:00 Monday thru Wednesday
8:30 to 7:00 Thursday and Friday
(717) 428-1199 or (717) 235-1200
New Freedom Office
16576 Susquehanna Trail
8:30 to 5:00 Monday thru Wednesday
8:30 to 7:00 Thursday and Friday
8:30 to 12:00 Saturday
(717) 235-1200
York New Salem
Salem Heights Office
Corner of Noss Road
and Rt. 616
8:30 to 5:00 Monday thru Wednesday
8:30 to 7:00 Thursday and Friday
8:30 to 12:00 Saturday
(717) 792-7797
Coming Soon--Our Red Lion Community Office
<PAGE>
To our Shareholders:
The Bank's earnings for the nine-month period ending September 30, 2000 are
$1,098,000, up slightly from nine-month earnings one year ago. Net interest
income continues to be impacted by a shrinking margin, due in part to
competitive factors and the Bank's liability sensitive position. Earnings per
share were $.82 for the first nine months of 2000 compared to $.81 in the same
period last year.
As of September 30, 2000, net loans increased by 6.26% from the period ended
September 30, 1999. In addition, total deposit growth was 3.36% as of
September 30, 2000 when compared to the same period in the prior year.
Our new branch in Red Lion will be opening at the end of October, and our
grand opening is scheduled for Saturday, November 11th. We will be promoting
the new office using a "racing" theme which we believe will play well in this
new market. We are looking forward to accelerating the Bank's growth rate with
this new office, and while it will have a near-term impact on earnings, we
anticipate the office to begin contributing favorably to income on a proforma
quarterly basis within two years.
The third quarter dividend is $.115 per share, payable to shareholders of
record as of September 30, 2000. Dividends declared in 2000 are 15% higher
than dividends declared during the same period last year.
We remain committed to building value for shareholders by expanding our core
business and seeking new opportunities in our surrounding markets.
Sincerely,
[LOGO]
Robert G. Coradi
President & Chief Executive Officer
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. Sept.
30, 2000 30, 1999
-------- --------
(Thousands)
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks.................................... $ 5,765 $ 4,387
Interest-bearing deposits in other banks................... 367 0
Federal funds sold......................................... 300 685
Securities:
Available-for-sale....................................... 45,651 45,287
Loans receivable, net...................................... 121,877 114,696
Bank premises and equipment................................ 3,047 2,589
Other assets............................................... 7,092 6,871
-------- --------
Total assets............................................... $184,099 $174,515
======== ========
LIABILITIES
Deposits:
Demand................................................... $ 10,419 $ 9,513
NOW...................................................... 13,348 13,140
Money market funds....................................... 22,932 19,572
Savings.................................................. 17,704 18,753
Certificates of deposit.................................. 70,713 69,746
-------- --------
135,116 130,724
Federal Home Loan Bank advances and other borrowings....... 31,358 26,996
Other liabilities.......................................... 1,350 1,444
-------- --------
Total liabilities.......................................... 167,824 159,164
STOCKHOLDERS' EQUITY
Common stock, $2 par; authorized 4,000,000 shares; issued
and outstanding 1,338,846 shares, September 30, 2000 and
1,335,716 shares, September 30, 1999...................... 2,678 2,671
Additional paid-in-capital................................. 2,943 2,909
Retained earnings.......................................... 11,135 10,226
Accumulated other comprehensive income..................... (481) (455)
-------- --------
16,275 15,351
-------- --------
$184,099 $174,515
======== ========
</TABLE>
<PAGE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
2000 1999
--------- ---------
(Thousands)
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $7,406 $7,079
Interest on securities:
Taxable................................................. 1,994 1,587
Tax-exempt.............................................. 267 294
Other..................................................... 173 186
------ ------
9,840 9,146
INTEREST EXPENSE
Deposits.................................................. 4,036 3,668
Interest on Federal Home Loan Bank advances and other
borrowings............................................... 1,473 966
------ ------
5,509 4,634
Net interest income....................................... 4,331 4,512
PROVISION FOR LOAN LOSSES................................. 115 215
------ ------
Net interest income after provision for loan losses....... 4,216 4,297
OTHER INCOME
Service charges on deposit accounts....................... 156 153
Other service charges and fees............................ 207 213
Other operating income.................................... 317 304
------ ------
680 670
OTHER EXPENSES
Salaries and employee benefits............................ 1,894 1,951
Occupancy expense......................................... 157 166
Furniture and equipment expenses.......................... 352 350
Other operating expenses.................................. 1,004 960
------ ------
3,407 3,427
------ ------
Income before income taxes................................ 1,489 1,540
INCOME TAXES.............................................. 391 458
------ ------
NET INCOME................................................ $1,098 $1,082
====== ======
PER SHARE DATA
BASIC EARNINGS............................................ $ .820 $ 0.81
CASH DIVIDENDS............................................ $ .345 $ 0.30
</TABLE>
<PAGE>
BOARD OF DIRECTORS
Janie C. Busch
President of York Stenographic Services, Inc.
Robert G. Coradi
President and CEO, The Glen Rock State Bank
James Hemminger
Owner of Trail Tool, Inc.
David H. Hogg
President of Springwood Management Corp.
James R. Holley
President of James R. Holley & Associates
Gregory V. Saubel
President of Saubels, Inc.
Harold E. Shaffer
Chairman of the Board
Owner, Shaffer's Sales & Service
Gordon D. Shive
Lutheran Brotherhood Insurance
Robert L. Williams
Retired President of Glen Rock State Bank
OFFICERS
Harold E. Shaffer
Chairman of the Board
Robert G. Coradi
President and CEO
J. Scott Sturgill
Executive Vice President and COO
Robert W. Krebs
Senior Vice President, Operations and
Residential Mortgage Lending
Gary Townsend
Vice President, Commercial Loan Officer
Mary-claire Bolth CRCM
Assistant Vice President, Controller
Shirley M. Shaw
Assistant Vice President, Branch Administrator
Mary L. Snyder
Assistant Vice President, Human Resources
Richard E. Snyder
Auditor
Joyce E. Markel
Assistant Vice President, Loan Review
<PAGE>
SEPTEMBER 30, 2000
The Neighbor You Can Count On
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
OF
THE GLEN ROCK STATE BANK
WITH AND INTO
THE PEOPLES STATE BANK,
A WHOLLY OWNED SUBSIDIARY OF
COMMUNITY BANKS, INC.
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") made and entered into this
7th day of November, 2000 by and among THE GLEN ROCK STATE BANK ("Glen Rock"),
a Pennsylvania chartered banking institution, having its headquarters at P.O.
Box 127, Glen Rock, PA 17327; THE PEOPLES STATE BANK ("Peoples"), a
Pennsylvania chartered banking institution, having its headquarters at 100
East King Street, East Berlin, Pennsylvania 17316; and COMMUNITY BANKS, INC.
("Community"), a Pennsylvania business corporation having its corporate
headquarters at 150 Market Square, Millersburg, Pennsylvania 17061.
WHEREAS, the Boards of Directors of Glen Rock, Peoples, and Community deem
it advisable and in the best interest of their respective shareholders that
under and pursuant to the terms and conditions herein set forth, Glen Rock be
merged with and into Peoples (the "Merger"); and
WHEREAS, this Agreement has been approved by the Board of Directors of each
party hereto; and
WHEREAS, the parties hereto desire to adopt this Agreement as a Plan of
Merger and to consummate the Merger in accordance with the provisions of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
WHEREAS, Community and Glen Rock have entered into a Stock Option Agreement
of even date herewith, attached hereto as Exhibit "A" (the "Stock Option
Agreement") pursuant to which Glen Rock has granted to Community the option to
purchase certain authorized but unissued shares of the common stock, par value
$2.00 per share, of Glen Rock ("Glen Rock Common Stock").
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, acting pursuant to resolutions of their respective Boards of
Directors, and in accordance with the provisions of the laws of the
Commonwealth of Pennsylvania, Glen Rock, Peoples, and Community hereby agree
as follows:
ARTICLE I
The Merger
1.1 Glen Rock shall be merged into Peoples upon the terms and provisions of
this Agreement and under the Articles of Incorporation and By-Laws of Peoples.
The Merger shall be pursuant to the provisions of, and with the effect
provided in, the Pennsylvania Banking Code of 1965 as amended and shall be
expressly conditioned upon receipt of all necessary regulatory and corporate
approvals.
1.2 The name of the surviving banking institution shall be THE PEOPLES STATE
BANK. The Articles of Incorporation and the Bylaws of the surviving banking
institution shall be the Articles of Incorporation and the Bylaws of Peoples
in effect immediately prior to the Merger.
1.3 The business of the surviving banking institution after the Effective
Date of the Merger shall be a Pennsylvania chartered banking institution which
shall be conducted by Peoples at its main office as then located and at its
legally established branches including all branches and the main office of
Glen Rock immediately prior to the Merger.
A-1
<PAGE>
1.4 At the Effective Date of the Merger, the separate existence of Glen Rock
shall cease and Peoples, as the surviving entity, shall continue unaffected
and unimpaired by the Merger and shall be liable for all of the liabilities of
Glen Rock existing at the Effective Date.
1.5 All assets, rights, privileges, immunities, powers, franchises and
interests of Glen Rock in and to every type of property (real, personal and
mixed) and choses in action, as they exist as of the Effective Date, shall
pass and be transferred to and vest in Peoples by virtue of the Merger on the
Effective Date without any deed, conveyance or other transfer; the separate
existence of Glen Rock shall cease and the existence of Peoples as the
surviving Pennsylvania chartered bank and as a Pennsylvania chartered banking
institution organized under the Pennsylvania Banking Code of 1965 shall
continue unaffected and unimpaired by the Merger; and Peoples shall be deemed
to be the same institution as Glen Rock and shall be subject to all of its
duties and liabilities of every kind and description.
Peoples, upon the Merger and without any order or other action on the part
of any court or otherwise, shall possess, hold and enjoy all rights,
privileges, immunities, franchises and interests, both as a public nature and
as a private nature, in the same manner and to the same extent as such rights,
privileges, immunities, franchises and interests were possessed, held, or
enjoyed by Glen Rock as of the Effective Date. All property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
share and all other choses in action, and all and every other interest, of or
belonging to or due to Glen Rock, shall be taken and deemed to be transferred
to and vested in Peoples without further act or deed. The title to any real
estate, or any interest therein, vested in Glen Rock shall not revert or be in
any way impaired by reason of the Merger.
1.6 Peoples shall be responsible and liable for all the liabilities and
obligations of Glen Rock and any claim existing or action or proceeding
pending by or against Glen Rock may be prosecuted as if the Merger had not
taken place, or Peoples may be substituted in its place. Neither the rights of
creditors nor any liens upon the property of Glen Rock shall be impaired by
reason of the Merger.
1.7 The shares of capital stock of Peoples issued and outstanding
immediately prior to the Effective Date shall at the Effective Date continue
to be issued and outstanding.
1.8 Peoples shall operate the five existing banking offices of Glen Rock as
the "Glen Rock State Bank Division of Peoples State Bank" for a minimum period
of two (2) years after the Effective Date, unless a majority of the members of
Peoples Board of Directors shall vote to merge Peoples with or into another
financial institution or unless Peoples changes its name.
ARTICLE II
Conversion and Exchange of Glen Rock's Common Stock
2.1 At the Effective Date of the Merger, by virtue of the Merger and without
any action on the part of any holder thereof:
(a) Each share of Glen Rock's Common Stock issued and outstanding
immediately prior to the Effective Date of the Merger, except for (i)
Perfected Dissenting Shares (as defined in Section 2.4) and (ii) shares of
Glen Rock's Common Stock held and beneficially owned by Community or any
Community subsidiary (other than shares of Glen Rock's Common Stock held in
a fiduciary or similar capacity on behalf of others) which shall be
canceled by virtue of the Merger, shall automatically be converted into
.900 shares (as adjusted pursuant to Section 2.6 herein the "Conversion
Factor") of common stock, $5.00 par value, of Community ("Community Common
Stock")
(b) Each share of Glen Rock's Common Stock which, immediately prior to
the Effective Date of the Merger, was issued and held in the treasury of
Glen Rock, if any, will be canceled and retired.
(c) No Perfected Dissenting Shares will be converted into Community
Common Stock under this Section 2.1, but such Perfected Dissenting Shares
will be subject to the provisions of Section 2.4.
A-2
<PAGE>
(d) Each authorized but unissued share of Glen Rock's Common Stock will
cease to exist.
(e) Each share of Community Common Stock issued and outstanding shall
remain issued and outstanding.
2.2 Neither certificates nor scrip for fractional interests in Community
Common Stock will be issued, but in lieu thereof each holder of shares of Glen
Rock's Common Stock who would otherwise have been entitled to a fraction of a
share of Community Common Stock will be paid an amount in cash equal to such
fraction multiplied by the average of the closing sales price of Community
Common Stock as reported on the American Stock Exchange for twenty (20)
consecutive trading days prior to and including the twenty (20) trading days
preceding the Effective Date of the Merger.
2.3 As soon as practicable after the Effective Date of the Merger, holders
of shares of Glen Rock's Common Stock shall be furnished a form letter of
transmittal for the tender of their shares to an Exchange Agent appointed by
Community, to be exchanged for new certificates for the appropriate number of
shares of Community Common Stock. Community shall be required to issue
Community Common Stock only upon the actual surrender of Glen Rock's shares
and will require an indemnity agreement or a bond from any Glen Rock
shareholder who is unable to surrender his or her certificate by reason of
loss, theft or destruction of the certificate.
2.4 Each outstanding share of Glen Rock's Common Stock, the holder of which
has timely filed a written notice of intention to demand appraisal for his
shares pursuant to the Pennsylvania Banking Code and Subchapter D of the
Pennsylvania Business Corporation Law of 1988 as amended (the "BCL") is herein
called a "Dissenting Share." Dissenting Shares, the holders of which have not
effectively withdrawn or lost (for failure to timely file a demand for
appraisal of their shares or otherwise) their dissenters' rights under the BCL
("Perfected Dissenting Shares"), shall not be converted pursuant to Section
2.1 hereof, but the holders thereof shall be entitled only to such rights as
are granted by Subchapter D of the BCL. Each holder of Dissenting Shares who
becomes entitled to payment for his Glen Rock's Common Stock pursuant to the
provisions of Subchapter D of the BCL shall receive payment therefor from
Community but only after the amount thereof shall have been agreed upon or
finally determined pursuant to such provisions.
2.5 (a) As of the Effective Date of the Merger, Community will issue and
will 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.
(b) Upon surrender for cancellation to the Exchange Agent of one or more
certificates for shares of Glen Rock's 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.
(c) Until Old Certificates have been surrendered and exchanged as herein
provided 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 Glen
Rock's 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 herein provided, 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.
A-3
<PAGE>
2.6 The Conversion Factor shall be subject to adjustment from time to time
as follows:
(a) Whenever, subsequent to the date hereof but prior to the Effective Date
of the Merger, (i) 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, (ii) Community subdivides the
outstanding shares of Community Common Stock, (iii) Community combines the
outstanding shares of Community Common Stock into a smaller number of shares,
or (iv) Community issues by reclassification of its shares of Community Common
Stock any shares of stock of Community (all shares so issued being included in
the "Community Common Stock" as used in this Section 2.6), the Conversion
Factor shall be adjusted so that each share of Glen Rock's Common Stock shall
under Section 2.1(a) thereafter be convertible into and exchangeable for the
number of shares of Community Common Stock which the shares of Glen Rock's
Common Stock would have represented had such shares of Glen Rock's 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.
2.7 (a) Each option to purchase shares of Glen Rock's Common Stock pursuant
to The Glen Rock State Bank 1999 Stock Incentive Plan (the "Option Plan"),
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 is determined as provided below (and otherwise
having the same duration and other terms as the original option):
(A) the number of shares of Community Common Stock to be subject to the
Exchange Option shall be equal to the product of the number of shares of
the Glen Rock Common Stock subject to the original option multiplied by the
Conversion Factor (as may be adjusted as provided in paragraph 2.6), the
product being rounded, if necessary, up or down, to the nearest whole
share;
(B) the exercise price per share of Community Common Stock under the new
option shall be equal to (i) the aggregate exercise price for the shares of
Glen Rock Common Stock subject to the Outstanding Option, divided by (ii)
the number of shares of Community Common Stock for which the Exchange
Option is exercisable as determined pursuant to clause (A) above, the
result being rounded, if necessary, up or down, to the nearest cent.
(C) the duration and other terms of such Outstanding Options shall be
unchanged except that all references to Glen Rock shall be deemed
references to Community, and that each such Exchange Option shall be fully
exercisable as of the Effective Date, and shall remain exercisable at least
until the stated expiration date of the corresponding Outstanding Option;
and
(D) to the extent Outstanding Options qualify as "incentive stock
options" under Section 422 of the Code, the Exchange Options exchanged
therefor shall also so qualify.
(b) The adjustments provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with Section 424(a) of the Code.
(c) The Exchange Options with respect to Outstanding Options shall be
delivered by Community at the Effective Date. Prior to the Effective Date,
Community shall reserve for issuance, and if not previously registered
pursuant to the Securities Act of 1933, as amended, register, a sufficient
number of Community Common Stock to satisfy Community's obligations with
respect to the issuance of the Community Common Stock pursuant to the exercise
of Exchange Options.
The intention of the foregoing provisions of this Section 2.7 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.
A-4
<PAGE>
ARTICLE III
Board of Directors and Officers of Community
3.1 On the Effective Date, Community shall appoint the then members of the
Board of Directors of Glen Rock to the Board of Directors of Peoples so that
the Board of Directors of Peoples shall be and consist of those persons who
were then members of the Board of Directors of Glen Rock and those persons who
are then members of the Board of Directors of Peoples. From and after the
Effective Date, the officers of Peoples shall be and consist of those persons
who were then officers of Peoples. Such officers shall hold office until such
time as their successors have been duly elected or appointed and have
qualified, unless sooner removed, resigned, disqualified, or deceased.
ARTICLE IV
Amendment and Waiver
4.1 This Agreement may be amended by the parties hereto, by action taken by
or on behalf of their respective Boards of Directors, at any time before or
after approval of the Merger by the shareholders of Glen Rock; provided,
however, that after such approval by the shareholders of Glen Rock no such
amendment, without further shareholder approval, shall reduce the amount or
change the form of the consideration to be delivered to the shareholders of
Glen Rock as contemplated by this Agreement or alter or change any of the
terms or conditions of this Agreement if such alteration or change would
materially adversely affect the shareholders of Glen Rock. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
4.2 Any of the terms or conditions of this Agreement may be waived at any
time by whichever of the parties is, or the shareholders of which are,
entitled to the benefit thereof, in the case of a party, by action taken by
the Board of Directors of such party. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner affect
such party's right at a later time to enforce the same. No waiver by any party
of any condition, or of the breach of any term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach or waiver of any other
condition or of the breach of any other term, covenant, representation or
warranty.
ARTICLE V
Representations and Warranties
5.1 Representations and Warranties of Glen Rock. Glen Rock represents and
warrants to Community that:
(a) Glen Rock is a Pennsylvania state chartered banking institution that
is duly organized, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania and is an "insured depository institution"
as defined in the Federal Deposit Insurance Act, as amended ("FDIA").
(b) The copies of the Articles of Incorporation and the Bylaws of Glen
Rock delivered to Community and which are included in Schedule I attached
hereto and made a part hereof by reference thereto are complete and
accurate copies thereof as in effect on the date hereof. The minute books
of Glen Rock which have been made available for inspection by Community
contain a complete and accurate record of all meetings of Glen Rock, except
for recent meetings for which minutes have not yet been prepared.
(c) Glen Rock (i) has corporate power to own its properties and to
conduct its business as currently conducted, (ii) has substantially
complied with, and is not in default in any material respect under, any
laws, regulations, ordinances, orders or decrees applicable to the conduct
of its business and the ownership of its properties, including regulatory
minimum capital requirements, the non-compliance with which or the
A-5
<PAGE>
default under which in the aggregate would materially adversely affect the
business of Glen Rock, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other
document required to be so filed, and (iv) has all approvals,
authorizations, consents, licenses, clearances and orders of, and has
currently effective all registrations with, all governmental and regulatory
authorities, which are necessary to the business or operations of Glen
Rock, the non-receipt of which would in the aggregate materially adversely
affect the business of Glen Rock.
(d) The authorized capital stock of Glen Rock consists of 4,000,000
shares of Glen Rock Common Stock, par value $2.00 per share, of which
1,341,534 shares of Common Stock were validly authorized, issued and
outstanding, fully paid and non-assessable as of November 3, 2000. Other
than options (for an aggregate of 26,692 shares) issued pursuant to the
Stock Option Plan and the options granted to Community pursuant to the
Stock Option Agreement of even date herewith and shares issued from time to
time under the Glen Rock State Bank Dividend Reinvestment Plan and the
401(k) Plan, as of the date hereof there are outstanding no subscriptions,
options, warrants, calls or rights or other agreements or commitments of
any kind obligating Glen Rock to issue or dispose of any securities of Glen
Rock or securities of Glen Rock convertible into any shares of Glen Rock's
Common Stock. From December 31, 1999 to the date hereof, no dividends or
other distributions (including, without limitation, any stock dividend or
distribution) have been declared, set aside or paid to the holders of Glen
Rock's Common Stock except those permitted under Section 6.2(a)(3) below.
(e) Except as disclosed in Schedule I, Glen Rock does not own, directly
or indirectly, any equity interest in any bank, corporation, general
partnership, limited partnership or other equity, except in a fiduciary
capacity.
(f) (1) Glen Rock has delivered to Community a copy of the following
financial statements, each of which (including any related notes and
schedules) is included in Schedule I and presents fairly the financial
condition and results of operations of Glen Rock, at the dates and for the
periods covered by such statements in accordance with generally accepted
accounting principles consistently applied throughout the periods covered
by such statements. (It being understood that Glen Rock's interim financial
statements are not audited and are not prepared with related notes but
reflect all adjustments which are, in the opinion of Glen Rock, necessary
for a fair presentation of such financial statements):
(A) Balance Sheet (the "Glen Rock 1999 Balance Sheet"), Statement of
Income, Statement of Stockholders' Equity and Statement of Cash Flows,
together with notes thereto, at December 31, 1999 and for the twelve
months then ended, audited by Stambaugh Ness, P.C.;
(B) Balance Sheets, Statements of Income, Statements of Stockholders'
Equity and Statements of Cash Flows, together with notes thereto, at
December 31, 1998, and for the year then ended, audited by Stambaugh
Ness, P.C.
(C) Interim Balance Sheets (the "Glen Rock September 30, 2000 Balance
Sheet") and Statements of Income at September 30, 2000, and for the
nine months then ended.
(2) Glen Rock has provided Community with copies of all financial
statements, proxy statements, reports and other documents issued to its
shareholders after December 31, 1999 which are included in Schedule I.
(g) (1) Glen Rock has delivered to Community copies of:
(A) its Annual Report to Shareholders for the years ended December
31, 1999 and 1998;
(B) all proxy statements and other written materials furnished to
Glen Rock's shareholders since January 1, 1998;
true and correct copies of which are included in Schedule I.
(2) No statement contained in any of the documents referred to in Section
5.1(g)(1), as of the date of such document or other materials, contained
any untrue statement of material fact, or, at the date thereof, omitted to
state a material fact necessary in order to make the statements contained
therein, in light of the
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circumstances under which such statements are made, not misleading;
provided, however, that information as of a later date shall be deemed to
modify information as of any earlier date.
(h) (1) Glen Rock has timely filed all federal, state, county and local
returns in respect of taxes, including, without limitation, estimated tax
returns, employer's withholding tax returns, other withholding tax returns
and Federal Unemployment Tax Act returns, and all other reports or other
information required or requested to be filed by it, and each such return,
report or other information is complete and accurate in all material
respects. Glen Rock has paid the amounts shown as owing on such returns
(collectively, "Taxes"). No waivers of statutes of limitations, and no
agreement relating to assessment or collection, are in effect in respect of
any Taxes. Except as disclosed in Schedule I, there are no claims pending
against Glen Rock for the alleged deficiency in the payment of any Taxes,
and Glen Rock does not know of any pending or threatened audits,
investigations or claims for unpaid Taxes or relating to any liability in
respect of Taxes.
(2) Glen Rock has heretofore delivered to Community copies of its United
States federal and Pennsylvania tax returns for the fiscal years ended
December 31, 1999 and 1998, true and correct copies of which are included
in Schedule I.
(3) To the extent required by generally accepted accounting principles,
the provision for current taxes payable reflected in "Other Liabilities" in
the Glen Rock 1999 Balance Sheet, as of the date hereof and as of the
Effective Date, is and will be adequate to cover (A) all or substantially
all accrued and unpaid taxes of Glen Rock, whether or not disputed, for the
period ended December 31, 1999, and for all prior periods, and (B) all or
substantially all Taxes that may become due and payable by Glen Rock in
future periods (i) in respect of transactions, sales or services occurring
or performed on or prior to December 31, 1999, which by virtue of tax or
accounting treatment will not be included in income until subsequent to
such date, or (ii) in respect of deductions, costs or other allowances
taken for federal income tax purposes which Glen Rock's auditors have
reason to believe are likely to be disallowed by the Internal Revenue
Service if audited by such Service. The provision for applicable taxes
stated on the consolidated books of Glen Rock as of the date hereof and as
of the Effective Date, is and will be adequate to cover (A) all accrued and
unpaid federal, state, county and local taxes of Glen Rock, whether or not
disputed, for the period ended on the date hereof or on the Effective Date,
as the case may be, and for all prior periods, and (B) all federal, state,
county and local Taxes that may become due and payable by Glen Rock in
future periods (i) in respect of such transactions, sales or services
occurring or performed on or prior to the date hereof or the Effective
Date, as the case may be, which by virtue of tax or accounting treatment
will not be included in income until subsequent to such dates, or (ii) in
respect of deductions, costs or other allowances taken for federal income
tax purposes which Glen Rock's auditors have reason to believe are likely
to be disallowed by the Internal Revenue Service if audited by such
Service.
(4) No consent has been filed relating to Glen Rock pursuant to Section
341(f) of the Internal Revenue Code of 1986, as amended (the "Code").
(i) Since September 30, 2000, (1) there has been no material adverse
change in the business or financial condition of Glen Rock, and (2) except
as set forth in Schedule I, no event described in Section 6.2(a)has
occurred.
(j) (1) Except as disclosed in Schedule I, Glen Rock has good and
marketable title, free and clear of all liens and encumbrances, and the
right of possession subject to existing leaseholds, to all real properties
and good title to all other property and assets, tangible and intangible,
reflected in Glen Rock's 1999 Balance Sheet or purported to have been
acquired by it since the date thereof (except property held as lessee under
leases and disclosed in writing prior to the date hereof and except real or
personal property sold or otherwise disposed of since December 31, 1999, in
the Ordinary Course of Business (as defined in Section 6.2(a)(5) hereof)),
except liens for taxes or assessments not delinquent, pledges to secure
deposits, repurchase agreements in the Ordinary Course of Business and such
other liens and encumbrances and imperfections of title as do not
materially affect the value of such property or as reflected in Glen Rock's
1999 Balance Sheet or as currently shown on the books and records of it and
which do not interfere with or impair its present and continued use. All
real properties owned or leased by Glen Rock which are material to the
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business, operations or financial condition of Glen Rock are in
substantially good operating condition and repair (ordinary wear and tear
excepted). To the best of its knowledge, Glen Rock has full right and
authority to use the names "Glen Rock" and "The Glen Rock State Bank" in
the Ordinary Course of Business. Glen Rock has not been notified by any
court, administrative agency, business entity of any kind or individual
that the use of said names is in violation of any law, regulation, court
order, statutory right or common law right.
(2) All properties held by Glen Rock under leases are held by it under
valid, binding and enforceable leases (subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and
subject, as to enforceability, to general principles of equity), with such
exceptions as are not material and do not interfere with the conduct of its
business, as the case may be, and it enjoys quiet and peaceful possession
of such leased properties. Glen Rock is not in default in any material
respect under any material lease, agreement or obligation regarding its
properties to which it is a party or by which it is bound.
(k) Except as specifically disclosed in Schedule I, and other than loans
in the Ordinary Course of Business, time deposits and leases of less than
two years duration on which less than $5,000 in annual rental is payable,
Glen Rock is not a party to or bound by any contract or other agreement
made in the Ordinary Course of Business which involves aggregate future
payments by it of more than $25,000 and which is made for a fixed period
expiring more than one year from the date hereof, and Glen Rock is not a
party to or bound by any agreement not made in the Ordinary Course of
Business which is to be performed at or after the date hereof. Each of the
contracts and agreements disclosed in Schedule I pursuant to this Section
5.1(k) are valid, binding and enforceable (subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to general principles of
equity) and no breach or default (and no condition which, with notice or
passage of time, could become a breach or default) exists as to with
respect thereto, except such as in the aggregate are not material to the
business or financial condition of Glen Rock.
(l) Except as specifically disclosed in Schedule I, as of September 30,
2000, there are no commercial, commercial real estate or residential real
estate loans of Glen Rock in excess of $25,000 that have been classified by
any financial institution examiner as "Other Loans Especially Mentioned,"
"Special Mention," "Substandard," "Doubtful" or "Loss" or internally
classified in a similar or comparable category. Except as specifically
disclosed in Schedule I, as of June 30, 2000, there are no consumer loans
that are delinquent more than thirty (30) days as to payment of principal
and interest. Except as specifically disclosed in Schedule I, as of
September 30, 2000, the reserve for loan losses in Glen Rock's September
30, 2000 Balance Sheet is adequate under the requirements of generally
accepted accounting principles and standard banking practice to provide for
possible losses on outstanding loans, net of recoveries. Except as
disclosed in the notes to the Audited Financial Statements for the year
ended December 31, 1999, or as disclosed in Schedule I, there are no loans
or loan commitments outstanding to executive officers or directors of Glen
Rock, including their immediate families and entities with which they are
associated. All such loans and commitments to loan were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectibility or present
other unfavorable features and, except as disclosed in Schedule I, none of
such loans and commitments to related parties disclosed in said Audited
Financial Statements or in writing to Community are delinquent in payment
of principal or interest.
(m) Except for pledges to secure public and trust deposits, repurchase
agreements in the Ordinary Course of Business, and other pledges required
by law, none of the investments reflected in the Glen Rock September 30,
2000 Balance Sheet under the heading "Investment Securities," and none of
the investments made since September 30, 2000, is subject to any
restriction, whether contractual or statutory, which materially impairs the
ability of Glen Rock freely to dispose of such investment at any time.
(n) Except as otherwise identified and disclosed in Schedule I, Glen Rock
has no pension, retirement, stock purchase, stock bonus, savings, or profit
sharing plan, any deferred compensation, consultant, bonus, life insurance,
death or survivor benefit health insurance, sickness, disability, medical,
surgical, hospital, severance, layoff, or vacation plan or group insurance
contract, or any other incentive, welfare, or employee
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benefit plan or arrangement ("Benefit Plans"). With respect to each
qualified retirement plan and other Benefit Plans, included in Schedule I
is an accurate and complete copy of (a) the most recent plan documents, (b)
the most recent annual report filed with the United States Department of
Labor and the Internal Revenue Service, (c) the most recent financial and
actuarial reports, (d) the most recently issued Internal Revenue Service
rulings or determination letters, and (e) all notices to the Pension
Benefit Guaranty Corporation of "Reportable Events" as defined in the
Employee Retirement Income Security Act of 1974 ("ERISA"). As of January 1,
2000, all accrued contributions and other payments to be made under each
qualified retirement plan for such purpose have been set aside therefor.
Glen Rock does not have any union or collective bargaining agreements, any
contracts or other agreements with any labor organization or, except as
specifically disclosed in Schedule I, any contracts or other agreements
with any member of management or any management or consultation agreement
not terminable at will by it without liability, and no such contract or
agreement has been requested by or is under discussion by management with
any group of employees, any member of management or any other person.
(o) Except as specifically disclosed in Schedule I, there are no actions,
suits, investigations or proceedings instituted, pending or, to the
knowledge of Glen Rock, threatened against Glen Rock before any court, any
arbitrator of any kind or any government agency (including any bank
regulatory authority), and Glen Rock is not subject to any potential
adverse claim, the outcome of which could involve the payment by Glen Rock
of an amount in excess of $25,000 or, which could materially affect Glen
Rock or its business or property or the transactions contemplated hereby.
Glen Rock has no knowledge of any pending or threatened claims or charges
under the Community Reinvestment Act or before the Equal Employment
Opportunity Commission, the Office of Federal Contract Compliance, any
Human Relations Commission or any other federal, state or local government
agency.
(p) (1) The execution and delivery of this Agreement has been duly
authorized by the Board of Directors of Glen Rock and, when the Merger has
been duly approved by the affirmative vote of the shareholders of Glen Rock
owning at least eighty percent (80%) of its common stock outstanding at a
meeting of shareholders duly called and held in accordance with the
provisions of Pennsylvania law, this Agreement shall be duly and validly
authorized by all necessary action on the part of Glen Rock.
(2) This Agreement has been duly executed and delivered by Glen Rock and
(assuming due execution and delivery by Community) shall constitute, a
valid, binding and enforceable obligation of Glen Rock, subject to (i)
bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws from time to time in effect relating to
or affecting the enforcement of creditors' rights generally or the rights
of creditors of Pennsylvania state chartered banking institutions, (ii)
laws relating to the safety and soundness of depository institutions and
their holding companies, and (iii) general principles of equity, and except
that the availability of equitable remedies or injunctive relief is within
the discretion of the appropriate court.
(3) The execution and delivery by Glen Rock of this Agreement and the
consummation of the transactions herein contemplated do not violate any
provision of the Articles of Incorporation or Bylaws of Glen Rock or any
provisions of federal or state law or any governmental rule or regulation,
and do not require any consent of any person under, conflict with or result
in a breach of or accelerate the performance required by any of the terms
of, any material debt instrument, lease, license, covenant, agreement or
understanding to which Glen Rock is a party or by which it is bound or any
order, ruling, decree, judgment, arbitration award or stipulation to which
it is subject, or constitute a default thereunder or result in the creation
of any lien, claim, security interest, encumbrance, charge, restriction or
right of any third party of any kind whatsoever upon any of its properties
or assets.
(q) Except for Berwind Financial Group, L.P., which will be entitled to a
fee to be paid by Glen Rock for rendering a fairness opinion and for other
services related to the Merger, no broker, agent, finder, consultant or
other party (other than legal and accounting advisors) has been retained by
Glen Rock or is entitled to be paid based upon any agreements, arrangements
or understandings made by Glen Rock in connection with any of the
transactions contemplated by this Agreement.
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(r) Glen Rock is, and continuously since at least January 1, 1997 has
been, insured with reputable insurers against all risks normally insured
against by financial institutions, and all of the insurance policies or
bonds maintained by it are in full force and effect. Glen Rock is not in
default thereunder and all material claims thereunder have been filed in
due and timely fashion.
(s) To the best of its knowledge, Glen Rock is not in violation of any
applicable federal, state or local laws, statutes, rules, regulations or
ordinances relating to public health, safety or the environment, including,
without limitation, relating to releases, discharges, emissions or
disposals to air, water, land or ground water, to the withdrawal or use of
ground water, to the use, handling or disposal of polychlorinated biphenyls
(PCB's), asbestos or urea formaldehyde, to the treatment, storage, disposal
or management of hazardous substances (including, without limitation,
petroleum, crude oil or any fraction thereof, or other hydrocarbons),
pollutants or contaminants, to exposure to toxic, hazardous or other
controlled, prohibited or regulated substances which violation
("Environmental Violations") could have a material adverse effect on the
business, properties or financial condition of Glen Rock. Additionally,
Glen Rock has not received notice of a potential or actual Environmental
Violation.
To the best knowledge of Glen Rock, improvements on any real estate owned
or leased by Glen Rock do not contain friable asbestos or substances
containing asbestos and deemed hazardous by any federal, state or local
laws, regulations or orders respecting such materials. Glen Rock does not
know of any liability or class of liability of Glen Rock under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601 et seq.), or the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901
et seq.).
(t) The information pertaining to Glen Rock, which has been or will be
furnished to Community by or on behalf of Glen Rock for inclusion in the
Community Registration Statement, the Prospectus or the Proxy Statement
(each as hereinafter defined in Section 7.1 hereof), or in the applications
to be filed to obtain the Government Approvals (the "Applications"), will
contain no untrue statement of any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading; provided, however,
that information as of a later date shall be deemed to modify the
information as of an earlier date.
(u) No representation or warranty by Glen Rock and no statement by Glen
Rock in any certificate, agreement, schedule or other document furnished in
connection with the transactions contemplated by this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary to make such representation, warranty or statement not misleading
to Community; provided, however, that information as of a later date shall
be deemed to modify information as of an earlier date.
5.2 Representations, Warranties and Covenants of Community. Community, for
itself and on behalf of each of its bank and non-bank subsidiaries, represents
and warrants to Glen Rock that:
(a) Community is a corporation duly incorporated, validly existing and in
good standing under the Pennsylvania Business Corporation Law (BCL), and is
a registered bank holding company under the Bank Holding Company Act of
1956 as amended (the "BHC Act"). Community has corporate power to own its
properties and to conduct its business as currently conducted, and
Community has corporate power to enter into this Agreement and to carry out
all of the terms and provisions hereof to be carried out by it, subject to
receipt of Government Approvals. As of September 30, 2000, the authorized
capital stock of Community consists of 20,000,000 shares of Community
Common Stock, $5.00 par value, of which 7,036,943 shares are validly
authorized, issued and outstanding, fully paid and non-assessable, and
301,987 shares are held as treasury shares, and 500,000 shares of preferred
stock of which no shares have been issued. The outstanding Community Common
Stock has been duly and validly registered pursuant to Section 12(g) of the
1934 Act, which registration is in full force and effect, and is validly
listed on the American Stock Exchange. As of the date hereof, there are
outstanding no subscriptions, options, warrants, calls or rights or other
agreements or commitments of any kind obligating Community to issue or
dispose of any securities of Community or securities of Community
convertible into any shares of Community Common Stock or preferred stock,
other than options to purchase 511,292 shares pursuant to the Community
Long Term
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Incentive Plan as amended and an aggregate of 39,816 shares pursuant to the
Community Directors Stock Option Plan, and the Employee Stock Purchase Plan
("ESPP"), and the Community Dividend Reinvestment Plan.
(b) Community Banks, Inc. owns 100% of the issued and outstanding shares
of Community Banks, N.A., Peoples, Community Banks Life Insurance Company,
Inc., and Community Bank Investment, Inc.; Peoples owns 100% of the issued
and outstanding shares of PSB Realty Company; and Community Banks, N.A.
owns 100% of the issued and outstanding shares of UDNB Investments, Inc.
free and clear of any liens, claims, security interests, encumbrances,
charges, restrictions, or rights of third parties of any kind whatsoever.
Community Bank Investments, Inc.; Community Banks, N.A.; Peoples; UDNB
Investments, Inc.; PSB Realty Company; and Community Banks Life Insurance
Company, Inc. are collectively referred to herein as the "Subsidiaries".
(c) Peoples is a Pennsylvania state chartered banking institution that is
duly organized, validly existing, and in good standing under the laws of
the Commonwealth of Pennsylvania. CBNA is a national banking association
that is duly organized, validly existing, and in good standing under the
laws of the United States. CBNA and Peoples are "Insured Depository
Institutions" as defined in the Federal Deposit Insurance Act, as amended
("FDIA"), and are members of the Federal Reserve System. Community Banks
Life Insurance Company, Inc. is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Arizona.
Community Bank Investment, Inc., and UDNB Investments, Inc. are
corporations duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
(d) The copies of the Articles of Incorporation, Articles of Association,
and By-Laws of Community and its Subsidiaries heretofore delivered to Glen
Rock and which are included in Schedule II attached hereto and made a part
hereof and incorporated herein by reference thereto are complete and
accurate copies thereof as in effect on the date hereof. The minute books
of Community and its Subsidiaries which have been made available for
inspection by Glen Rock contain a complete and accurate record of all
meetings of said corporations.
(e) Community and its Subsidiaries (i) have corporate power to own their
respective properties and to conduct their respective businesses as
currently conducted, (ii) have substantially complied with, and are not in
default in any material respect under, any laws, regulations, ordinances,
orders or decrees applicable to the conduct of their businesses and the
ownership of their respective properties, the non-compliance with which or
the default under which in the aggregate would materially adversely affect
their businesses on a consolidated basis, (iii) have not failed to file
with the proper federal, state, local or other authorities any material
report or other document required to be so filed, and (iv) have all
approvals, authorizations, consents, licenses, clearances and orders of,
and have currently effective all registrations with, all governmental and
regulatory authorities, which are necessary to the business or operations
of Community and its subsidiaries as they are now being conducted.
(f) Except as disclosed in Schedule II and except for the Subsidiaries,
neither Community Banks, Inc. nor the Subsidiaries own, directly or
indirectly, any equity interest in any bank, corporation, general
partnership, limited partnership, or other equity, except in a fiduciary
capacity.
(g) (1) Community has delivered to Glen Rock a copy of the following
consolidated financial statements, each of which (including any related
notes and schedules) is included in Schedule II and presents fairly the
consolidated financial condition and results of operations of Community and
its consolidated subsidiaries at the dates and for the periods covered by
such statements in accordance with generally accepted accounting principles
consistently applied throughout the periods covered by such statements (it
being understood that Community's interim financial statements are not
audited and are not prepared with related notes but reflect all adjustments
which are, in the opinion of Community, necessary for a fair presentation
of such financial statements):
(A) Consolidated Balance Sheet (the "Community 1999 Balance Sheet"),
Consolidated Statement of Income, Consolidated Statement of
Stockholders' Equity and Consolidated Statement of Cash Flows, together
with the notes thereto, at December 31, 1999, and for the year then
ended, audited by Price Waterhouse Coopers, L.L.P.; and
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(B) Consolidated Balance Sheets, Consolidated Statements of Income,
Consolidated Statements of Stockholders' Equity, and Consolidated
Statements of Cash Flows, together with the notes thereto, at December
31, 1998, 1997 and 1996 and for the years then ended, audited by Price
Waterhouse Coopers, L.L.P.
(C) Consolidated Balance Sheets (the "Community June 30, 2000 Balance
Sheet"), Consolidated Statements of Income, Consolidated Statements of
Stockholders' Equity, and Consolidated Statements of Cash Flows, at
June 30, 2000 and for the six months then ended.
(2) Community has delivered to Glen Rock a copy of consolidating balance
sheets, consolidating statements of income, consolidating statements of
stockholders' equity, and consolidating statements of cash flows (the
"Consolidating Statements") for Community and the Subsidiaries as of
December 31, 1999 and 1998 and for the 12-month periods then ending, and
such interim statements as of June 30, 2000 and for the six months then
ending, which are included in Schedule II, each of which presents fairly
the separate financial condition and results of operations of Community and
the Subsidiaries at the dates and for the periods covered by such
statements.
(3) Community has provided Glen Rock with copies of all financial
statements, proxy statements, reports and other documents issued to its
shareholders after December 31, 1999. Community has delivered to Glen Rock
copies of:
(a) its annual report to shareholders for the years ending December
31, 1999 and 1998;
(b) its annual report to the Securities and Exchange Commission (the
"SEC") on Form 10-K for the years ending December 31, 1999 and 1998;
(c) Community Banks, N.A.'s annual report to the Comptroller of the
Currency for the years ending December 31, 1999 and 1998;
(d) Peoples' annual report to the Pennsylvania Department of Banking
and the FDIC for the years ending December 31, 1999 and December 31,
1998;
(e) all other periodic reports filed by Community or the subsidiaries
with the SEC (including all quarterly reports on Form 10-Q and all
current reports on Forms 8-K), the Federal Reserve Board, the FDIC, the
Office of the Comptroller of the Currency since January 1, 1999;
(f) all proxy statements and other written materials furnished to
Community shareholders since January 1, 1999.
No statement contained in any of such documents, in any financial
statement, proxy statement, report, document or other written materials to
be provided to Glen Rock as required above, as of the date of such document
or other materials, contain any untrue statement of material fact, or, at
the date thereof, omitted to state a material fact necessary in order to
make the statements contained therein, in light of the circumstances under
which such statements are made, not misleading; provided, however, that
information as of a later date shall be deemed to modify information as of
any earlier date.
(h) Except as specifically disclosed in Schedule II and other than loans
by any of the Subsidiaries in the Ordinary Course of Business, time
deposits and leases of less than two years' duration on which less than
$50,000 in annual rental is payable, neither Community nor any of the
Subsidiaries is a party to or bound by any contract or other agreement made
in the Ordinary Course of Business which involves aggregate future payments
by it of more than $100,000 and which is made for a fixed period expiring
more than one year from the date hereof, and neither Community nor any of
the Subsidiaries is a party to or bound by any agreement not made in the
Ordinary Course of Business which is to be performed at or after the date
hereof. Each of the contracts and agreements disclosed in Schedule II
pursuant to this Section 5.2(h) are valid, binding and enforceable (subject
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles
of equity) and no breach or default (and no condition which, with notice or
passage of time, could become a breach or default) exists with respect
thereto, except such as in the aggregate are not material to the business
or financial condition of Community and its Subsidiaries taken as a whole.
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(i) Except as specifically disclosed in Schedule II, as of June 30, 2000,
there are no commercial, commercial real estate or residential real estate
loans of Community or the Subsidiaries in excess of $25,000 that have been
classified by any financial institution examiner as "Other Loans Especially
Mentioned," "Special Mention," "Substandard," "Doubtful" or "Loss" or
internally classified in a similar or comparable category. Except as
specifically disclosed in Schedule II, as of December 31, 1999, there are
no consumer loans that are delinquent more than thirty (30) days as to
payment of principal and interest. Except as specifically disclosed in
Schedule II, as of December 31, 1999 the reserve for loan losses in the
Community 1999 Balance Sheet is adequate under the requirements of
generally accepted accounting principles and standard banking practice to
provide for possible losses on outstanding loans, net of recoveries. Except
as disclosed in the notes to the Audited Consolidated Financial Statements
for the year ended December 31, 1999, or as disclosed in Schedule II, there
are no loans or loan commitments outstanding to executive officers or
directors of Community or the Subsidiaries, including their immediate
families and entities with which they are associated. All such loans and
commitments to loan were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features and,
except as disclosed in Schedule II, none of such loans and commitments to
related parties disclosed in said Audited Consolidated Financial Statements
or in writing to Glen Rock are delinquent in payment of principal or
interest.
(j) Except for (i) Community Defined Benefit Pension Plan which covers
eligible employees of Community and its Subsidiaries, (ii) the Community
Banks 401(k) Plan, (iii) Community Long Term Incentive Plan, (iv) the
Community Banks Directors' Stock Option Plan, (v) the Community Banks, N.A.
Survivor Income Agreement, the ESPP, (vi) as otherwise identified and
disclosed in Schedule II, neither Community nor any of the Subsidiaries has
any pension, retirement, stock purchase, stock bonus, savings, or profit
sharing plan, any deferred compensation, consultant, bonus, life insurance,
death or survivor benefit health insurance, sickness, disability, medical,
surgical, hospital, severance, layoff, or vacation plan or group insurance
contract, or any other incentive, welfare, or employee benefit plan or
arrangement ("Benefit Plans"). With respect to each qualified retirement
plan and other Benefit Plans, including but not limited to the Defined
Benefit Pension Plan and 401(k) Plan, included in Schedule II is an
accurate and complete copy of (a) the most recent plan documents, (b) the
most recent annual report filed with the United States Department of Labor
and the Internal Revenue Service, (c) the most recent financial and
actuarial reports, (d) the most recently issued Internal Revenue Service
rulings or determination letters, and (e) all notices to the Pension
Benefit Guaranty Corporation of "Reportable Events" as defined in the
Employee Retirement Income Security Act of 1974 ("ERISA"). As of January 1,
2000, all accrued contributions and other payments to be made under the
Defined Benefit Group Pension Plan have been made or reserves adequate for
such purpose have been set aside therefor. As of the date hereof, there was
no unfunded liability and no funding deficiency existing with regard to the
Defined Benefit Pension Plan. Neither Community nor any of the Subsidiaries
has any union or collective bargaining agreements, any contracts or other
agreements with any labor organization or, except as specifically disclosed
in Schedule II, any contracts or other agreements with any member of
management or any management or consultation agreement not terminable at
will by it without liability, and no such contract or agreement has been
requested by or is under discussion by management with any group of
employees, any member of management or any other person.
(k) Except as disclosed in Schedule II, since June 30, 2000, (i)
Community has not incurred any material liability or obligation, accrued or
contingent and whether due or to become due, other than as a result of
operations in the ordinary course of business, and (ii) there has been no
material adverse change in the business or financial condition of Community
and its subsidiaries on a consolidated basis.
(l) Except as disclosed in Schedule II, neither Community nor any of its
subsidiaries is engaged in, or a party to, or threatened with, any legal
action or other proceeding before any court, any arbitrator of any kind or
any government agency (including any bank regulatory authority), and
neither Community nor any of its subsidiaries is subject to any potential
adverse claim, the outcome of which could involve the payment by Community
or any of its subsidiaries of an amount in excess of $50,000 or which could
materially affect Community and its subsidiaries on a consolidated basis or
its business or property or the transactions
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contemplated hereby. Community has no knowledge of any pending or
threatened claims or charges under the Community Reinvestment Act or before
the Equal Employment Opportunity Commission, the Office of Federal Contract
Compliance, any Human Relations Commission or any other federal, state or
local government agency. There is no labor strike, dispute, slow-down or
stoppage pending or, to the best knowledge of Community, threatened against
Community or any of its subsidiaries. There are no outstanding orders,
rulings, decrees, judgments or stipulations, to which Community is a party
or by which it is bound, by or with any court, arbitrator, or government
agency, involving an amount in excess of $50,000.
(m) (1) The execution and delivery of this Agreement has been duly and
validly authorized by the Board of Directors of Community and Peoples, and
the Merger and this Agreement have been duly and validly authorized by all
necessary corporate action on the part of Community and Peoples.
(2) This Agreement has been duly executed and delivered by Community and
Peoples and (assuming due execution and delivery by Glen Rock) shall
constitute the valid, binding and enforceable obligations of Community and
Peoples, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally, and subject, as to enforceability,
to general principles of equity.
(3) The execution and delivery of this Agreement by Community and Peoples
and the consummation of the transactions herein contemplated (A) do not
violate any provisions of the Articles of Incorporation or Bylaws of
Community or Peoples, any provisions of federal or state law or any
governmental rule or regulation (assuming (i) the appropriate filing of the
Articles of Merger with the Pennsylvania Department of Banking, (ii)
receipt of the Government Approvals, (iii) the due registration of the
offering of the Community Common Stock under the Securities Act of 1933, as
amended (the "1933 Act"), (iv) the receipt of appropriate permits or
approvals under state securities or "blue sky" laws, (v) the receipt of the
requisite Peoples shareholder approval, and (vi) the accuracy of the
representations of Glen Rock set forth in Sections 5.1(t) and (u)), and (B)
do not require any consent of any person under, conflict with or result in
a breach of or accelerate the performance required by any of the terms of,
any material debt instrument, lease, license, covenant, agreement or
understanding to which Community, Peoples, CBNA, or any of its other
subsidiaries is a party or by which it is bound or any order, ruling,
decree, judgment, arbitration award or stipulation to which Community or
Peoples is subject, or constitute a default thereunder or result in the
creation of any lien, claim, security interest, encumbrance, change,
restriction, or right of any third party of any kind whatsoever upon any of
their properties or assets.
(n) Neither Community nor any Subsidiary is in violation of, or has
received notice of a potential or actual violation of, any applicable
federal, state, or local laws, statutes, rules, regulations, or ordinances
relating to public health, safety, or the environment, including, without
limitation, relating to releases, discharges, emissions, or disposals to
air, water, land, or ground water to the withdrawal or use of ground water,
to the use, handling, or disposal of polychlorinated biphenyls ("PCB's"),
asbestos, or urea formaldehyde, to the treatment, storage, disposal or
management of hazardous substances (including, without limitation,
petroleum, crude oil or any fraction thereof, or other hydrocarbons),
pollutants or contaminants, to exposure to toxic, hazardous or other
controlled, prohibited or regulated substances which violation could have a
material adverse effect on the business, properties or financial condition
of Community and the Subsidiaries on a consolidated basis. To the best
knowledge of Community, any improvements on other real estate owned or
leased by Community or any Subsidiary do not contain friable asbestos or
substances containing asbestos and deemed hazardous by any federal, state,
or local laws, regulations, or orders respecting such materials. Neither
Community nor any of the Subsidiaries knows of any liability or class of
liability of Community or any of the Subsidiaries under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(42 U.S.C. Section 9601 et seq) or the Resource Conservation and Recovery
Act of 1976, as amended (42 U.S.C. Section 6901 et seq)
(o) The information pertaining to Community and its subsidiaries which
will appear in the Community Registration Statement, the Prospectus or the
Proxy Statement, in the form filed with the SEC, or in the applications to
be filed to obtain the Government Approvals, will contain no untrue
statement of any material fact or omit to state any material fact required
to be stated therein or necessary to make the
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statements therein, in the light of the circumstances under which they are
made, not misleading; provided, however, that information as of a later
date shall be deemed to modify information as of an earlier date. All
financial statements of Community included in the Prospectus or the Proxy
Statement will present fairly the consolidated financial condition and
results of operations of Community and its consolidated subsidiaries at the
dates and for the periods covered by such statements in accordance with
generally accepted accounting principles consistently applied throughout
the periods covered by such statements (it being understood that
Community's interim financial statements are not audited and are not
prepared with related notes but reflect all adjustments which are, in the
opinion of Community, necessary for a fair presentation of such financial
statements).
(p) (1) Community, Peoples, CBNA, and each of its other subsidiaries has
timely filed all federal, state, county and local returns in respect of
taxes, including, without limitation, estimated tax returns, employer's
withholding tax returns, other withholding tax returns and Federal
Unemployment Tax Act returns, and all other reports or other information
required or requested to be filed by it, and each such return, report or
other information is complete and accurate in all material respects.
Community and each of its subsidiaries has paid the amounts shown as owing
on such returns (collectively, "Taxes"). No waivers of statutes of
limitations, and no agreement relating to assessment or collection, are in
effect in respect of any Taxes. Except as disclosed in Schedule II, there
are no claims pending against Community or its subsidiaries for the alleged
deficiency in the payment of any Taxes, and neither Community nor its
subsidiaries know of any pending or threatened audits, investigations or
claims for unpaid Taxes or relating to any liability in respect of Taxes.
(2) Community has heretofore delivered to Glen Rock copies of its
consolidated United States federal and Pennsylvania corporate tax returns
for the fiscal years ended December 31, 1999, 1998, and 1997, true and
correct copies of which are included in Schedule II.
(3) The consolidated accrual for current taxes payable reflected in
"Other Liabilities" in the Community 1999 Balance Sheet, as of the date
hereof and as of the Effective Date, is and will be adequate to cover (A)
all or substantially all accrued and unpaid Taxes of Community and its
subsidiaries, whether or not disputed, for the period ended December 31,
1999, and for all prior periods, and (B) all or substantially all Taxes
that may become due and payable by Community and its subsidiaries in future
periods (i) in respect of transactions, sales or services occurring or
performed on or prior to December 31, 1999, which by virtue of tax or
accounting treatment will not be included in income until subsequent to
such date, or (ii) in respect of deductions, costs or other allowances
taken for federal income tax purposes which Community's auditors have
reason to believe are likely to be disallowed by the Internal Revenue
Service if audited by such Service. The provision for applicable taxes
stated on the consolidated books of Community as of the date hereof and as
of the Effective Date, is and will be adequate to cover (A) all accrued and
unpaid federal, state, county, and local taxes of Community and its
subsidiaries, whether or not disputed, for the period ended on the date
hereof or on the Effective Date, as the case may be, and for all prior
periods, and (B) all federal, state, county and local Taxes that may become
due and payable by Community and its subsidiaries in future periods (i) in
respect of such transactions, sales or services occurring or performed on
or prior to the date hereof or the Effective Date, as the case may be,
which by virtue of tax or accounting treatment will not be included in
income until subsequent to such dates, or (ii) in respect of deductions,
costs or other allowances taken for federal income tax purposes which
Community's auditors have reason to believe are likely to be disallowed by
the Internal Revenue Service if audited by such Service.
(4) No consent has been filed relating to Community or its subsidiaries
pursuant to Section 341(f) of the Internal Revenue Code.
(q) (1) Each of Community and its subsidiaries has good and marketable
title, free and clear of all liens and encumbrances, and the right of
possession subject to existing leaseholds, to all real properties and good
title to all other property and assets, tangible and intangible, reflected
in the Community 1999 Balance Sheet or purported to have been acquired by
it since the date thereof (except property held as lessee under leases and
disclosed in writing prior to the date hereof and except real or personal
property sold or otherwise disposed of since December 31, 1999, in the
Ordinary Course of Business), except liens for taxes or
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assessments not delinquent, pledges to secure deposits, repurchase
agreements in the Ordinary Course of Business and such other liens and
encumbrances and imperfections of title as do not materially affect the
value of such property or as reflected in the Community 1999 Balance Sheet
or as currently shown on the books and records of it and which do not
interfere with or impair its present and continued use. All real properties
owned or leased by Community which are material to the business, operations
or financial condition of Community are in substantially good operating
condition and repair (ordinary wear and tear excepted).
(2) All properties held by Community or any of its subsidiaries under
leases are held by it under valid, binding and enforceable leases (subject
to applicable bankruptcy, insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability, to general principles
of equity), with such exceptions as are not material and do not interfere
with the conduct of its business, as the case may be, and it enjoys quiet
and peaceful possession of such leased properties. Neither Community nor
any of its subsidiaries is in default in any material respect under any
material lease, agreement, or obligation regarding its properties to which
it is a party or by which it is bound.
(r) Each of Community and its subsidiaries is, and continuously since at
least January 1, 2000 has been, insured with reputable insurers against all
risks normally insured against by companies of the same type and in the
same line of business, and all of the insurance policies or bonds
maintained by it are in full force and effect. Neither Community nor any of
its subsidiaries is in default thereunder and all material claims
thereunder have been filed in due and timely fashion.
(s) No representation or warranty by Community and no statement by
Community in any certificate, agreement, schedule or other document
furnished in connection with the transactions contemplated by this
Agreement, shall contain any untrue statement of a material fact or omit to
state any material fact necessary to make such representation, warranty or
statement not misleading to Glen Rock; provided, however, that information
as of a later date shall be deemed to modify information as of an earlier
date.
(t) Other than Sandler O'Neill & Partners, L.P., no broker, agent,
finder, consultant or other party (other than legal, accounting or
financial advisors) has been retained by Community or is entitled to be
paid based upon any agreements, arrangements or understandings made by
Community in connection with any of the transactions contemplated by this
Agreement.
(u) Except for pledges to secure public and trust deposits, repurchase
agreements in the Ordinary Course of Business, and other pledges required
by laws, none of the investments reflected in the Community 1999 Balance
Sheet under the heading "Investment Securities," and none of the
investments made since December 31, 1999, is subject to any restriction,
whether contractual or statutory, which materially impairs the ability of
Community freely to dispose of such investment at any time.
ARTICLE VI
Agreements of Community, Peoples, and Glen Rock
6.1 Agreements of Community and Peoples.
(a) Peoples shall approve, adopt, and join in this Agreement and cause the
Merger to be consummated as expeditiously as possible.
(b) As the sole shareholder of Peoples, Community shall by unanimous
shareholder action ratify and confirm the merger of Glen Rock into Peoples.
(c) Prior to the Effective Date, Community shall take appropriate action to
reserve a sufficient number of authorized but unissued shares of Community
Common Stock to be issued in accordance with this Agreement. Community shall
issue shares of Community Common Stock in accordance with the Conversion
Factor, as it may be adjusted in accordance with this Agreement, which shares
will, when issued and delivered pursuant to this Agreement, be duly authorized
and legally and validly issued, fully paid and non-assessable.
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(d) Prior to the Effective Date, Community shall appoint an Exchange Agent
for the purpose of exchanging certificates representing shares of Community
Common Stock for certificates representing shares of Glen Rock Common Stock,
and thereafter Community shall issue and deliver to the Exchange Agent
certificates representing shares of Community Common Stock, and shall pay to
the Exchange Agent such amounts of cash as shall be required to be delivered
to holders of shares of Glen Rock's Common Stock entitled to cash in lieu of a
fractional share pursuant to Article II of this Agreement. 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 shall be repaid to
Community, in which event the persons entitled thereto shall look only 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, said persons shall
thereafter look only to the Commonwealth of Pennsylvania for payment thereof.
All costs and expenses associated with the foregoing surrender and exchange
procedure shall be borne by Community.
(e) Prior to the Effective Date, Community and Peoples, separately and
jointly with Glen Rock, shall use their reasonable efforts in good faith to
take or cause to be taken as promptly as practicable all such steps as shall
be necessary to obtain (i) the prior approval of the Merger by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") and the
Pennsylvania Department of Banking ("PA DOB"), (ii) the prior approval of the
Federal Deposit Insurance Corporation ("FDIC"), and (iii) all other consents
and approvals of government agencies as are required by law or otherwise (such
approvals referred to in clauses (i), (ii) and (iii) of this Section 6.1(e)
herein referred to as the "Government Approvals"), and shall do any and all
acts and things deemed by Community and/or Peoples to be necessary or
appropriate in order to cause the Merger of Glen Rock with and into Peoples to
be consummated on the terms provided in this Agreement as promptly as
practicable. Community shall provide Glen Rock and its representatives with
the right to review in advance any filing to be made with, or written material
to be submitted to, any third party or governmental body in connection with
the transactions contemplated by this Agreement. Community and Peoples shall
provide Glen Rock and its counsel with a copy of all applications and other
written material filed with or provided to any such third party or
governmental body, together with a copy of all correspondence to or from any
such third party or governmental body, in each case promptly following the
filing, submission or receipt of such materials.
(f) Community shall promptly give written notice to Glen Rock upon becoming
aware of the impending or threatened occurrence of any event which would cause
or constitute a breach of any of the agreements, representations and
warranties of Community contained or referred to in this Agreement and shall
use its reasonable efforts to prevent the same or remedy the same promptly.
(g) Prior to the Effective Date, Community and each of its subsidiaries
shall give Glen Rock and its counsel, financial advisor and accountants full
access, during normal business hours and upon reasonable request, to its
properties, books, contracts, commitments and records, and shall furnish Glen
Rock during such period with all such information concerning its affairs as
Glen Rock may reasonably request. The availability or actual delivery of
information about Community or its subsidiaries to Glen Rock shall not affect
the covenants, representations and warranties of Community contained in this
Agreement. Glen Rock shall treat as confidential all such information in the
same manner as Glen Rock treats similar confidential information of its own,
and if this Agreement is terminated, Glen Rock shall continue to treat all
such information as confidential and cause its employees and agents to keep
all such information confidential and shall return such documents theretofore
delivered by Community as Community shall request. The covenants in this
paragraph are in addition to, and do not supersede, the covenants in any
confidentiality agreement that Glen Rock has previously signed with respect to
the Merger.
(h) In the event Peoples terminates the employment (other than as a result
of unsatisfactory performance of their respective duties) of any officers or
employees of Glen Rock as of the Effective Date within six (6) months of the
Effective Date, Peoples shall pay severance benefits to such employee in
accordance with such severance policy as Peoples may from time to time adopt
and modify with the reasonable consent of Community, which policy may in
Peoples' discretion require full releases and covenants not to sue from such
employees to whom severance benefits are paid.
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(i) Prior to the Effective Date, Community and each of its Subsidiaries
shall conduct its respective business in the ordinary course as heretofore
conducted and shall use its reasonable efforts (i) to preserve its respective
business and business organization intact, (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 deposit insurance of the FDIC with
respect to CBNA) and Peoples, (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 (as hereinafter defined) 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.
(j) Community will not take any actions or engage in any transaction from
and after the date hereof until the Effective Date of the Merger and 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 treatment. Consummation of the transactions
contemplated by this Agreement shall be conditioned upon the Merger being
accounted for under the pooling of interests method of accounting.
(k) Community, with the cooperation and assistance of Glen Rock and its
counsel and accountants, shall promptly take all such actions as may be
necessary or appropriate in order to list the shares of Community Common Stock
to be issued in the Merger on the American Stock Exchange.
(l) Community shall not adopt any amendments to its charter or bylaws or
other organizational documents that would alter the terms of Community's
Common Stock or could reasonably be expected to have a material adverse effect
on the ability of Community to perform its obligations under this Agreement.
(m) Community will provide Glen Rock with copies of all financial
statements, proxy statements, reports, and other documents issued to its
shareholders after the date hereof and on or prior to the Effective Date. No
statement contained in any financial statement, proxy statement, report,
document or other written materials to be provided to Glen Rock as required by
this paragraph, as of the date of such document or other materials, will
contain any untrue statement of material fact, or, at the date thereof, will
omit to state a material fact necessary in order to make the statements
contained therein, in light of the circumstances under which such statements
will be made, not misleading; provided, however, that information as of a
later date shall be deemed to modify information as of any earlier date.
6.2 Agreements of Glen Rock.
(a) At or after the date hereof and on or prior to the Effective Date,
except with the prior written consent of Community, or as otherwise provided
in this Agreement, Glen Rock shall not:
(1) 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; purchase, redeem, retire or otherwise
acquire any share of, or any security convertible into shares of, its
capital stock or other equity security; or agree to do any of the
foregoing;
(2) Issue, deliver or sell shares of capital stock or securities
convertible into any such shares (other than as a result of the exercise of
stock options or pursuant to Glen Rock's dividend reinvestment plan), or
issue or grant any right, option or other commitment for the issuance,
delivery or sale of any such shares or such securities (other than pursuant
to subsection (4) below);
(3) 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
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Glen Rock's Common Stock at a quarterly rate not in excess of $.115 per
share for the fourth quarter of 2000 and for each quarter thereafter,
subject to the right of Glen Rock to pay a partial or pro rated dividend to
the extent necessary to prevent its shareholders from missing a dividend
payment due to the timing of Community's dividend record date and the
Effective Date.
(4) 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 Glen Rock, as the case may be.
(5) Authorize or make any material change in its business or operations,
other than in the Ordinary Course of Business as hereinafter defined; incur
any material direct or contingent liabilities or commitments other than in
the Ordinary Course of Business; sell or dispose of any shares of its
capital stock (other than pursuant to the exercise of stock options or its
Dividend Reinvestment Plan), or lease, sell or dispose of any other
material part of its assets, in each case except in the Ordinary Course of
Business and for adequate value; establish any new branch banking offices,
loan production offices, or other offices, or make any capital expenditures
in excess in the aggregate of $25,000 (except for ordinary repairs,
renewals or replacements); waive or release any right or cancel or
compromise any of its debts or claims except in the Ordinary Course of
Business; or otherwise enter into any material contract, transaction or
commitment on its behalf, except in the Ordinary Course of Business. For
purposes of this Agreement, the Ordinary Course of Business shall consist
of the banking business as presently conducted by Glen Rock or Community,
as the case may be, and not prohibited by applicable law (herein referred
to as the "Ordinary Course of Business"); or
(6) Except to the extent that Glen Rock's Board of Directors in good
faith believes it is required to do so in order to discharge its fiduciary
duties after consultation with Glen Rock's legal counsel, Glen Rock agrees
that neither it nor any of its officers and directors shall (and Glen Rock
shall direct and use its reasonable efforts to cause its employees, agents
and representatives including, without limitation, any investment banker,
attorney or accountant retained by it not to) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to
stockholders of Glen Rock but excluding the transactions contemplated by
this 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, Glen Rock (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. Glen Rock will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of
the foregoing. Glen Rock will take the necessary steps to inform the
appropriate individuals or entities referred to in the first sentence
hereof of the obligations undertaken in this Section 6.2(a)(6). Glen Rock
will notify Community promptly if any such inquiries or proposals are
received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with or
on behalf of any corporation, partnership, person or other entity or group
other than Community with respect to any Acquisition Proposal.
(b) Prior to the Effective Date, Glen Rock shall conduct its business in the
ordinary course as heretofore conducted and shall use its reasonable efforts
(i) to preserve its respective business and business organization intact, (ii)
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),
(iii) to preserve the good will of its customers and others having business
relations with it, (iv) 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, (v) to maintain its properties in customary repair,
working order and condition (reasonable wear and tear excepted), (vi) to
comply with all laws applicable to it and the conduct of its
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business, (vii) to keep in force at not less than their present limits all
policies of insurance (including deposit insurance of the FDIC with respect to
Glen Rock), (viii) 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, (ix) 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 (x) unless it is contesting the same
in good faith and has established reasonable reserves therefor, to pay when
required to be paid all Taxes (as hereinafter defined) 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.
(c) Charge-offs and charge-downs of loans will be taken against Glen Rock's
allowance for loan losses in the Ordinary Course of Business when the
potential loss has been quantified by the executive officers of Glen Rock.
(d) Prior to the Effective Date, Glen Rock shall give Community and its
counsel, financial advisors, and accountants full access, during normal
business hours and upon reasonable request, to its properties, books,
contracts, commitments and records, and shall furnish Community during such
period with all such information concerning its affairs as Community may
reasonably request. The availability or actual delivery of information about
Glen Rock to Community shall not affect the covenants, representations and
warranties of Glen Rock contained in this Agreement. Community shall treat as
confidential all such information in the same manner as Community treats
similar confidential information of its own, and if this Agreement is
terminated, Community shall continue to treat all such information as
confidential and cause its employees and agents to keep all such information
confidential and shall return such documents theretofore delivered by Glen
Rock as Glen Rock shall request. The covenants in this paragraph are in
addition to, and do not supersede, the covenants in any confidentiality
agreement that Community has previously signed with respect to the Merger.
(e) Glen Rock shall cause the Merger and this Agreement to be submitted
promptly for the approval of its shareholders at a meeting to be called and
held in accordance with the Pennsylvania Banking Code and the BCL. The Board
of Directors of Glen Rock shall recommend in Glen Rock's Proxy Statement that
the Merger and this Agreement be approved, which recommendation shall not be
withdrawn. In addition thereto, concurrently with the execution of this
Agreement, each member of Glen Rock's Board of Directors shall execute and
deliver to Community the Directors Letter attached hereto and made a part
hereof as Exhibit "B".
(f) After execution hereof, Glen Rock shall deliver to Community a correct
and complete list of holders of the outstanding Glen Rock Common Stock of
record with addresses.
(g) Glen Rock, separately and jointly with Community, shall use its
reasonable efforts in good faith to take or cause to be taken as promptly as
practicable all such steps as shall be necessary to obtain the Government
Approvals, and shall do any and all acts and things deemed by Glen Rock or
Community to be necessary or appropriate in order to cause the Merger to be
consummated on the terms provided in this Agreement.
(h) Glen Rock shall promptly give written notice to Community upon becoming
aware of the impending or threatened occurrence of any event which would cause
or constitute a breach of any of the agreements, representations and
warranties of Glen Rock contained or referred to in this Agreement, and shall
use its reasonable efforts to prevent the same or remedy the same promptly.
(i) From and after the date hereof until the Effective Date of the Merger,
Glen Rock shall not take any actions with respect to its business or
operations that in the reasonable judgment of Community or its accountants
would cause the Merger or any related transaction contemplated by this
Agreement to fail to meet the relevant criteria for pooling of interests
accounting treatment.
(j) Glen Rock will provide Community with copies of all financial
statements, proxy statements, reports, and other documents issued to its
shareholders after the date hereof, but on or prior to the Effective Date, and
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Glen Rock shall make available for inspection by officials or representatives
of Community all financial statements prepared by Glen Rock and examined by
Stambaugh Ness, P.C. and/or Beard & Company, Inc. No statement contained in
any financial statement, proxy statement, report, document or other written
materials to be provided to Community as required by this paragraph, as of the
date of such document or other materials, will contain any untrue statement of
material fact, or, at the date thereof, will omit to state a material fact
necessary in order to make the statements contained therein, in light of the
circumstances under which such statements will be made, not misleading;
provided, however, that information as of a later date shall be deemed to
modify information as of any earlier date.
(k) All financial statements of Glen Rock included in the Prospectus or the
Proxy Statement will present fairly the financial condition and results of
operations of Glen Rock at the dates and for the periods covered by such
statements in accordance with generally accepted accounting principles
consistently applied throughout the periods covered by such statements. Glen
Rock shall promptly advise Community in writing if prior to the Effective Date
it shall obtain knowledge of any facts that would make it necessary to amend
the Community Registration Statement, the Proxy Statement or any application,
or to supplement the Prospectus, in order to make the statements therein not
misleading or to comply with applicable law.
6.3 Agreements of Community, Peoples, and Glen Rock.
(a) Each party hereto shall, and shall cause its directors, officers,
attorneys and advisors, to maintain, unless otherwise required by applicable
law, the confidentiality of all information obtained in connection with this
Agreement, including the negotiation and performance thereof, which is not
otherwise publicly disclosed by the other party or publicly available, said
agreement with respect to confidentiality to survive any termination of this
Agreement pursuant to Section 11.1.
(b) Community, Peoples, and Glen Rock shall agree with each other as to the
form and substance of any press release related to this Agreement or the
transactions contemplated hereby, and shall consult each other as to form and
substance of other public disclosures related thereto.
ARTICLE VII
Securities Act of 1933;
Securities Exchange Act of 1934
7.1 Community shall promptly prepare and file with the SEC a registration
statement on Form S-4 (the "Community Registration Statement") under and
pursuant to the provisions of the 1933 Act for the purpose of registering the
offering of Community Common Stock. Glen Rock in cooperation with Community
shall promptly prepare for inclusion in the Community Registration Statement a
proxy statement (the "Proxy Statement") for the purpose of submitting this
Agreement to the shareholders of Glen Rock for approval. The Proxy Statement
in definitive form will serve as the prospectus (the "Prospectus") to be
included in the Community Registration Statement. Community and Glen Rock
shall each provide promptly to the other such information concerning its
business and financial condition and affairs as may be required or appropriate
for inclusion in the Community Registration Statement, the Prospectus or the
Proxy Statement, and shall cause its counsel and auditors to cooperate with
the other's counsel and auditors in the preparation of the Community's
Registration Statement, the Prospectus and the Proxy Statement.
7.2 Community and Glen Rock shall use their reasonable efforts to have the
Community Registration Statement declared effective under the 1933 Act as soon
as may be practicable, and thereafter Glen Rock shall distribute the Proxy
Statement to its shareholders in accordance with applicable law and its
Articles of Association and Bylaws, not less than twenty (20) business days
prior to the date upon which the Merger and this Agreement are submitted to
its shareholders for approval. Glen Rock shall not mail or otherwise furnish
the Proxy Statement to its shareholders unless and until Community shall have
received letters from Price
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Waterhouse Coopers L.L.P.; Stambaugh and Ness, P.C.; and Beard & Company, Inc.
dated the effective date of the Community Registration Statement, to the
effect set forth in Section 8.1(j)and 8.2(k).
7.3 Community shall not be required to maintain the effectiveness of the
Community Registration Statement for the purpose of sale or resale of
Community Common Stock by any person; provided, however, that Community shall
file all periodic reports which are required under the 1934 Act in order for
Community to satisfy the current public information requirement of Rule
144(c), as promulgated under the 1933 Act, as amended.
7.4 Securities representing shares of the Common Stock issued to Affiliates
(as hereinafter defined in Section 8.1(m) hereof) pursuant to this Agreement
may be subject to stop transfer orders and may bear a restrictive legend in
substantially the following form:
"The shares represented by this Certificate were issued in a transaction to
which Rule 145 promulgated under the Securities Act of 1933, as amended
(the "Act"), applies and may be sold or otherwise transferred only in
compliance with the limitations of such Rule 145, or upon receipt by
Community of an opinion of counsel acceptable to it that some other
exemption from registration under the Act is available, or pursuant to a
registration statement under the Act."
Should an opinion of counsel indicate that the legend and any stop transfer
order then in effect with respect to the shares may be removed, Community will
upon request substitute unlegended securities and remove any stop transfer
orders.
ARTICLE VIII
Conditions
8.1 Conditions to the Obligations of Community. The obligations of Community
under this Agreement are, at its option (subject to the provisions of Section
11.1(a)), subject to fulfillment on or prior to the Effective Date of each of
the following conditions:
(a) Except as affected by the transactions contemplated by this
Agreement, the representations and warranties of Glen Rock in Section 5.1
shall be true and correct in all material respects on and as of the
Effective Date, except as to any representation or warranty which
specifically relates to an earlier date.
(b) Glen Rock shall have performed and complied in all material respects
with all terms of this Agreement required to be performed or complied with
by it on or prior to the Effective Date.
(c) No material adverse change shall have occurred since September 30,
2000 in the business or financial condition of Glen Rock, and Glen Rock
shall not be engaged in, or a party to or threatened with, any legal action
or other proceeding before any court, any arbitrator of any kind or any
government agency if, in the reasonable judgment of Community, such legal
action or proceeding could materially adversely affect the business or
financial condition of Glen Rock. For purposes of this section, any change
in the business or financial condition of Glen Rock on a consolidated basis
which results from any changes occurring after the date hereof in any
federal or state law, rule or regulation, in generally accepted accounting
principles or in market rates of interest, which change affects banks or
their holding companies generally, shall not be deemed to be a material
adverse change.
(d) This Agreement shall have been duly approved by the affirmative vote
of the shareholders of Glen Rock owning at least eighty (80%) percent of
its capital stock outstanding at a meeting of shareholders duly called and
held after distributing the Proxy Statement to all shareholders entitled to
vote at such meeting as required by Section 6.2(e).
(e) Community shall have received a certificate, dated the Effective
Date, signed on behalf of Glen Rock by its President certifying the
fulfillment of the conditions stated in paragraphs (a), (b), (c) and (e) of
this Section 8.1 by Glen Rock.
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(f) Glen Rock shall have delivered to Community such documents as may
reasonably be requested by Community to evidence compliance by Glen Rock
with the provisions of this Agreement including an opinion of its counsel,
Reed Smith LLP, addressing the representations as set forth in Subsections
(a), (c) and (p) of Section 5.1 (subject to appropriate assumptions and
qualifications), and setting forth counsel's opinion that the Merger has
been approved by all necessary corporate action of Glen Rock, including the
Glen Rock shareholders. Glen Rock shall also have delivered to Community on
the Effective Date, a letter of its litigation counsel setting forth
pending litigation involving Glen Rock which was not previously disclosed
in writing to Community.
(g) The Community Registration Statement shall have become effective
under the 1933 Act, no stop order suspending the effectiveness of such
Registration Statement shall be in effect and no proceedings for such
purpose shall have been initiated or threatened by or before the SEC. All
state securities and "blue sky" permits or approvals required (in the
opinion of Community) to consummate the transactions contemplated by this
Agreement shall have been received.
(h) All Government Approvals shall be in effect, all conditions or
requirements prescribed by law or by any such Approval shall have been
satisfied, and all required waiting periods shall have expired; provided,
however, that no approval shall be deemed to have been received if it shall
require the divestiture or cessation of any of the present businesses or
operations conducted by either of the parties hereto or of a subsidiary of
or shall impose any other nonstandard condition or requirement, which
divestiture, cessation, condition or requirement Community reasonably and
in good faith determines would (i) have a material adverse effect on the
business or financial condition of Community and its subsidiaries on a
consolidated basis or (ii) otherwise materially impair the value of Glen
Rock to Community (in which case Community shall promptly notify Glen
Rock).
(i) Community shall have received an opinion of its counsel, Mette, Evans
& Woodside, substantially to the effect that, under the provisions of the
Code:
(1) the Merger of Glen Rock with and into Peoples upon the terms and
conditions of this Agreement will constitute a reorganization within
the meaning of Section 368 of the Code and will not result in any
recognized gain or loss to Community, Peoples, or Glen Rock;
(2) except for any cash received in lieu of any fractional share, no
gain or loss will be recognized by holders of Glen Rock's Common Stock
who receive Community Common Stock in exchange for the shares of Glen
Rock's Common Stock which they hold. A holder of Glen Rock's Common
Stock who receives cash in lieu of a fractional share of Community
Common Stock will be treated as if he received a fractional share of
Community Common Stock pursuant to the reorganization and Community
then redeemed such fractional share for the cash. The holder of Glen
Rock's Common Stock will recognize capital gain or loss on the
constructive redemption of the fractional share in an amount equal to
the difference between the cash received and the adjusted basis of the
fractional share;
(3) the holding period of Community Common Stock received in exchange
for Glen Rock's Common Stock will include the holding period of Glen
Rock's Common Stock for which it is exchanged, assuming the shares of
Glen Rock's Common Stock are capital assets in the hands of the holder
thereof on the Effective Date; and
(4) the basis of Community Common Stock received in exchange for Glen
Rock's Common Stock will be the basis of Glen Rock's Common Stock for
which it is exchanged, less any basis attributable to fractional shares
for which cash is received.
Such opinion shall be given, subject to the receipt, and the accuracy on
the Effective Date of:
(1) representations by Community satisfactory to such counsel; and
(2) representations by Glen Rock satisfactory to such counsel.
(j) Subject to satisfaction of the requirements of Statement on Auditing
Standards No. 72 of the American Institute of Certified Public Accountants
if applicable, Community and its directors and
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officers shall have received a letter from Stambaugh Ness, P.C. and/or
Beard & Company, Inc. dated the effective date of the Community
Registration Statement, to be in form and substance satisfactory to
Community, to the effect that:
(1) In their opinion, the financial statements of Glen Rock
examined by them and included in the Community Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published
rules and regulations thereunder; and
(2) On the basis of limited procedures, not constituting an audit,
including a limited review of the unaudited financial statements
referred to below, a limited review of the latest available
unaudited interim financial statements of Glen Rock, inspection of
the minute book of Glen Rock since December 31, 2000, inquiries of
officials of Glen Rock responsible for financial and accounting
matters and such other inquiries and procedures as may be specified
in such letter, nothing came to their attention that caused them to
believe that:
(A) any unaudited Balance Sheets, Statements of Income, Statements
of Stockholders' Equity and Statements of Cash Flows of Glen Rock
included in the Community Registration Statement are not in
conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial
statements covered by their report included in the Community
Registration Statement;
(B) as of a specified date not more than five days prior to the
date of delivery of such letter, there have been any changes in the
capital stock, decreases in additional paid in capital or increases
in debt of Glen Rock as compared with amounts shown in the balance
sheet as of December 31, 2000 included in the Community Registration
Statement, except in each case for such changes, increases or
decreases which the Community Registration Statement discloses have
occurred or may occur and except for such changes, decreases or
increases as aforesaid which are immaterial; and
(C) for the period from January 1, 2001 to such specified date,
there were any decreases in the total or per share amounts of net
income of Glen Rock as compared with the comparable period of the
preceding year, except in each case for decreases which the
Community Registration Statement discloses have occurred or may
occur, and except for such decreases which are immaterial.
(k) The aggregate number of shares of Glen Rock's Common Stock held by
persons who have taken all of 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 BCL ("Dissenting Shares") shall not be more as to prevent
Community from meeting the continuity of business enterprise requirement of
Section 368(a)(1)(A) of the Code with respect to the Glen Rock acquisition,
and the number of Dissenting Shares, 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 this Agreement, shall be less than
ten (10%) percent of the number of outstanding shares of Glen Rock's Common
Stock or such number, if less, which will allow Community to account for
the Merger as a "pooling of interests".
(l) Community shall have received from each of the persons who, in the
opinion of counsel for Community, might be deemed to be affiliates of Glen
Rock under Rule 145 of the Rules and Regulations under the 1933 Act (the
"Affiliates"), a signed undertaking satisfactory to Counsel for Community,
acknowledging and agreeing to abide by the limitations imposed by law in
respect of the sale or other disposition of the Community Common Stock
received by such person pursuant to the Merger. Glen Rock agrees to use its
reasonable efforts to have each Affiliate enter into the undertakings
referred to in this Section 8.1(l) on or prior to the Effective Date.
(m) Glen Rock shall have caused Robert G. Coradi and J. Scott Sturgill
(collectively referred to as the "Executives") to execute Amendments to
Change-in-Control Agreements in the forms attached hereto as Exhibit "C".
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(n) Community shall have been advised in writing by Price Waterhouse
Coopers, L.L.P. on the Effective Date that the Merger should be treated as
a pooling transaction for financial accounting purposes.
8.2 Conditions to the Obligations of Glen Rock. The obligations of Glen Rock
under this Agreement are, at its option (subject to the provisions of Section
11.1(a)), subject to the fulfillment on or prior to the Effective Date of each
of the following conditions:
(a) Except as affected by the transactions contemplated by this Agreement
and as affected by events occurring or arising after the date first above
written in the Ordinary Course of Business of Community which do not
materially adversely affect the business of Community, the representations
and warranties of Community in Section 5.2 shall be true and correct in all
material respects on and as of the Effective Date, except as to any
representation or warranty which specifically relates to an earlier date.
(b) Community shall have performed and complied in all material respects
with all terms of this Agreement required to be performed or complied with
by it on or prior to the Effective Date. Community as the sole shareholder
of Peoples shall have approved the merger of Glen Rock into Peoples.
(c) No material adverse change shall have occurred since June 30, 2000 in
the business or financial condition of Community and its subsidiaries on a
consolidated basis, and neither Community nor any of its subsidiaries shall
be engaged in, or a party to or threatened with, any legal action or other
proceeding before any court, any arbitrator of any kind or any government
agency if, in the reasonable judgment of Glen Rock, such legal action or
proceeding could materially adversely affect the business, financial
condition or prospects of Community and its subsidiaries, considered as a
whole. For purposes of this section, any change in the business or
financial condition of Community on a consolidated basis which results from
any changes occurring after the date hereof in any federal or state law,
rule or regulation, in generally accepted accounting principles or in
market rates of interest, which change affects banks or their holding
companies generally, shall not be deemed to be a material adverse change.
(d) This Agreement shall have been duly approved by the affirmative vote
of (i) Glen Rock's shareholders owning at least eighty (80%) percent of its
capital stock outstanding.
(e) Glen Rock shall have received a certificate, dated the Effective
Date, signed on behalf of Community by its Chairman and Chief Executive
Officer or President, certifying the fulfillment of the conditions stated
in paragraphs (a), (b), (c), (d) and (h) of this Section 8.2.
(f) Community shall have delivered to Glen Rock such documents as may
reasonably be requested by Glen Rock to evidence compliance by Community
with the provisions of this Agreement including an opinion of its counsel
confirming its representation set forth in Subsections (a), (e), (i), (l),
and (m) of Section 5.2 and to the effect that the shares to be issued in
the Merger are duly and validly authorized and issued.
(g) The Community Registration Statement shall have become effective
under the 1933 Act, no stop order suspending the effectiveness of the
Community Registration Statement shall be in effect and no proceedings for
such purpose shall have been initiated or threatened by or before the SEC.
All state securities and "blue sky" permits or approvals required (in the
opinion of Glen Rock) to consummate the transactions contemplated by this
Agreement shall have been received.
(h) All Government Approvals shall have been received and shall be in
effect, all conditions or requirements prescribed by law or by any such
Approval shall have been satisfied, and all required waiting periods shall
have expired.
(i) Glen Rock shall have received the opinion of Community's counsel
referred to in Section 8.1(i).
(j) Glen Rock shall have received an opinion from Berwind Financial
Group, L.P. dated as of a date within five (5) days of the date of the Glen
Rock's Proxy Statement to the effect that the consideration to be received
by the holders of Glen Rock's common stock pursuant to the Merger is fair
from a financial point of view to Glen Rock's shareholders.
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(k) Subject to satisfaction of the requirements of Statement on Auditing
Standards No. 72 of the American Institute of Certified Public Accountants
if applicable, Glen Rock and its directors and officers shall have received
a letter from Price Waterhouse Coopers, L.L.P. dated the effective date of
the Community Registration Statement, to be in form and substance
satisfactory to Glen Rock, to the effect that:
(1) In their opinion, the consolidated financial statements of
Community examined by them and in or incorporated by reference in the
Community Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder; and
(2) On the basis of limited procedures, not constituting an audit,
including a limited review of the unaudited financial statements
referred to below, a limited review of the latest available unaudited
consolidated interim financial statements of Community, inspection of
the minute book of Community since December 31, 2000, inquiries of
officials of Community responsible for financial and accounting matters
and such other inquiries and procedures as may be specified in such
letter, nothing came to their attention that caused them to believe
that:
(A) any unaudited Balance Sheets, Statements of Income, Statements
of Stockholders' Equity and Statements of Cash Flows of Community
included in the Community Registration Statement are not in
conformity with generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial
statements covered by their report included in the Community
Registration Statement;
(B) as of a specified date not more than five days prior to the
date of delivery of such letter, there have been any changes in the
capital stock, decreases in capital surplus or increases in debt of
Community as compared with amounts shown in the balance sheet as of
December 31, 2000 included in the Community Registration Statement,
except in each case for such changes, increases or decreases which
the Community Registration Statement discloses have occurred or may
occur and except for such changes, decreases or increases as
aforesaid which are immaterial; and
(C) for the period from January 1, 2001 to such specified date,
there were any decreases in the total or per share amounts of income
before securities gains or losses or net income of Community as
compared with the comparable period of the preceding year, except in
each case for decreases which the Community Registration Statement
discloses have occurred or may occur, and except for such decreases
which are material.
(l) The shares of Community Common Stock to be issued in the Merger shall
have been authorized for listing on the American Stock Exchange.
(m) The election of the officers and directors of Glen Rock to the
positions with Peoples set forth in Section 3.1 shall become effective.
(n) Community shall have been advised in writing by Price Waterhouse
Coopers, L.L.P. on the Effective Date that the Merger should be treated as
a pooling transaction for financial accounting purposes.
ARTICLE IX
Closing
9.1 The transactions contemplated by this Agreement and the Bank Merger
Agreement shall be consummated at a closing (the "Closing") to be held at the
executive offices of Community at 10:00 a.m. on a date to be designated by
Community, which date shall not be later than thirty (30) days after the
receipt of all required Governmental Approvals and Glen Rock Shareholder
approval and after the expiration of all applicable waiting periods with the
Merger to be consummated in such order and after such intermediate steps as
the parties hereto may agree. The Closing Date shall (unless otherwise
provided) be the Effective Date.
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9.2 At the Closing, the opinions, certificates and other documents required
to be delivered by this Agreement shall be delivered.
9.3 At the Closing, Community and Glen Rock shall instruct their respective
representatives to make or confirm such filings as shall be required in the
opinion of counsel to Community to give effect to the Merger.
ARTICLE X
Expenses
10.1 Each of the parties hereto agrees to pay, without right of
reimbursement from the other party and whether or not the transactions
contemplated by this Agreement shall be consummated, the costs incurred by it
incident to the performance of its obligations under this Agreement,
including, without limitation, costs incident to the preparation of this
Agreement, the Community Registration Statement, the Prospectus and the Proxy
Statement (including the audited financial statements of the parties contained
therein) and to the consummation of the Merger and of the other transactions
contemplated herein, including the fees and disbursements of counsel,
accountants and consultants employed by such party in connection therewith.
ARTICLE XI
Indemnification; Directors' and Officers' Insurance
11.1 From and after the Effective Date, Peoples agrees to indemnify and hold
harmless each present and former director and officer of Glen Rock and each
officer or employee of Glen Rock that is serving or has served as a director
or trustee of another entity expressly at Glen Rock request or direction (the
"Indemnified Parties"), against any and all costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any and all
claims, actions, suits, proceedings or investigations, whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters arising out of or in connection with such party's position as, or
actions taken as, a director or officer of Glen Rock or a subsidiary or
director or trustee of another entity at the request or direction of Glen
Rock, at or prior to the Effective Date, whether asserted or claimed prior to,
at or after the Effective Date, to the fullest extent permitted by applicable
law (and also advance expenses incurred to the fullest extent permitted by
applicable law); provided, however, that Peoples shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and non-appealable, that the indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. If
such indemnity is determined not to be available as a matter of law with
respect to any Indemnified Party, then Peoples and the Indemnified Party shall
contribute to the amount payable in such proportion as is appropriate to
reflect relative faults and benefits and other relevant equitable
considerations.
11.2 Any Indemnified Party wishing to claim indemnification under Section
11.1, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Peoples thereof, but the failure to so
notify shall not relieve Peoples of any liability it may have to such
Indemnified Party if such failure does not materially prejudice Community. In
the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Date): (i) Peoples shall have
the right to assume the defense thereof and Peoples shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Community elects not to assume such
defense, or counsel for the Indemnified Parties advises that there are issues
which raise conflicts of interest between Peoples and the Indemnified Parties,
the Indemnified Parties may retain counsel satisfactory to them, and Peoples
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; (ii) the Indemnified
Parties will cooperate in the defense of any such matter; and (iii) Peoples
shall not be liable for any settlement effected without its prior written
consent which shall not be unreasonably withheld.
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11.3 For a period of six years after the Effective Date, Peoples shall use
all reasonable efforts to cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by Glen
Rock (provided that Peoples may substitute therefor policies of at least the
same coverage and amounts containing terms and conditions which are
substantially no less advantageous to such directors and officers) with
respect to claims arising from facts or events which occurred before the
Effective Date; provided, however, that in no event shall Peoples be obligated
to expend, in order to maintain or provide insurance coverage pursuant to this
Section 11.3, any amount per annum in excess of one hundred fifty percent
(150%) of the amount of the annual premiums paid as of the date hereof by Glen
Rock 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 shall use all reasonable efforts to maintain the
most advantageous policies of directors' and officers' insurance obtainable
for an annual premium equal to the Maximum Amount.
ARTICLE XII
Termination
12.1 This Agreement may be terminated as follows:
(a) By the mutual consent of the Board of Directors of both Community and
Glen Rock at any time prior to the consummation of the Merger;
(b) By the Board of Directors of Community on or after June 30, 2001, if
(i) any of the conditions in Section 8.1 to which the obligations of
Community are subject have not been fulfilled, or (ii) such conditions have
been fulfilled or waived by Community but Glen Rock shall have failed to
complete the Merger.
(c) By the Board of Directors of Community if, in its reasonable opinion,
(i) a material adverse change shall have occurred since September 30, 2000,
in the business or financial condition of Glen Rock, or (ii) there has been
failure on the part of Glen Rock to comply with its obligations under this
Agreement, or any failure to comply with any condition set forth in Section
8.1.
(d) By the Board of Directors of either party if there shall be pending
or threatened any material action, proceeding or investigation before any
court or administrative agency by any governmental agency or any other
person challenging, or seeking material damages in connection with, the
Merger.
(e) By the Board of Directors of Glen Rock on or after June 30, 2001, if
(i) any of the conditions contained in Section 8.2 to which the obligations
of Glen Rock are subject have not been fulfilled (provided, however, that
if Community is engaged at the time in litigation or an appeal procedure
relating to an attempt to obtain one or more of the Government Approvals,
such non-fulfillment shall not give Glen Rock the right to terminate this
Agreement for an additional period of three months); or (ii) such
conditions have been fulfilled or waived but Community shall have failed to
complete the Merger.
(f) By the Board of Directors of Glen Rock if, in its reasonable opinion,
(i) a material adverse change shall have occurred since September 30, 2000,
in the business or financial condition of Community or (ii) there has been
a failure on the part of Community to comply with its obligations under
this Agreement, or any failure to comply with any condition set forth in
Section 8.2.
(g) By the Board of Directors of Glen Rock if the Merger and this
Agreement are not approved by the affirmative vote of Glen Rock
shareholders having at least eighty (80%) percent of its capital stock,
called pursuant to Section 6.2(e) of this Agreement; provided, that
Community and Glen Rock may mutually agree to keep this Agreement in effect
and to call an additional meeting of the shareholders of Glen Rock to
obtain such shareholder approval.
(h) By the Board of Directors of Glen Rock at any time during the ten-day
period commencing two days after the Determination Date (as defined below),
if both of the following conditions are satisfied:
(1) the Average Closing Price (as defined below) shall be less than
the product of 0.85 and the Starting Price; and
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(2) the number obtained by dividing the Average Closing Price by the
Starting Price (such number being referred to herein as the "Community
Ratio") shall be less than (ii) the number obtained by dividing the
Index Price on the Determination Date by the Index Price on the
Starting Date and subtracting 0.15 from such quotient (such number
being referred to herein as the "Index Ratio");
If Glen Rock elects to exercise its termination right pursuant to the
immediately preceding sentence, it shall give prompt written notice to
Community provided that such notice of election to terminate may be
withdrawn at any time within the aforementioned ten-day period. During the
five-day period commencing with its receipt of such notice, Community shall
have the option of adjusting the Conversion Factor to equal a quotient
(rounded to the nearest one-ten-thousandth), the numerator of which is the
product of 0.85, the Starting Price and the Conversion Factor (as then in
effect) and the denominator of which is the Average Closing Price. If
Community makes the election contemplated in this paragraph, within such
five-day period it shall give prompt notice to Glen Rock of such election
and the revised Conversion Factor, whereupon no termination shall have
occurred pursuant to this Section 12.1(h), and this Agreement shall remain
in effect in accordance with its terms (except as the Conversion Factor
shall have been adjusted), and any references in this Agreement to
"Conversion Factor" shall thereafter be deemed to refer to the Conversion
Factor as adjusted pursuant to this Section 12.1(h).
(i) By the Board of Directors of Community at any time during the twenty-
day period commencing two days after the Determination Date (as defined
below), if the conditions in 12.1(i)(1) and 12.1(i)(2) are both satisfied,
there has been no acquisition or merger of Community by or into another
entity such that Community is not the surviving entity prior to the
Effective Date, and there is no pending offer by Community to adjust the
Conversion Factor pursuant to subparagraph 12.1(i)(3).
(1) The Average Closing Price (as defined below) shall be greater
than the product of 1.20 and the Starting Price; and
(2) The Index Price on the Determination Date shall be greater than
the product of 1.15 and the Index Price on the Starting Date.
(3) If the conditions in subparagraphs 12.1(i)(1) and (2) are
satisfied, Community may within the ten-day period commencing two days
after the Determination Date provide notice to Glen Rock that it
intends to offer to modify the Conversion Factor to equal a quotient
(rounded to the nearest one-ten-thousandth), the numerator of which is
the product of 1.20, the Starting Price and the Conversion Factor, and
the denominator of which is the Average Closing Price. The Board of
Directors of Glen Rock may accept such offer by providing notice of its
acceptance to Community within five days of receiving notice of the
offer from Community, whereupon Community shall no longer have the
right to terminate this Agreement. If Glen Rock does not provide notice
of acceptance within the period of time prescribed herein, the offer by
Community shall no longer be deemed to be pending, and Community shall
have the right to terminate this Agreement.
(j) For purposes of Sections 12.1(h) and 12.1(i), the following terms
shall have the meanings indicated:
"Average Closing Price" means the average of the last reported sale
prices per share of Community Common Stock as reported on the American
Stock Exchange (as reported in THE WALL STREET JOURNAL or, if not
reported therein, in another mutually agreed upon authoritative source)
for the 20 consecutive trading days on the American Stock Exchange
ending at the close of trading on the Determination Date.
"Determination Date" means the twenty-fifth business day prior to the
Closing Date.
"Index Group" means the group of each of the 15 bank holding
companies listed below, the common stock of all of which shall be
publicly traded and as to which there shall not have been, since the
Starting Date and before the Determination Date, an announcement of a
proposal for such company to be acquired or for such company to acquire
another company or companies in transactions with a value exceeding 25%
of the acquiror's market capitalization as of the Starting Date. In the
event that the common stock of any such company ceases to be publicly
traded or any such announcement is made with respect to any such
company, such company will be removed from the Index Group, and
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<PAGE>
the weights (which have been determined based on the number of
outstanding shares of common stock) redistributed proportionately for
purposes of determining the Index Price. The 15 bank holding companies
and the weights attributed to them are as follows:
<TABLE>
<CAPTION>
Bank Holding Company Weighting
-------------------- ---------
<S> <C>
S&T Bancorp, Inc. ............................................... 17.54%
F.N.B. Corporation............................................... 16.21%
National Penn Bancshares, Inc. .................................. 12.08%
BT Financial Corporation......................................... 10.66%
Harleysville National Corporation................................ 9.29%
Omega Financial Corporation...................................... 8.69%
Sterling Financial Corporation................................... 5.52%
Sun Bancorp, Inc. ............................................... 3.23%
PennRock Financial Services Corp. ............................... 3.08%
Drovers Bancshares Corporation................................... 2.57%
Main Street Bancorp, Inc. ....................................... 2.52%
First National Community Bancorp. ............................... 2.51%
First Liberty Bank Corp. ........................................ 2.40%
USBANCORP, Inc. ................................................. 1.87%
Three Rivers Bancorp, Inc. ...................................... 1.83%
</TABLE>
"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing prices of the
companies comprising the Index Group.
"Starting Date" means November 7, 2000.
"Starting Price" shall mean the last reported sale price per share of
Community Common Stock on the Starting Date, as reported by the
American Stock Exchange (as reported in The Wall Street Journal or, if
not reported therein, in another mutually agreed upon authoritative
source).
If any company belonging to the Index Group or Community declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares, or similar transaction between the
Starting Date and the Determination Date, the prices for the common
stock of such company or Community shall be appropriately adjusted for
the purposes of applying this Section.
The power of termination hereunder may be exercised by Community and Glen
Rock, as the case may be, only by giving written notice, signed on behalf of
such party by its Chairman (or President) and Chief Executive Officer, to the
other party.
12.2 Termination of this Agreement shall not terminate or affect the
obligations of the parties to pay expenses as provided in Section 10 and shall
not affect any agreement after such termination.
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<PAGE>
ARTICLE XIII
Miscellaneous
13.1 Any notice or other communication required or permitted under this
Agreement or the Bank Merger Agreement shall be effective only if it is in
writing and delivered personally or sent by registered or certified mail,
postage prepaid, or by recognized overnight delivery service guaranteeing next
day delivery, addressed as follows:
If to Community:
Community Banks, Inc.
150 Market Square
Millersburg, PA 17061
Attention: Eddie L. Dunklebarger, President and CEO
With a copy to:
Mette, Evans & Woodside
3401 North Front Street
P. O. Box 5950
Harrisburg, PA 17110-0950
Attention: James A. Ulsh, Esquire
If to Glen Rock:
The Glen Rock State Bank
P.O. Box 127
Glen Rock, PA 17327
Attention: Robert G. Coradi, President and CEO
With a copy to:
Reed Smith LLP
213 Market Street
Harrisburg, PA 17101
Attention: Michael L. Hund, Esquire
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
13.2 Community and any of its wholly-owned banking subsidiaries may, prior
to the Effective Date of the Merger, consolidate with or merge with or into
one or more other banks or bank holding companies so long as Community and its
wholly-owned banking subsidiaries are the surviving corporations. The terms
and conditions of this Agreement shall not be affected by such merger or
consolidation, and the shareholders of Glen Rock shall receive the common
stock of the surviving bank holding company.
13.3 This Agreement is binding upon and is for the benefit of Community,
Peoples, and Glen Rock and their respective successors and permitted assigns.
This Agreement is not made for the benefit of any person, firm, corporation or
association not a party hereto and no other person, firm, corporation or
association shall acquire or have any right under or by virtue of this
Agreement.
13.4 All representations, warranties and covenants in this Agreement shall
expire on, and be terminated and extinguished at the Effective Date other than
covenants that by their terms are to survive or be performed after the
Effective Date; provided, however, that in the event of the consummation of
the Merger, no such
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representations, warranties or agreements shall be deemed to be terminated so
as to deprive Community, Peoples, and Glen Rock (or any director, officer or
controlling person of Community, Peoples, and Glen Rock) of any defense in law
or in equity which otherwise would be available against the claims of any
persons, including shareholders.
13.5 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
13.6 This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, Community, Peoples, and Glen Rock have each caused this
Agreement to be signed by their respective Chief Executive Officers and their
respective corporate seals to be hereunto affixed and attested by the
signature of their respective Secretaries, assistant Secretaries, a Vice
President or a Clerk, all as of the day and year first above written.
Community Banks, Inc.
/s/ Anthony Leo /s/ Eddie L. Dunklebarger
_____________________________________ By:__________________________________
Asst. Secretary
President and Chief
Executive Officer
The Peoples State Bank
/s/ Anthony Leo /s/ Eddie L. Dunklebarger
_____________________________________ By:__________________________________
Secretary
President and Chief
Executive Officer
The Glen Rock State Bank
/s/ Robert L. Williams /s/ Robert G. Coradi
_____________________________________ By:__________________________________
Asst. Secretary
President and Chief
Executive Officer
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<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Stock Option Agreement") is made and
entered into as of November 7, 2000, by and between THE GLEN ROCK STATE BANK
("Seller") and COMMUNITY BANKS, INC. ("Buyer").
Witnesseth:
WHEREAS, Buyer and Seller propose to enter into an Agreement and Plan of
Merger (the "Plan") of even date herewith, providing for, among other things,
the merger of Seller with and into The Peoples State Bank, a wholly-owned
banking subsidiary of Buyer (the "Merger"), pursuant to which each then
outstanding share of Seller Common Stock, par value $2.00 per share (the
"Shares"), would be converted into .900 of a share of Buyer Common Stock, par
value $5.00 per share, subject to conditions in the Plan; and
WHEREAS, to induce Buyer to enter into the Plan, Seller has agreed to grant
Buyer the option set forth herein to purchase authorized but unissued shares
of Seller Common Stock on the terms and subject to the conditions of this
Stock Option Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and provisions contained herein, the parties hereto agree as
follows:
1. Grant of Option. Seller hereby grants to Buyer an irrevocable option (the
"Option") to purchase up to that number of shares of authorized but unissued
shares of Seller Common Stock, which, when added to the number of shares of
Seller Common Stock owned by Buyer at the time of the exercise of the option
will represent 19.9% of the issued and outstanding shares of Seller Common
Stock after exercise of the option, at a purchase price equal to the product
of 0.85 and (.9 times the closing price of the buyer common stock of Community
on the Starting Date, as defined in Article XII, section 12.1 of the Plan).
Notwithstanding anything else in this Stock Option Agreement to the contrary,
the number of shares of Seller Common Stock subject to the Option shall be
reduced to such lesser number, if any, as may from time to time be necessary,
but only for so long as may be necessary, to (a) cause Buyer not to (i) effect
a control share acquisition as such term is defined for the purposes of
Chapter 25, Subchapters G and I of the Pennsylvania Business Corporation Law
of 1988, as amended (the "PBCL"), or (ii) become a controlling person for
purposes of Chapter 25, Subchapter E of the PBCL, (b) cause Buyer not to
violate applicable provisions of the Bank Holding Company Act of 1956 and the
rules and regulations promulgated thereunder (the "BHCA") or the Pennsylvania
Banking Code of 1965 and the rules and regulations promulgated thereunder (the
"Banking Code"), and (c) cause Buyer's percentage not to be affected by any
increase in authorized capital as a result of the subsequent exercise of any
subsequent stock options. So long as the option is outstanding and
unexercised, Seller shall at all times maintain and reserve, free from
preemptive rights, such number of authorized but unissued shares of Common
Stock as may be necessary so that the option may be exercised, without any
additional authorization of common stock, after giving effect to all other
options, warrants, convertible securities and other rights to acquire shares
of common stock.
2. Exercise of Options.
(a) Subject to fulfillment of the conditions set forth in Subparagraph (b)
hereof, the Option may be exercised by Buyer, in whole or in part, at any time
or from time to time; provided that to the extent the Option shall not have
been exercised, it shall terminate and be of no further force and effect on
the earlier of (i) on the Effective Date of the Merger, (ii) the time of
termination of the Plan in accordance with its terms (other than a termination
resulting from a willful breach by Seller of any representation, warranty or
covenant contained therein or, following the occurrence of an event set forth
in Subparagraph (b) hereof, failure of Seller's shareholders to approve the
Merger by the vote required under applicable law), (iii) six (6) months after
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termination of the Plan due to a willful breach by Seller of any
representation, warranty or covenant contained therein or (iv) six (6) months
after the failure of Seller's shareholders to approve the Merger by the vote
required under applicable law following the occurrence of an event set forth
in Subparagraph (b) hereof; and provided further that any such exercise shall
be subject to compliance with applicable provisions of law. In the event Buyer
wishes to exercise the Option, Buyer shall give written notice (the "Notice")
to Seller specifying the number of Shares it will purchase pursuant to said
Notice and a place and date not later than 30 days from the date such Notice
is given to Seller for the closing of such purchase; provided that, if prior
notification to or approval of any federal or state regulatory agency is
required in connection with all or part of such purchase, Buyer shall promptly
file the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required
notification period has expired or been terminated or such approval has been
obtained and any requisite waiting period shall have passed. Notwithstanding
the termination of the Option, Buyer shall be entitled to purchase Shares with
respect to which it have given a Notice in accordance with the terms hereof
prior to the termination of the Option. The rights of Buyer set forth in
Section 5 hereof shall not terminate when the rights to exercise the Option
terminates as set forth herein, but shall extend to such time as provided in
Section 5.
(b) The Option may be exercised if any of the following events shall have
occurred and be continuing:
(i) the making, other than by Buyer of any of its subsidiaries or
affiliates, of a tender or exchange offer for at least 19.9% of the
outstanding Shares.
(ii) the acquisition, by any person or group of persons other than Buyer
or any of its subsidiaries of affiliates or any presently existing
shareholders of Seller (other than for bona fide arbitrage purposes), of
beneficial ownership or the right to acquire beneficial ownership of 19.9%
or more of the outstanding Shares (the terms "group" and "beneficial
ownership" having the meanings assigned thereto in Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder).
(iii) the making by any person, other than Buyer or any of its
subsidiaries or affiliates, by public announcement or communication to
Seller, of a firm proposal to: (a) acquire Seller, by merger,
consolidation, purchase of all or substantially all of its assets or other
similar transactions; or (b) to make any such tender or exchange offer as
is described in (i) above.
(iv) the failure of Seller's shareholders to approve the Merger at a
meeting called for such purpose if at the time of such meeting there has
been an announcement by a person (other than Buyer) of an offer or proposal
to acquire 19.9% or more of the Common Stock (before giving effect to any
exercise of the Option), or to acquire, merge, or consolidate with Seller,
or to purchase all or substantially all of Seller's assets.
(c) Seller shall give prompt written notice to Buyer upon becoming aware of
any of the events described in paragraphs (b)(i)(ii)(iii) or (iv) of this
Section 2. Prior to termination of this Option, Seller will not take, and will
refrain from taking, any action which would have the effect of preventing or
disabling Seller from delivering shares of Seller Common Stock to Buyer upon
any exercise of the Option or otherwise performing its obligations under this
Agreement.
3. Payment of Purchase Price and Delivery of Certificates for Shares. At any
closing hereunder, (a) Buyer shall make payment to Seller of the aggregate
price for the Shares so purchased in immediately available funds by wire
transfer to a bank designated in writing by Seller in an amount equal to the
price per share set forth in Section 1 hereof times the number of shares to be
purchased at such closing and (b) Seller will deliver to Buyer a duly executed
certificate or certificates representing the number of Shares so purchased
duly endorsed, or accompanied by a duly executed stock power, to Buyer or its
designee.
4. Representations and Warranties of Seller. Seller hereby represents and
warrants to Buyer as follows:
(a) Seller is a Pennsylvania state chartered banking institution duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
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<PAGE>
(b) The execution and delivery of this Stock Option Agreement has been
authorized by the Board of Directors of Seller and by all other necessary
corporate action on the part of Seller. This Stock Option Agreement has been
duly executed and delivered by Seller.
(c) Seller has taken all necessary corporate action to authorize and reserve
for issuance upon exercise of the Option, and, at all times from the date
hereof until the obligation to deliver any shares of Seller Common Stock upon
exercise of the Option terminates, will have reserved for issuance authorized
but unissued Shares of Seller Common Stock necessary for Buyer to exercise the
Option in full.
(d) The Shares to be issued upon due exercise, in whole or in part, of the
Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and non-assessable.
(e) Neither the execution and delivery of this Stock Option Agreement nor
the consummation of the transactions contemplated hereby will result in a
breach or violation of, conflict with or constitute a default under, Seller's
Articles of Incorporation or By-Laws, or any of the provisions of any
indenture, agreement or other instrument to which Seller is a party or by
which Seller is bound.
5. Registration Rights. If sale or disposition of Seller's stock is subject
to registration under the Securities Act of 1983 as amended, Seller shall, if
requested by Buyer, as expeditiously as possible prepare and file a
registration statement under the Securities Act of 1933, as amended, and shall
use its best efforts to qualify under any applicable state securities laws if
necessary in order to permit the sale or other disposition of any or all of
the Shares that have been acquired upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Buyer at any
time within one (1) year of the exercise of the Option. Seller shall use its
best efforts to cause such registration statement to become effective, to
obtain all consents or waivers of other parties which are required therefor
and to keep such registration effective for a period of not less than 270 days
from the day such registration statement first becomes effective unless, in
the written opinion of counsel to Seller, addressed to Buyer and which shall
be satisfactory in form and substance to Buyer and its counsel, registration
is not required for such proposed disposition by Buyer.
6. Duties of the Corporation upon Registration If and whenever Seller is
required by the provisions of Paragraph 5 of this Agreement to effect the
registration of any of the Securities under the Securities Act, Seller shall:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") such amendments to the Registration Statement and supplements to the
prospectus contained therein as may be necessary to keep the Registration
Statement effective and current for the maximum period required under
Paragraph 5 above;
(b) furnish to Buyer and to the underwriters of the Securities being
registered such reasonable number of copies of the Registration Statement,
the preliminary prospectus and final prospectus contained therein, and such
other documents as Buyer or such underwriters may reasonably request in
order to facilitate the public offering of the Securities;
(c) use its best efforts to register or qualify the Securities covered by
the Registration Statement under the state securities or blue sky laws of
such jurisdictions as Buyer or such underwriters may reasonably request,
provided, that Seller shall not be required hereunder to submit to the
jurisdiction of any state in which it has not previously been required to
qualify to do business;
(d) notify Buyer, promptly after Seller shall receive notice thereof, of
the time when the Registration Statement has become effective or any
supplement or amendment to any prospectus forming a part of the
Registration Statement has been filed;
(e) notify Buyer promptly of any request by the SEC for the amending or
supplementing of the Registration Statement or the prospectus contained
therein or for additional information;
(f) prepare and file with the SEC, promptly upon the request of Buyer,
any amendments or supplements to the Registration Statement or the
prospectus contained therein which, in the joint opinion of
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<PAGE>
counsel for Seller and counsel for Buyer, are required under the Securities
Act or the rules and regulations promulgated by the SEC thereunder in
connection with the sale or other distribution of the Securities by Buyer;
(g) prepare and promptly file with the SEC such amendments of or
supplements to the Registration Statement or the prospectus contained
therein as may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such Securities is required to be
delivered under the Securities Act, any event shall have occurred as the
result of which such prospectus as then in effect would include an untrue
statement of a material fact or would omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(h) advise Buyer promptly after Seller shall receive notice or obtain
knowledge of the issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(i) at the request of Buyer, furnish on the date or dates provided for in
the underwriting agreement: (i) an opinion or opinions of counsel for
Seller for the purposes of such registration, addressed to the underwriters
and to Buyer, covering such matters as such underwriters and Buyer may
reasonably request and as are customarily covered by issuer's counsel at
that time; and (ii) a letter or letters from the independent certified
public accountants for Seller, addressed to the underwriters and to Buyer,
covering such matters as such underwriters or Buyer may reasonably request,
in which letters such accountants shall state (without limiting the
generality of the foregoing) that they are independent certified public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements and other financial
data of Seller included in the Registration Statement or any amendment or
supplement thereto comply as to form in all material respects with the
applicable accounting requirements of the Securities Acts.
7. Expenses of Registration. With respect to the registration requested
pursuant to Paragraph 5 of this Agreement, (a) Seller shall bear all
registration, filing and NASD fees, printing and engraving expenses, fees and
disbursements of its counsel and accountants and all legal fees and
disbursements and other expenses of Seller to comply with state securities or
blue sky laws of any jurisdiction in which the Securities to be offered are to
be registered or qualified; and (b) Buyer shall bear all fees and
disbursements of its counsel and accountants, underwriting discounts and
commissions, transfer taxes for Buyer and any other expenses incurred by
Buyer.
8. Indemnification. In connection with any Registration Statement or any
amendment or supplement thereto:
(a) Seller shall indemnify and hold harmless Buyer, any underwriter (as
defined in the Securities Act) for Buyer, and each person, if any, who
controls Buyer or such underwriter (within the meaning of the Securities
Act) from and against any and all loss, danger, liability, cost or expense
to which Buyer or any such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such loss,
damage, liability, cost or expense arises out of or is caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto, or arises out of or is
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that Seller will not be liable in
any such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by Buyer, such underwriter or such controlling person
in writing specifically for use in the preparation thereof.
(b) buyer shall indemnify and hold harmless Seller, any underwriter (as
defined in the Securities Act), and each person, if any, who controls
Seller or such underwriter (within the meaning of the Securities Act)
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<PAGE>
from and against any and all loss, damage, liability, cost or expense to
which Seller or any such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such loss,
damage, liability, cost or expense arises out of or is caused by any untrue
or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto, or arises out of or is
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made,
not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was so made in reliance upon and in conformity with written
information furnished by Buyer specifically for use in the preparation
thereof.
(c) Promptly after receipt by any party which is entitled to be
indemnified, pursuant to the provisions of subparagraph (a) or (b) of this
Paragraph 8 of any claim in writing or of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party pursuant to the provisions of subparagraph
(a) and (b) of this Paragraph 8, promptly notify the indemnifying party of
the receipt of such claim or notice of the commencement of such action, but
the omission to so notify the indemnifying party will not relieve it from
any liability which it may otherwise have to any indemnified party
hereunder. In case any such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any action include both the indemnified party or parties and
the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing any
indemnified party, such indemnified party shall have the right to select
separate counsel to participate in the defense of such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party, pursuant to the provisions of
subparagraph (a) or (b) of this Paragraph 8, for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, other than reasonable costs of investigation, unless
(i) such indemnified party shall have employed separate counsel in
accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action, or (iii) the
indemnifying party had authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, any party
entitled to indemnification by the terms thereof shall be entitled to
obtain contribution with respect to its liabilities and expenses, except to
the extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled there shall be considered the parties'
relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and/or
prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. Buyer and Seller agree that it would
not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation even if the underwriters and Buyer as a group
were considered a single entity for such purpose.
9. Adjustment Upon Changes in Capitalization. In the event of any change in
Seller Common Stock by reason of stock dividends, split-ups, recapitalization,
mergers, combinations, conversions, exchanges of shares or other changes in
the corporate or capital structure of Seller which could have the effect of
diluting Buyer's rights hereunder, the number and kind of shares or securities
subject to the Option and the purchase price therefor shall be adjusted
appropriately and proportionately so as to eliminate the dilutive effect on
Buyer's rights hereunder.
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10. Representations of Buyer. Buyer represents and warrants to Seller as
follows:
(a) Buyer is acquiring the Option, and any shares of Seller Common Stock
which it may acquire upon exercise of the Option, for investment only and
not with a view to distribution thereof; Buyer understands that the Option
has not been, and such Shares may not be, registered under the Securities
Act and that such Option and, if not so registered, such Shares may not be
sold except in accordance with, or pursuant to an exemption under, such
Act, subject, however, to Buyer's registration rights pursuant to Section 5
hereof.
(b) This Stock Option agreement has been duly authorized by all necessary
corporate action on the part of Buyer and has been duly executed and
delivered by Buyer.
(c) Buyer is a corporation in good standing under the laws of the
Commonwealth of Pennsylvania and has the requisite corporate power to enter
into this Stock Option Agreement.
11. Compliance With Laws. Nothing contained in this Stock Option agreement
shall require Seller to take any action which would violate any statute, rule
or regulation; provided, however, that except as otherwise specifically
provided herein, Seller shall take all actions necessary or appropriate to
permit it to comply (if compliance is feasible) with all applicable legal
requirements necessary to perform this Stock Option Agreement is accordance
with its terms.
12. Severability. If any term, provisions, covenant or restriction contained
in this Stock Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Stock Option Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated. If
for any reason such court or regulatory agency determined that the Option will
not permit the holder to acquire the full number of shares of Seller Common
Stock provided in Section 1 hereof (as adjusted pursuant to Section 9 hereof),
it is the express intention of Seller to allow the holder to acquire such
lesser number of shares as may be permissible according to such court or
regulatory agency, without any amendment or modification hereof.
13. Agreement as to Voting. Buyer agrees that prior to the termination of
the Plan in accordance with its terms, Buyer will vote any Shares acquired
upon exercise of this Option in favor of the Plan.
14. Listing; Filings and Consents. Upon exercise of the Option in whole or
in part, Seller will use its best efforts promptly to have the shares of
Seller Common Stock issued pursuant thereto authorized for quotation on the
National Association of Securities Dealers Automated Quotation system, or, if
at the time the Option is exercised the Seller Common Stock is listed on any
stock exchange, to list such shares on such exchange, effective upon official
notice of issuance. Buyer and Seller each will use its best efforts to make
all filings with, and to obtain consent of, all third parties and government
authorities necessary to the consummation of the transactions contemplated by
this Stock Option Agreement.
15. Assignment. Neither of the parties hereto may assign any of its rights
or obligations hereunder to any person without the prior written consent of
the other party, except that, in the event the Option becomes exercisable,
Buyer may assign in whole or in part its rights and obligations hereunder to a
wholly owned subsidiary of Buyer, which shall be likewise bound. Subject to
the preceding sentence, this Stock Option Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
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16. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to
have been duly received if so given) if personally delivered, telecopied (with
confirmation) or sent by registered or certified mail, postage prepaid,
addressed to the respective parties as follows:
If to Seller: The Glen Rock State Bank
57-59 Main Street
P.O. Box 127
Glen Rock, PA 17327
Attention: Robert G. Coradi, CEO
If to Buyer: Community Banks, Inc.
150 Market Square
P.O. Box 350
Millersburg, PA 17061
Attention: Eddie L. Dunklebarger, President and CEO
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
17. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
18. Specific Performance. The parties hereto acknowledge that money damages
are an inadequate remedy for breach of this Agreement because of the
difficulty of ascertaining the amount of damage that will be suffered by Buyer
in the event this Agreement is breached. Therefore, Seller agrees that Buyer
may obtain specific performance of this Agreement and injunctive relief
against any breach hereof.
19. Counterparts. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
20. Definitions. Capitalized terms defined in the Plan and used herein shall
have the same meanings as the Plan.
IN WITNESS WHEREOF, this Stock Option Agreement has been executed by duly
authorized officers of each of the parties hereto all as of the day and year
first above written.
SELLER:
The Glen Rock State Bank
/s/ Robert L. Williams By: /s/ Robert G. Coradi
__________________________ __________________________________
Witness
BUYER:
Community Banks, Inc.
/s/ Anthony Leo By: /s/ Eddie L. Dunklebarger
__________________________ __________________________________
Witness
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EXHIBIT B
Glen Rock State Bank
, 2000
Community Banks, Inc.
150 Market Square
P.O. Box 350
Millersburg, PA 17061
Gentlemen:
The undersigned understands that Community Banks, Inc. ("CBI") has entered
or is about to enter into an Agreement and Plan of Merger (the "Merger
Agreement") with The Glen Rock State Bank ("Glen Rock"). The Merger Agreement
provides for the merger of Glen Rock into The Peoples State Bank ("Peoples"),
a wholly owned subsidiary of CBI (the "Merger") and the conversion of
outstanding shares of Glen Rock's Common Stock into CBI Common Stock at the
conversion factor set forth therein.
In order to induce CBI to enter into and to consummate the Merger Agreement,
and intending to be legally bound hereby, the undersigned represents, warrants
and agrees that at the Glen Rock Shareholders' Meeting contemplated by the
Merger Agreement and any adjournment thereof the undersigned will, in person
or by proxy, vote or cause to be voted in favor of the Merger Agreement and
the Merger all shares of Glen Rock Common Stock beneficially owned by the
undersigned individually or, to the extent of the undersigned's proportionate
voting interest, jointly with other persons, as well as (to the extent of the
undersigned's proportionate voting interest) any other shares of Glen Rock
Common Stock over which the undersigned may hereafter acquire beneficial
ownership in such capacities (collectively, the "Shares"). Subject to the
final paragraph of this agreement, the undersigned further agrees that he will
use his best efforts to cause any other shares of Glen Rock Common Stock over
which he has or shares voting power to be voted in favor of the Merger
Agreement and the Merger.
The undersigned further represents, warrants and agrees that until the
earlier of (i) the consummation of the Merger, or (ii) the termination of the
Merger Agreement in accordance with their terms, the undersigned will not,
directly or indirectly:
(a) vote any of the Shares, or cause or permit any of the Shares to be
voted, in favor of any other merger, consolidation, plan of liquidation,
sale of assets, reclassification or other transaction involving Glen Rock
which would have the effect of any person other than CBI or an affiliate of
CBI acquiring control over Glen Rock or any substantial portion of the
assets of Glen Rock. As used herein, the term "control" means (1) the
ability to direct the voting of 10% or more of the outstanding voting
securities of a person having ordinary voting power in the election of
directors or in the election of any other body having similar functions, or
(2) the ability to direct the management and policies of a person, whether
through ownership of securities, through any contract, arrangement, or
understanding or otherwise.
(b) sell or otherwise transfer any of the Shares or cause or permit any
of the Shares to be sold or otherwise transferred (i) pursuant to any
tender offer, exchange offer or similar proposal made by any person other
than CBI or an affiliate of CBI, (ii) to any person seeking to obtain
control of Glen Rock or any substantial portion of the assets of Glen Rock
or any of its subsidiaries or to any other person (other than CBI or an
affiliate) under circumstances where such sale or transfer may reasonably
be expected to assist a person seeking to obtain such control, or (iii) for
the principal purpose of avoiding the obligation of the undersigned under
this agreement.
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It is understood and agreed that this agreement relates solely to the
capacity of the undersigned as a shareholder or other beneficial owner of the
Shares and is not in any way intended to affect the exercise by the
undersigned of the undersigned's responsibilities as a director or officer of
Glen Rock. It is further understood and agreed that the term "Shares" shall
not include any securities beneficially owned by the undersigned as a trustee
or fiduciary, and that this agreement is not in any way intended to affect the
exercise by the undersigned of the undersigned's fiduciary responsibility in
respect of any such securities.
Very truly yours,
__________________________________
Accepted and Agreed to:
Community Banks, Inc.
By:
_____________________________
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EXHIBIT C
AMENDMENT TO CHANGE-IN-CONTROL AGREEMENT
This Agreement is made effective as of this day of , 2000, by and
between The Glen Rock State Bank (the "Bank"), a Pennsylvania state-chartered
bank, with its principal office at 57-59 Main Street, Glen Rock, Pennsylvania
and J. Scott Sturgill (the "Executive").
Whereas, Bank and Executive entered a Change-in-Control Agreement ("Original
Agreement") on or about February 16, 2000;
Whereas, Bank and Executive wish to amend the Original Agreement in
connection with an anticipated merger of the Bank with Peoples State Bank
("Merger");
Now Therefore, intending to be legally bound hereby, the parties hereto
agree as follows:
1. No Voluntary Termination Before Merger. The parties agree to modify the
Original Agreement to provide that the Bank shall not be obligated to pay the
Termination Benefits following a Change in Control provided for in the
Original Agreement in the event that Executive voluntarily terminates his
employment with Bank prior to the Effective Date of the Merger, unless prior
to the Effective Date Bank takes one of the adverse actions against Executive
that are enumerated in paragraph 1 of the Original Agreement and such adverse
action does not constitute a Termination for Cause as defined in the Original
Agreement. The intent of this paragraph is to induce Executive to remain in
the employ of Bank at least through the Effective Date of the Merger. For
purposes of this paragraph, "Change in Control" shall have the same meaning as
in the Original Agreement. The term "Effective Date" shall have the same
meaning as in that certain Agreement and Plan of Merger executed by Bank,
Community Banks, Inc. and Peoples State Bank on November , 2000.
2. Term of Original Agreement. The parties agree that if the Merger occurs,
the term of the Original Agreement shall end upon the earlier of February ,
2003, the termination of Executive's employment pursuant to the terms of the
Original Agreement or any further modification of the Original Agreement to
which Executive and Bank's successor in interest may agree, without any
further notice from Bank and notwithstanding the notice provisions in
paragraph 1 of the Original Agreement.
3. No Other Modifications. All terms and provisions in the Original
Agreement not modified by this Modification of Change-in-Control Agreement
shall remain in full force and effect.
ATTEST THE GLEN ROCK STATE BANK
By:
_____________________________ __________________________________
WITNESS EXECUTIVE
_____________________________ __________________________________
J. Scott Sturgill
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AMENDMENT TO CHANGE-IN-CONTROL AGREEMENT
This Agreement is made effective as of this day of , 2000, by and
between The Glen Rock State Bank (the "Bank"), a Pennsylvania state-chartered
bank, with its principal office at 57-59 Main Street, Glen Rock, Pennsylvania
and Robert G. Coradi (the "Executive").
Whereas, Bank and Executive entered a Change-in-Control Agreement ("Original
Agreement") on or about December 18, 1998;
Whereas, Bank and Executive wish to amend the Original Agreement in
connection with an anticipated merger of the Bank with Peoples State Bank
("Merger");
Now Therefore, intending to be legally bound hereby, the parties hereto
agree as follows:
1. No Voluntary Termination Before Merger. The parties agree to modify the
Original Agreement to provide that the Bank shall not be obligated to pay the
Termination Benefits following a Change in Control provided for in the
Original Agreement in the event that Executive voluntarily terminates his
employment with Bank prior to the Effective Date of the Merger, unless prior
to the Effective Date Bank takes one of the adverse actions against Executive
that are enumerated in paragraph 1 of the Original Agreement and such adverse
action does not constitute a Termination for Cause as defined in the Original
Agreement. The intent of this paragraph is to induce Executive to remain in
the employ of Bank at least through the Effective Date of the Merger. For
purposes of this paragraph, "Change in Control" shall have the same meaning as
in the Original Agreement. The term "Effective Date" shall have the same
meaning as in that certain Agreement and Plan of Merger executed by Bank,
Community Banks, Inc. and Peoples State Bank on November , 2000.
2. Term of Original Agreement. The parties agree that if the Merger occurs,
the term of the Original Agreement shall end upon the earlier of December 18,
2003, the termination of Executive's employment pursuant to the terms of the
Original Agreement or any further modification of the Original Agreement to
which Executive and Bank's successor in interest may agree, without any
further notice from Bank and notwithstanding the notice provisions in
paragraph 1 of the Original Agreement.
3. No Other Modifications. All terms and provisions in the Original
Agreement not modified by this Modification of Change-in-Control Agreement
shall remain in full force and effect.
ATTEST THE GLEN ROCK STATE BANK
By:
_____________________________ __________________________________
WITNESS EXECUTIVE
_____________________________ __________________________________
Robert G. Coradi
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APPENDIX B
OPINION OF INDEPENDENT FINANCIAL ADVISOR
BERWIND FINANCIAL, L.P.
Investment Banking
, 2001
Board of Directors
The Glen Rock State Bank
57-59 Main Street
P.O. Box 127
Glen Rock, Pennsylvania 17327
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of the common stock (the
"Shares") of The Glen Rock State Bank ("Glen Rock") of the exchange ratio in
the proposed merger by and between Glen Rock and Community Banks, Inc.
("Community"). The terms of the proposed merger (the "Proposed Merger") by and
between Community and Glen Rock are set forth in the Agreement and Plan of
Merger dated as of November 7, 2000 (the "Merger Agreement") and provide that
each Share will be converted into the right to receive .90 shares of common
stock of Community (the "Exchange Ratio"), subject to adjustment in certain
circumstances, with cash paid in lieu of any fractional shares.
Berwind Financial, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed the
historical financial performance, current financial position and general
prospects of Glen Rock and Community and reviewed certain internal financial
analyses and forecasts prepared by the management of Glen Rock and Community,
(ii) reviewed the Merger Agreement, (iii) reviewed and analyzed the stock
market performance of Glen Rock and Community, (iv) studied and analyzed the
consolidated financial and operating data of Glen Rock and Community, (v)
considered the terms and conditions of the Proposed Merger between Glen Rock
and Community as compared with the terms and conditions of comparable bank,
bank holding company and financial holding company mergers and acquisitions,
(vi) met and/or communicated with certain members of Glen Rock's and
Community's senior management to discuss their respective operations,
historical financial statements and future prospects, (vii) reviewed this
proxy statement/prospectus and (viii) conducted such other financial analyses,
studies and investigations as we deemed appropriate.
Our opinion is given in reliance on information and representations made or
given by Glen Rock and Community, and their respective officers, directors,
auditors, counsel and other agents, and on filings, releases and other
information issued by Glen Rock and Community including financial statements,
financial projections, and stock price data as well as certain information
from recognized independent sources. We have not independently verified the
information concerning Glen Rock and Community nor other data which we have
considered in our review and, for purposes of the opinion set forth below, we
have assumed and relied upon the accuracy and completeness of all such
information and data. We have not conducted any valuation or appraisal of any
assets or liabilities of Glen Rock or Community, nor have any valuations or
appraisals been provided to us. Additionally, we assume that the Proposed
Merger is, in all respects, lawful under applicable law.
With regard to financial and other information relating to the general
prospects of Glen Rock or Community, we have assumed that such information has
been reasonably prepared and reflects the best currently available estimates
and judgment of the management of Glen Rock and Community as to their most
likely future
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<PAGE>
performance and the cost savings and other potential synergies (including the
amount, timing and achievability thereof) anticipated to result from the
Proposed Merger. For Glen Rock and Community, we have assumed the allowance
for loan losses indicated on the balance sheets of each entity is adequate to
cover such losses; we have not reviewed credit files of either Glen Rock or
Community. Also, in rendering our opinion, we have assumed that in the course
of obtaining the necessary regulatory approvals for the Proposed Merger no
conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Proposed Merger to Glen Rock or Community.
Our opinion is based upon information provided to us by the management of
Glen Rock and Community, as well as market, economic, financial and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our opinion pertains only to the Exchange Ratio to
the holders of Shares in the Proposed Merger, is for the information of Glen
Rock's Board of Directors in connection with its evaluation of the Proposed
Merger and does not constitute a recommendation to the Board of Glen Rock and
does not constitute a recommendation to Glen Rock shareholders as to how such
shareholders should vote on the Proposed Merger. We are not expressing any
opinion as to the actual value of Community common stock when issued pursuant
to the Proposed Merger or the prices at which Community common stock will
trade subsequent to the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date hereof that
the Exchange Ratio is fair, from a financial point of view, to the holders of
Shares.
Sincerely,
BERWIND FINANCIAL, L.P.
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APPENDIX C--DISSENTERS' RIGHTS
Subchapter 15D of the Pennsylvania Business Corporation Law
(S) 1571. Application and effect of subchapter
(a) General rule.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from,
and to obtain payment of the fair value of his shares in the event of, any
corporate action, or to otherwise obtain fair value for his shares, where this
part expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the holders of the shares
of any class or series of shares that, at the record date fixed to determine
the shareholders entitled to notice of and to vote at the meeting at which a
plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to be
voted on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted solely
into shares of the acquiring, surviving, new or other corporation or solely
into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles, the
plan or the terms of the transaction entitle all shareholders of the class
to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the
votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase, lease,
exchange or other disposition all or substantially all of the shares, property
or assets of another corporation by the issuance of shares, obligations or
otherwise, with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or other person,
shall not be entitled to the rights and remedies of dissenting shareholders
provided in this subchapter regardless of the fact, if it be the case, that
the acquisition was accomplished by the issuance of voting shares of the
corporation to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
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(c) Grant of optional dissenters rights.--The bylaws or a resolution of the
board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided by statute, if a
proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part
that makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) Certain provisions of articles ineffective.--This subchapter may not be
relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
(S) 1572. Definitions
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"Corporation." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation,
division, conversion or otherwise of that issuer. A plan of division may
designate which of the resulting corporations is the successor corporation
for the purposes of this subchapter. The successor corporation in a
division shall have sole responsibility for payments to dissenters and
other liabilities under this subchapter except as otherwise provided in the
plan of division.
"Dissenter." A shareholder or beneficial owner who is entitled to and
does assert dissenters rights under this subchapter and who has performed
every act required up to the time involved for the assertion of those
rights.
"Fair value." The fair value of shares immediately before the
effectuation of the corporate action to which the dissenter objects, taking
into account all relevant factors, but excluding any appreciation or
depreciation in anticipation of the corporate action.
"Interest." Interest from the effective date of the corporate action
until the date of payment at such rate as is fair and equitable under all
the circumstances, taking into account all relevant factors, including the
average rate currently paid by the corporation on its principal bank loans.
(S) 1573. Record and beneficial holders and owners
(a) Record holders of shares.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of
the same class or series beneficially owned by any one person and discloses
the name and address of the person or persons on whose behalf he dissents. In
that event, his rights shall be determined as if the shares as to which he has
dissented and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares.--A beneficial owner of shares of a business
corporation who is not the record holder may assert dissenters rights with
respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the
corporation not later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not dissent
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with respect to some but less than all shares of the same class or series
owned by the owner, whether or not the shares so owned by him are registered
in his name.
(S) 1574. Notice of intention to dissent
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect
no change in the beneficial ownership of his shares from the date of such
filing continuously through the effective date of the proposed action and must
refrain from voting his shares in approval of such action. A dissenter who
fails in any respect shall not acquire any right to payment of the fair value
of his shares under this subchapter. Neither a proxy nor a vote against the
proposed corporate action shall constitute the written notice required by this
section.
(S) 1575. Notice to demand payment
(a) General rule.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice
of intention to demand payment of the fair value of their shares and who
refrained from voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders, the
corporation shall send to all shareholders who are entitled to dissent and
demand payment of the fair value of their shares a notice of the adoption of
the plan or other corporate action. In either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer of
shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set for receipt of the
demand and deposit of certificated shares shall be not less than 30 days from
the mailing of the notice.
(S) 1576. Failure to comply with notice to demand payment, etc.
(a) Effect of failure of shareholder to act.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575
(relating to notice to demand payment) shall not have any right under this
subchapter to receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares are not represented
by certificates, the business corporation may restrict their transfer from the
time of receipt of demand for payment until effectuation of the proposed
corporate action or the release of restrictions under the terms of section
1577(a) (relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S) 1577. Release of restrictions or payment for shares
(a) Failure to effectuate corporate action.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
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any certificates that have been deposited and release uncertificated shares
from any transfer restrictions imposed by reason of the demand for payment.
(b) Renewal of notice to demand payment.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming
to the requirements of section 1575 (relating to notice to demand payment),
with like effect.
(c) Payment of fair value of shares.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that the
corporation estimates to be the fair value of the shares, or give written
notice that no remittance under this section will be made. The remittance or
notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer of
the shares held or owned by the dissenter for a fiscal year ending not more
than 16 months before the date of remittance or notice together with the
latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of the
shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) Failure to make payment.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any such
uncertificated shares that such demand has been made. If shares with respect
to which notation has been so made shall be transferred, each new certificate
issued therefor or the records relating to any transferred uncertificated
shares shall bear a similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such shares shall
not acquire by such transfer any rights in the corporation other than those
that the original dissenter had after making demand for payment of their fair
value.
(S) 1578. Estimate by dissenter of fair value of shares
(a) General rule.--If the business corporation gives notice of its estimate
of the fair value of the shares, without remitting such amount, or remits
payment of its estimate of the fair value of a dissenter's shares as permitted
by section 1577(c) (relating to payment of fair value of shares) and the
dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the
fair value of the shares, which shall be deemed a demand for payment of the
amount or the deficiency.
(b) Effect of failure to file estimate.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the
corporation.
(S) 1579. Valuation proceedings generally
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578 (relating to
estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may
file in court an application for relief requesting that the fair value of the
shares be determined by the court.
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(b) Mandatory joinder of dissenters.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served
on each such dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant to 42
Pa.C.S. Ch. 53 (relating to bases of jurisdiction and interstate and
international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found
to exceed the amount, if any, previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--If the corporation
fails to file an application as provided in subsection (a), any dissenter who
made a demand and who has not already settled his claim against the
corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file
an application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not
previously remitted.
(S) 1580. Costs and expenses of valuation proceedings
(a) General rule.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed as the
court deems appropriate against all or some of the dissenters who are parties
and whose action in demanding supplemental payment under section 1578
(relating to estimate by dissenter of fair value of shares) the court finds to
be dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack of good faith
appears.--Fees and expenses of counsel and of experts for the respective
parties may be assessed as the court deems appropriate against the corporation
and in favor of any or all dissenters if the corporation failed to comply
substantially with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any other party, if
the court finds that the party against whom the fees and expenses are assessed
acted in bad faith or in a dilatory, obdurate, arbitrary or vexatious manner
in respect to the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the court finds that
the services of counsel for any dissenter were of substantial benefit to other
dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of
the amounts awarded to the dissenters who were benefited.
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APPENDIX D--STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Stock Option Agreement") is made and
entered into as of November 7, 2000, by and between THE GLEN ROCK STATE BANK
("Seller") and COMMUNITY BANKS, INC. ("Buyer").
W I T N E S S E T H:
Whereas, Buyer and Seller propose to enter into an Agreement and Plan of
Merger (the "Plan") of even date herewith, providing for, among other things,
the merger of Seller with and into The Peoples State Bank, a wholly-owned
banking subsidiary of Buyer (the "Merger"), pursuant to which each then
outstanding share of Seller Common Stock, par value $2.00 per share (the
"Shares"), would be converted into .900 of a share of Buyer Common Stock, par
value $5.00 per share, subject to conditions in the Plan; and
Whereas, to induce Buyer to enter into the Plan, Seller has agreed to grant
Buyer the option set forth herein to purchase authorized but unissued shares
of Seller Common Stock on the terms and subject to the conditions of this
Stock Option Agreement.
Now, Therefore, in consideration of the premises and of the mutual
agreements and provisions contained herein, the parties hereto agree as
follows:
1. Grant of Option. Seller hereby grants to Buyer an irrevocable option (the
"Option") to purchase up to that number of shares of authorized but unissued
shares of Seller Common Stock, which, when added to the number of shares of
Seller Common Stock owned by Buyer at the time of the exercise of the option
will represent 19.9% of the issued and outstanding shares of Seller Common
Stock after exercise of the option, at a purchase price equal to the product
of 0.85 and (.9 times the closing price of the buyer common stock of Community
on the Starting Date, as defined in Article XII, section 12.1 of the Plan).
Notwithstanding anything else in this Stock Option Agreement to the contrary,
the number of shares of Seller Common Stock subject to the Option shall be
reduced to such lesser number, if any, as may from time to time be necessary,
but only for so long as may be necessary, to (a) cause Buyer not to (i) effect
a control share acquisition as such term is defined for the purposes of
Chapter 25, Subchapters G and I of the Pennsylvania Business Corporation Law
of 1988, as amended (the "PBCL"), or (ii) become a controlling person for
purposes of Chapter 25, Subchapter E of the PBCL, (b) cause Buyer not to
violate applicable provisions of the Bank Holding Company Act of 1956 and the
rules and regulations promulgated thereunder (the "BHCA") or the Pennsylvania
Banking Code of 1965 and the rules and regulations promulgated thereunder (the
"Banking Code"), and (c) cause Buyer's percentage not to be affected by any
increase in authorized capital as a result of the subsequent exercise of any
subsequent stock options. So long as the option is outstanding and
unexercised, Seller shall at all times maintain and reserve, free from
preemptive rights, such number of authorized but unissued shares of Common
Stock as may be necessary so that the option may be exercised, without any
additional authorization of common stock, after giving effect to all other
options, warrants, convertible securities and other rights to acquire shares
of common stock.
2. Exercise of Options.
(a) Subject to fulfillment of the conditions set forth in Subparagraph (b)
hereof, the Option may be exercised by Buyer, in whole or in part, at any time
or from time to time; provided that to the extent the Option shall not have
been exercised, it shall terminate and be of no further force and effect on
the earlier of (i) on the Effective Date of the Merger, (ii) the time of
termination of the Plan in accordance with its terms (other than a termination
resulting from a willful breach by Seller of any representation, warranty or
covenant contained therein or, following the occurrence of an event set forth
in Subparagraph (b) hereof, failure of Seller's shareholders to approve the
Merger by the vote required under applicable law), (iii) six (6) months after
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termination of the Plan due to a willful breach by Seller of any
representation, warranty or covenant contained therein or (iv) six (6) months
after the failure of Seller's shareholders to approve the Merger by the vote
required under applicable law following the occurrence of an event set forth
in Subparagraph (b) hereof; and provided further that any such exercise shall
be subject to compliance with applicable provisions of law. In the event Buyer
wishes to exercise the Option, Buyer shall give written notice (the "Notice")
to Seller specifying the number of Shares it will purchase pursuant to said
Notice and a place and date not later than 30 days from the date such Notice
is given to Seller for the closing of such purchase; provided that, if prior
notification to or approval of any federal or state regulatory agency is
required in connection with all or part of such purchase, Buyer shall promptly
file the required notice or application for approval and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required
notification period has expired or been terminated or such approval has been
obtained and any requisite waiting period shall have passed. Notwithstanding
the termination of the Option, Buyer shall be entitled to purchase Shares with
respect to which it have given a Notice in accordance with the terms hereof
prior to the termination of the Option. The rights of Buyer set forth in
Section 5 hereof shall not terminate when the rights to exercise the Option
terminates as set forth herein, but shall extend to such time as provided in
Section 5.
(b) The Option may be exercised if any of the following events shall have
occurred and be continuing:
(i) the making, other than by Buyer of any of its subsidiaries or
affiliates, of a tender or exchange offer for at least 19.9% of the
outstanding Shares.
(ii) the acquisition, by any person or group of persons other than Buyer
or any of its subsidiaries of affiliates or any presently existing
shareholders of Seller (other than for bona fide arbitrage purposes), of
beneficial ownership or the right to acquire beneficial ownership of 19.9%
or more of the outstanding Shares (the terms "group" and "beneficial
ownership" having the meanings assigned thereto in Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the regulations
promulgated thereunder).
(iii) the making by any person, other than Buyer or any of its
subsidiaries or affiliates, by public announcement or communication to
Seller, of a firm proposal to: (a) acquire Seller, by merger,
consolidation, purchase of all or substantially all of its assets or other
similar transactions; or (b) to make any such tender or exchange offer as
is described in (i) above.
(iv) the failure of Seller's shareholders to approve the Merger at a
meeting called for such purpose if at the time of such meeting there has
been an announcement by a person (other than Buyer) of an offer or proposal
to acquire 19.9% or more of the Common Stock (before giving effect to any
exercise of the Option), or to acquire, merge, or consolidate with Seller,
or to purchase all or substantially all of Seller's assets.
(c) Seller shall give prompt written notice to Buyer upon becoming aware of
any of the events described in paragraphs (b)(i)(ii)(iii) or (iv) of this
Section 2. Prior to termination of this Option, Seller will not take, and will
refrain from taking, any action which would have the effect of preventing or
disabling Seller from delivering shares of Seller Common Stock to Buyer upon
any exercise of the Option or otherwise performing its obligations under this
Agreement.
3. Payment of Purchase Price and Delivery of Certificates for Shares. At any
closing hereunder, (a) Buyer shall make payment to Seller of the aggregate
price for the Shares so purchased in immediately available funds by wire
transfer to a bank designated in writing by Seller in an amount equal to the
price per share set forth in Section 1 hereof times the number of shares to be
purchased at such closing and (b) Seller will deliver to Buyer a duly executed
certificate or certificates representing the number of Shares so purchased
duly endorsed, or accompanied by a duly executed stock power, to Buyer or its
designee.
4. Representations and Warranties of Seller. Seller hereby represents and
warrants to Buyer as follows:
(a) Seller is a Pennsylvania state chartered banking institution duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
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(b) The execution and delivery of this Stock Option Agreement has been
authorized by the Board of Directors of Seller and by all other necessary
corporate action on the part of Seller. This Stock Option Agreement has
been duly executed and delivered by Seller.
(c) Seller has taken all necessary corporate action to authorize and
reserve for issuance upon exercise of the Option, and, at all times from
the date hereof until the obligation to deliver any shares of Seller Common
Stock upon exercise of the Option terminates, will have reserved for
issuance authorized but unissued Shares of Seller Common Stock necessary
for Buyer to exercise the Option in full.
(d) The Shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid and non-assessable.
(e) Neither the execution and delivery of this Stock Option Agreement nor
the consummation of the transactions contemplated hereby will result in a
breach or violation of, conflict with or constitute a default under,
Seller's Articles of Incorporation or By-Laws, or any of the provisions of
any indenture, agreement or other instrument to which Seller is a party or
by which Seller is bound.
5. Registration Rights. If sale or disposition of Seller's stock is subject
to registration under the Securities Act of 1983 as amended, Seller shall, if
requested by Buyer, as expeditiously as possible prepare and file a
registration statement under the Securities Act of 1933, as amended, and shall
use its best efforts to qualify under any applicable state securities laws if
necessary in order to permit the sale or other disposition of any or all of
the Shares that have been acquired upon exercise of the Option in accordance
with the intended method of sale or other disposition stated by Buyer at any
time within one (1) year of the exercise of the Option. Seller shall use its
best efforts to cause such registration statement to become effective, to
obtain all consents or waivers of other parties which are required therefor
and to keep such registration effective for a period of not less than 270 days
from the day such registration statement first becomes effective unless, in
the written opinion of counsel to Seller, addressed to Buyer and which shall
be satisfactory in form and substance to Buyer and its counsel, registration
is not required for such proposed disposition by Buyer.
6. Duties of the Corporation upon Registration. If and whenever Seller is
required by the provisions of Paragraph 5 of this Agreement to effect the
registration of any of the Securities under the Securities Act, Seller shall:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") such amendments to the Registration Statement and supplements to the
prospectus contained therein as may be necessary to keep the Registration
Statement effective and current for the maximum period required under
Paragraph 5 above;
(b) furnish to Buyer and to the underwriters of the Securities being
registered such reasonable number of copies of the Registration Statement,
the preliminary prospectus and final prospectus contained therein, and such
other documents as Buyer or such underwriters may reasonably request in
order to facilitate the public offering of the Securities;
(c) use its best efforts to register or qualify the Securities covered by
the Registration Statement under the state securities or blue sky laws of
such jurisdictions as Buyer or such underwriters may reasonably request,
provided, that Seller shall not be required hereunder to submit to the
jurisdiction of any state in which it has not previously been required to
qualify to do business;
(d) notify Buyer, promptly after Seller shall receive notice thereof, of
the time when the Registration Statement has become effective or any
supplement or amendment to any prospectus forming a part of the
Registration Statement has been filed;
(e) notify Buyer promptly of any request by the SEC for the amending or
supplementing of the Registration Statement or the prospectus contained
therein or for additional information;
(f) prepare and file with the SEC, promptly upon the request of Buyer,
any amendments or supplements to the Registration Statement or the
prospectus contained therein which, in the joint opinion of counsel for
Seller and counsel for Buyer, are required under the Securities Act or the
rules and regulations promulgated by the SEC thereunder in connection with
the sale or other distribution of the Securities by Buyer;
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(g) prepare and promptly file with the SEC such amendments of or
supplements to the Registration Statement or the prospectus contained
therein as may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such Securities is required to be
delivered under the Securities Act, any event shall have occurred as the
result of which such prospectus as then in effect would include an untrue
statement of a material fact or would omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(h) advise Buyer promptly after Seller shall receive notice or obtain
knowledge of the issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(i) at the request of Buyer, furnish on the date or dates provided for in
the underwriting agreement: (i) an opinion or opinions of counsel for
Seller for the purposes of such registration, addressed to the underwriters
and to Buyer, covering such matters as such underwriters and Buyer may
reasonably request and as are customarily covered by issuer's counsel at
that time; and (ii) a letter or letters from the independent certified
public accountants for Seller, addressed to the underwriters and to Buyer,
covering such matters as such underwriters or Buyer may reasonably request,
in which letters such accountants shall state (without limiting the
generality of the foregoing) that they are independent certified public
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements and other financial
data of Seller included in the Registration Statement or any amendment or
supplement thereto comply as to form in all material respects with the
applicable accounting requirements of the Securities Acts.
7. Expenses of Registration. With respect to the registration requested
pursuant to Paragraph 5 of this Agreement, (a) Seller shall bear all
registration, filing and NASD fees, printing and engraving expenses, fees and
disbursements of its counsel and accountants and all legal fees and
disbursements and other expenses of Seller to comply with state securities or
blue sky laws of any jurisdiction in which the Securities to be offered are to
be registered or qualified; and (b) Buyer shall bear all fees and
disbursements of its counsel and accountants, underwriting discounts and
commissions, transfer taxes for Buyer and any other expenses incurred by
Buyer.
8. Indemnification. In connection with any Registration Statement or any
amendment or supplement thereto:
(a) Seller shall indemnify and hold harmless Buyer, any underwriter (as
defined in the Securities Act) for Buyer, and each person, if any, who
controls Buyer or such underwriter (within the meaning of the Securities
Act) from and against any and all loss, danger, liability, cost or expense
to which Buyer or any such underwriter or controlling person may become
subject under the Securities Act or otherwise, insofar as such loss,
damage, liability, cost or expense arises out of or is caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto, or arises out of or is
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that Seller will not be liable in
any such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by Buyer, such underwriter or such controlling person
in writing specifically for use in the preparation thereof.
(b) Buyer shall indemnify and hold harmless Seller, any underwriter (as
defined in the Securities Act), and each person, if any, who controls
Seller or such underwriter (within the meaning of the Securities Act) from
and against any and all loss, damage, liability, cost or expense to which
Seller or any such underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such loss, damage,
liability, cost or expense arises out of or is caused by any untrue or
alleged untrue statement of any
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material fact contained in the Registration Statement, any prospectus or
preliminary prospectus contained therein or any amendment or supplement
thereto, or arises out of or is based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in conformity with written information furnished by Buyer
specifically for use in the preparation thereof.
(c) Promptly after receipt by any party which is entitled to be
indemnified, pursuant to the provisions of subparagraph (a) or (b) of this
Paragraph 8 of any claim in writing or of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions,
such indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party pursuant to the provisions of subparagraph
(a) and (b) of this Paragraph 8, promptly notify the indemnifying party of
the receipt of such claim or notice of the commencement of such action, but
the omission to so notify the indemnifying party will not relieve it from
any liability which it may otherwise have to any indemnified party
hereunder. In case any such action is brought against any indemnified party
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any action include both the indemnified party or parties and
the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing any
indemnified party, such indemnified party shall have the right to select
separate counsel to participate in the defense of such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party, pursuant to the provisions of
subparagraph (a) or (b) of this Paragraph 8, for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, other than reasonable costs of investigation, unless
(i) such indemnified party shall have employed separate counsel in
accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action, or (iii) the
indemnifying party had authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, any party
entitled to indemnification by the terms thereof shall be entitled to
obtain contribution with respect to its liabilities and expenses, except to
the extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled there shall be considered the parties'
relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and/or
prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. Buyer and Seller agree that it would
not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation even if the underwriters and Buyer as a group
were considered a single entity for such purpose.
9. Adjustment Upon Changes in Capitalization. In the event of any change in
Seller Common Stock by reason of stock dividends, split-ups, recapitalization,
mergers, combinations, conversions, exchanges of shares or other changes in
the corporate or capital structure of Seller which could have the effect of
diluting Buyer's rights hereunder, the number and kind of shares or securities
subject to the Option and the purchase price therefor shall be adjusted
appropriately and proportionately so as to eliminate the dilutive effect on
Buyer's rights hereunder.
10. Representations of Buyer. Buyer represents and warrants to Seller as
follows:
(a) Buyer is acquiring the Option, and any shares of Seller Common Stock
which it may acquire upon exercise of the Option, for investment only and
not with a view to distribution thereof; Buyer understands
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that the Option has not been, and such Shares may not be, registered under
the Securities Act and that such Option and, if not so registered, such
Shares may not be sold except in accordance with, or pursuant to an
exemption under, such Act, subject, however, to Buyer's registration rights
pursuant to Section 5 hereof.
(b) This Stock Option agreement has been duly authorized by all necessary
corporate action on the part of Buyer and has been duly executed and
delivered by Buyer.
(c) Buyer is a corporation in good standing under the laws of the
Commonwealth of Pennsylvania and has the requisite corporate power to enter
into this Stock Option Agreement.
11. Compliance With Laws. Nothing contained in this Stock Option agreement
shall require Seller to take any action which would violate any statute, rule
or regulation; provided, however, that except as otherwise specifically
provided herein, Seller shall take all actions necessary or appropriate to
permit it to comply (if compliance is feasible) with all applicable legal
requirements necessary to perform this Stock Option Agreement is accordance
with its terms.
12. Severability. If any term, provisions, covenant or restriction contained
in this Stock Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Stock Option Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated. If
for any reason such court or regulatory agency determined that the Option will
not permit the holder to acquire the full number of shares of Seller Common
Stock provided in Section 1 hereof (as adjusted pursuant to Section 9 hereof),
it is the express intention of Seller to allow the holder to acquire such
lesser number of shares as may be permissible according to such court or
regulatory agency, without any amendment or modification hereof.
13. Agreement as to Voting. Buyer agrees that prior to the termination of
the Plan in accordance with its terms, Buyer will vote any Shares acquired
upon exercise of this Option in favor of the Plan.
14. Listing; Filings and Consents. Upon exercise of the Option in whole or
in part, Seller will use its best efforts promptly to have the shares of
Seller Common Stock issued pursuant thereto authorized for quotation on the
National Association of Securities Dealers Automated Quotation system, or, if
at the time the Option is exercised the Seller Common Stock is listed on any
stock exchange, to list such shares on such exchange, effective upon official
notice of issuance. Buyer and Seller each will use its best efforts to make
all filings with, and to obtain consent of, all third parties and government
authorities necessary to the consummation of the transactions contemplated by
this Stock Option Agreement.
15. Assignment. Neither of the parties hereto may assign any of its rights
or obligations hereunder to any person without the prior written consent of
the other party, except that, in the event the Option becomes exercisable,
Buyer may assign in whole or in part its rights and obligations hereunder to a
wholly owned subsidiary of Buyer, which shall be likewise bound. Subject to
the preceding sentence, this Stock Option Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
16. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to
have been duly received if so given) if personally delivered, telecopied (with
confirmation) or sent by registered or certified mail, postage prepaid,
addressed to the respective parties as follows:
If to The Glen Rock State Bank
Seller: 57-59 Main Street
P.O. Box 127
Glen Rock, PA 17327
Attention: Robert G. Coradi, CEO
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If to Community Banks, Inc.
Buyer: 150 Market Square
P.O. Box 350
Millersburg, PA 17061
Attention: Eddie L. Dunklebarger, President and CEO
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
17. Governing Law. This Stock Option Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
18. Specific Performance. The parties hereto acknowledge that money damages
are an inadequate remedy for breach of this Agreement because of the
difficulty of ascertaining the amount of damage that will be suffered by Buyer
in the event this Agreement is breached. Therefore, Seller agrees that Buyer
may obtain specific performance of this Agreement and injunctive relief
against any breach hereof.
19. Counterparts. This Stock Option Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same agreement.
20. Definitions. Capitalized terms defined in the Plan and used herein shall
have the same meanings as the Plan.
In Witness Whereof, this Stock Option Agreement has been executed by duly
authorized officers of each of the parties hereto all as of the day and year
first above written.
SELLER:
THE GLEN ROCK STATE BANK
/s/ Robert L. Williams By: /s/ Robert G. Coradi
__________________________________ ______________________________
Witness
BUYER:
COMMUNITY BANKS, INC.
/s/ Anthony Leo By: /s/ Eddie L. Dunklebarger
__________________________________ ______________________________
Witness
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers.
Sections 1741 and 1742 of the Pennsylvania Business Corporation Law of 1988,
as amended (the "BCL") provide that a business corporation may indemnify
directors and officers against liability 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 the
settlement) and such power generally does not exist if the person otherwise
entitled to indemnification shall have been adjudged to be liable to the
Corporation unless it is judicially determined that, despite the adjudication
of liability but in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnification for specified expenses.
Under Section 1743 of the BCL, the Corporation is required to indemnify
directors and officers against expenses they may incur in defending actions
against them in such capacities if they are successful on the merits or
otherwise in the defense of such actions. Under Section 1745 of the BCL, a
corporation may pay the expenses of a director or officer incurred in
defending an action or proceeding in advance of the final amounts advanced
unless it is ultimately determined that such person is entitled to
indemnification from the corporation. Article 12 of Community's Articles of
Incorporation and Article 20 of Community's Bylaws provide indemnification of
directors, officers and other agents of Community and advancement of expenses
to the extent otherwise permitted by the BCL.
Section 1746 of the BCL grants a corporation broad authority to indemnify is
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 wilful misconduct or recklessness. Article 12 of Community's
Articles of Incorporation provides that the Corporation indemnify any and all
persons whom it shall have the power to indemnify for and against any and all
expenses, liabilities or other matters for which indemnification is permitted
by applicable laws.
Article 20 of Community's Bylaws conditions any indemnification or
advancement of expenses upon a determination, made in accordance with the
procedures specified in Section 1744 of the BCL, by Community's directors or
shareholders that indemnification or advancement of expenses is proper because
the director or officer met the standard of conduct set forth in Section 1741
or 1742 of the BCL, as applicable.
As authorized by Section 1747 of the BCL and Article XIV, Community
maintains, on behalf of its directors and officers, insurance protection
against certain liabilities arising out of the discharge of their duties, as
well as insurance covering Community for indemnification payments made to its
directors and officers for certain liabilities. The premiums for such
insurance are paid by Community.
ITEM 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<C> <S>
(2) Agreement and Plan of Reorganization, dated November 7, 2000, among
Community Banks, Inc.; The Peoples State Bank; and The Glen Rock
State Bank is Appendix A to the Joint Proxy Statement/Prospectus
included in Part I of this Registration Statement.
(3)(a) Articles of Incorporation of Community--Incorporated by reference
to Exhibit 3(a) and of Community's Form S-2 (Amendment 2) dated May
13, 1987 (Registration No. 2-0-8732).
(3)(b) Bylaws of Community--Incorporated by reference to Exhibit 3(b) and
of Community's Form S-2 (Amendment 2) dated May 13, 1987
(Registration No. 2-0-8732).
(5) Opinion re Legality--Opinion of Mette, Evans & Woodside
</TABLE>
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<TABLE>
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(8) Opinion re Tax Matters--Opinion of Mette, Evans & Woodside
(13.1) Community's Annual Report on Form 10-K for the year ended December
31, 1999--Incorporated by reference in the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement.
(13.2) Community's quarterly report on Form 10Q for the period ended
September 30, 2000, incorporated by reference in Part I of this
Registration Statement.
(21) Subsidiaries of Community are listed in Community's annual report
on Form 10K for the year ended December 31, 1999, incorporated by
reference in Part I of this Registration Statement.
(23)(a) Consent of Mette, Evans & Woodside (included in its opinions filed
as Exhibits (5) and (8))
(23)(b) Consent of PricewaterhouseCoopers, LLP
(23)(c) Consent of Stambaugh Ness, P.C.
(23)(d) Consent of Berwind Financial, L.P.
(24) Power of Attorney (included in "SIGNATURES" in Part II of this
Registration Statement)
(99)(a) Form of Proxy--Glen Rock
</TABLE>
(b) Financial Statement Schedules.
None.
(c) Opinions of Financial Advisors.
Furnished as Appendix B to the Proxy Statement/Prospectus included in Part I
of this Registration Statement.
ITEM 22. Undertakings.
1. The undersigned Registrant hereby undertakes as follows:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(b) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
2. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the
date of responding to the request.
3. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
4. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
6. The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of a registration statement
as permitted by Rule 430A and contained in the form of prospectus to be filed
by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement at the
time it was declared effective.
II-3
<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 January 16, 2001.
Community Banks, Inc.
/s/ Eddie L. Dunklebarger
By: _________________________________
Eddie L. Dunklebarger
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below in so signing also makes, constitutes and appoints Eddie L. Dunklebarger
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ernest L. Lowe Chairman, Executive Vice January 17, 2001
______________________________________ President and Director
Ernest L. Lowe
/s/ Eddie L. Dunklebarger President, Chief Executive January 17, 2001
______________________________________ Officer, and Director
Eddie L. Dunklebarger
/s/ Terry L. Burrows Executive Vice-President January 17, 2001
______________________________________ and Chief Financial
Terry L. Burrows Officer
/s/ Ronald E. Boyer Director January 17, 2001
______________________________________
Ronald E. Boyer
Director January 17, 2001
______________________________________
Samuel E. Cooper
/s/ Kenneth L. Deibler Director January 17, 2001
______________________________________
Kenneth L. Deibler
Director January 17, 2001
______________________________________
Peter DeSoto
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director January 17, 2001
______________________________________
Ray N. Leidich
/s/ Thomas W. Long Director January 17, 2001
______________________________________
Thomas W. Long
/s/ Donald L. Miller Director January 17, 2001
______________________________________
Donald L. Miller
/s/ Thomas L. Miller Director January 17, 2001
______________________________________
Thomas L. Miller
/s/ Earl L. Mummert Director January 17, 2001
______________________________________
Earl L. Mummert
/s/ Wayne H. Mummert Director January 17, 2001
______________________________________
Wayne H. Mummert
Director January 17, 2001
______________________________________
Susan K. Nenstiel
/s/ Robert W. Rissinger Director January 17, 2001
______________________________________
Robert W. Rissinger
/s/ Allen Shaffer Director January 17, 2001
______________________________________
Allen Shaffer
/s/ John W. Taylor, Jr. Director January 17, 2001
______________________________________
John W. Taylor, Jr.
/s/ James A. Ulsh Director January 17, 2001
______________________________________
James A. Ulsh
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit Index
------- -------------
<C> <S>
(2) Agreement and Plan of Reorganization, dated October 28, 1997, between
Community Banks, Inc.; The Peoples State Bank; and The Glen Rock State
Bank is Appendix A to the Joint Proxy Statement/Prospectus included in
Part I of this Registration Statement.
(3)(a) Articles of Incorporation of Community--Incorporated by reference to
Exhibit 3(a) and of Community's Form S-2 (Amendment 2) dated May 13,
1987 (Registration No. 2-0-8732).
(3)(b) Bylaws of Community--Incorporated by reference to Exhibit 3(b) and of
Community's Form S-2 (Amendment 2) dated May 13, 1987 (Registration
No. 2-0-8732).
(5) Opinion re Legality--Opinion of Mette, Evans & Woodside
(8) Opinion re Tax Matters--Opinion of Mette, Evans & Woodside
(13.1) Community's Annual Report on Form 10-K for the year ended December 31,
1999--Incorporated by reference in the Joint Proxy
Statement/Prospectus included in Part I of this Registration
Statement.
(13.2) Community's quarterly report on Form 10-Q for the period ended
September 30, 2000, incorporated by reference in Part I of this
Registration Statement.
(21) Subsidiaries of Community are listed in Community's annual report on
Form 10-K for the year ended December 1999, incorporated by reference
in Part I of this Registration Statement.
(23)(a) Consent of Mette, Evans & Woodside (included in its opinions filed as
Exhibits (5) and (8))
(23)(b) Consent of PricewaterhouseCoopers, LLP
(23)(c) Consent of Stambaugh Ness, P.C.
(23)(d) Consent of Berwind Financial, L.P.
(24) Power of Attorney (included in "SIGNATURES" in Part II of this
Registration Statement)
(99)(a) Form of Proxy--Glen Rock
</TABLE>
