<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 20, 2000
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COMMUNITY BANK SYSTEM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6712 16-1213679
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214
(315) 445-2282
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
SANFORD A. BELDEN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
COMMUNITY BANK SYSTEM, INC.
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214
(315) 445-2282
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
WITH COPY TO:
<TABLE>
<S> <C> <C>
GEORGE J. GETMAN, ESQ. and EDWARD J. MOSES, ESQ.
BOND, SCHOENECK & KING, LLP MACKENZIE SMITH LEWIS MICHELL & HUGHES LLP
ONE LINCOLN CENTER 101 SOUTH SALINA STREET
SYRACUSE, NEW YORK 13202-1355 SYRACUSE, NEW YORK 13202
(315) 422-0121 (315) 474-7571
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the registration statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ----------
If this Form is a post-effective amendment filed pursuant to Rule 462(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. [ ] -----
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(2) PRICE(3) REGISTRATION FEE
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<S> <C> <C> <C>
Common Stock, no par value (including associated
share purchase rights)(1)..................... 952,317 shares $12,676,396 $3,347
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Prior to the occurrence of certain events described in the Registrant's
Stockholder Protection Rights Agreement (none of which events have occurred
as of the filing of this Registration Statement), the associated share
purchase rights will not be exercisable nor evidenced separately from the
certificates representing the Registrant's common stock.
(2) Represents the estimated maximum number of shares of common stock, no par
value, of the Registrant to be issued upon the consummation of the proposed
merger to which this registration statement relates.
(3) Estimated solely for the purpose of calculating the registration fee. The
registration fee has been computed pursuant to Rule 457(f)(2) under the
Securities Act of 1933, as amended, based on the aggregate book value of the
issued and outstanding shares of common stock of The Citizens National Bank
of Malone as of September 30, 2000, which shares will be cancelled in the
proposed merger to which this registration statement relates.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED WITHOUT NOTICE. COMMUNITY BANK SYSTEM MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES, AND COMMUNITY BANK SYSTEM IS NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY JURISDICTION WHERE THE
OFFER OR SALE OF THESE SECURITIES IS NOT PERMITTED.
SUBJECT TO COMPLETION -- DATED OCTOBER 20, 2000
PROXY STATEMENT/PROSPECTUS
PROPOSED MERGER -- YOUR VOTE IS VERY IMPORTANT
[CITIZENS NATIONAL BANK LETTERHEAD]
[ ], 2000
To Our Shareholders:
We are pleased to enclose your Notice of Meeting and Proxy
Statement/Prospectus for the Special Meeting of Shareholders of The Citizens
National Bank of Malone to be held on [ ], 2000, at [ ]:[ ]
[ ].m., Eastern Time, at [the Malone Lodge of Elks, 67 Elm Street, Malone, New
York 12953].
You may have already heard about our pending merger with Community Bank,
N.A. At the Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Merger with Community Bank System,
Inc. and Community Bank. Pursuant to this merger agreement, Citizens National
Bank will merge with and into Community Bank, subject to shareholder and
regulatory approvals and other conditions.
The merger cannot be completed without the approval of Citizens National
Bank shareholders. In order for the merger agreement to be approved, at least
two-thirds (2/3) of all of the outstanding shares of Citizens National Bank
common stock must be voted in favor of the merger agreement. This means that a
failure to vote for approval of the merger agreement would have the same effect
as a vote against it. THE BOARD OF DIRECTORS OF CITIZENS NATIONAL BANK
UNANIMOUSLY RECOMMENDS THAT CITIZENS NATIONAL BANK SHAREHOLDERS VOTE IN FAVOR OF
THE APPROVAL OF THE MERGER AGREEMENT.
If the merger is completed, each share of Citizens National Bank common
stock you own will automatically be converted into 1.7 shares of common stock of
Community Bank System, except for those held by Citizens National Bank
shareholders who properly exercise their dissenters' rights. Community Bank
System is the parent bank holding company of Community Bank and its common stock
is listed on the New York Stock Exchange under the symbol "CBU." On
[ ], 2000, the closing sale price for Community Bank System common
stock as reported on the New York Stock Exchange was $[ ] per share.
Shareholders of Citizens National Bank generally will not recognize gain or
loss for federal income tax purposes.
The enclosed Proxy Statement/Prospectus contains more detailed information
concerning the proposed merger and the Board's decision to approve it. We urge
you to consider it carefully. Because of the significance of this merger to our
bank, it is very important that your shares be represented at the Special
Meeting, whether or not you plan to attend in person. We urge you to take the
time to consider this important matter and vote now. In order to make sure that
your vote is represented, please indicate your vote on the enclosed proxy form,
date and sign it, and return it in the enclosed envelope. If you attend the
Special Meeting in person, you may revoke your proxy at the meeting and vote in
person.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval.
Sincerely,
/s/ PAUL M. CANTWELL, JR.
-----------------------------------------
Paul M. Cantwell, Jr.
President
<PAGE> 3
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ], 2000
A Special Meeting of the Shareholders of The Citizens National Bank of
Malone will be held at [the Malone Lodge of Elks, 67 Elm Street, Malone, New
York 12953], on [ ], 2000 at [ : ] [ ]m. Eastern Time, for the
following purposes:
1. Merger. To consider and vote upon a proposal to approve and adopt
an Agreement and Plan of Merger, dated as of September 26, 2000, among
Community Bank System, Community Bank and Citizens National Bank, which
provides for the merger of Citizens National Bank with and into Community
Bank; and
2. Other Business. To transact such other business as may properly
come before the Special Meeting or any adjournments or postponements of the
Special Meeting.
Only holders of record of Citizens National Bank common stock at the close
of business on [ ], 2000 are entitled to the notice of and to vote at
the Special Meeting and any adjournments or postponements of the Special
Meeting.
The affirmative vote of the holders of at least two-thirds ( 2/3) of the
outstanding Citizens National Bank common stock is required for approval of the
merger agreement. This means that a failure to vote in favor of the approval of
the merger agreement has the same effect as a vote against it. Therefore, your
vote is important regardless of the number of shares you own. Even if you plan
to attend the Special Meeting, we urge you to sign, date and return the enclosed
proxy without delay in the enclosed postage-paid envelope. You may revoke your
proxy at any time prior to the Special Meeting. If you are present at the
Special Meeting, or at any adjournments or postponements of the Special Meeting,
you may revoke your proxy and vote personally on each matter brought before the
Special Meeting.
If you have any questions or require assistance, please call me, Patricia
Prue, Vice President/Cashier and Corporate Secretary, at (518) 483-3400 or Paul
M. Cantwell, Jr., our Chairman and President, at (518) 483-1511.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ PATRICIA PRUE
---------------------------------------
Patricia Prue
Corporate Secretary
IMPORTANT
YOUR VOTE IS IMPORTANT. IN ORDER TO ASSURE THAT YOUR VOTE IS REPRESENTED AT THE
SPECIAL MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE. NO POSTAGE IS REQUIRED FOR MAILING IN THE
UNITED STATES.
THE BOARD OF DIRECTORS OF CITIZENS NATIONAL BANK UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
------------------------
WHEN YOU ARE EVALUATING THE MERGER, YOU SHOULD CONSIDER THE RISK FACTORS
APPEARING ON PAGE [ ] OF THIS DOCUMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE COMMUNITY BANK SYSTEM COMMON STOCK
TO BE ISSUED OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMUNITY BANK SYSTEM COMMON STOCK TO BE ISSUED IN THE MERGER ARE
NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK, AND THEY ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
------------------------
Proxy Statement/Prospectus dated [ ], 2000.
First mailed to Citizens National Bank shareholders on or about [ ],
2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... iii
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... v
SUMMARY..................................................... 1
SELECTED FINANCIAL INFORMATION OF COMMUNITY BANK SYSTEM..... 6
RISK FACTORS................................................ 8
The Value of the Community Bank System Common Stock You
Receive in the Merger May Vary......................... 8
We May Fail to Implement the Merger Successfully, Achieve
Savings and Realize the Other Anticipated Benefits from
the Merger Because of Difficulties in Integrating Our
Business Operations.................................... 8
Changes In Interest Rates Affect Our Profitability and
Assets................................................. 8
Regional Economic Factors May Have an Adverse Impact on
Our Business........................................... 8
We Face Strong Competition from Other Banks and Financial
Institutions which can Hurt Our Business............... 9
Community Bank System Depends on Dividends from Community
Bank for Cash Revenues, but Those Dividends are Subject
to Restrictions........................................ 9
Anti-Takeover Provisions May Prevent or Discourage
Takeover Attempts in Which Our Stockholders May Receive
a Premium.............................................. 9
A WARNING ABOUT FORWARD-LOOKING INFORMATION................. 9
PER SHARE DATA OF COMMUNITY BANK SYSTEM..................... 10
MARKET PRICE AND DIVIDEND INFORMATION....................... 10
THE COMPANIES............................................... 12
SPECIAL MEETING OF THE SHAREHOLDERS OF CITIZENS NATIONAL
BANK...................................................... 12
General................................................... 12
Record Date; Voting Power................................. 12
Vote Required............................................. 13
Recommendation of the Citizens National Bank Board........ 13
Solicitation and Revocation of Proxies.................... 13
Other Matters............................................. 14
THE MERGER.................................................. 15
General................................................... 15
Background of the Merger.................................. 15
Reasons for the Merger.................................... 18
Community Bank System.................................. 18
Citizens National Bank................................. 19
Interest of Certain Citizens National Bank Directors and
Executive Officers in the Merger....................... 19
Consideration to be Received in the Merger................ 20
Material Federal Income Tax Consequences.................. 21
Accounting Treatment of the Merger........................ 22
THE MERGER AGREEMENT........................................ 24
Exchange of Certificates.................................. 24
Representations and Warranties............................ 24
Conditions to the Merger.................................. 25
Termination............................................... 26
Conduct of Business prior to Completion of the Merger;
Covenants.............................................. 26
No Solicitation of Takeover Proposals..................... 28
Fees and Expenses; Reimbursement of Expenses.............. 28
Employees and Employee Benefits........................... 29
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
Indemnification............................................................................................ 29
Dividends.................................................................................................. 29
Amendment and Waiver....................................................................................... 30
Voting Agreements with Directors of Citizens National Bank................................................. 30
Resales of Community Bank System Common Stock.............................................................. 30
New York Stock Exchange Listing............................................................................ 31
Regulatory Approvals and Notices for the Merger............................................................ 31
The Comptroller of the Currency......................................................................... 31
Federal Reserve Board................................................................................... 31
ADDITIONAL INFORMATION CONCERNING CITIZENS NATIONAL BANK..................................................... 32
Principal Shareholders..................................................................................... 32
Certain Information Concerning Paul M. Cantwell, Jr........................................................ 32
DISSENTING SHAREHOLDERS' RIGHTS.............................................................................. 34
General.................................................................................................... 34
Who May Exercise Appraisal Rights.......................................................................... 34
Electing Appraisal Rights.................................................................................. 34
Determining Value of Dissenting Shareholders' Shares....................................................... 35
DESCRIPTION OF CAPITAL STOCK OF COMMUNITY BANK SYSTEM........................................................ 35
General.................................................................................................... 36
Common Stock............................................................................................... 36
Certain Certificate of Incorporation and Bylaws Provisions................................................. 36
Rights Plan................................................................................................ 37
COMPARISON OF RIGHTS OF HOLDERS OF CITIZENS NATIONAL BANK COMMON STOCK AND COMMUNITY BANK SYSTEM COMMON
STOCK...................................................................................................... 38
EXPERTS...................................................................................................... 43
LEGAL MATTERS................................................................................................ 43
WHERE YOU CAN FIND MORE INFORMATION.......................................................................... 44
</TABLE>
<TABLE>
<CAPTION>
ANNEX
-----
<S> <C>
Agreement and Plan of Merger, dated as of September 26,
2000, by and among Community Bank System, Inc., Community
Bank, N.A. and The Citizens National Bank of Malone....... A
Section 215a of Title 12 of the United States Code.......... B
</TABLE>
ii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: COULD YOU TELL ME MORE ABOUT COMMUNITY BANK AND COMMUNITY BANK SYSTEM?
A: Community Bank is a commercial banking franchise headquartered in Upstate New
York, with 67 customer facilities and 50 ATM's stretching diagonally from
Northern New York to the Southern Tier and west to Lake Erie.
Community Bank is a community retail bank committed to the philosophy of
serving the financial needs of customers in local communities. Community Bank
emphasizes the local character of business, knowledge of the customer and
customer needs, comprehensive retail and small business products, and rapid
decision-making at the branch and regional level. Community Bank and its
subsidiaries offer a range of commercial and retail banking and financial
services in their market areas to business, individual, agricultural and
government customers. Community Bank and its employees strive to support, and
to actively engage in important initiatives in, local communities within the
market areas it serves.
Community Bank System is the parent company of Community Bank and is a bank
holding company registered under the Bank Holding Company Act of 1956, as
amended. Its common stock is publicly traded on the New York Stock Exchange
under the symbol CBU. On a consolidated basis, Community Bank System had
approximately $1.9 billion in assets as of June 30, 2000. For additional
information about Community Bank System, please see "Where You Can Find More
Information" on page [ ].
Q: DOES CITIZENS NATIONAL BANK'S BOARD OF DIRECTORS HAVE A RECOMMENDATION ON HOW
I SHOULD VOTE ON THE MERGER?
A: Yes. Citizens National Bank's Board of Directors unanimously recommends that
the shareholders vote in favor of the approval of the merger agreement.
Q: WHAT ARE COMMUNITY BANK SYSTEM'S PLANS FOR CITIZENS NATIONAL BANK BRANCHES
AND EMPLOYEES?
A: Community Bank System intends to keep open all existing customer facilities
of Citizens National Bank after the merger. In addition to job opportunities
in Citizens National Bank's five branches, employees will have an opportunity
to apply for positions at other Community Bank branches and operation centers
through an internal job posting system.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail your
proxy card in the enclosed envelope as soon as possible so that your shares
will be represented at the Special Meeting.
If you sign and send in your proxy and do not indicate how you want to vote,
your proxy will be voted in favor of the merger agreement. If you do not sign
and send in your proxy or you abstain, it will have the effect of a vote
against the merger.
You may attend the Special Meeting and vote your shares in person, rather
than voting by proxy. In addition, you may withdraw your proxy up to and
including the day of the meeting by following the directions on page [ ] and
either change your vote by giving a new proxy or attend the meeting and vote
in person.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: For each share of Citizens National Bank common stock you own before the
merger, you will receive 1.7 shares of Community Bank System common stock.
However, no fractional shares of Community Bank System common stock will be
issued in the merger. Instead, any fractional shares you would have received
in the merger will be rounded to the nearest whole number of shares.
For example:
- If you own 500 shares of Citizens National Bank common stock, you will
receive 850 shares of Community Bank System common stock in the merger.
This is because 500 shares multiplied by 1.7 is 850 shares.
- If you own 125 shares of Citizens National Bank common stock, you will
receive 213 shares of Community Bank System common stock in the merger. 125
shares multiplied by 1.7 is 212.5 shares. Because all fractional shares
will be rounded to the nearest whole number of shares, 212.5 shares will be
rounded up to 213 shares.
iii
<PAGE> 7
- If you own 12 shares of Citizens National Bank common stock, you will
receive 20 shares of Community Bank System common stock in the merger. 12
shares multiplied by 1.7 is 20.4 shares. Again, all fractional shares will
be rounded to the nearest whole number of shares. Therefore, 20.4 shares
will be rounded down to 20 shares.
You should bear in mind that the exchange ratio of 1.7 described above is
fixed. The exchange ratio will not be adjusted even if the market value of
Community Bank System changes before the merger. The market value of
Community Bank System common stock is subject to fluctuation. Therefore, the
value of a share of Community Bank System common stock as of the effective
date of the merger and after the merger could differ from the current market
value of Community Bank System common stock. A change in the market value of
Community Bank System common stock will cause an increase or decrease in the
value of the consideration you will receive in the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions from
the exchange agent on how to exchange your stock certificates for shares of
Community Bank System. Please do not send in your stock certificates with
your proxy.
Q: WHO IS THE EXCHANGE AGENT FOR THE MERGER?
A: American Stock Transfer & Trust Company is the exchange agent. American Stock
Transfer is the transfer agent for Community Bank System's common stock.
Q: HOW DO I LEARN MORE ABOUT COMMUNITY BANK SYSTEM AND ITS COMMON STOCK?
A: Please see pages [ ] through [ ] and pages [ ] through [ ] of this
document for information regarding market price, dividends and other features
of Community Bank System common stock.
You should also see pages [ ] through [ ] to find out how to obtain more
information about Community Bank System.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: Generally, you should not recognize any gain or loss for U.S. federal income
tax purposes. We describe the material U.S. federal income tax consequences
of the merger in more detail on pages [ ] to [ ]. The tax consequences of
the merger to you will depend upon the facts of your own situation. Please
consult your own tax advisor for a full understanding of the tax consequences
of the merger to you.
Q: WHAT IF I WISH TO DISSENT?
A: If you vote against the merger or give written notice at or prior to the
meeting that you dissent from the merger and follow the specific steps to
perfect your dissenters' rights, you will have the right to seek appraisal of
your shares and receive a cash amount as determined in accordance with
provisions of the National Bank Act, which are attached as Annex B. You may
lose your dissenters' rights if you do not follow the procedures described in
the National Bank Act. For more information on your dissenters' rights,
please see page [ ]. You should be aware that if you receive cash in the
merger as a result of exercising your dissenters' rights, you will recognize
a gain or loss for federal income tax purposes. Please see "Federal Income
Tax Treatment of Dissenters" on page [ ].
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker will vote your shares of Citizens National Bank common stock
only if you provide instructions on how to vote. You should instruct your
broker how to vote your shares, following the directions your broker
provides. If you do not give instructions to your broker, your broker will
not be able to vote your shares and this will have the effect of voting
against the merger agreement.
Q: HOW DO THE DIRECTORS OF CITIZENS NATIONAL BANK PLAN TO VOTE?
A: All of your directors have committed that they will vote their shares in
favor of the merger agreement. As of the record date for the Special Meeting,
Citizens National Bank directors and certain of their related parties
together held 77,970 shares, or approximately 13.9% of the outstanding
Citizens National Bank common stock. In addition, James B. Cantwell has also
agreed to vote all of his 44,947 shares (approximately 8.0% of the
outstanding Citizens National Bank common stock) in favor of the merger
agreement. James B. Cantwell is a brother of Paul M. Cantwell, Jr., the
Chairman and President of Citizens National Bank.
iv
<PAGE> 8
Q: WHAT RISKS SHOULD I CONSIDER BEFORE I VOTE ON THE MERGER?
A: You should read "Risk Factors" on pages [ ] to [ ].
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We are working to complete the merger during the fourth quarter of 2000. We
must first obtain the necessary regulatory approvals and the approval of the
Citizens National Bank shareholders at the Special Meeting and satisfy other
conditions. We cannot assure you as to when or if all the conditions to the
merger will be met, and it is possible we will not complete the merger at
all.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask any
questions about the merger, you should contact:
Patricia Prue, Vice President/Cashier
or
Paul M. Cantwell, Jr., Chairman and President
The Citizens National Bank of Malone
6 Elm Street
Malone, New York 12953
Telephone: (518) 483-3400 (for Patricia Prue)
(518) 483-1511 (for Paul M. Cantwell, Jr.)
Please see "Where You Can Find More Information" on page [ ] to find out
where you can find more information about Community Bank System.
v
<PAGE> 9
SUMMARY
This summary highlights selected information from this document and may not
contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents we refer you to. See "Where You Can Find More
Information" on page [ ].
We have attached the merger agreement to this document as Annex A. Please
read that document carefully. It is the legal document that governs the merger
and your rights in the merger.
GENERAL (PAGE [ ])
We are proposing a merger of Citizens National Bank into Community Bank, a
wholly-owned subsidiary of Community Bank System. The merger will combine
Citizens National Bank with Community Bank. Community Bank will continue in
existence as a wholly owned subsidiary of Community Bank System. We believe that
the merger will create opportunities for the combined banks to apply their
similar banking philosophy to realize enhanced revenues through asset growth and
the diversification of products and services offered to Citizens National Bank
customers.
THE COMPANIES (PAGE [ ])
COMMUNITY BANK SYSTEM, INC.
5790 Widewaters Parkway
DeWitt, New York 13214
(315) 445-2282
Community Bank System is a bank holding company operating Community Bank,
which currently has 67 customer facilities and 50 ATM's in 18 counties in
Upstate New York: St. Lawrence, Jefferson, Lewis, Oneida, Cayuga, Seneca,
Ontario, Oswego, Wayne, Yates, Allegany, Cattaraugus, Tioga, Steuben,
Chautauqua, Franklin, Herkimer, and Onondaga. Community Bank and its
subsidiaries offer a broad range of commercial banking, trust, pension
administration, investment and financial services to business, individual,
agricultural and government customers.
Community Bank is Community Bank System's principal asset. At June 30, 2000
and on a consolidated basis, Community Bank System had approximately $1.9
billion in total assets, $1.4 billion in total deposits, $1.0 billion in total
loans and shareholders' equity of $114 million.
THE CITIZENS NATIONAL BANK OF MALONE
6 Elm Street
Malone, New York 12953
(518) 483-3400
Citizens National Bank is an eighty-year old national bank which has five
customer branches and four ATM's in Malone, Chateaugay and Brushton in Franklin
County, New York and Hermon in St. Lawrence County, New York. At June 30, 2000,
Citizens National Bank had $115 million in total assets, $92 million in total
deposits, $59 million in total loans and shareholders' equity of $12 million.
SPECIAL MEETING OF THE SHAREHOLDERS OF CITIZENS NATIONAL BANK (PAGE [ ])
The Special Meeting of the Citizens National Bank shareholders will be held
at [the Malone Lodge of Elks, 67 Elm Street, Malone, New York 12953], at
[ ]:[ ] [ ].m., Eastern time, on [ ], 2000. At the Special
Meeting, you will vote on a proposal to approve the merger agreement.
RECORD DATE; VOTING POWER (PAGES [ ] AND [ ])
You are entitled to vote at the Special Meeting if you owned shares of
Citizens National Bank on the record date of [ ], 2000. As of that
date, there were 560,000 shares of Citizens National Bank common stock issued
and outstanding held by approximately 317 holders of record. You will be
entitled to one vote per share on any matter that may properly come before the
Special Meeting.
VOTE REQUIRED (PAGES [ ] AND [ ])
Approval of the merger agreement requires the affirmative vote of
two-thirds (2/3) of the outstanding shares of Citizens National Bank common
stock. This means that if you fail to vote or abstain from voting, it would have
the same effect as voting against the merger.
1
<PAGE> 10
Approval of the Community Bank System shareholders is not required for the
merger.
SHARE OWNERSHIP OF CITIZENS NATIONAL BANK MANAGEMENT (PAGE [ ])
On the record date, the executive officers and directors of Citizens
National Bank, including certain related parties, had voting power with respect
to an aggregate of 80,740 shares of Citizens National Bank common stock, or
approximately 14.4% of the shares of the Citizens National Bank common stock
then outstanding. Of this amount, the directors of Citizens National Bank and
certain of their related parties owned a total of 77,970 shares, or
approximately 13.9% of the outstanding shares of Citizens National Bank common
stock.
Each director of Citizens National Bank executed an agreement which commits
each director to vote his or her shares in favor of the merger agreement. In
addition, James B. Cantwell, a brother of Paul M. Cantwell, Jr., the Chairman
and President of Citizens National Bank, also agreed to vote all of his 44,947
shares of Citizens National Bank common stock (representing approximately 8.0%
of the outstanding Citizens National Bank common stock) in favor of the approval
of the merger agreement.
RECOMMENDATION OF CITIZENS NATIONAL BANK'S BOARD OF DIRECTORS (PAGE [ ])
Citizens National Bank's Board of Directors has unanimously approved the
merger agreement, and recommends a vote FOR approval of the merger agreement.
You should refer to the reasons that the Board of Directors considered in
determining whether to approve and adopt the merger agreement on pages [ ]
through [ ].
TERMS OF THE MERGER AGREEMENT (PAGE [ ])
The merger agreement is attached to this document as Annex A. We encourage
you to read the merger agreement in its entirety. It is the legal document that
governs the merger and your rights in it. We also encourage you to read the risk
factors beginning on page [ ].
General. The merger agreement provides that Citizens National Bank will
merge with and into Community Bank, with Community Bank continuing as a
wholly-owned subsidiary of Community Bank System.
Merger Consideration. If the merger is completed, you will receive 1.7
shares of Community Bank System common stock for each share of Citizens National
Bank common stock you own, unless you had properly exercised your dissenters'
rights. However, no fractional shares will be issued in the merger. Instead, all
fractional shares will be rounded to the nearest whole number of shares. The
exchange ratio of 1.7 is fixed and will not be adjusted even if the market price
of Community Bank System common stock fluctuates before the merger.
Completion of the Merger. The merger will become effective at the date and
time chosen by Community Bank and Citizens National Bank assuming that at least
10 days' prior written notice of the effective date of the merger is provided to
the Comptroller of the Currency and that the Citizens National Bank shareholders
approve the merger at the Special Meeting and all other conditions to the merger
are already satisfied. After the merger, the Comptroller of the Currency will
mail a certificate to Community Bank certifying the completion of the merger.
Conditions to the Merger. The completion of the merger depends upon the
satisfaction of a number of conditions, including:
- Citizens National Bank shareholders approve the merger agreement by the
affirmative vote of at least two-thirds (2/3) of the outstanding shares
of Citizens National Bank common stock;
- Citizens National Bank and Community Bank receive all approvals or
consents required by law from any applicable governmental agency, and all
applicable notice or waiting periods have expired;
- the Securities and Exchange Commission declares effective the
registration statement covering the Community Bank System shares to be
issued in the merger, and the registration statement is not the subject
of any stop order or proceeding seeking a stop order;
- Community Bank System has complied with the rules and regulations of all
applicable state securities commissions or agencies concerning the
merger;
2
<PAGE> 11
- the New York Stock Exchange lists the Community Bank System common stock
to be issued in the merger, subject to official notification of issuance;
and
- PricewaterhouseCoopers LLP, Community Bank System's independent auditors
(or any other firm acceptable to the parties), delivers an opinion to
Citizens National Bank and to Community Bank System that the merger will
qualify as a tax-free reorganization under Section 368 of the Internal
Revenue Code.
Unless prohibited by law, either Citizens National Bank or Community Bank
System could elect to waive a condition designed for its benefit that has not
been satisfied and complete the merger anyway.
Fees and Expenses. Citizens National Bank and Community Bank System will
each pay its own expenses in connection with the merger, except that Citizens
National Bank and Community Bank System will share equally all filing fees paid
to the Securities and Exchange Commission in connection with the registration
statement for the merger, and all costs associated with the printing and mailing
of this document. Under certain circumstances, Citizens National Bank is
required to reimburse Community Bank System and Community Bank for their
expenses up to $75,000. For details, please see "Reimbursement of Expenses" on
page [ ].
Termination. Either Citizens National Bank or Community Bank System may
call off the merger under certain circumstances, including if:
- we both consent in writing to the termination;
- the merger is not completed before March 31, 2001, unless the merger was
not completed because the party seeking to terminate breached a covenant
or obligation of the merger agreement;
- we are not able to obtain required governmental approvals, after all
appeals and requests for reconsideration have been exhausted;
- any governmental entity issues a final and non-appealable order to
prohibit the completion of the merger;
- Citizens National Bank shareholders do not approve the merger agreement;
or
- the other party materially breaches, and does not cure within 30 days,
any of the representations, warranties or any covenant it has made under
the merger agreement, and the breach entitles the non-breaching party to
not complete the merger.
Reimbursement of Expenses. If the merger agreement is terminated and
within 12 calendar months of the termination any entity or person enters into an
agreement with Citizens National Bank to:
- merge or consolidate with Citizens National Bank or effect a similar
transaction;
- acquire all or substantially all of the assets of the Citizens National
Bank;
- acquire beneficial ownership of (or a right to acquire beneficial
ownership of or to vote) 25% or more of the outstanding shares of
Citizens National Bank common stock;
then Citizens National Bank must immediately reimburse Community Bank System for
its and Community Bank's costs and expenses, including professional fees, paid
in connection with the merger agreement and the merger, up to a maximum of
$75,000. Citizens National Bank, however, will not be required to reimburse
Community Bank System or Community Bank unless the merger agreement was
terminated by Community Bank System because:
- Citizens National Bank breached the merger agreement and did not cure the
breach within 30 days after given notice of it; or
- the merger did not close before March 31, 2001 due to Citizens National
Bank's failure to perform or observe its obligations under the merger
agreement.
INTERESTS OF CERTAIN DIRECTORS AND EXECUTIVE OFFICERS OF CITIZENS NATIONAL BANK
IN THE MERGER (PAGE [ ])
When you consider the recommendation of the Citizens National Bank Board,
you should be aware that all of the directors and an executive officer of
Citizens National Bank have interests in the merger that are different from, and
may conflict with, your interests. The Citizens National Bank Board knew about
these interests and determined that they did not affect the benefits to you of
the merger.
3
<PAGE> 12
In the merger agreement, Community Bank System has agreed to offer a
five-year consulting agreement to Paul M. Cantwell, Jr., the Chairman and
President of Citizens National Bank. Under this agreement, Mr. Cantwell will
provide consulting services to facilitate the transition of Citizens National
Bank's business and operations to Community Bank, develop new business
opportunities in the market areas served by Citizens National Bank, and advise
Community Bank regarding corporate and business matters. Mr. Cantwell will serve
as a part-time consultant to Community Bank and will be paid $50,000 per year.
Community Bank System has also agreed to "gross-up" any Medicare and social
security taxes (but not Federal, state or local income taxes) payable by Mr.
Cantwell on this amount, meaning in effect that Community Bank System will pay
his Medicare and social security taxes. In any given year, Mr. Cantwell will not
be required to provide more than 250 hours of service. Community Bank System
also agreed to maintain and pay for life insurance coverage to Mr. Cantwell's
beneficiaries. This coverage will be for no less than the remaining payments
under the consulting agreement. Finally, Community Bank System will make
available health insurance coverage for Mr. Cantwell and his spouse on the same
basis as its employees until age 65 and, thereafter, on the same basis as other
retirees of Community Bank System.
In the merger agreement, Community Bank System and Community Bank have
agreed to elect Mr. Cantwell to their Boards of Directors.
In the past, Mr. Cantwell's law firm, Cantwell & Cantwell, has provided
legal services to Citizens National Bank. It is expected that, after the merger,
Cantwell & Cantwell will become an approved services provider for Community Bank
and will continue to provide legal services to Community Bank for certain
banking matters in Clinton and Franklin Counties.
In addition, Community Bank System has agreed to appoint all of the
existing directors of Citizens National Bank (other than Mr. Cantwell) to a
newly formed advisory council. The purpose of the advisory council is to advise
Community Bank on banking activities in Citizens National Bank's market area,
the transition of business relationships after the merger, and the continued
development of business relationships throughout Northern New York State. In
return for serving on this council for two years, members will receive 1,000
shares of Community Bank System common stock. These shares will be "restricted",
meaning that 500 shares will become "vested" after the first year following the
merger and the remaining 500 shares will be vested on the second anniversary of
the merger. Until the restricted shares are vested, they will be cancelled
automatically if their owner no longer serves on the advisory council for any
reason.
After two years, the advisory council will consist of only those members
who are then younger than age 70, which is Community Bank System's mandatory
retirement age. Members of the advisory council who continue to serve after the
second anniversary of the merger will be entitled to receive 250 shares of
restricted stock of Community Bank per year. These restricted shares will also
vest over two years. After the fourth anniversary of the merger, Community Bank
System Board will have the sole discretion to either continue or discontinue the
advisory council.
DIRECTORS OF COMMUNITY BANK SYSTEM AND COMMUNITY BANK FOLLOWING THE MERGER (PAGE
[ ])
Upon completion of the merger, there will be no change to the current
directors of Community Bank System and Community Bank, except that Paul M.
Cantwell, Jr. will serve as a director on both Boards of Directors.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE [ ])
For U.S. federal income tax purposes, you will not generally recognize any
gain or loss from the merger.
ACCOUNTING TREATMENT (PAGE [ ])
We will account for the merger under the purchase method of accounting.
This means that Community Bank System will treat the two companies as one
company beginning on the date of the merger. Community Bank System will record
the fair market value of Citizens National Bank's assets and liabilities on its
financial statements. Any difference in the purchase price paid by Community
Bank System in the merger and the fair market value of Citizens National Bank's
tangible assets, net of its liabilities, will be recorded on the books of
Community Bank System as goodwill. Goodwill resulting from accounting for the
merger under the purchase method of accounting will be amortized over periods of
up to 15 years as charges to Community Bank System's earnings.
4
<PAGE> 13
RESALES OF COMMUNITY BANK SYSTEM COMMON STOCK (PAGE [ ])
Shares of Community Bank System common stock which you receive in the
merger will be freely transferable, unless you are an affiliate of Citizens
National Bank at the time the Special Meeting is held. Under applicable federal
securities laws, affiliates generally include directors, executive officers and
10% or greater shareholders of Citizens National Bank common stock. If you are
an affiliate of Citizens National Bank at the time of the Special Meeting, there
are certain restrictions on your ability to transfer shares you receive in the
merger. These restrictions are described on page [ ] through [ ].
REGULATORY APPROVALS (PAGE [ ])
Citizens National Bank and Community Bank must make certain filings with or
obtain approvals from certain regulatory authorities to effect the merger. This
includes the approval of the Comptroller of the Currency. Community Bank filed
the application with the Comptroller of the Currency on October 13, 2000. In
addition, Community Bank System must apply to list the common stock to be issued
in the merger with the New York Stock Exchange.
CITIZENS NATIONAL BANK DISSENTERS' RIGHTS (PAGE [ ])
In the event that you do not wish to accept the merger consideration being
offered by Community Bank System for your shares of Citizens National Bank
common stock pursuant to the merger agreement, you have the right to dissent
from the merger and seek an appraisal of your shares in accordance with the
provisions of the National Bank Act.
DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE [ ])
Your rights as a Citizens National Bank shareholder are currently governed
by the National Bank Act and Citizens National Bank's articles of association
and bylaws. If you receive Community Bank System common stock, you will become a
stockholder of Community Bank System and your rights will be governed by
Delaware law and Community Bank System's certificate of incorporation and
bylaws.
5
<PAGE> 14
SELECTED FINANCIAL INFORMATION OF COMMUNITY BANK SYSTEM
The following information is provided to assist you in analyzing the
financial aspects of the merger. This information is based on Community Bank
System's audited consolidated financial statements for the years ended December
31, 1995 through 1999 and from Community Bank System's unaudited financial
statements for the six months ended June 30, 1999 and 2000. The information is
only a summary and should be read in conjunction with the financial statements
and related notes and management's discussions and analysis contained in the
annual, quarterly and other reports filed by Community Bank System with the
Securities and Exchange Commission. For information on how to obtain these
reports, please refer to "Where You Can Find More Information" on page [ ].
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income................. $ 70,125 $ 58,873 $ 123,888 $ 122,938 $ 117,628 $ 97,688 $ 83,387
Interest expense................ 34,381 26,482 55,947 58,543 54,752 42,422 36,307
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income............. 35,744 32,391 67,941 64,395 62,876 55,266 47,080
Provision for possible loan
losses........................ 2,916 2,590 5,136 5,123 4,480 2,897 1,765
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for possible loan
losses........................ 32,828 29,801 62,805 59,272 58,396 52,369 45,315
Non-interest income............. 9,429 7,983 15,487 17,040 11,808 8,874 6,558
Non-interest expense............ 27,678 26,407 52,734 51,876 45,799 37,450 33,019
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cumulative effect of change in
accounting principle.......... 0 0 0 328 0 0 0
Income before income taxes...... 14,579 11,377 25,559 24,764 24,406 23,793 18,854
Provision for income taxes...... 4,374 3,641 7,923 9,036 8,844 9,660 7,384
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.................... $ 10,205 $ 7,736 $ 17,635 $ 15,728 $ 15,562 $ 14,133 $ 11,470
========== ========== ========== ========== ========== ========== ==========
END OF PERIOD BALANCE SHEET
DATA:
Total assets.................... $1,931,222 $1,741,172 $1,840,702 $1,680,689 $1,633,742 $1,343,865 $1,152,045
Loans net of unearned
discount...................... 1,063,223 942,380 1,009,223 917,220 843,212 652,474 560,151
Earning assets (includes market
value adjustments)............ 1,775,263 1,582,114 1,664,110 1,510,760 1,455,139 1,231,058 1,034,183
Total deposits.................. 1,410,495 1,371,796 1,360,306 1,378,066 1,345,686 1,027,213 1,016,946
Long-term debt.................. 95,000 70,000 70,000 70,000 25,000 100,000 25,550
Trust securities................ 29,821 29,814 29,817 29,810 29,804 0 0
Shareholders' equity............ 114,197 113,294 108,487 120,165 118,012 109,352 100,060
AVERAGE BALANCE SHEET DATA:
Total assets.................... $1,871,029 $1,681,270 $1,723,212 $1,670,624 $1,491,920 $1,251,826 $1,054,610
Loans net of unearned
discount...................... 1,031,635 922,836 951,167 884,751 749,596 602,717 519,762
Earning assets (excludes market
value adjustments)............ 1,744,164 1,519,452 1,572,356 1,512,175 1,363,703 1,147,455 975,257
Total deposits.................. 1,399,684 1,372,204 1,369,269 1,396,700 1,213,793 1,032,169 871,050
Long-term debt.................. 80,714 70,000 70,003 89,805 79,863 57,006 3,399
Trust securities................ 29,819 29,812 29,814 29,810 27,290 0 0
Shareholders' equity............ 110,083 119,934 115,876 120,936 110,689 103,398 84,231
COMMON PER SHARE DATA:
Net income...................... $ 1.42 $ 1.05 $ 2.42 $ 2.05 $ 2.02 $ 1.83 $ 1.70
Cash dividend declared.......... 0.50 0.46 0.96 0.86 0.76 0.69 0.62
</TABLE>
6
<PAGE> 15
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(UNAUDITED) YEARS ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Period-end book
value -- stated............... 16.33 15.86 15.30 16.47 15.56 14.03 12.99
Period-end book
value -- tangible............. 8.70 8.54 8.32 9.01 7.82 9.85 8.37
Common Outstanding Shares:
Average during period (including
common stock equivalents)..... 7,176,149 7,321,569 7,213,394 7,670,711 7,676,326 7,482,518 6,522,410
End of period (excluding common
stock equivalents)............ 6,993,059 7,144,329 7,092,259 7,296,453 7,586,512 7,474,406 7,358,450
SELECTED RATIOS:
Return on average total
assets........................ 1.10% 0.93% 1.02% 0.94% 1.04% 1.13% 1.09%
Return on average shareholders'
equity (excludes preferred
stock)........................ 18.64% 13.01% 15.22% 13.01% 14.09% 13.88% 13.85%
Common dividend payout ratio.... 34.63% 43.01% 39.05% 41.15% 37.30% 37.27% 34.79%
Net interest margin (taxable
equivalent basis)............. 4.42% 4.56% 4.46% 4.31% 4.64% 4.86% 4.88%
Noninterest income to average
assets........................ 0.50% 0.47% 0.90% 1.02% 0.79% 0.71% 0.64%
Noninterest income to operating
income........................ 20.10% 18.30% 18.70% 19.00% 15.30% 13.60% 12.10%
Efficiency ratio................ 52.90% 56.50% 55.20% 58.50% 55.00% 53.40% 56.70%
Non-performing loans to
period-end total loans........ 0.61% 0.50% 0.57% 0.43% 0.49% 0.44% 0.36%
Non-performing assets to
period-end total loans and
other real estate owned....... 0.69% 0.60% 0.67% 0.56% 0.60% 0.55% 0.47%
Allowance for loan losses to
period-end loans.............. 1.37% 1.39% 1.33% 1.36% 1.47% 1.25% 1.25%
Allowance for loan losses to
period-end non-performing
loans......................... 224.21% 277.53% 234.93% 312.12% 297.96% 285.58% 349.69%
Allowance for loan losses to
period-end non-performing
assets........................ 199.87% 229.84% 203.45% 240.74% 246.02% 224.33% 267.40%
Net charge-offs (recoveries) to
average total loans........... 0.34% 0.43% 0.44% 0.58% 0.50% 0.29% 0.21%
Average net loans to average
total deposits................ 73.70% 67.25% 69.47% 63.35% 61.76% 58.39% 59.67%
Period-end total shareholders'
equity to period end assets... 5.91% 6.51% 5.89% 7.15% 7.22% 8.14% 8.69%
Tier I capital to risk-adjusted
assets........................ 8.82% 9.18% 9.28% 9.24% 9.28% 10.70% 10.62%
Total risk-based capital to
risk-adjusted assets.......... 10.07% 10.43% 10.50% 10.49% 10.53% 11.83% 11.76%
Tier I leverage ratio........... 5.54% 5.71% 5.80% 5.71% 5.67% 5.88% 5.83%
</TABLE>
7
<PAGE> 16
RISK FACTORS
In addition to the other information included in this document, you should
consider the matters described below carefully in determining whether to approve
the merger agreement.
THE VALUE OF THE COMMUNITY BANK SYSTEM COMMON STOCK YOU RECEIVE IN THE MERGER
MAY VARY
Upon completion of the merger, each share of Citizens National Bank common
stock will be automatically converted into 1.7 shares of Community Bank System
common stock. This exchange ratio is fixed and there will be no adjustment even
if the market price of Community Bank System common stock fluctuates higher or
lower. Citizens National Bank is not permitted to "walk away" from the merger
because of changes in Community Bank System's stock price. As a result, the
value of the shares you receive in the merger will not be known at the time you
vote on the merger and may go up or down as the market price of Community Bank
System common stock goes up or down. The specific dollar value of Community Bank
System common stock to be received by you upon completion of the merger will
depend on the market value of Community Bank System common stock at the time of
completion of the merger. The share price of Community Bank System common stock
is by nature subject to the general price fluctuations in the market for
publicly traded equity securities and have experienced volatility. We cannot
predict the market prices of Community Bank System common stock at any time
before the completion of the merger or as to the market price of Community Bank
System common stock after the completion of the merger.
WE MAY FAIL TO IMPLEMENT THE MERGER SUCCESSFULLY, ACHIEVE SAVINGS AND REALIZE
THE OTHER ANTICIPATED BENEFITS FROM THE MERGER BECAUSE OF DIFFICULTIES IN
INTEGRATING OUR BUSINESS OPERATIONS
The integration of our banks following the merger will be complex and
time-consuming and will present us with challenges. As a result, we may not be
able to operate the combined bank as effectively as we expect. We may also fail
to achieve the anticipated potential benefits of the merger as quickly or as
cost effectively as we anticipate or may not be able to achieve those benefits
at all. Specifically, we will face significant challenges integrating the two
banks' organizations, procedures and operations in a timely and efficient manner
and retaining key personnel. In addition, the management of Community Bank
System will have to dedicate substantial effort to integrating our two banks
and, therefore, its focus and resources may be diverted from other strategic
opportunities and from operational matters.
CHANGES IN INTEREST RATES AFFECT OUR PROFITABILITY AND ASSETS
Changes in prevailing interest rates may hurt our business. We derive our
income mainly from the difference or "spread" between the interest earned on
loans, securities and other interest-earning assets, and interest paid on
deposits, borrowings and other interest-bearing liabilities. In general, the
larger the spread, the more we earn. When market rates of interest change, the
interest we receive on our assets and the interest we pay on our liabilities
will fluctuate. This can cause decreases in our spread and can affect our
income.
Changes in market interest rate could reduce the value of our financial
assets. Fixed-rate investments, mortgage-backed and related securities and
mortgage loans generally decrease in value as interest rates rise. In addition,
interest rates affect how much money we can lend. For example, when interest
rates rise, loan originations tend to decrease.
If we are unsuccessful in managing the effects of changes in interest
rates, our financial conditions and results of operations could suffer.
REGIONAL ECONOMIC FACTORS MAY HAVE AN ADVERSE IMPACT ON OUR BUSINESS.
Substantially all of Community Bank System's business, both before and
after the merger, is and will be with customers in Upstate New York. Most of our
customers are individuals and small and medium-sized businesses which are
dependent upon the regional economy. Adverse changes in economic and business
conditions in our markets could adversely affect our borrowers, their ability to
repay their loans and to borrow
8
<PAGE> 17
additional funds or buy financial services and products from us, and
consequently our financial condition and performance.
WE FACE STRONG COMPETITION FROM OTHER BANKS AND FINANCIAL INSTITUTIONS WHICH CAN
HURT OUR BUSINESS
We conduct our banking operations in a number of competitive local markets.
In those markets, we compete against commercial banks, savings banks, savings
and loans associations, credit unions, mortgage banks, brokerage firms, and
other financial institutions. Many of these entities are larger organizations
with significantly greater financial, management and other resources than us,
and they offer the same or similar banking or financial services that we offer
in our markets. Moreover, new and existing competitors may expand their business
in or into our markets. Increased competition in our markets may result in a
reduction in loans, deposits and other sources of our revenues. Ultimately, we
may not be able to compete successfully against current and future competitors.
COMMUNITY BANK SYSTEM DEPENDS ON DIVIDENDS FROM COMMUNITY BANK FOR CASH
REVENUES, BUT THOSE DIVIDENDS ARE SUBJECT TO RESTRICTIONS
Community Bank System's ability to satisfy its obligations and pay cash
dividends to its stockholders is primarily dependent on the earnings of and
dividends from Community Bank. However, payment of dividends by Community Bank
is limited by dividend restrictions and capital requirements imposed by bank
regulations.
ANTI-TAKEOVER PROVISIONS MAY PREVENT OR DISCOURAGE TAKEOVER ATTEMPTS IN WHICH
OUR STOCKHOLDERS MAY RECEIVE A PREMIUM
After the merger, you will become a stockholder of Community Bank System.
Community Bank System's certificate of incorporation and by-laws contain
provisions that could make it more difficult for a third party to acquire, or
could discourage a third party from attempting to acquire, control of Community
Bank System. These provisions allow Community Bank System's Board to issue,
without stockholder approval (subject to rules of the New York Stock Exchange,
if applicable), preferred stock with rights senior to those of its common stock
and impose various procedural and non-procedural requirements that could make it
more difficult to effect certain corporate actions. The certificate of
incorporation of Community Bank System also provides for a classified or
"staggered" Board of Directors, a supermajority vote requirement for board and
stockholder approval of certain business combination transactions and a
prohibition against written consents in lieu of a stockholders' meeting.
In addition, under Community Bank System's stockholder protection rights
plan, holders of Community Bank System common stock are entitled to one purchase
right for each outstanding share of common stock they hold, exercisable under
certain specified circumstances involving an unsolicited offer or attempt to
acquire Community Bank System. The purchase rights have the anti-takeover effect
of causing substantial dilution to a person or group that attempts to acquire
Community Bank System on terms not approved by Community Bank System's board of
directors.
The foregoing provisions are intended to avoid costly takeover battles and
lessen Community Bank System's exposure to coercive takeover attempts at a
unfair price, and are designed to maximize shareholder value in connection with
unsolicited takeover attempts. The provisions, however, could reduce the premium
that potential acquirors might be willing to pay in an acquisition, which may in
turn reduce the market price that investors might be willing to pay in the
future for shares of Community Bank System common stock.
A WARNING ABOUT FORWARD-LOOKING INFORMATION
Community Bank System and Citizens National Bank have each made
forward-looking statements in this document and in certain documents that we
refer to in this document. These forward-looking statements are subject to risks
and uncertainties. These statements are based on the beliefs and assumptions of
each respective company's management, and on information currently available to
that management. Forward-
9
<PAGE> 18
looking statements include statements preceded by, followed by or that include
the words "will," "believes," "expects," "anticipates," "intends," "plans,"
"estimates" or similar expressions.
Although Community Bank System and Citizens National Bank believe these
forward-looking statements are reasonable, you should not place undue reliance
on the forward-looking statements, which are based on current expectations.
Actual results may differ materially from those expressed in our forward-looking
statements.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results of Community Bank
System following completion of the merger may differ materially from those
expressed in these forward-looking statements. You should note that many
factors, some of which are discussed under "Risk Factors", may affect these
results and are beyond our ability to control or predict. For those statements,
Community Bank System and Citizens National Bank claim the protection of the
safe harbor contained in the Private Securities Litigation Reform Act of 1995.
PER SHARE DATA OF COMMUNITY BANK SYSTEM
The following table shows information about Community Bank System's net
income per share, dividends per share and book value per share for the year
ended December 31, 1999 and for the six month period ended June 30, 2000. The
information in the following table is based on the historical financial
information contained in the annual, quarterly and other reports filed by
Community Bank System with the Securities and Exchange Commission. For
information on how to obtain these reports, please refer to "Where You Can Find
More Information" on page [ ].
<TABLE>
<CAPTION>
PER SHARE DATA
--------------
<S> <C>
NET INCOME:
Six months ended June 30, 2000............................ $ 1.42
Year ended December 31, 1999.............................. 2.42
CASH DIVIDENDS:
Six months ended June 30, 2000............................ $ 0.50
Year ended December 31, 1999.............................. 0.96
BOOK VALUE:
At June 30, 2000.......................................... $16.33
At December 31, 1999...................................... 15.30
</TABLE>
MARKET PRICE AND DIVIDEND INFORMATION
Community Bank System. Community Bank System common stock is listed on the
New York Stock Exchange under the symbol CBU. The following table contains for
each of the indicated calendar quarters the high and low sales prices of
Community Bank System common stock as reported on the New York Stock Exchange
Composite Tape, and the dividends declared per share of Community Bank System
common stock.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
-------- -------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1998
Quarter Ended March 31, 1998...................... $35.8750 $30.5625 $0.20
Quarter Ended June 30, 1998....................... 38.2500 29.6875 0.20
Quarter Ended September 30, 1998.................. 34.0000 24.8125 0.23
Quarter Ended December 31, 1998................... 30.5000 27.1250 0.23
</TABLE>
10
<PAGE> 19
<TABLE>
<CAPTION>
CASH
DIVIDENDS
DECLARED
HIGH LOW PER SHARE
-------- -------- ---------
<S> <C> <C> <C>
Year Ended December 31, 1999
Quarter Ended March 31, 1999...................... $33.6250 $23.6875 $0.23
Quarter Ended June 30, 1999....................... 30.4375 22.6250 0.23
Quarter Ended September 30, 1999.................. 29.0000 24.3750 0.25
Quarter Ended December 31, 1999................... 27.2500 22.6875 0.25
Year Ending December 31, 2000
Quarter Ended March 31, 2000...................... $23.5000 $20.0000 $0.25
Quarter Ended June 30, 2000....................... 24.3750 21.8750 0.25
Quarter Ended September 30, 2000.................. 26.2500 21.8750 0.27
Quarter Ending December 31, 2000 (through
[ ], 2000)............................ [ ] [ ] --
</TABLE>
On the record date, there were issued and outstanding approximately
[ ] shares of Community Bank System common stock, held of record by
approximately [ ] holders.
On [ ], 2000, the last sale price of Community Bank System common
stock reported on the New York Stock Exchange Composite Tape was $[ ].
On September 12, 2000, the last trading day before first public announcement of
the merger, the last reported sale price of Community Bank System common stock
was $23.50.
Community Bank System has historically paid regular quarterly cash
dividends on its common stock, and the Board of Directors of Community Bank
System presently intends to continue the payment of regular quarterly cash
dividends, subject to the need for those funds for other purposes. However,
because substantially all of the funds available for the payment of dividends by
Community Bank System are derived from Community Bank, future dividends will
depend upon the earnings of Community Bank, its financial condition, its need
for funds and applicable governmental policies and regulations.
Citizens National Bank. There is no established public market for Citizens
National Bank common stock. In the past, there has been sporadic trading of
Citizens National Bank common stock in privately negotiated transactions. Based
upon information reported by the parties involved in transactions between
January 1, 1998 to date, the per share purchase price of Citizens National Bank
common stock has ranged from $25.00 (in January 1998 and January 1999) to $31.00
(in December 1999 and calendar 2000). You should be aware that Citizens National
Bank did not independently verify the accuracy of the information reported by
the parties, and that Citizens National Bank does not have the pricing
information for all of the privately negotiated transactions taking place during
this period. Accordingly, the prices paid in those unreported transactions may
be more or less than the prices shown above.
The following table contains information regarding cash dividends paid by
Citizens National Bank since January 1, 1998:
<TABLE>
<CAPTION>
CASH DIVIDENDS
PERIOD PAID PER SHARE
------ --------------
<S> <C>
January 1998........................................... $0.40
June 1998.............................................. 0.41
January 1999........................................... 0.45
June 1999.............................................. 0.45
December 1999.......................................... 0.50
June 2000.............................................. 0.45
</TABLE>
On the record date, there were issued and outstanding 560,000 shares of
Citizens National Bank common stock held of record by approximately 317 holders.
11
<PAGE> 20
THE COMPANIES
COMMUNITY BANK SYSTEM
Community Bank System is a Delaware corporation registered as a bank
holding company under the Bank Holding Company Act. Community Bank System was
incorporated in April 1983. At June 30, 2000 and on a consolidated basis,
Community Bank System had approximately $1.9 billion in total assets, $1.4
billion in total deposits, $1.0 billion in total loans and shareholders' equity
of $114 million. Its common stock is publicly traded on the New York Stock
Exchange under the symbol CBU. Community Bank System, with its principal
executive offices in DeWitt, New York, is the parent company of Community Bank.
Community Bank is a commercial banking franchise headquartered in Canton,
New York, with 67 customer facilities and 50 ATM's stretching diagonally from
Northern New York to the Southern Tier and west to Lake Erie. Community Bank is
a national bank and a member of the Federal Reserve System and the Federal Home
Loan Bank System, and its deposits are insured by the Federal Deposit Insurance
Corporation, up to applicable limits.
Community Bank is committed to serving the financial needs of customers in
local communities within its market areas. Community Bank makes residential and
farm loans, business lines of credit, working capital facilities, inventory and
dealer floor plans, as well as installment, commercial, term and student loans.
However, Community Bank focuses predominantly on the retail borrowers, which
enables its loan portfolio to be highly diversified. About 63% of loans
outstanding are consumer borrowings on an installment and residential mortgage
loan basis.
The subsidiaries of Community Bank provide treasury management services,
securities brokerage, investment management services, insurance products, and
pension administration and consulting services.
For additional information concerning the business of Community Bank System
and its financial condition, results of operations and prospects, you should
refer to the documents incorporated in this document by reference. See "Where
You Can Find More Information" on page [ ].
CITIZENS NATIONAL BANK
Citizens National Bank is a national banking association incorporated in
December 1920 and has its principal bank office at 6 Elm Street in Malone, New
York. It has four additional branches located in Chateaugay and Brushton, New
York, West End in Malone and Hermon in St. Lawrence County. Citizens National
Bank operates four ATM machines, including one at Paul Smith's College at Paul
Smiths, New York, as well as a free-standing drive through facility on Elm
Street in Malone. Citizens National Bank has always been committed to serving
the financial needs of its customers in the various communities in which it has
branches by offering checking and savings accounts and making residential and
small commercial loans, as well as installment and consumer loans.
SPECIAL MEETING OF THE SHAREHOLDERS OF CITIZENS NATIONAL BANK
GENERAL
Citizens National Bank will hold its Special Meeting of the Shareholders on
[ ], 2000 at [ ]:[ ] [ ].m., Eastern time, at [the Malone Lodge
of Elks, 67 Elm Street, Malone, New York 13953]. At the Special Meeting, you
will vote upon a proposal to approve the merger agreement. You may also vote
upon a proposal to adjourn or postpone the Special Meeting for the purpose of,
among other things, allowing additional time for the solicitation of proxies to
approve the merger agreement.
RECORD DATE; VOTING POWER
If you were a holder of record of Citizens National Bank common stock at
the close of business on [ ], 2000, you may vote at the meeting.
This date is called a "record date." As of the record
12
<PAGE> 21
date, there were 560,000 issued and outstanding shares of Citizens National Bank
common stock held by approximately 317 holders of record. You have one vote per
share on any matter that may properly come before the Special Meeting. Brokers
who hold shares of Citizens National Bank common stock as nominees will not have
discretionary authority to vote these shares without instructions from the
beneficial owners. Any shares of Citizens National Bank common stock for which a
broker has submitted an executed proxy but for which the beneficial owner has
not given instructions on voting to the broker are referred to as "broker non-
votes." These broker non-votes will have the same effect as a vote against the
merger agreement.
VOTE REQUIRED
The presence in person or by proxy of the holders of a majority of the
shares of Citizens National Bank common stock outstanding on the record date
will constitute a quorum for the transaction of business at the Special Meeting.
Citizens National Bank will count abstentions and broker non-votes for purposes
of establishing the presence of a quorum at the Special Meeting. The approval of
the proposal to approve the merger agreement requires the affirmative vote of
two-thirds (2/3) of the shares of Citizens National Bank common stock
outstanding on the record date. Because broker non-votes and abstentions are not
affirmative votes, they will have the effect of a vote against the proposal to
approve the merger agreement.
On the record date, the executive officers and directors of Citizens
National Bank, including certain of their related parties, had voting power with
respect to an aggregate of 80,740 shares of Citizens National Bank common stock,
or approximately 14.4% of the shares of Citizens National Bank common stock then
outstanding. The directors are contractually obligated to vote all of their
shares in favor of the proposal to approve the merger agreement. The directors
of Citizens National Bank and certain of their related parties owned a total of
77,970 shares, or approximately 13.9% of the outstanding shares of Citizens
National Bank common stock. James B. Cantwell, a brother of Paul M. Cantwell,
Jr., has agreed to vote all 44,947 shares of his Citizens National Bank common
stock (representing approximately 8.0% of the issued and outstanding shares of
Citizens National Bank common stock on the record date) in favor of the approval
of the merger agreement.
On the record date, to the knowledge of Community Bank System, its
directors and executive officers did not beneficially own any shares of Citizens
National Bank common stock.
RECOMMENDATION OF THE CITIZENS NATIONAL BANK BOARD
The Citizens National Bank Board has unanimously approved and adopted the
merger agreement and the transactions contemplated by it. The Citizens National
Bank Board believes that the merger is fair to and in your best interests as the
Citizens National Bank shareholders. It unanimously recommends that you vote FOR
approval of the merger agreement.
SOLICITATION AND REVOCATION OF PROXIES
We have enclosed a form of proxy with this document. Shares represented by
a proxy will be voted at the Special Meeting as specified in the proxy. Proxies
that are properly signed and dated but which do not have voting instructions
will be voted by the proxy holders FOR the merger agreement and in the
discretion of the proxy holder as to any other matter which may properly come
before the Special Meeting.
WE ARE ASKING YOU TO VOTE BY COMPLETING, DATING AND SIGNING THE
ACCOMPANYING PROXY CARD AND RETURNING IT PROMPTLY TO CITIZENS NATIONAL BANK IN
THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU INTEND TO ATTEND THE
SPECIAL MEETING IN PERSON.
If you deliver a properly executed proxy, you may revoke the proxy at any
time before it is exercised at the Special Meeting. You may revoke your proxy
by:
- filing with Secretary of Citizens National Bank prior to the Special
Meeting, at Citizens National Bank's principal executive offices, either
a written revocation of your proxy or a duly executed proxy containing a
later date; or
13
<PAGE> 22
- attending the Special Meeting and voting in person. Your presence at the
Special Meeting, by itself, will not revoke your proxy. You must vote in
person if you wish to revoke the proxy.
Citizens National Bank will bear the cost of solicitation of proxies.
Citizens National Bank and Community Bank System will share equally the cost of
printing and mailing this document. In addition to solicitation by mail,
directors, officers and employees of Citizens may solicit proxies from
shareholders by telephone, in person or through other means. These persons will
not receive additional compensation, but they will be reimbursed for the
reasonable out-of-pocket expenses they incur in connection with this
solicitation, if any. Citizens National Bank also expects to make arrangements
with brokerage firms, fiduciaries and other custodians who hold shares of record
as nominees to forward this document and other solicitation materials to the
beneficial owner of these shares. Citizens National Bank will reimburse these
brokerage firms, fiduciaries and other custodians for their reasonable
out-of-pocket expenses in connection with this solicitation.
OTHER MATTERS
We are unaware of any matter to be presented at the Special Meeting other
than the proposal to approve the merger agreement. If other matters are properly
presented at the Special Meeting, the persons named in the proxy will have
authority to vote all properly executed proxies in accordance with their
judgment on any such matter. This includes, for example, any proposal to adjourn
or postpone the Special Meeting. Proxies that have been designated to vote
against approval of the merger agreement will not be voted in favor of any
proposal to adjourn or postpone the Special Meeting for the purpose of
soliciting additional proxies to approve the merger agreement.
14
<PAGE> 23
THE MERGER
The detailed terms of the merger are contained in the merger agreement
attached as Annex A to this document. The following discussion and the
discussion under "The Merger Agreement" describe the more important aspects of
the merger and material terms of the merger agreement. These descriptions are
only a summary and thus must be qualified by reference to the merger agreement,
which is attached as Annex A. We urge you to read the merger agreement
carefully.
GENERAL
The merger agreement provides that, after approval by the Citizens National
Bank shareholders and the satisfaction or waiver of the other conditions to the
merger, Citizens National Bank will merge with and into Community Bank as a
wholly owned subsidiary of Community Bank System. The certificate of
incorporation and bylaws of Community Bank System will be the certificate of
incorporation and bylaws of Community Bank System and the articles of
association and bylaws of Community Bank, as in effect immediately prior to the
merger, will be the articles of association and bylaws of Community Bank after
the merger. The directors and officers of Community Bank immediately prior to
the merger will be the directors and officers of Community Bank after the merger
until they resign or until their successors are duly elected and qualified. Paul
M. Cantwell, Jr., the Chairman and President of Citizens National Bank, will be
elected to the Boards of Directors of Community Bank System and Community Bank.
The closing of the merger will occur on the first business day, or any
other day mutually agreed to by Community Bank System and Citizens National
Bank, following the satisfaction or waiver of all conditions to the merger
agreement and after all necessary regulatory approvals have been obtained. The
merger will become effective at the date and time chosen by Community Bank and
Citizens National Bank, provided that at least 10 days' prior written notice of
the effective date of the merger is provided to the Comptroller of the Currency
and that all other conditions to the merger are already satisfied. After the
merger, the Comptroller of the Currency will mail a certificate to Community
Bank certifying the completion of the merger.
We are working to complete the merger in the fourth quarter of calendar
year 2000, but we must first obtain the necessary regulatory approvals and the
approval of the Citizens National Bank shareholders at the Special Meeting, and
satisfy other conditions. We cannot assure you as to when or if all the
conditions to the merger will be met, and it is possible we will not complete
the merger at all.
BACKGROUND OF THE MERGER
Community Bank System and Citizens National Bank have traditionally
concentrated their business activities on providing community banking services
in their respective market areas. Over the past several years, the environment
for independent community banks in general, and specifically in the market area
served by Community Bank and Citizens National Bank, has become increasingly
competitive, particularly because of competition from non-bank financial
institutions. The resulting pressures on both margins and loan growth have been
compounded by the high cost of maintaining skilled staff while simultaneously
introducing competitive customer service technology and new products.
As a result of these factors, Community Bank System has long recognized the
need to grow and diversify, and has established an active program to identify,
review and evaluate potential business combinations, acquisitions and other
strategic opportunities. In the current environment, Citizens National Bank
recognized that it would be difficult to expand and improve its operations and
services without substantial pressure on financial performance. While Citizens
National Bank had explored possible business combinations with other financial
institutions in the past, these discussions have not resulted in any substantive
agreement.
Sanford A. Belden, Community Bank System's President and Chief Executive
Officer, and Paul M. Cantwell, Jr., Citizens National Bank's Chairman and
President, have known each other for many years. In the past, Messrs. Belden and
Cantwell have discussed a possible strategic transaction between Community Bank
System and Citizens National Bank, but the parties determined not to proceed
further at that time.
15
<PAGE> 24
On May 8, 2000, Mr. Cantwell and Mr. Belden had a telephone conversation to
schedule a meeting to explore a potential strategic transaction between the two
banks. At a regularly scheduled meeting of the Community Bank System Board on
May 17, 2000, Mr. Belden informed the Board that he had spoken to Mr. Cantwell
and that Mr. Belden and James Wears, President, Banking, of Community Bank, were
scheduled to have a meeting with Mr. Cantwell during the following week to
discuss the possibility of a merger of Community Bank and Citizens National
Bank.
On May 22, 2000, Messrs. Belden, Wears and Cantwell met in Potsdam, New
York. During the meeting, they discussed whether a strategic combination of the
two banks might be feasible, each bank's businesses and banking philosophy, the
business impact of a potential strategic combination, integration issues that
such a combination would present, and the most appropriate structure for a
possible transaction. The parties mutually agreed that a merger was worthy of
further consideration.
Mr. Belden and Mr. Cantwell and their respective professional advisors met
during June and July to consider the basis upon which a merger of Citizens
National Bank with Community Bank under the name of Community Bank could be
achieved. Based upon these meetings, it appeared that the proposed merger would
be in the best interests of the respective customers and shareholders of
Citizens National Bank and Community Bank System. The parties agreed at that
time that a stock-for-stock merger would be the most appropriate structure, and
it appeared that the parties could mutually agree upon an exchange ratio for a
merger. During this period, the parties and their respective legal counsel
continued to discuss and negotiate the terms of a letter of intent concerning
the proposed merger.
On June 8, 2000, at a meeting of the Strategic/Executive Committee of the
Community Bank System Board, Mr. Belden gave a detailed presentation on the key
elements of the proposed transaction. After full discussion, the
Strategic/Executive Committee approved the basic terms of a merger proposal,
subject to the negotiation of a definitive agreement and successful completion
of due diligence investigation of Citizens National Bank. At the meeting, the
Board also authorized Mr. Belden to negotiate and execute a letter of intent in
accordance with the basic terms approved by it.
At a June 20, 2000 special meeting of the Community Bank System Board, the
full Board reviewed with Mr. Belden the information presented at the June 8,
2000 meeting of the Strategic/Executive Committee. After full discussion, the
Community Bank System Board ratified and approved the authorization by the
Strategic/Executive Committee of the execution of a letter of intent.
On July 19, 2000, at a regularly scheduled meeting of the Community Bank
System Board, Mr. Belden reported on the progress of negotiations with Citizens
National Bank and a lengthy discussion regarding the transaction ensued. The
Board confirmed its authorization for Community Bank System to proceed with the
negotiations.
On July 25, 2000, a regularly scheduled meeting of Citizens National Bank's
Board was held to discuss the proposed letter of intent, dated July 21, 2000,
received from Community Bank System, and to evaluate the merits of the proposed
merger. The directors were advised of the rationale for the proposed
transaction, the transaction process and the proposed exchange ratio. At the
meeting, Mr. Cantwell advised the Board that he had received a call from the
President of another financial institution expressing an interest in acquiring
Citizens National Bank and that a proposed letter of intent setting forth the
basic terms of the proposed transaction would be delivered to him within the
week. The Citizens National Bank Board adjourned the meeting and scheduled a
special meeting for Monday, July 31, 2000 to further discuss Community Bank
System's letter of intent and the expected letter of intent from the other
interested party.
On July 31, 2000, a special meeting of the Citizens National Bank Board was
held to evaluate the letter of intent received from Community Bank System, dated
July 21, 2000, and the letter of intent received from the other interested party
dated July 27, 2000. In attendance at the meeting was Edward J. Moses, Esq., of
Mackenzie Smith Lewis Michell & Hughes, LLP, the attorneys engaged by Citizens
National Bank to act as its legal advisor in connection with the offers made by
Community Bank System and the other interested party. Mr. Moses explained the
fiduciary duties of the Citizens National Bank Board in evaluating and
responding to the respective letters of intent. After a thorough review of the
terms of the respective letters of
16
<PAGE> 25
intent, the Citizens National Bank Board decided to reject the proposal made by
the other interested party and to continue to evaluate the proposal presented by
Community Bank System. Mr. Cantwell advised the Citizens National Bank Board
that Mr. Belden had offered to discuss the offer with the Board at a meeting to
be held later in the week. The Citizens National Bank Board requested Mr.
Cantwell to schedule the meeting and to request Mr. Belden to attend the meeting
to discuss the offer.
On August 3, 2000, a special meeting of Citizens National Bank's Board was
held to further evaluate the merits of the Community Bank offer. Mr. Belden was
invited to the meeting to discuss the offer, along with David C. Patterson and
William N. Sloan, directors of Community Bank System, and Mr. Wears. After Mr.
Belden's presentation, the Citizens Board and representatives of Community Bank
System engaged in a thorough discussion of the offer and Community Bank System's
plans for the future, including the business of Citizens National Bank if the
Board agreed to pursue the merger with Community Bank. After a thorough
discussion, the representatives of Community Bank System left the meeting and
the Citizens National Bank Board continued to evaluate the merits of the
proposed merger. After discussion, the Citizens National Bank Board authorized
Mr. Cantwell to execute the July 21, 2000 letter of intent on behalf of Citizens
National Bank, to select and retain a financial advisor to review the offer and
make a presentation to the Citizens National Bank Board, to pursue further due
diligence and, if appropriate, to continue efforts toward a definitive
agreement. Later that day, Mr. Belden and Mr. Cantwell executed the letter of
intent on behalf of Community Bank System, Community Bank and Citizens National
Bank.
During the week of August 7, 2000, representatives of Community Bank System
visited the offices of the Fagliarone Group, the external auditors for Citizens
National Bank, to review the various financial diligence documents assembled by
Citizens National Bank. On August 15 through 18, representatives of Community
Bank System traveled to Potsdam, New York to review additional information made
available by Citizens National Bank. Citizens National Bank obtained from
Community Bank System its financial, regulatory, audit and other information
that was reviewed in the furtherance of their due diligence by bank officers and
external auditors of the Fagliarone Group. On August 16, 2000, Community Bank
System's counsel, Bond, Schoeneck & King, LLP, delivered the first draft of the
merger agreement to Citizens National Bank and its counsel.
During August and September, Messrs. Belden and Cantwell and the parties'
respective legal counsel met and conferred by telephone numerous times to
discuss and negotiate the specific details of a proposed transaction and the
merger agreement. During this period, Community Bank System continued its due
diligence review of Citizens National Bank and its business, assets, operations
and prospects.
Citizens National Bank engaged Crowe, Chizek and Company LLP of
Indianapolis, Indiana, which had been previously engaged by Citizens National
Bank to perform a capital analysis in the Spring 2000, to review the two offers
received by Citizens National Bank from Community Bank System and the other
interested party, and to gather certain financial information to assist the
Citizens National Bank Board in its decision to authorize the execution of the
definitive merger agreement and to recommend the merger to its shareholders.
Crowe, Chizek is one of the eight largest accounting and consulting
organizations in the United States, with 1,400 professionals in 11 locations.
Crowe, Chizek has been in business for over 40 years. Its Financial Institutions
Group has over 300 professionals providing service to the financial services
industry. The Financial Institutions Group audits approximately 400 financial
institutions and serves another 100 financial institutions in various consulting
relationships. The terms of engagement of Crowe, Chizek do not require it to
render to Citizens National Bank's Board or shareholders an opinion as to the
fairness of the merger.
At a regularly scheduled meeting of the Community Bank System Board held on
August 16, 2000, Mr. Belden gave an update of the transaction and discussed the
expected timeframe of the closing.
In September, the parties became aware of the existence of rumors and
speculations concerning the proposed merger. On September 13, 2000, the parties
issued a joint press release announcing the execution of a letter of intent for
the proposed merger.
On September 19 and 20, 2000, representatives from Community Bank System
reviewed Citizens National Bank's loan documents and had discussions with
lending officers of Citizens National Bank
17
<PAGE> 26
concerning the same. On September 20, 2000, the Community Bank System Board held
a meeting in Canton, New York. At this meeting, the Board heard from Mr. Belden
a status report on the negotiations and due diligence investigation. After the
meeting, Mr. Cantwell joined the members of the Community Bank System Board for
lunch and discussed Citizens National Bank and the proposed merger with the
directors.
On September 26, 2000, Citizens National Bank's Board held a special
meeting. At the invitation of the Citizens National Bank Board, members of
Crowe, Chizek's Financial Institutions Group attended the meeting and presented
the information that they had assembled for the Board. This information included
a comparison of Community Bank System's offer and the terms offered by the other
interested party, a description of the financial terms of transactions similar
in type and size to the proposed merger, certain financial information
concerning banks and other companies in Citizens National Bank's peer group, and
relevant business, financial and peer group information relating to Community
Bank System. During the presentation, Crowe, Chizek's representatives and the
Board engaged in discussions concerning the information presented.
Also in attendance at the September 26, 2000 meeting was Donald Taylor of
the Fagliarone Group. After consideration and discussion of the proposed
transaction and consultation with its management, financial advisor, external
auditor and legal counsel, Citizens National Bank's Board of Directors concluded
that the merger was in the best interests of Citizens National Bank's
shareholders for the reasons described below under "Reasons for the Merger."
Accordingly, the Citizens National Bank Board approved the merger, the merger
agreement and the proposed form of the voting agreements as in the best
interests of Citizens National Bank's shareholders and other constituencies, and
directed that the merger agreement be submitted for approval by Citizens
National Bank's shareholders at a special meeting of Citizens National Bank's
shareholders to be held as soon as practicable. The Citizens National Bank Board
also unanimously resolved to recommend that the Citizens National Bank
shareholders approve the merger agreement.
On the evening of September 26, 2000, Messrs. Belden and Cantwell executed
and delivered the merger agreement on behalf of Community Bank System, Community
Bank and Citizens National Bank.
On September 27, 2000, the parties issued a joint press release to announce
the execution of a definitive merger agreement.
REASONS FOR THE MERGER
Community Bank System. The Board of Directors of Community Bank System
believes that Citizens National Bank and Community Bank share a banking
philosophy of serving the financial needs of customers in local communities and
stressing the local character of business, superior customer service, knowledge
of the customer and customer needs, and quick and local decision-making. Because
Citizens National Bank is either number one or two in market share in towns
where it has a branch, the Board expects the merger to improve Community Bank's
competitive position in the Northern New York State.
Also, Community Bank System Board believes that the merger will create an
opportunity to leverage Citizens National Bank's loyal customer base to offer a
broad range of financial services and products which were not previously
available from Citizens National Bank, such as online banking, trust, insurance,
benefit plan administration, investment management, secondary mortgage products,
floor plan lending, agricultural lending and cash management. Moreover, Citizens
National Bank's deposit base will provide an additional funding source for
Community Bank.
The Board believes that economies of scale and cost savings available
through combining administrative functions should enhance the operations and
financial results of the combined banks.
18
<PAGE> 27
Citizens National Bank. In reaching its decision to approve the merger,
Citizens National Bank's Board of Directors considered a number of factors,
including the factors under "Background of the Merger" as well as:
- the business, operations, asset quality, financial condition, earnings,
strategic business plans, competitive position, stock price performance,
management, products and services and growth potential of Community Bank
System;
- the current and prospective economic, regulatory and competitive climate
facing independent community banking organizations, including the
consolidation currently underway in the banking industry and competition
from larger institutions and non-bank providers of financial services;
- the benefit from new products, product enhancements and financial
services to its customers;
- the similar community banking culture and business philosophy of
Community Bank System, particularly with respect to customer satisfaction
and serving the banking needs of its communities;
- Community Bank System's strong management team;
- the exchange ratio in the merger from a number of valuation perspectives
as well as the relative ownership of Community Bank System common stock
by Citizens National Bank's shareholders in the merger, which were
included in the information assembled by Crowe, Chizek;
- the information assembled and presented by Crowe, Chizek to Citizens
National Bank's Board;
- the terms of the merger agreement, including the proposed advisory
council to be comprised of the current members of Citizens National
Bank's Board of Directors (other than Paul M. Cantwell, Jr. who will be a
member of the Boards of Community Bank System and Community Bank);
- the likely impact of the proposed merger on the employees and customers
of Citizens National Bank, on the communities in which Citizens National
Bank presently conducts its business, and on Citizens National Bank's
other constituencies;
- the treatment of the merger as a purchase for financial accounting
purposes and as a tax free reorganization for federal income tax
purposes;
- the premium represented by the consideration offered to the Citizens
National Bank shareholders based upon the exchange ratio relative to the
book value of Citizens National Bank common stock and its known trading
price in the recent past; and
- the increased liquidity and trading volumes for the shares of Community
Bank System common stock to be received by the Citizens National Bank
shareholders.
Because of the reasons described above, Citizens National Bank's Board of
Directors has unanimously determined the merger to be fair to and in the best
interests of Citizens National Bank and its shareholders, customers and
communities served. Accordingly, the Citizens National Bank Board has
unanimously approved the merger agreement and the merger, and unanimously
recommends that shareholders vote "FOR" approval of the merger agreement.
This discussion of information and factors considered by Citizens National
Bank's Board of Directors does not list every factor considered by the Board but
includes all material factors considered by the Board. In reaching its
determination to approve and recommend the merger, the Citizens National Bank
Board did not give relative or specific importance to the factors listed above,
and individual directors may have given differing importance to different
factors.
INTEREST OF CERTAIN CITIZENS NATIONAL BANK DIRECTORS AND EXECUTIVE OFFICERS IN
THE MERGER
When considering the recommendations of Citizens National Bank's Board of
Directors, you should know that the members of Citizens National Bank's Board
and management have interests that may be different from, or may be in conflict
with, your interests. The Board of Directors was aware of these interests
19
<PAGE> 28
when they approved the merger and the merger agreement. Except as described
below, to the knowledge of Citizens National Bank, the executive officers and
directors of Citizens National Bank do not have any material interest in the
merger apart from their interests as shareholders.
It is a condition to the completion of the merger that Community Bank enter
into a five-year consulting agreement with Paul M. Cantwell, Jr., the Chairman
and President of Citizens National Bank. Under this agreement, Mr. Cantwell will
provide consulting services to Community Bank to facilitate the transition of
Citizens National Bank's business and operations to Community Bank, develop new
business opportunities in the market areas served by Citizens National Bank, and
advise Community Bank regarding corporate and business matters. Mr. Cantwell
will serve as a part-time consultant to Community Bank (not to exceed 250 hours
of services per year), and will be paid $50,000 per year. This amount is paid on
a "grossed-up" basis for any Medicare and social security taxes (but not
Federal, state or local income taxes) payable by Mr. Cantwell on the amount.
This means that in effect Community Bank System will pay his Medicare and social
security taxes.
Community Bank System also agreed to pay the premiums for a life insurance
policy for Mr. Cantwell's beneficiaries. This policy must provide coverage for
no less than the remaining payments under the consulting agreement. Finally,
Community Bank System will make available health insurance coverage for Mr.
Cantwell and his spouse on the same basis as its employees until age 65 and,
thereafter, on the same basis as other retirees of Community Bank System.
Community Bank System and Community Bank have agreed to expand the size of
their Boards of Directors by one director after the merger, and appoint Mr.
Cantwell to fill the spots. Mr. Cantwell's appointment is intended to provide
the continuation of a former director of Citizens National Bank who is familiar
with Citizens National Bank and its business, operations, customers and
employees.
Mr. Cantwell's law firm, Cantwell & Cantwell, has provided legal services
to Citizens National Bank. It is expected that, after the merger, Cantwell &
Cantwell will become an approved services provider for Community Bank and will
continue to provide legal services to Community Bank for certain banking matters
in Clinton and Franklin Counties. Please see "Certain Information Concerning
Paul M. Cantwell, Jr." on page [ ] for details on amounts paid by Citizens
National Bank to Cantwell & Cantwell in the past.
In the merger agreement, Community Bank System has agreed to appoint all of
the existing directors of Citizens National Bank (other than Mr. Cantwell) to a
newly formed advisory council. The purpose of the advisory council is to advise
Community Bank on banking activities in Citizens National Bank's market areas,
the transition of business relationships after the merger, and the continued
development of business relationships throughout Northern New York State.
In return for serving on this council for two years, members will receive
1,000 shares of Community Bank System common stock. These shares will be
"restricted" shares which will "vest" over two years. This means that 500 shares
will become vested after the first year after the merger and the remaining 500
shares will be vested on the second anniversary of the merger. Until the
restricted shares are vested, they will be cancelled automatically if their
owner no longer serves on the advisory council for any reason. After two years,
members of the advisory council who are then age 70 (which is Community Bank
System's mandatory retirement age) or older will no longer serve on the council.
Members of the advisory council who continue to serve after the second
anniversary of the merger will be entitled to receive an additional 250 shares
of restricted stock of Community Bank per year. These restricted shares will
also "vest" over two years. After the fourth anniversary of the merger,
Community Bank System Board will have the sole discretion to either continue or
discontinue the advisory council.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the completion of the merger, each issued and outstanding share of
Citizens National Bank common stock, other than shares held by shareholders who
have properly exercised their dissenters' rights, will convert into a right to
receive 1.7 shares of Community Bank System common stock. This exchange ratio is
fixed and will not be adjusted before the merger unless Community Bank System
changes the number of outstanding its
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common stock before the merger through any stock split, recapitalization,
reclassification or other similar change. In that case, the exchange ratio will
be appropriately adjusted.
No fractional shares will be issued in the merger. Instead, all fractional
shares will be rounded to the nearest whole number.
In the merger, Community Bank System expects to issue shares of its common
stock held in treasury to the extent then available, and all remaining shares
will be authorized and newly issued shares of its common stock. All of the
shares to be issued in the merger will be registered under the Securities Act of
1933, whether they are treasury shares or newly issued shares.
You may obtain current market quotation for the Community Bank System
common stock from a number of sources. We expect the market price of the
Community Bank System common stock will fluctuate between the date of this
document and the date of the completion of the merger and after the merger.
Therefore, the value of the shares of Community Bank System common stock that
you may receive in the merger may increase or decrease prior to and after the
merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Generally. The following discussion addresses the material Federal income
tax considerations of the merger that are generally applicable to you as
Citizens National Bank shareholders. The following discussion does not deal with
all Federal income tax considerations that may be relevant to certain Citizens
National Bank shareholders in light of their particular circumstances, such as
shareholders who:
- are dealers in securities;
- are insurance companies or tax-exempt organizations;
- are subject to alternative minimum tax;
- hold their shares as part of a hedge, straddle or other risk reduction
transaction;
- are foreign persons;
- dissent from the merger (see "Federal Income Tax Treatment of Dissenters"
on page [ ]); or
- acquired their Citizens National Bank common stock through stock options
or otherwise as compensation.
In addition, it does not address the tax consequences of the merger under
foreign, state, or local tax laws or the tax consequences of transactions
completed before or after the merger, such as the exercise of options or rights
to purchase Citizens National Bank common stock in anticipation of the merger.
The following discussion is based on the Internal Revenue Code, applicable
Treasury Regulations, judicial decisions, and administrative rulings and
practice, all as of the date of this document, all of which are subject to
change. Any change could be applied to transactions that were completed before
the change, and could affect the accuracy of the statements and conclusions in
this discussion and the tax consequences of the merger to Community Bank System,
Citizens National Bank and you.
Neither Citizens National Bank nor Community Bank System has requested or
will request a ruling from the Internal Revenue Service with regard to any of
the tax consequences of the merger. PricewaterhouseCoopers LLP, Community Bank
System's independent auditors, has rendered its opinion as of the date of this
document and, as a condition to the completion of the merger, will again render
an updated opinion at the closing of the merger, to Citizens National Bank and
Community Bank System, to the effect that:
- the merger constitutes a tax-free "reorganization" within the meaning of
Section 368(a)(1)(A);
- the merger will not result in the recognition of gain or loss for federal
income tax purposes to Citizens National Bank, Community Bank System or
Community Bank System;
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- you will not recognize gain or loss with respect to shares of Community
Bank System common stock received in the merger;
- your total tax basis in the Community Bank System common stock issued in
the merger will be the same as the total tax basis of your shares of
Citizens National Bank common stock exchanged in the merger;
- your holding period in the Community Bank System common stock issued in
the merger will include the period during which you held the Citizens
National Bank common stock exchanged in the merger, provided that you
held the Citizens National Bank common stock as capital assets on the
effective date of the merger.
The opinions that are to be rendered will be based upon the assumption that
the merger will take place in the manner described in the merger agreement. The
tax opinions will also assume the truth and accuracy of certain factual
representations that have been made by Citizens National Bank and Community Bank
System which are customarily given in transactions of this kind.
Federal Income Tax Treatment of Dissenters. If you effectively dissent
from the merger and receive cash for your shares, you will recognize a gain (or
loss) for federal income tax purposes equal to the amount by which the cash
received for those shares exceeds, or is less than, your tax basis for the
shares. The amount of that gain (or loss), if any, will be treated as ordinary
income (or loss) or long-term or short-term capital gain (or loss) depending on
the length of time you held the shares, whether you held the shares as a capital
asset, and whether you actually own Community Bank System common stock or are
deemed to own shares of Citizens National Bank common stock or Community Bank
System common stock pursuant to the applicable constructive ownership rules. In
certain circumstances, you can be deemed for tax purposes to own shares that are
actually owned by a non-dissenter that is related to you, or to own shares of
Community Bank System common stock, with the possible result that the cash
received upon the exercise of your rights could be treated as a dividend
received pursuant to a corporate distribution rather than as an amount received
pursuant to a sale or exchange of Citizens National Bank common stock.
Caveat. You should recognize that opinions of PricewaterhouseCoopers (or
any other firm retained by the parties to render similar opinions) are not
binding on the Internal Revenue Service or the courts. If the Internal Revenue
Service were to assert successfully that the merger is not a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code, then each of
you would be required to recognize gain or loss equal to the difference between
(1) the fair market value of all Community Bank System common stock received in
the merger and (2) your tax basis in the Citizens National Bank common stock
surrendered in the merger. If this were to occur, your total initial tax basis
in the Community Bank System common stock received would be equal to its fair
market value, and your holding period for the Community Bank System common stock
would begin the day after the merger. The gain or loss would be a long-term
capital gain or loss if your holding period for the Citizens National Bank
common stock was more than one year and the Citizens National Bank common stock
was a capital asset in your hands.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF ALL
POTENTIAL TAX CONSEQUENCES OF THE MERGER THAT MAY BE RELEVANT TO A PARTICULAR
CITIZENS NATIONAL BANK SHAREHOLDER. YOU ARE URGED TO CONSULT WITH YOUR OWN TAX
ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL, AND OTHER TAX LAWS.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the purchase method of accounting
for reporting purposes under generally accepted accounting principles. Under
this method of accounting, the purchase price will be
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allocated to assets acquired and liabilities assumed based upon their estimated
fair values as of the consummation of the merger. Deferred tax assets and
liabilities will be adjusted for the difference between the tax basis of the
assets and liabilities and their estimated values. The excess, if any, of the
total acquisition cost over the sum of the assigned fair values of the tangible
and identifiable intangible assets acquired less liabilities assumed will be
recorded as goodwill. Goodwill will be amortized over periods of up to 15 years
as charges to Community Bank System's earnings.
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THE MERGER AGREEMENT
EXCHANGE OF CERTIFICATES
Community Bank System will deposit with American Stock Transfer & Trust
Company, the transfer agent for its common stock and the exchange agent for the
merger, certificates representing the shares of Community Bank System common
stock to be issued in the merger.
As soon as practicable after the date on which the merger becomes
effective, the exchange agent will mail to each record holder of a certificate
formerly representing Citizens National Bank common stock (other than those who
exercised their dissenters' rights) a form of letter of transmittal to be used
for the exchange of the stock certificates. The letter of transmittal and the
accompanying materials will explain the procedures to be followed for the
exchange. After a Citizens National Bank shareholder surrenders to the exchange
agent for exchange and cancellation his or her Citizens National Bank
certificate(s), together with a duly executed letter of transmittal, the
exchange agent will mail back a certificate representing the number of shares of
Community Bank System the shareholder is entitled to receive in the merger. No
interest will be paid to former shareholders of Citizens National Bank in
connection with the exchange of certificates.
Merger agreement provides that certificates surrendered for exchange by any
person who is an "affiliate" of Citizens National Bank at the time of the
Special Meeting will not be exchanged for certificates representing shares of
Community Bank System issued in the merger until Community Bank System has
received a written agreement from him or her concerning compliance with Rule 145
under the Securities Act. See "Resales of Community Bank System Common Stock" on
page [ ].
If any certificate formerly representing Citizens National Bank common
stock is lost, stolen or destroyed, Community Bank System can require its holder
to give an affidavit to that effect and to post a bond in an amount that
Community Bank System may reasonably direct as indemnity against any claim that
may be made with respect to the certificate. Once these requirements have been
satisfied, the exchange agent will issue a certificate representing an
appropriate number of shares of Community Bank System.
YOU SHOULD NOT RETURN YOUR CERTIFICATES REPRESENTING SHARES OF CITIZENS
NATIONAL BANK COMMON STOCK WITH THE ENCLOSED PROXY. THE STOCK CERTIFICATES
SHOULD ONLY BE FORWARDED TO THE EXCHANGE AGENT WITH THE LETTER OF TRANSMITTAL
AND ELECTION FORM, WHICH YOU WILL RECEIVE AFTER THE COMPLETION OF THE MERGER.
Declaration of dividends by Community Bank System after the merger will
include dividends on all Community Bank System common stock issued in the
merger, but no dividend or other distribution payable to the holders of record
of Community Bank System common stock at or as of any time after the completion
of the merger will be paid to the former Citizens National Bank shareholders
until they physically surrender all certificates as described above, and no
interest will be paid on any dividend or distribution. After the completion of
the merger, the stock transfer books of Citizens National Bank will close and
there will be no more transfers on the transfer books of Citizens National Bank.
If any certificates formerly representing shares of Citizens National Bank
common stock are presented for transfer after the merger, those certificates
will be cancelled and exchanged for certificates representing Community Bank
System common stock, as provided in the merger agreement.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Citizens National Bank, Community Bank System and
Community Bank each makes customary representations and warranties about
themselves concerning various business, legal, financial, regulatory and other
pertinent matters.
The representations and warranties made by each party will not survive
after the merger. Under certain circumstances, Citizens National Bank or
Community Bank may decline to complete the merger if the inaccuracy of the other
party's representations and warranties has a material adverse effect on the
other party.
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CONDITIONS TO THE MERGER
Mutual Conditions. Before either Citizens National Bank or Community Bank
System will be obligated to complete the merger, the following conditions must
have been satisfied:
- the Citizens National Bank shareholders approve the merger, and all other
corporate action necessary on the part of each party to authorize the
merger are taken;
- the parties receive all approvals or consents required by law or mutually
deemed necessary from any applicable governmental agency, all applicable
notice or waiting periods under all laws expire, and all conditions
contained in the approvals or consents, if any, are satisfied;
- the Securities and Exchange Commission declares effective the
registration statement covering the Community Bank System common stock to
be issued in the merger, and the registration statement is not the
subject of any stop order or any actual or threatened proceeding seeking
a stop order;
- Community Bank System receives all necessary authorizations and permits
from state securities agencies or commissions for the issuance of its
common stock in the merger, or confirms that no authorizations or permits
are required;
- to the extent that any contract or agreement of Citizens National Bank
requires the consent of or waiver from any other party because of the
merger, Citizens National Bank receives the consent or waiver unless the
failure to receive the same will not have a material adverse effect on
Citizens National Bank;
- there is no order, decree or injunction in effect which prohibits the
completion of the merger;
- the New York Stock Exchange lists the Community Bank System common stock
to be issued to the Citizens National Bank shareholders in the merger,
subject to official notice of issuance;
- PricewaterhouseCoopers LLP, Community Bank System's independent auditors
(or any other firm acceptable to the parties), delivers an opinion to
Citizens National Bank and Community Bank System to the effect that the
merger will qualify as a tax-free reorganization under Section 368 of the
Internal Revenue Code, and as to certain other related matters; and
- Community Bank enters into a consulting agreement with Paul M. Cantwell,
Jr., the Chairman and President of Citizens National Bank, on terms
specified in the merger agreement. Please see "Interests of Certain
Citizens National Bank Directors and Executive Officers in the Merger" on
page [ ] for more details of this consulting agreement.
Conditions to Obligations of Citizens National Bank. Before Citizens
National Bank will be obligated to complete the merger, the following additional
conditions must have been satisfied:
- the representations and warranties of Community Bank System and Community
Bank contained in the merger agreement are true in all material respects
on the date of the merger agreement and on the closing date. The
representations and warranties may contain inaccuracies if, taken
together, they would not have a material adverse effect on Community Bank
System;
- Community Bank System and Community Bank have materially performed their
obligations under the merger agreement which are intended to be performed
before the closing; and
- Community Bank System and Community Bank have delivered a customary
closing certificates as to the above two matters.
Conditions to Obligations of Community Bank System and Community
Bank. Before Community Bank System and Community Bank will be obligated to
complete the merger, the following additional conditions must have been
satisfied:
- the representations and warranties of Citizens National Bank contained in
the merger agreement are true in all material respects on the date of the
merger agreement and on the closing date. The
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representations and warranties may contain inaccuracies if, taken
together, they would not have a material adverse effect on Citizens
National Bank;
- Citizens National Bank has materially performed its obligations under the
merger agreement which are intended to be performed before the closing;
- Citizens National Bank has delivered a customary closing certificates as
to the above two matters; and
- Citizens National Bank shareholders have not exercised their dissenter's
rights with respect to more than 7.5% of the outstanding shares of
Citizens National Bank common stock.
Unless prohibited by law, any of the conditions to the merger may be waived
by the applicable party. As described below, if these conditions are not
satisfied or waived, the parties may have a right to terminate the merger
agreement under certain circumstances.
TERMINATION
The merger agreement may be terminated by either party at any time before
the completion of the merger if:
- the parties consent in writing to the termination;
- the other party materially breaches, and does not cure within 30 days,
any of the representations or warranties or any covenant or agreement it
has made under the merger agreement and the breach entitles the party
seeking to terminate to not complete the merger.
- the parties are not able to obtain required governmental approvals, and
all appeals and requests for reconsideration have been exhausted;
- any governmental entity issued a final and non-appealable order to
prohibit the completion of the merger;
- Citizens National Bank shareholders do not approve the merger agreement
at the Special Meeting; or
- the merger is not completed before March 31, 2001, unless the merger was
not completed because the party seeking to terminate breached a covenant
or obligation of the merger agreement.
If the merger agreement is terminated pursuant to its terms, the merger
agreement will become void and have no effect, except with respect to the
parties' obligations regarding confidential information and expenses as set
forth in the merger agreement. Termination under the second bullet point above
will not relieve the breaching party from liability for its uncured, willful
breach.
CONDUCT OF BUSINESS PRIOR TO COMPLETION OF THE MERGER; COVENANTS
The merger agreement provides that, during the period from the date of the
merger agreement (September 26, 2000) to the completion of the merger, Community
Bank System and Citizens National Bank will each use its reasonable efforts to
maintain its properties, business and relationships with customers, employees
and others. During the same period, other than as set forth in the merger
agreement, Citizens National Bank has agreed to refrain from taking any of the
following actions, among others, without the prior written consent of Community
Bank System (which consent may not be unreasonably withheld):
- conduct its business other than in the ordinary course, substantially
consistent with past practice, or become responsible for obligations of
more than $25,000 or which requires performance over one year or longer
(other than loans and investments booked in ordinary course);
- declare or pay any dividend or make any distribution on any of its stock,
other than a semiannual regular dividend of $0.50 per share or less;
- issue any of its stock or cause any of its treasury shares to become
outstanding;
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- incur additional debt or other obligation for borrowed money, except in
the ordinary course of business consistent with past practice;
- issue or authorize any rights to acquire its stock or any rights related
to its stock;
- effect any recapitalization, reclassification, stock dividend, stock
split or similar transaction, or repurchase or reacquire any of its
stock;
- amend its articles of association or bylaws;
- create or permit any lien or encumbrance on its stock;
- merge or consolidate with any other entity, or acquire control of any
other entity or create a subsidiary;
- waive, cancel or compromise any material right, debt or claim other than
in the ordinary course of business consistent with past practice with
prior notice to Community Bank System;
- sell or dispose of, or acquire, any assets with a value of more than
$25,000, other than in foreclosure or in similar proceedings;
- make total capital expenditures of more than $25,000;
- open or close branches or facilities, or enter into or modify any leases
or contracts relating to its branches or facilities;
- increase compensation of, or pay or provide bonus or other benefits to,
its employees or directors, except in a manner consistent with past
practice or as required by law or existing contracts;
- change its material banking policies except as required by law;
- change its accounting methods or tax reporting methods, unless required
by generally accepted accounting principles or by law; or
- take or agree to take any other action which would interfere with or
delay the merger or make the merger more costly.
Until the merger is completed, except as set forth in the merger agreement
or as consented to in writing by Citizens National Bank, Community Bank has
agreed to conduct its business in the ordinary course and substantially
consistent with past practice. Furthermore, Community Bank System has agreed
that, until the merger is completed, it will not take actions to increase the
number of outstanding shares of its common stock by more than 50,000 shares
without the consent of Citizens National Bank.
The merger agreement also contains certain other agreements relating to the
conduct of the parties pending the merger, including among others those
requiring the parties to:
- cooperate with each other to take all actions required to comply with all
legal requirements and any rules of the New York Stock Exchange to
complete the merger, and to apply for and obtain all regulatory and third
party consents and approvals required to complete the merger;
- consult with each other regarding the content of any press release or
other public disclosure relating to the merger, unless the disclosure is
mandated by law or rules of the New York Stock Exchange;
- refrain from taking any action that would adversely affect the
qualification of the merger as a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
- furnish the other party such financial data and other information
concerning the furnishing party as may be reasonably requested from time
to time;
- refrain from taking any actions that would cause the merger to be subject
to any "Takeover Laws," and if the merger is or becomes subject to any
Takeover Laws, to take all actions within its control to exempt the
merger from Takeover Law. "Takeover Law" means any legal requirement
pertaining to mergers, business combinations, sale of control, affiliate
transactions or antitrust laws or regulations; and
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- use their reasonable best efforts in good faith to take or cause to be
taken actions necessary or desirable to complete the merger on the
earliest possible date.
Citizens National Bank agreed to call and hold a special meeting of its
shareholders to approve the merger agreement as soon as practicable and, through
its Board of Directors, to recommend that the shareholders vote in favor of the
approval of the merger agreement, subject to the Board's fiduciary duties.
To the extent permitted by law, Citizens National Bank also agreed to
assist Community Bank in preparing for the integration of Citizens National
Bank's business and operations with those of Community Bank after the merger.
The parties agreed, however, that the confidentiality of customer information
will be maintained until the completion of the merger. Consistent with generally
accepted accounting principles and on a mutually acceptable basis, Citizens
National Bank will modify its loan, litigation and real estate valuation
policies and practices so as to be consistent with those of Community Bank
before the merger.
NO SOLICITATION OF TAKEOVER PROPOSALS
Under the terms of the merger agreement, Citizens National Bank has agreed
not to directly or indirectly solicit, initiate or encourage any "Takeover
Proposals." A "Takeover Proposal" is any proposal or offer to acquire Citizens
National Bank (through a tender offer, merger, consolidation or other business
combination) or a substantial equity interest in Citizens National Bank, or a
substantial portion of Citizens National Bank's assets.
In addition, Citizens National Bank has agreed not to negotiate, discuss or
furnish nonpublic information with or to any third party in connection with a
Takeover Proposal or otherwise facilitate the efforts of any third party with
respect to a Takeover Proposal, or recommend or endorse any Takeover Proposals,
unless required to discharge the fiduciary duties of Citizens National Bank's
Board of Directors. If Citizens National Bank becomes aware of or receives a
Takeover Proposal, it must immediately notify Community Bank System of that fact
and the details of the Takeover Proposal. Citizens National Bank must also
inform the person making a Takeover Proposal of Citizens National Bank's
obligations under the merger agreement with respect to Takeover Proposals.
FEES AND EXPENSES; REIMBURSEMENT OF EXPENSES
Each party will pay its own expenses in connection with the merger, except
that Community Bank System and Citizens National Bank will share equally all
filing fees due the Securities and Exchange Commission in connection with the
merger and all costs associated with the printing and mailing of this document.
If, within 12 calendar months following the termination of the merger
agreement, any third party enters into an agreement with Citizens National Bank:
- to merge or consolidate or effect any similar transaction with Citizens
National Bank;
- to acquire all or substantially all of the assets of Citizens National
Bank; or
- to acquire beneficial ownership of (or the right to acquire beneficial
ownership or to vote) 25% or more of the outstanding shares of Citizens
National Bank common stock;
then Citizens must immediately reimburse Community Bank System for its and
Community Bank's costs and expenses, including professional fees and expenses,
relating to the merger, up to a maximum of $75,000. Citizens National Bank,
however, will not be required to reimburse Community Bank System unless the
merger agreement was terminated by Community Bank System because:
- Citizens National Bank breached the merger agreement and did not cure the
breach within 30 days after given notice of it; or
- the merger did not close before March 31, 2001 due to Citizens National
Bank's failure to perform or observe its obligations under the merger
agreement.
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EMPLOYEES AND EMPLOYEE BENEFITS
Community Bank System intends to keep open all existing customer facilities
of Citizens National Bank after the merger. In addition to job opportunities in
Citizens National Bank's five branches, employees will have an opportunity to
apply for positions at other Community Bank branches and operation centers
through an internal job posting system.
In determining eligibility and vesting for employee benefits programs
maintained by Community Bank System, it has agreed to credit current employees
of Citizens National Bank who become employees of Community Bank System as a
result of the merger for past service with Citizens National Bank. Under the
merger agreement, employees of Citizens National Bank who are currently provided
post-retirement health benefits will be eligible for post-retirement health
insurance benefits under Community Bank's health insurance program on the same
basis as employees of Community Bank. Citizens National Bank has agreed to
cooperate with Community Bank System to coordinate the post-merger integration
or transition of employee benefit programs maintained by each of them before the
effectiveness of the merger. Community Bank System expects to periodically
review its employee benefit programs after the merger, and the merger agreement
does not limit Community Bank System's ability to make changes to the programs
as it deems appropriate.
INDEMNIFICATION
In the merger Agreement, Community Bank System agreed to provide
indemnification to the current or former directors, officers and employees of
Citizens National Bank and to provide, for at least four years following the
merger, directors' and officers' liability insurance for the directors and
officers of Citizens National Bank, as long as the premiums for the insurance do
not exceed the current premiums expended by Citizens National Bank for similar
coverage.
DIVIDENDS
The parties agreed to coordinate the declaration and payment of cash
dividends by Community Bank System and Citizens National Bank on their
respective common stock, to ensure that you will receive a cash dividend for
each calendar quarter from either Community Bank System or Citizens, but not
from both. This coordination is necessary because Citizens National Bank
currently declares its regular cash dividends on a biannual basis (twice a year)
while Community Bank System currently declares its regular cash dividends on a
quarterly basis (four times a year).
For example, assuming that Citizens National Bank and Community Bank System
continue to declare and pay their regular cash dividends, and that the merger is
completed in year 2000:
- if the merger is to be completed before the record date for Community
Bank System's fourth quarter dividend for year 2000:
- Citizens National Bank will declare before the merger a special cash
dividend for the third quarter of year 2000 (which will be in an amount
that is one-half of its regular biannual dividend); and
- after the merger, you will receive Community Bank System's fourth
quarter dividend.
- if the merger is to be completed after the record date for Community Bank
System's fourth quarter dividend for year 2000:
- you will receive a regular biannual dividend from Citizens National Bank
for the second-half of year 2000; and
- you will not be entitled to receive any cash dividend from Community
Bank System for the fourth quarter of year 2000.
If the merger is not completed before the end of year 2000, similar
arrangements will be made for the subsequent periods. We cannot assure you that
Citizens National Bank and Community Bank System will continue to declare and
pay their regular cash dividends or any other cash dividends.
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AMENDMENT AND WAIVER
Subject to the applicable law, the merger agreement may be amended at any
time before completion of the merger if approved by the respective Boards of
Directors or authorized officers of the parties. Before completion of the
merger, except as prohibited by law, any provision of the merger agreement may
be waived by the party for whose benefit the provision was intended. However,
after the approval of the merger agreement by the Citizens National Bank
shareholders, no amendment or waiver may change the type or amount of
consideration to be received by Citizens National Bank shareholders in the
merger, without obtaining further shareholder approval on the modified term of
the merger agreement. The merger agreement provides that any amendment to it
must be signed by all of the parties, and that any waiver must be signed by an
executive officer of the party giving the waiver.
VOTING AGREEMENTS WITH DIRECTORS OF CITIZENS NATIONAL BANK
Community Bank System has entered into an agreement with each director of
Citizens National Bank. Pursuant to the agreement, each director of Citizens
National Bank has agreed to vote all of his or her shares of Citizens National
Bank common stock (and cause to be voted shares owned by certain related parties
of the director) in favor of the merger agreement at the Special Meeting. The
agreement also restricts the transfer of the Citizens National Bank common stock
before the merger, and contains provisions ensuring compliance with Rule 145
under the Securities Act. James B. Cantwell, a shareholder of Citizens National
Bank, has also signed a similar agreement.
RESALES OF COMMUNITY BANK SYSTEM COMMON STOCK
The shares of Community Bank System common stock to be issued to you in the
merger will be registered under the Securities Act. These shares may be traded
freely and without restrictions by you if you are not an "affiliate" of Citizens
National Bank at the time of the Special Meeting. As defined by the Securities
Act, an affiliate of Citizens National Bank is any person or entity that
directly or indirectly controls, is controlled by or is under common control
with Citizens National Bank. Affiliates generally include directors, executive
officers and 10% or greater shareholders of Citizens National Bank. Under most
circumstances, affiliates must comply with Rule 145 under the Securities Act
before selling any Community Bank System common stock they receive in the
merger.
Under Rule 145, during the one-year period after the completion of the
merger, affiliates of Citizens National Bank may resell shares of Community Bank
System common stock received by them in the merger only through unsolicited
"brokers transactions" or in transactions directly with a "market maker," as
those terms are defined in Rule 144 under the Securities Act. In addition,
during this one-year period after the merger, the number of shares to be sold by
an affiliate (together with certain related persons) may not exceed the greater
of:
- 1% of the total number of the outstanding shares of Community Bank System
common stock; or
- the average weekly trading volume of Community Bank System common stock
during the four calendar weeks preceding the proposed sale.
After the end of one year from the merger, an affiliate would be able to
sell Community Bank System common stock received in the merger without the
requirements or limitations described above, provided that Community Bank System
was current with its periodic filings with the Securities and Exchange
Commission. Two years after the merger, an affiliate would be able to sell the
shares of Community Bank System common stock received in the merger without any
restrictions.
In addition, persons who become affiliates of Community Bank System may
resell shares of Community Bank System common stock issued in the merger,
subject to similar limitations and certain filing obligations specified in Rule
144.
Each director of Citizens National Bank has signed an agreement which
contains provisions intended to ensure compliance with the Securities Act and
Rule 145. In addition, Citizens National Bank agreed to use its
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<PAGE> 39
best efforts to cause any other person who is identified as an "affiliate" of
Citizens National Bank for purposes of Rule 145 to deliver to Community Bank
System, no later than 30 days before the completion of the merger, an agreement
to comply with the Securities Act and Rule 145.
NEW YORK STOCK EXCHANGE LISTING
Community Bank System has agreed to make an application to list the shares
of its common stock to be issued in the merger on the New York Stock Exchange.
The stock must be authorized for listing on the New York Stock Exchange for the
merger to be completed.
REGULATORY APPROVALS AND NOTICES FOR THE MERGER
Under the merger agreement, Citizens National Bank and Community Bank
System have agreed to submit applications for all necessary regulatory approvals
of the merger and to give all requisite notices to governmental agencies
regarding the merger. These include approvals of and notices to the Comptroller
of the Currency and the Federal Reserve Board.
The closing of the merger is conditioned upon the receipt of all approvals
of regulatory authorities required for the merger, the expiration of all notice
periods and waiting periods after the grant of regulatory approvals, and the
satisfaction of all conditions contained in any regulatory approvals.
The Comptroller of the Currency. The merger is subject to approval by the
Comptroller of the Currency because Citizens National Bank and Community Bank
are both national banks, and the Comptroller of the Currency has primary
jurisdiction over this bank merger. Community Bank filed the application for
approval of the Comptroller of the Currency on October 13, 2000. As of the date
of this document, we have not received this approval.
Any approval by the Comptroller of the Currency will be subject to the
receipt of approval of the merger agreement by the Citizens National Bank
shareholders. In addition, the merger may not be completed until the 15th day
following the date of the approval by the Comptroller of the Currency. During
this 15-day period, the United States Department of Justice may comment
adversely on the merger or challenge the merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the
Comptroller of the Currency approval unless a court specifically orders
otherwise.
You should be aware that the approval by Comptroller of Currency:
- reflects only its view that the merger does not contravene applicable
competitive standards imposed by law and is consistent with regulatory
policies relating to safety and soundness;
- is not an opinion of the Comptroller of Currency that the merger is
financially favorable to the Citizens National Bank shareholders or that
the Comptroller of Currency has considered the adequacy of the terms of
the merger; and
- IS NOT AN ENDORSEMENT OF OR RECOMMENDATION FOR THE MERGER.
Federal Reserve Board. The merger of Citizens National Bank and Community
Bank is subject to the approval of the Federal Reserve Board under Section 3 of
the Bank Holding Company Act. Pursuant to 12 CFR 225.12, the merger is eligible
for an expedited review process which requires Community Bank System to file
certain information with the Federal Reserve Board at least 10 days prior to the
consummation of the merger. Community Bank System made this filing on October
[], 2000.
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<PAGE> 40
ADDITIONAL INFORMATION CONCERNING CITIZENS NATIONAL BANK
PRINCIPAL SHAREHOLDERS
The following table provides information regarding the beneficial ownership
of Citizens National Bank common stock as of October 15, 2000 by each director
and executive officer of Citizens National Bank, each shareholder known to own
five percent or more of Citizens National Bank common stock, and all of the
Citizens National Bank directors and executive officers as a group. Unless
otherwise indicated in the footnotes to this table and subject to community
property laws where applicable, Citizens National Bank believes that each of the
persons named in the table has sole voting power and investment power with
respect to the shares indicated as beneficially owned by them. Percentage
ownership is based on 560,000 shares of Citizens National Bank common stock
outstanding on October 15, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME AND ADDRESS BENEFICIALLY OWNED OUTSTANDING STOCK
---------------- ------------------ -----------------
<S> <C> <C>
Lyndon Baker................................ 9,000(1) 1.6%
Paul M. Cantwell, Jr........................ 45,660(2) 8.2
James B. Cantwell(3)........................ 44,947 8.0
Allen K. Child.............................. 1,800(4) *
Lynn A. Dufort.............................. 570 *
John Glazier................................ 760(5) *
Jack K. Hinman.............................. 9,100(6) 1.6
John W. Johnson............................. 650 *
Forrest Kimball(7).......................... 70 *
Ralph Kriff................................. 2,030 *
James McKee, III............................ 8,400(8) 1.5
Patricia Prue(7)............................ 2,700 *
Directors and executive officers as a group
(11 persons).............................. 80,740(9) 14.4
</TABLE>
---------------
* Less than 1%
(1) Includes 3,000 shares owned by Mr. Baker's wife.
(2) Includes 3,000 shares owned by Mr. Cantwell's wife and 450 shares owned by
Mr. Cantwell's daughter. Also includes 6,240 shares owned by a trust for the
benefit of an unrelated third party, for which trust Mr. Cantwell serves as
trustee. Mr. Cantwell disclaims beneficial ownership of the shares owned by
his daughter or the trust.
(3) The business address of Mr. Cantwell is c/o Department of Transportation,
Building 5, State Campus, Albany, New York 12232.
(4) Includes 200 shares owned by Mr. Child's wife.
(5) Includes 100 shares owned by Mr. Glazier's wife.
(6) Includes 2,300 shares owned by Mr. Hinman's wife.
(7) Mr. Kimball and Ms. Prue are executive officers of Citizens National Bank.
(8) Includes 200 shares owned by Mr. McKee's children and a total of 5,400
shares owned by trusts for the benefit of unrelated third parties, for which
trusts Mr. McKee serves as trustee. Mr. McKee disclaims beneficial ownership
of the shares owned by his children or the trusts.
(9) See the above notes.
CERTAIN INFORMATION CONCERNING PAUL M. CANTWELL, JR.
Following completion of the merger, Paul M. Cantwell, Jr., the Chairman and
President of Citizens National Bank, will be elected to the Board of Directors
of Community Bank System and Community Bank.
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<PAGE> 41
Mr. Cantwell, age 58, has served as a director of Citizens National Bank since
1973 and as its President and Chairman of the Board since 1983. He is also the
owner of the law firm of Cantwell & Cantwell, located in Malone, New York. Mr.
Cantwell currently serves as a trustee of Paul Smith's College of Arts and
Sciences, a private four-year college located in the Adirondacks at Paul Smiths,
New York. He is also the Northern Region Vice President of the Adirondack North
Country Association, a not-for-profit corporation which promotes economical
development in a 14 County area in Upstate New York.
The following table presents amounts of compensation paid by Citizens
National Bank to Mr. Cantwell for each of the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)
--------------------------- ---- -------------------
<S> <C> <C>
Paul M. Cantwell, Jr.(1).......................... 1999 $42,000
President and Chairman of the Board 1998 $38,000
1997 $36,000
</TABLE>
---------------
(1) Effective January 1, 2000, Mr. Cantwell receives base annual salary of
$72,000.
During the last three completed fiscal years, Mr. Cantwell did not receive
any bonus or other compensation (including any equity-based compensation) from
Citizens National Bank for his services as an officer or employee, other than as
set forth in the above table. During the same period, each director of Citizens
National Bank, including Mr. Cantwell, was paid a director's fee of $9,600 per
year. Effective January 1, 2000, the director's fee was increased to $12,000 per
year.
Mr. Cantwell is the owner of a law firm, Cantwell & Cantwell, which has
provided legal services to Citizens National Bank. Citizens National Bank paid
Cantwell & Cantwell approximately $94,000 during calendar 1999 and approximately
$76,000 during calendar 1998 for legal services rendered. Through the first nine
months of calendar 2000, Citizens National Bank has paid Cantwell & Cantwell
approximately $13,000 for legal services and, in addition, it is estimated that
approximately $50,000 in unbilled legal services were rendered during that
period. These amounts include legal fees paid by borrowers for a review on
behalf of Citizens National Bank by Cantwell & Cantwell of loan applications and
related documentation, but do not include legal fees paid by customers of
Citizens National Bank who separately retain Cantwell & Cantwell to close their
residential mortgages or commercial loans with Citizens National Bank.
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<PAGE> 42
DISSENTING SHAREHOLDERS' RIGHTS
GENERAL
If you do not wish to accept 1.7 shares of Community Bank System common
stock offered for each of your shares of Citizens National Bank as part of the
merger, you have the right to dissent from the merger under Section 215a of
Title 12 of the United States Code. If you dissent you have the right to seek an
appraisal of your shares if you comply with the relevant provisions of Section
215a.
The following is intended as a brief summary of the procedures you must
follow in order to dissent from the merger and obtain appraisal rights. This
summary is not a complete statement of all requirements and we strongly
recommend that you read carefully the complete text of Section 215a which is set
forth in Annex B. If you fail to follow the steps required by Section 215a for
obtaining appraisal rights you may lose these rights. If you do wish to dissent
from the merger and seek appraisal of your shares you should consult a legal
advisor.
WHO MAY EXERCISE APPRAISAL RIGHTS
Generally only the registered holder of the Citizens National Bank common
stock has appraisal rights. The registered holder is the person whose name
appears on the stock certificate. If you are not the registered holder, you may
still request appraisal on behalf of a registered owner in limited
circumstances, such as in a fiduciary capacity or as an authorized agent. The
request must clearly identify and state the registered owner's name as it
appears on his or her stock certificate(s) and, if you are making the request on
behalf of the registered owner, you must also disclose that you are the
registered owner's agent and are acting on his or her behalf.
If you are the beneficial owner and not the registered holder, you must
have the registered owner submit the required demand in respect of such shares.
If you have your shares in a brokerage account or in other nominee form and wish
to exercise appraisal rights, you should consult with your broker or other
nominees to determine the appropriate procedures.
If you own shares in a fiduciary capacity, such as a trustee, guardian or
custodian, you may make demand for appraisal in such a capacity on behalf of the
registered owner. Similarly, if you are the authorized agent of the registered
owner, you may request appraisal on the owner's behalf. If the registered holder
is more than one person, such as in a joint tenancy or tenancy in common, demand
must be made by or for all joint owners.
A registered owner, such as a broker, who holds shares as nominee for
others, may exercise his or her right of appraisal with respect to some of the
shares held while not exercising this right for other shares held on behalf of
other beneficial owners. In such case, the written demand should state the
number of shares as to which appraisal is being sought. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
held in the name of such record owner.
ELECTING APPRAISAL RIGHTS
If you are the registered holder of Citizens National Bank common stock or
are acting on behalf of a registered owner and are authorized to do so (as
discussed above), to exercise appraisal rights you must:
- vote against the merger at the Special Meeting, or
- give notice in writing that you want to dissent and deliver the notice to
Patricia Prue, Corporate Secretary of Citizens National Bank, 6 Elm
Street, Malone, New York 12953, at the Special Meeting or before the
Special Meeting.
After satisfying either of the two conditions above, and complying with the
other procedures of Section 215a for the exercise of dissenters' rights, you
will be entitled to receive the value of your shares of Citizens National Bank
common stock as determined in the manner described below. To receive your money
you must make a written request within 30 days after completion of the merger to
Community Bank System. The request should state that you want Community Bank
System to purchase your shares and must be
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<PAGE> 43
accompanied by the stock certificates for which you seek appraisal rights. The
request and stock certificates should be mailed to:
Community Bank System, Inc.
Attn: Donna J. Drengel
5790 Widewaters Parkway
DeWitt, New York 13214
If you fail to comply with any of the above conditions and the merger has
been completed, you may lose your dissenters' right. If this happens, you will
still be entitled to receive Community Bank System common stock for your shares
of Citizens National Bank common stock as provided for in the merger agreement.
DETERMINING VALUE OF DISSENTING SHAREHOLDERS' SHARES
Section 215a(c) outlines the procedure for determining the value of your
shares. The value of your shares will be determined as of the day the merger is
completed, and this determination will be made by a committee of three people.
The committee will consist of:
- one person who is selected by the majority of the shares owned by all
dissenting shareholders;
- one person selected by the Board of Directors of Community Bank System;
and
- one person chosen by the two appraisers selected as provided in the
preceding two bullet points above.
The value of your shares will be the value which two of the three people on
the committee agree upon. If any dissenting shareholder is not satisfied with
this value, that shareholder may appeal to the Comptroller of the Currency
within five days after being notified of the appraised value. The Comptroller of
the Currency must then reappraise the shares. This reappraisal will then be the
final and binding value of all dissenting shares.
If 90 days have passed since completion of the merger and either one or
more of the appraisers has not been selected or the appraisers have not
determined an appraisal value, then any shareholder can make a written request
to the Comptroller of the Currency to make an appraisal. The Comptroller of the
Currency's appraisal will then be final and binding on all parties.
The expenses of the Comptroller of the Currency in making the appraisal or
reappraisal, if applicable, must be paid by Community Bank System. Unless
Community Bank System or the dissenting shareholders seek judicial review of the
appraisal, Community Bank System must promptly pay the appraised value of the
shares to the dissenting shareholders out of the funds deposited in an escrow
account established for that purpose.
The Comptroller of the Currency uses various methods to determine the fair
value of the shares being appraised. If you are considering seeking appraisal,
you should be aware that the fair value of the shares as determined under
Section 215a could be same as, less than or more than, the value of the stock
you would otherwise receive from Community Bank System under the merger
agreement.
Section 215a also requires that Community Bank System must sell all
Community Bank System stock that it would have otherwise delivered to dissenting
shareholders at a public auction. If these shares are then sold for more than
the amount paid to the dissenting shareholders, the excess of the sale price
must be paid to the dissenting shareholders. Community Bank System is entitled
to purchase any of these shares at a public auction if it is the highest bidder
and then sell these shares within 30 days at no less than par value to any
person determined by the Board of Directors of Community Bank System.
DESCRIPTION OF CAPITAL STOCK OF
COMMUNITY BANK SYSTEM
In the merger, you will receive Community Bank System common stock and
become a stockholder of Community Bank System. Community Bank System is a
Delaware corporation subject to the provisions of
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<PAGE> 44
Delaware law. Given below is a summary of the material features of the Community
Bank System common stock. This summary is not a complete discussion of the
charter documents and other instruments of Community Bank System that create the
rights of the shareholders. You are urged to read carefully those documents and
instruments, which have been filed as exhibits to the registration statement of
which this document is a part. Please see "Where You Can Find More Information"
on page [ ] for information on how to obtain copies of those documents and
instruments.
GENERAL
Community Bank System is authorized to issue 20,000,000 shares of common
stock, no par value per share. As of [ ], 2000, [ ]
shares of common stock were issued and outstanding.
Community Bank System's certificate of incorporation also authorizes the
board of directors, without stockholder approval (subject to the rules of the
New York Stock Exchange, if applicable), to issue up to 500,000 shares of
preferred stock, par value $1.00 per share, and to establish the relative
rights, designations, preferences and limitations or restrictions of the
preferred stock. As of the date of this document, there were no shares of
preferred stock outstanding.
COMMON STOCK
Voting Rights. The holders of common stock are entitled to one vote per
share on all matters to be voted on by the stockholders. No stockholders have
cumulative voting rights in the election of directors.
Dividends. Community Bank System may pay dividends as declared from time
to time by the Board of Directors out of funds legally available for dividends,
subject to certain restrictions. The holders of Community Bank System common
stock will be entitled to receive any dividends on the common stock in
proportion to their holdings.
Rights in Liquidation. In the event of a liquidation, dissolution or
winding up of Community Bank System, each holder of Community Bank System common
stock would be entitled to receive, after payment of all debts and liabilities
of Community Bank System and after any required distribution to holders of any
issued and outstanding preferred stock, a pro rata portion of all remaining
assets of Community Bank System.
No Preemptive Rights; No Redemption. Holders of shares of Community Bank
System common stock are not entitled to preemptive rights with respect to any
shares of any capital stock of Community Bank System that may be issued.
Community Bank System common stock is not subject to call or redemption.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAWS PROVISIONS
There are provisions in Community Bank System's certificate of
incorporation, bylaws and stockholder protection rights plan which are intended
to discourage non-negotiated takeover attempts. These provisions are intended to
avoid costly takeover battles and lessen Community Bank System's exposure to
coercive takeover attempts at a unfair price, and are designed to maximize
shareholder value in connection with unsolicited offer takeover attempts. These
provisions, however, could reduce the premium that potential acquirors might be
willing to pay in an acquisition, which may in turn reduce the market price that
investors might be willing to pay in the future for shares of Community Bank
System common stock.
Community Bank System's certificate of incorporation authorizes the board
of directors to issue, without further stockholder approval, up to 500,000
shares of preferred stock with rights senior to those of its common stock,
except as may be required with respect to a particular transaction by applicable
law or by regulatory agencies having jurisdiction over Community Bank System.
The board of directors of Community Bank System is permitted to establish from
time to time the relative rights, designations, preferences and limitations or
restrictions of the preferred stock. The preferred stock could be used to deter
future attempts to gain control of Community Bank System.
Community Bank System has a classified board which provides for the board
to be divided into three classes, as nearly equal in number as possible, with
approximately one third of the directors to be elected
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<PAGE> 45
annually for three-year terms. A classified board helps to assure continuity and
stability of corporate leadership and policy by extending the time required to
elect a majority of the directors to at least two successive annual meetings.
This extension of time may also discourage a tender offer or takeover bid by
making it more difficult for a majority of shareholders to change the
composition of the board of directors.
In addition, Community Bank System's certificate of incorporation contains
a provision which requires that certain business combinations be approved by the
affirmative vote of either (a) the holders of three-fourths of the outstanding
shares of Community Bank System common stock and a majority of the board of
directors; or (b) the holders of two-thirds of the outstanding shares of
Community Bank System common stock and two-thirds of the continuing directors.
These "supermajority" requirements could result in Community Bank System's board
exercising a stronger influence over any proposed takeover (subject to its
fiduciary duties) by refusing to approve a proposed business combination and by
obtaining sufficient additional votes, including votes obtained through the
issuance of additional shares to parties friendly to their interests, to
preclude the two-thirds or three-fourths shareholder approval requirement.
Community Bank System's certificate of incorporation also provides that the
above described provisions designed to protect Community Bank System from
unfriendly takeover attempts can only be amended by the affirmative vote of (a)
holders of at least three-fourths of the outstanding shares of Community Bank
System common stock and a majority of the board of directors, or (b) holders of
at least two-thirds of the outstanding shares of Community Bank System common
stock and two-thirds of the continuing directors.
RIGHTS PLAN
On February 21, 1995, Community Bank System's board of directors adopted a
stockholder protection rights plan and declared a distribution on February 24,
1995 to stockholders of record as of February 21, 1995 of one share purchase
right, or a Right, for each outstanding share of Community Bank System common
stock. One Right will attach to each share of Community Bank System common stock
to be issued in the merger.
The Rights become exercisable in the event that a person, entity or group
acquires, or commences a tender offer which, if successful, would enable him or
it to acquire, 15% or more of the outstanding shares of Community Bank System
common stock. Each Right initially entitles stockholders to purchase one share
of Community Bank System common stock at an exercise price of $85.00 per share,
subject to adjustments. If, after the Rights become exercisable, any person,
entity or group acquires 15% or more of the outstanding shares of Community Bank
System common stock, the holder of each Right (other than the acquiring person)
may purchase, for the then current exercise price of the Right, that number of
shares having a market value equal to twice the exercise price. If, after the
Rights become exercisable, Community Bank System merges or consolidates with,
sells or transfers 50% if its assets (as measured by book value, market value,
or operating income or cash flow productivity) to, or engages in certain other
transactions with, another person, entity or group, Community Bank System shall
take such steps as are necessary to ensure, and shall not consummate or permit
the transaction to occur until it shall have entered into an agreement with the
other party providing, that upon consummation of the transaction, holders of
each Right shall be entitled to purchase, for the then current exercise price of
the Right, that number of shares of Community Bank System common stock of the
other party having a market value equal to twice the exercise price, and further
providing that the other party shall assume all of Community Bank System's
obligations under the stockholder protection rights plan.
The Rights may be redeemed by Community Bank System under certain
circumstances at a price of $0.01 per Right, and will expire on February 21,
2005 if not redeemed or exercised earlier. If there are not sufficient shares of
the Community Bank System common stock authorized at the time the Rights become
exercisable, the board of directors will secure stockholder authorization for
sufficient additional shares or, alternatively, will provide for the issuance of
other securities or assets of Community Bank System having an equivalent value
upon exercise of the Rights.
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<PAGE> 46
COMPARISON OF RIGHTS OF HOLDERS OF CITIZENS NATIONAL BANK COMMON
STOCK AND COMMUNITY BANK SYSTEM COMMON STOCK
In the merger, your Citizens National Bank common stock will be converted
into Community Bank System common stock and you will become a stockholder of
Community Bank System.
Citizens National Bank is a national banking association regulated by the
Comptroller of the Currency. Your rights as a holder of Citizens National Bank
common stock derive from Citizens National Bank's articles of association and
bylaws and from the National Bank Act.
Community Bank System is a Delaware corporation and the rights of Community
Bank System stockholders derive from the Community Bank System certificate of
incorporation and bylaws and from the Delaware General Corporation Law.
Certain differences between your rights as a holder of Citizens National
Bank common stock and the rights as a Community Bank System stockholder are
summarized below. Only the material differences are summarized below and the
summary does not purport to be a complete statement of the rights of Citizens
National Bank and Community Bank System stockholders. For a more complete
understanding of all rights of Citizens National Bank and Community Bank System
stockholders, we recommend that you read the complete text of the governing
corporate instruments of both Citizens National Bank and Community Bank System,
as well as the applicable law.
AUTHORIZED CAPITAL STOCK
Community Bank System. Under its certificate of incorporation, Community
Bank System is authorized to issue 20,000,000 shares of common stock, no par
value, and 500,000 shares of preferred stock, par value $1.00 per share.
Although no shares of preferred stock are currently outstanding, the board of
directors may, without stockholder approval (subject to the rules of the New
York Stock Exchange, if applicable), issue shares of preferred stock with the
relative rights, designations, preferences and limitations or restrictions
established by the board. The ability of Community Bank System to issue shares
of preferred stock could have an anti-takeover effect.
Citizens National Bank. Citizens National Bank's articles of association
authorizes the issuance of up to 650,000 shares of common stock, par value
$0.625 per share.
CUMULATIVE VOTING
Community Bank System. The Community Bank System certificate of
incorporation does not provide for cumulative voting.
Citizens National Bank. Under the National Bank Act, Citizens National
Bank shareholders are entitled to cumulate votes in connection with the election
of directors. Cumulative voting means that each shareholder is entitled to as
many votes as are equal to the number of shares the shareholder owns multiplied
by the number of directors to be elected at any particular annual shareholders'
meeting. At any shareholders' meeting, a Citizens National Bank shareholder may
cast all of his or her votes for a single candidate for election to the Citizens
National Bank board or may distribute the votes among any two or more
candidates.
CLASSIFIED BOARD OF DIRECTORS
Community Bank System. Community Bank System's board of directors is
divided into three classes of directors, with each class of directors serving
for staggered three-year terms. Each class must be as nearly equal in number as
possible. Community Bank System's certificate of incorporation provides for the
election of directors by class for a term of three years.
Citizens National Bank. Neither the National Bank Act nor Citizens
National Bank's articles of association or bylaws provides for a classified
board of directors.
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<PAGE> 47
QUORUM OF STOCKHOLDERS
Community Bank System. In order to have a quorum for the transaction of
business at any shareholders' meeting, the holders of at least one-third of the
shares entitled to vote at the meeting must be present in person or represented
by proxy.
Citizens National Bank. The Citizens National Bank bylaws provide that a
majority of the outstanding shares of common stock, represented in person or by
proxy, constitutes a quorum at any shareholders' meeting.
ELECTION OF DIRECTORS
Community Bank System. Community Bank System's bylaws provide that
nominations of persons for election to the board of directors may be made at a
meeting of stockholders by or at the direction of the board of directors, or by
any stockholder entitled to vote at the election who gives an advanced written
notice to the Secretary not less than 60 days or more than 90 days prior to the
meeting (provided that if Community Bank System gives less than 60 days' notice
of the meeting date, the nominating stockholder's notice must be given within 10
days following the mailing date of the Community Bank System notice). Community
Bank System's bylaws further provide that directors shall be elected by a
plurality of the votes cast at a meeting of stockholders.
Citizens National Bank. Citizens National Bank's bylaws provide that
nominations for election to the board of directors may be made by the Board or
by any shareholder entitled to vote in the election. Any nomination made by a
shareholder must be made in writing and delivered to President not less than 14
days nor more than 50 days before the shareholders' meeting called for the
election of directors (provided that if Citizens National Bank gives less than
21 days' notice of the meeting date, the nomination must be made within seven
days following the mailing date of the Citizens National Bank notice). Every
election of directors is monitored by three judges, who are appointed from among
the shareholders by the board of directors. Directors are elected by a
cumulative vote. The Citizens National Bank articles of association provide that
the board of directors must elect one of its members the President and the
Chairman of the Board of Citizens National Bank.
QUALIFICATION OF DIRECTORS
Community Bank System. Delaware law provides that a director need not be a
stockholder. The Community Bank System certificate of incorporation and the
Community Bank System bylaws do not contain further qualifications for
directors. Currently, all of the directors of Community Bank System also serve
as a director of Community Bank. Because Community Bank is a national banking
association, each director must meet the qualification requirements imposed by
the National Bank Act and the related regulations which are described in the
paragraph immediately below.
Citizens National Bank. The National Bank Act and the related regulations
require that a director of a national banking association must be a citizen of
the United States and must own shares of capital stock of the association or its
parent company, the aggregate par value, shareholders' equity or fair market
value of which shares is not less than $1,000. Generally, at least a majority of
the directors of a national banking association must have resided in the state
in which the association is located, or within 100 miles of the location of the
office of the association, for at least one year immediately before the election
as a director and must continue to reside within those areas during the term of
office. The Citizens National Bank articles of association provide that each
director must own in his/her own right shares of stock with an aggregate market
value of $7,500.
REMOVAL OF DIRECTORS; RETIREMENT.
Community Bank System. Under Delaware law, the holders of a majority of
the shares entitled to vote on the election of directors can remove directors
only for cause because Community Bank System has a classified Board and its
certificate of incorporation does not provide to the contrary. The term of a
director will terminate at December 31 of the year in which the director reaches
age 70.
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<PAGE> 48
Citizens National Bank. The National Bank Act and the Citizens National
Bank articles of association and bylaws are silent as to the removal or
retirement of directors.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Community Bank System. The Community Bank System bylaws provide that
vacancies and newly created directorships may be filled by a majority vote of
the directors then in office, even if less than a quorum, or by a sole remaining
director, or may be elected by a plurality of stockholders.
Citizens National Bank. Citizens National Bank's articles of association
provide that any vacancies on the board of directors occurring between annual
meetings may be filled by majority vote of all of the board of directors.
PAYMENT OF DIVIDENDS
Community Bank System. Delaware law provides that dividends may be paid
either out of a corporation's surplus or, in the event that no surplus exists,
from its net profits, if any, from either the year the dividends were declared
or the prior year. Capital surplus is the excess of the net assets of the
corporation over the stated capital of the corporation.
Citizens National Bank. Under the National Bank Act, Citizens National
Bank may pay dividends out of undivided profits. However, no dividends may be
declared if the surplus does not equal common capital unless at least one-tenth
of net income for the preceding two consecutive half-year periods (or in case of
quarterly or semiannual dividends, at least one-tenth of net income for the
preceding half-year period) has been carried to surplus. Citizens National Bank
must also obtain the prior approval of the Comptroller of the Currency if total
dividends declared in any calendar year exceeds net income for that year
combined with retained earnings for the preceding two years, less any required
transfers to surplus or a fund for the retirement of any preferred stock.
SPECIAL MEETING OF STOCKHOLDERS
Community Bank System. Community Bank System's bylaws provide that a
special meeting may be called by the board or by the Chairman of the board or by
the executive committee of the board.
Citizens National Bank. Citizens National Bank's bylaws provide that
special meetings may be called by the board of directors or by three or more
shareholders owning not less than five percent of the outstanding shares of
common stock in the aggregate.
RIGHTS OF STOCKHOLDERS TO DISSENT
Community Bank System. Under the Delaware law, appraisal rights are
generally available for the shares of any class or series of stock of a
corporation involved in a merger or consolidation. However, no appraisal rights
are available for any stock, which on the record date of the stockholder meeting
to approve the transaction, is listed on a national securities exchange or the
Nasdaq National Market System, or held of record by more than 2,000
stockholders. Also no appraisal rights are available to stockholders of the
surviving corporation in a merger if their approval is not required.
Notwithstanding the foregoing, appraisal rights are available for such class or
series if the holders thereof receive in the merger or consolidation anything
except: (1) shares of stock of the corporation surviving or resulting from such
merger or consolidation; (2) shares of stock of any other corporation which at
the effective date of the merger or consolidation is either listed on a national
securities exchange or the Nasdaq National Market System, or held of record by
more than 2,000 stockholders; (3) cash in lieu of fractional shares; or (4) any
combination of the foregoing.
Citizens National Bank. The appraisal rights of the Citizens National Bank
shareholders are described in detail in this document under "Dissenting
Shareholders' Rights" on page [ ].
40
<PAGE> 49
INDEMNIFICATION AND LIMITATION OF LIABILITY
Community Bank System. The Community Bank System certificate of
incorporation provides that a director shall not be personally liable to
Community Bank System or its stockholders for monetary damages for a breach of
fiduciary duty, except for liability:
- for a breach of the duty of loyalty;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derived an improper personal
benefit.
Community Bank System will indemnify to the fullest extent permitted by
Delaware law any person against liabilities and expenses incurred by reason of
the fact that he or she was acting as a director or officer of Community Bank
System. Community Bank System may also provide indemnification to its employees
and agents. However, indemnification is only available if a 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. To receive indemnification in a criminal
proceeding, the person must also have had no reasonable cause to believe his or
her conduct was unlawful.
Citizens National Bank. Citizens National Bank's articles of association
provide that the liability of Citizens National Bank directors, officers and
employees for monetary damages will be eliminated as permitted under applicable
banking regulations and New York law. Under 12 CFR 7.2014, a national banking
association may indemnify directors, officers, employees and certain other
affiliates with respect to an administrative proceeding or civil action by any
Federal banking agency only if reasonable and consistent with applicable Federal
Deposit Insurance Corporation regulations. In other administrative proceedings
or civil actions, an association may indemnify those parties for damages and
expenses in accordance with the law of the state in which the main office of the
association is located, the Model Business Corporation Act or the Delaware
General Corporation Law, provided that indemnification is consistent with safe
and sound banking practices. Citizens National Bank's articles of association
has selected New York law to govern for these purposes. Section 722(a) of the
New York Business Corporation Law authorizes a corporation to indemnify any
person against liabilities and expenses incurred by reason of that fact that the
person was a director or officer of the corporation or served any other entity
at the request of the corporation. However, indemnification is only available if
the director or officer acted in good faith and in a manner he or she reasonably
believed to be in (or in certain circumstances, not opposed to) the best
interests of the corporation. To receive indemnification in a criminal
proceeding, the director or officer must also have had no reasonable cause to
believe his or her conduct was unlawful.
The Citizens National Bank articles of association provide that no
indemnification is permitted with respect to expenses or payments incurred in an
administrative proceeding or action instituted by a bank regulatory agency which
results in a final order assessing civil monetary penalties against the
indemnified person or requiring the indemnified person to make other payments to
Citizens National Bank. Moreover, under the Citizens National Bank articles of
association, no indemnification is available where the indemnified person is
determined to be guilty of gross negligence, willful misconduct, self-dealing or
criminal acts, or where a settlement is reached (unless indemnification is
approved by a court, the shareholders or disinterested members of the Board of
Directors).
CERTAIN VOTING RIGHTS WITH RESPECT TO MERGERS
Community Bank System. Under Delaware law, any merger, consolidation or
sale of all or substantially all of the assets of a corporation requires
approval by a majority of the outstanding shares, unless the corporation's
certificate of incorporation requires a higher percentage. Whether approval of
stockholders is required by Delaware law, the Community Bank System certificate
of incorporation requires a higher percentage with respect to "business
combinations" with "interested shareholders" as discussed below.
41
<PAGE> 50
An interested shareholder is the beneficial owner of common stock
representing three percent or more of the votes entitled to be cast, an
affiliate or associate of Community Bank System who was an interested
shareholder at any time during the preceding two years, or an assignee or
successor in interest of shares which were owned at any time during the
preceding two years by an interested shareholder.
A business combination between Community Bank System and an interested
shareholder requires the approval of a majority of the board of directors and at
least three-fourths of the votes entitled to be cast, or at least two-thirds of
the votes entitled to be cast and two-thirds of the continuing directors. A
"business combination" includes:
- a merger or consolidation with Community Bank System or any of its
subsidiaries;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition involving any assets or securities of Community Bank System
or any of its subsidiaries having an aggregate fair market value of
$3,000,000 or more;
- the adoption of any plan or proposal for the liquidation or dissolution
of the Corporation;
- any reclassification of securities, recapitalization, any merger or
consolidation of Community Bank System with one of its subsidiaries, or
any other transaction which has the effect of increasing the proportion
of the outstanding shares of any class of equity or convertible
securities which is beneficially owned by an interested shareholder; and
- any agreement, contract, or other agreement providing for any one or more
of the actions specified in the foregoing.
In addition, Section 203 of the Delaware General Corporation Law applies to
Delaware corporations with a class of voting stock listed on a national
securities exchange, authorized for quotation on the Nasdaq Stock Market, or
held of record by 2,000 or more persons, and restricts transactions which may be
entered into by a corporation and certain of its shareholders. Community Bank
System has not elected to "opt out" of Section 203, as permitted by that
section. Section 203 provides, in essence, that an "interested stockholder,"
defined as a stockholder acquiring more than 15%, but less than 85%, of the
outstanding voting stock of a corporation subject to the statute and its
affiliates and associates, may not engage in certain "business combinations"
with the corporation for a period of three years subsequent to the date on which
the stockholder became an interested stockholder unless:
- prior to that date, the corporation's board of directors approved either
the business combination or the transaction in which the stockholder
became an interested person, or
- the business combination is approved by the corporation's board of
directors and authorized at a stockholders' meeting by a vote of at least
two-thirds of the outstanding voting stock of the corporation not owned
by the interested person.
Section 203 defines the term "business combination" to include a wide
variety of transactions with or caused by an interested person in which the
interested person receives or could receive a benefit on other than a pro rata
basis with other shareholders, including mergers, certain asset sales, certain
issuances of additional shares to the interested person, transactions with the
corporation which increase the proportionate interest of the interested person
or transactions in which the interested person receives certain other benefits.
Citizens National Bank. The National Bank Act requires the affirmative
vote of at least two-thirds of the outstanding capital stock of a national
banking association to approve a merger, consolidation or sale of substantially
all of the assets of a national banking association. The Citizens National Bank
articles of association do not require a higher percentage.
42
<PAGE> 51
SHAREHOLDER RIGHTS PLAN
Community Bank System. The board of directors of Community Bank System has
adopted a stockholder rights protection plan (commonly known as a "poison
pill"). For details on this plan, please see "Rights Plan" on page [ ].
Citizens National Bank. Citizens National Bank has no shareholder rights
plan.
PREEMPTIVE RIGHTS
Community Bank System. The Community Bank System certificate of
incorporation does not provide for preemptive rights.
Citizens National Bank. The Citizens National Bank articles of association
does provide for preemptive rights. Preemptive rights allow the shareholders to
maintain his or her ownership percentage in Citizens National Bank common stock
by purchasing a pro rata portion of any additional shares sold by Citizens
National Bank, unless the additional shares were issued in exchange for stock of
another financial institution.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND ARTICLES OF ASSOCIATION
Community Bank System. Under Delaware law, the Community Bank System
certificate of incorporation may be amended only if the amendment is first
proposed by the Community Bank System board of directors and is approved by a
majority of outstanding shares entitled to vote thereon. Where the rights of a
certain class of shares is affected by the amendment, a majority of that class
of shares must also approve the amendment, regardless if such class is otherwise
entitled to vote on the amendment. Under Community Bank System's certificate of
incorporation, amendments to provisions relating to the election and
classification of directors, the limitation of director's liability, a business
combination with interested shareholder or an amendment to the certificate
require the approval of a majority of the board of directors and at least three-
fourths of the votes entitled to be cast by the holders of Community Bank System
common stock, or at least two-thirds of the votes entitled to be cast and
two-thirds of the continuing directors.
Citizens National Bank. Under the National Bank Act and Citizens National
Bank's articles of association, the Citizens National Bank articles of
association may be amended if the amendment is approved by the holders of a
majority of the Citizens National Bank common stock.
EXPERTS
The consolidated financial statements of Community Bank System as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999, have been incorporated by reference in this document
and in the registration statement of which this document is a part, in reliance
upon the report of PricewaterhouseCoopers LLP, independent auditors, which
report is incorporated by reference in this document, and upon the authority of
the firm as experts in accounting and auditing.
The material U.S. federal income tax consequences of the merger are being
passed upon for Citizens National Bank and Community Bank System by
PricewaterhouseCoopers LLP.
LEGAL MATTERS
The validity of the shares of Community Bank System common stock to be
issued pursuant to the terms of the merger agreement will be passed upon for
Community Bank System by Bond, Schoeneck & King, LLP, Syracuse, New York.
Mackenzie Smith Lewis Michell & Hughes LLP, Syracuse, New York, has acted as
special counsel for Citizens National Bank in connection with the merger.
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<PAGE> 52
WHERE YOU CAN FIND MORE INFORMATION
Community Bank System files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that
Community Bank System files at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Community Bank System's public
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Securities
and Exchange Commission at "http://www.sec.gov." You can also inspect reports,
proxy statements and other information about Community Bank System at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
Community Bank System's public filings are also available from Community
Bank System at the address shown below.
Community Bank System has filed a registration statement to register with
the Securities and Exchange Commission the shares of Community Bank System
common stock to be issued to Citizens National Bank shareholders in the merger.
This document is a part of the registration statement and constitutes a
prospectus of Community Bank System and a proxy statement of Citizens National
Bank for its Special Meeting.
As allowed by Securities and Exchange Commission rules, this document does
not contain all the information that shareholders can find in the registration
statement or the exhibits to the registration statement. The Securities and
Exchange Commission allows Community Bank System to "incorporate by reference"
certain information into this document, which means that Community Bank System
can disclose important information to you by referring you to another document
filed separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be a part of this document, except for
any information which contradicts information contained directly in this
document. This document incorporates by reference the documents set forth below
that Community Bank System has previously filed with the Securities and Exchange
Commission.
<TABLE>
<CAPTION>
COMMISSION FILINGS (FILE NO. 0-11716)
-------------------------------------
<S> <C>
Annual Report on Form 10-K............... Year ended December 31, 1999
Quarterly Reports on Form 10-Q........... Quarterly Periods ended March 31, 2000
and June 30, 2000
Proxy Statement for Annual Meeting of
Stockholders........................... 2000
Current Reports on Form 8-K.............. Filed February 25, 2000, September 18,
2000 and September 29, 2000
Registration Statements on Form 8-A...... Filed December 9, 1997 and February 27,
1995
</TABLE>
All documents that Community Bank System files with the Securities and
Exchange Commission between the date of this document and the completion of the
merger are incorporated into this document by reference and made a part of this
document from the date of the filing of the documents. These additional
documents include periodic reports, such as Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K.
Community Bank System has supplied all information contained or
incorporated by reference in this document relating to Community Bank System and
Community Bank. Citizens National Bank has supplied all such information
relating to Citizens National Bank. Neither Community Bank System nor Citizens
National Bank assumes any responsibility for the accuracy or completeness of the
information provided by the other party.
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<PAGE> 53
You may obtain documents incorporated by reference from Community Bank
System without charge, excluding all exhibits (unless specifically incorporated
by reference as an exhibit to this document), by requesting them in writing or
by telephone from Community Bank System at the following address:
Community Bank System, Inc.
5790 Widewaters Parkway
DeWitt, New York 13214
Attention: Donna J. Drengel, Corporate Secretary
Telephone: (315) 445-7313
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM COMMUNITY BANK SYSTEM, PLEASE
DO SO AT LEAST FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING IN
ORDER TO RECEIVE TIMELY DELIVERY OF THE REQUESTED DOCUMENTS PRIOR TO THE SPECIAL
MEETING.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Special Meeting. Neither
Community Bank System nor Citizens National Bank has authorized anyone to
provide you with information that is different from what is contained in this
document. This document is dated [ ], 2000. You should not assume
that the information contained in this document is accurate after that date.
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<PAGE> 54
ANNEX A
AGREEMENT AND PLAN OF MERGER,
DATED AS OF SEPTEMBER 26, 2000,
BY AND AMONG
COMMUNITY BANK SYSTEM, INC.,
COMMUNITY BANK, N.A.
AND
THE CITIZENS NATIONAL BANK OF MALONE
<PAGE> 55
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
COMMUNITY BANK SYSTEM, INC.
COMMUNITY BANK, N.A., AND
THE CITIZENS NATIONAL BANK OF MALONE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS................................................ A-1
ARTICLE II PLAN OF MERGER AND RELATED MATTERS........................ A-4
2.1 The Merger.................................................. A-4
2.2 Merger Consideration........................................ A-4
2.3 Effect of Merger............................................ A-4
2.4 Dissenting Shares........................................... A-5
2.5 Procedure to Exchange Shares................................ A-6
2.6 Tax and Accounting Treatment................................ A-6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF CITIZENS BANK.......... A-7
3.1 Capital Structure of Citizens Bank.......................... A-7
3.2 Organization, Standing and Authority of Citizens Bank....... A-7
3.3 Ownership of Citizens Bank Subsidiaries; Capital Structure
of Citizens Bank Subsidiaries............................... A-7
3.4 Authorized and Effective Agreement.......................... A-7
3.5 Regulatory Filings.......................................... A-8
3.6 Financial Statements; Books and Records; Minute Books....... A-8
3.7 Material Adverse Change..................................... A-8
3.8 Absence of Undisclosed Liabilities.......................... A-8
3.9 Properties.................................................. A-8
3.10 Loans....................................................... A-9
3.11 Tax Matters................................................. A-9
3.12 Employee Benefit Plans...................................... A-9
3.13 Material Contracts.......................................... A-11
3.14 Legal Proceedings........................................... A-11
3.15 Compliance with Laws........................................ A-11
3.16 Labor Matters............................................... A-11
3.17 Brokers and Finders......................................... A-12
3.18 Insurance................................................... A-12
3.19 Environmental Liability..................................... A-12
3.20 Administration of Trust Accounts............................ A-12
3.21 Intellectual Property....................................... A-12
</TABLE>
A-i
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.22 Certain Information......................................... A-13
3.23 Tax Treatment............................................... A-13
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CBSI AND COMMUNITY
BANK................................................................ A-13
4.1 Capital Structure of CBSI................................... A-13
4.2 Organization, Standing and Authority of CBSI................ A-13
4.3 Ownership of CBSI Subsidiaries; Capital Structure of CBSI
Subsidiaries................................................ A-13
4.4 Organization, Standing and Authority of CBSI Subsidiaries... A-14
4.5 Authorized and Effective Agreement.......................... A-14
4.6 SEC Documents; Regulatory Filings........................... A-14
4.7 Financial Statements; Books and Records; Minute Books....... A-15
4.8 Material Adverse Change..................................... A-15
4.9 Absence of Undisclosed Liabilities.......................... A-15
4.10 Employee Benefit Plans...................................... A-15
4.11 Legal Proceedings........................................... A-15
4.12 Compliance with Laws........................................ A-15
4.13 Tax Matters................................................. A-16
4.14 Brokers and Finders......................................... A-16
4.15 Insurance................................................... A-16
4.16 Environmental Liability..................................... A-16
4.17 Certain Information......................................... A-16
4.18 Tax Treatment............................................... A-17
4.19 Merger Consideration........................................ A-17
ARTICLE V COVENANTS.................................................. A-17
5.1 Shareholders' Meeting....................................... A-17
5.2 Proxy Statement; Registration Statement..................... A-17
5.3 Applications................................................ A-17
5.4 Best Efforts................................................ A-18
5.5 Investigation and Confidentiality........................... A-18
5.6 Press Releases.............................................. A-19
5.7 Actions Pending the Merger.................................. A-19
5.8 Certain Policies............................................ A-20
5.9 Closing; Articles of Merger................................. A-20
5.10 Affiliates.................................................. A-20
5.11 Citizens Bank Employees; Directors and Management;
Indemnification............................................. A-21
5.12 Dividends................................................... A-21
</TABLE>
A-ii
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.13 Advisory Council............................................ A-22
5.14 Takeover Laws............................................... A-22
ARTICLE VI CONDITIONS PRECEDENT...................................... A-22
6.1 Conditions Precedent to Obligations of CBSI, Community Bank
and Citizens Bank........................................... A-22
6.2 Conditions Precedent to Obligations of Citizens Bank........ A-24
6.3 Conditions Precedent to Obligations of CBSI and Community
Bank........................................................ A-24
ARTICLE VII TERMINATION, WAIVER AND AMENDMENT........................ A-25
7.1 Termination................................................. A-25
7.2 Effect of Termination....................................... A-25
7.3 Survival of Representations, Warranties and Covenants....... A-25
7.4 Waiver...................................................... A-25
7.5 Amendment or Supplement..................................... A-26
7.6 Termination Fee............................................. A-26
ARTICLE VIII MISCELLANEOUS........................................... A-26
8.1 Expenses.................................................... A-26
8.2 Entire Agreement............................................ A-26
8.3 No Assignment............................................... A-26
8.4 Alternative Structure....................................... A-26
8.5 Notices..................................................... A-27
8.6 Captions.................................................... A-27
8.7 Counterparts................................................ A-27
8.8 Governing Law............................................... A-27
</TABLE>
A-iii
<PAGE> 58
AGREEMENT
AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made and entered into as
of September 26, 2000, by and among COMMUNITY BANK SYSTEM, INC., a Delaware
corporation ("CBSI"), COMMUNITY BANK, N.A., a national banking association
("Community Bank"), and THE CITIZENS NATIONAL BANK OF MALONE, a national banking
association ("Citizens Bank").
WHEREAS, CBSI is a bank holding company, the principal banking subsidiary
of which is Community Bank;
WHEREAS, the Boards of Directors of CBSI, Community Bank, and Citizens Bank
have each determined that it is in the best interests of their respective
shareholders for CBSI, through Community Bank, to acquire Citizens Bank upon the
terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
CBSI, Community Bank, and Citizens Bank have each approved the Merger of
Citizens Bank with and into Community Bank in accordance with The National
Banking Act and upon the terms and conditions set forth herein;
WHEREAS, upon the consummation and effectiveness of the Merger, all of the
issued and outstanding shares of Citizens Bank Common Stock shall be converted
into Common Stock of CBSI as provided in Article II of this Agreement;
WHEREAS, the parties desire to effectuate the Merger of Citizens Bank into
Community Bank as a tax free reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended, so that the
exchange of Citizens Bank Common Stock for Common Stock of CBSI will not give
rise to a tax recognition event for the shareholders of Citizens Bank.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, and agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
"Agreement" is defined in the preamble hereto.
"Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956,
as amended.
"CBSI" is defined in the preamble of this Agreement.
"CBSI Common Stock" is defined in Section 4.1 hereof.
"CBSI Financial Statements" shall mean (i) the consolidated statements of
condition of CBSI as of June 30, 2000 and as of December 31, 1999 and 1998 and
the related consolidated statements of income, cash flows and changes in
shareholders' equity (including related notes, if any) for the six months ended
June 30, 2000 and each of the three years ended December 31, 1999, 1998 and
1997, respectively, as filed by CBSI in SEC Documents and (ii) the consolidated
statements of condition of CBSI and related consolidated statements of income,
cash flows and changes in shareholders' equity (including related notes, if any)
as filed by CBSI in SEC Documents with respect to periods ended subsequent to
June 30, 2000.
"Citizens Bank" is defined in the preamble of this Agreement.
"Citizens Bank Common Stock" is defined in Section 3.1 hereof.
"Citizens Bank Financial Statements" shall mean (i) the consolidated
balance sheets of Citizens as of June 30, 2000 and as of December 31, 1999 and
1998 and the related consolidated statements of income, cash flows and changes
in shareholders' equity (including related notes, if any) for the six months
ended June 30, 2000 and each of the three years ended December 31, 1999, 1998
and 1997, respectively, and (ii) the
A-1
<PAGE> 59
consolidated balance sheets of Citizens Bank and related consolidated statements
of income, cash flows and changes in shareholders' equity (including related
notes, if any) as of dates or with respect to periods ended subsequent to June
30, 2000 and provided to CBSI by Citizens Bank.
"Claim" is defined in Section 4.11(e) hereof.
"Closing Date" shall mean the date specified pursuant to Section 4.9 hereof
as the date on which the parties hereto shall close the transactions
contemplated herein.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" or "SEC" shall mean the Securities and Exchange Commission.
"Community Bank" is defined in the preamble of this Agreement."
"Covered Parties" is defined in Section 4.11(e) hereof.
"Effective Date" shall mean the date specified pursuant to Section 2.1
hereof as the effective date of the Merger.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" is defined in Section 2.13 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDIA" shall mean the Federal Deposit Insurance Act.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
"Indemnified Parties" is defined in Section 4.11(d) hereof.
"Insurance Amount" is defined in Section 4.11(f) hereof.
"Intellectual Property" means domestic and foreign letters patent, patents,
patent applications, patent licenses, software licensed or owned, know-how
licenses, trade names, common law and other trademarks, service marks, licenses
of trademarks, trade names and/or service marks, trademark registrations and
applications, service mark registrations and applications and copyright
registrations and applications.
"Material Adverse Effect" shall mean, with respect to any party, as the
case may be, a material adverse effect on the business, results of operations or
financial condition of such party and any Subsidiary of the party taken as a
whole or a material adverse effect on such party's ability to consummate the
transactions contemplated hereby; provided, however, that in determining whether
a Material Adverse Effect has occurred there shall be excluded any effect on the
referenced party the cause of which is (i) any change in banking or similar
laws, rules or regulations of general applicability or interpretations thereof
by courts or governmental authorities, (ii) any change in generally accepted
accounting principles or regulatory accounting requirements applicable to banks
or their holding companies generally, (iii) general changes in conditions,
including interest rates, in the banking industry or in the global or United
States economy or financial markets, with respect to clause (i), (ii) or (iii),
to the extent that a change does not materially affect the referenced party to a
materially different extent than other similarly situated banking organizations,
and (iv) any action or omission of Citizens Bank or CBSI or any Subsidiary of
either of them taken with the prior written consent of CBSI or Citizens Bank, as
applicable, in contemplation of the Merger.
"Merger" is defined in Section 2.1 hereof.
"Merger Consideration" is defined in Section 2.2 hereof.
"NYSE" shall mean the New York Stock Exchange.
"OCC" shall mean the Office of the Comptroller of Currency.
"Plan of Merger" is defined in the recitals hereto.
A-2
<PAGE> 60
"Previously Disclosed" shall mean disclosed prior to the execution hereof
in (i) an SEC Document filed with the SEC subsequent to January 1, 2000 and
prior to the date hereof or (ii) a letter dated of even date herewith from the
party making such disclosure and delivered to the other party prior to the
execution hereof. Any information disclosed by one party to the other for any
purpose hereunder shall be deemed to be disclosed for all purposes hereunder.
The inclusion of any matter in information Previously Disclosed shall not be
deemed an admission or otherwise to imply that any such matter is material for
purposes of this Agreement.
"Proxy Statement" shall mean the joint proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
shareholders of Citizens Bank to solicit their votes in connection with this
Agreement and the Plan of Merger.
"Registration Statement" shall mean the registration statement with respect
to the CBSI Common Stock to be issued in connection with the Merger as declared
effective by the Commission under the Securities Act.
"Rights" shall mean warrants, options, rights, convertible securities and
other arrangements or commitments which obligate an entity to issue or dispose
of any of its capital stock, and stock appreciation rights, performance units
and other similar stock-based rights whether they obligate the issuer thereof to
issue stock or other securities or to pay cash.
"SEC Documents" shall mean all reports and registration statements filed,
or required to be filed, by a party hereto pursuant to the Securities Laws.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
"Subsidiary" or "Subsidiaries" shall mean with respect to any party, any
bank, corporation, partnership or other organization, whether incorporated or
unincorporated, which is consolidated with such party for financial reporting
purposes; provided, however, that "Subsidiary" or "Subsidiaries" shall not
include any subsidiary trust formed for the purpose of issuing trust preferred
or similar securities.
"Surviving Corporation" is defined in the recitals hereto.
"Takeover Laws" is defined in Section 5.14 hereof.
"Takeover Proposal" is defined in Section 5.7(b)(13) hereof.
"Tax," collectively, "Taxes" shall mean all taxes, however denominated,
including any interest, penalties, criminal sanctions or additions to tax
(including, without limitation, any underpayment penalties for insufficient
estimated tax payments) or other additional amounts that may become payable in
respect thereof (or in respect of a failure to file any Tax Return when and as
required), imposed by any federal, state, local or foreign government or any
agency or political subdivision of any such government, which taxes shall
include, without limiting the generality of the foregoing, all income taxes,
payroll and employment taxes, withholding taxes (including withholding taxes in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other person or entity), unemployment insurance taxes,
social security (or similar) taxes, sales and use taxes, excise taxes, franchise
taxes, gross receipts taxes, occupation taxes, real and personal property taxes,
stamp taxes, value added taxes, transfer taxes, profits or windfall profits
taxes, licenses in the nature of taxes, estimated taxes, severance taxes, duties
(custom and others), workers' compensation taxes, premium taxes, environmental
taxes (including taxes under Section 59A of the Code), disability taxes,
registration taxes, alternative or add-on minimum taxes, estimated taxes, and
other fees, assessments, charges or obligations of the same or of a similar
nature.
"Tax Return," collectively, "Tax Returns" shall mean all returns, reports,
estimates, information statements or other written submissions, and any
schedules or attachments thereto, required or permitted to be filed pursuant to
the statutes, rules and regulations of any federal, state, local or foreign
government Tax authority, including but not limited to, original returns and
filings, amended returns, claims for refunds, information returns and accounting
method change requests.
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ARTICLE II
PLAN OF MERGER AND RELATED MATTERS
2.1 The Merger. On the Effective Date, Citizens Bank will merger with and
into Community Bank, with Community Bank being the surviving entity, in
accordance with the terms of this Agreement and applicable provisions of The
National Bank Act, as amended (the "Merger"). Subject to the terms and upon
satisfaction of all requirements of law and conditions specified in this
Agreement, the Merger shall be effective at the time specified in the
certificate of the Comptroller of the Currency approving the Merger (the
"Effective Date"). Upon the Effective Date, Citizens Bank will be merged with
and into Community Bank pursuant to the terms of this Agreement without any
further action on the part of CBSI, Community Bank, or Citizens Bank.
2.2 Merger Consideration.
(a) Conversion of Shares. On the Effective Date, by virtue of the Merger
and without any further action by the parties:
(i) Each share of Citizens Bank Common Stock issued and outstanding
immediately prior to the Effective Date (other than shares to be cancelled
pursuant to Section 2.2(ii) and Dissenting Shares, if any) shall be
cancelled and shall be converted automatically into the right to receive
1.70 shares of CBSI Common Stock for each share of Citizens Bank Common
Stock (rounded to the nearest whole number ("Exchange Ratio"), without
interest, upon surrender of the stock certificates that formerly evidenced
the shares of Citizens Bank Common Stock in the manner provided in Section
2.5;
(ii) Each share of Citizens Bank Common Stock held in treasury by
Citizens Bank or owned by CBSI or Community Bank immediately prior to the
Effective Date shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto;
(iii) Each share of Community Bank Common Stock outstanding
immediately prior to the Effective Date shall remain unchanged and shall
deemed to be the common stock of the surviving entity.
(b) Exchange Ratio; Issuance of Stock. The Exchange Ratio shall not be
subject to decrease or increase in the event of increases or decreases in the
market price of the CBSI's Common Stock. CBSI shall take no action prior to the
Effective Date to increase the number of its shares of outstanding common stock
by an amount exceeding 50,000 shares (such shares being available for stock
option exercises and dividend reinvestment shares) without the mutual consent of
all parties to this Agreement. If, subsequent to the date of this Agreement but
prior to the Effective Date, the outstanding shares of CBSI's common stock shall
be increased, decreased, changed into or exchanged for a different number of
shares by reason of any stock split, recapitalization, or reclassification or
other similar change, the terms and provisions of Section 2.2(a)(i) shall be
adjusted proportionately. The CBSI Common Stock to be issued as merger
consideration shall consist of treasury shares to extent available and
authorized but unissued shares to extent sufficient treasury shares are not
available.
(c) Registration of Shares. The CBSI Common Stock to be issued as the
merger consideration will be registered in accordance with the Securities Act
and pursuant to NYSE rules so that such shares shall be freely tradable subject
to applicable trading restrictions on affiliates and insiders under the
provisions and related regulations of the Securities Act, the Exchange Act, and
the NYSE.
2.3 Effect of Merger.
Upon the Effective Date of the Merger:
(a) The Citizens Bank shall be merged with and into Community Bank
under the charter number, articles of association, and bylaws of Community
Bank, a copy of each of which is attached as Exhibit A. The name of the
continuing bank shall be "Community Bank, National Association", and the
head office of the continuing bank shall be located in Canton, New York.
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(b) All assets, rights, franchises, and interest of Citizens Bank and
Community Bank, respectively, in and to every type of property shall be
vested in the continuing bank by virtue of the Merger without any deed or
other transfer; and the continuing bank, without any order or other action
on the part of any court or otherwise, shall hold and enjoy all rights of
property, franchises, and interest, in the same manner and to the same
extent as such rights, franchises and interests were held and enjoyed by
Citizens Bank and Community Bank, respectively, at the time the Merger
becomes effective.
(c) The continuing bank shall be liable for all of the liabilities of
Citizens Bank and Community Bank and shall be bound by and subject to all
of the obligations and contracts of Citizens Bank and Community Bank. All
rights of creditors and obligees and all liens on property of Citizens Bank
and Community Bank shall be preserved and unimpaired.
(d) The amount and number of shares of capital stock, surplus and
undivided profits of Community Bank outstanding immediately prior to the
effectiveness of the Merger (i.e., as of June 30, 2000, $5,406,720 capital
stock divided into 1,081,344 shares of common stock, $5.00 par value,
surplus of $71,057,000, undivided profits of $82,118,000, and unrealized
loss on available for sale securities of $11,779,000) shall be increased by
the amount of surplus contributed by CBSI (approximately $21,123,000 as of
June 30, 2000) from the exchange of 952,000 shares of CBSI common stock for
all 560,000 shares of Citizens Bank common stock outstanding. The amount
and number of capital stock, surplus, undivided profits, and unrealized
loss on available for sale securities of Citizens Bank outstanding
immediately prior to the effectiveness of the merger as of June 30, 2000 is
as follows: $350,000 capital stock divided into 560,000 shares of common
stock, $0.625 par value, surplus of $350,000, undivided profits of
$11,915,000, and unrealized loss on available for sale securities of
$385,000. The capitalization of the continuing bank shall be equal to the
aggregate of the capital of Community Bank and the surplus contributed by
CBSI consisting on a pro-forma basis as of June 30, 2000 of $5,460,720
capital stock dividend into 1,081,344 shares of common stock, $5.00 par
value, surplus of $92,180,000, undivided profits of $82,118,000 and
unrealized loss on available for sale securities of $11,779,000, which
shall be adjusted for normal earnings, expenses, and dividends of the bank
after June 30, 2000 and prior to the time the Merger becomes effective
incurred in the ordinary course of business and in accordance with the
terms of this Agreement.
(e) The directors of Community Bank immediately prior to the Effective
Date shall be the directors of the continuing bank with the addition of
Paul M. Cantwell, Jr. who currently serves as a director of Citizens Bank.
The officers of Community Bank immediately prior to the Effective Date
shall be the officers of the continuing bank, with any changes approved by
the Board of Directors of the continuing bank.
2.4 Dissenting Shares. Any shareholder of Citizens Bank who has voted
against the Merger at the Shareholder's Meeting or who has given notice in
writing to the presiding officer at or prior to such meeting, that he or she
dissents from the Merger shall be entitled to receive the value of the shares so
held by him or her when such Merger shall be approved by the Comptroller upon
written request made to the continuing bank at any time before 30 days after the
consummation of the Merger, accompanied by the surrender of his or her stock
certificates ("Dissenting Shares"). The value of the shares of any dissenting
shareholder shall be ascertained as of the Effective Date of the Merger by an
appraisal made by a committee of three persons, composed of (a) one selected by
the majority vote of the dissenting shareholders, (b) one selected by the
directors of the continuing bank, and (c) one selected by the two so selected.
The valuation agreed upon by any two of the three appraisers shall govern. If
the value so fixed shall not be satisfactory to any dissenting shareholder who
has requested payment, such shareholder may, within five days after being
notified of the appraised value of his shares, appeal to the Comptroller, who
shall cause a reappraisal to be made which shall be final and binding as to the
value of the shares of such dissenting shareholder. If, within 90 days from the
closing date of the Merger, for any reason one or more of the appraisers is not
selected as herein provided or the appraisers fail to determine the value of
such shares, the Comptroller shall, upon written request of any interested
party, cause an appraisal to be made which shall be final and binding on all
parties. The expense of the appraisers or the Comptroller in making the
appraisal or reappraisal, as the case may be, shall be paid by
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the continuing bank. The value of the shares ascertained shall be promptly paid
to the dissenting shareholders by the continuing bank.
2.5 Procedure to Exchange Shares.
(a) On the Effective Date, CBSI shall deposit, or shall cause to be
deposited, with the Exchange Agent, for exchange in accordance with this Article
II, certificates representing the aggregate number of shares of CBSI Common
Stock into which the outstanding shares of Citizens Bank Common Stock shall be
converted pursuant to Section 2.2 of this Agreement. As soon as practicable
after the Effective Date, the Exchange Agent shall mail to all holders of record
of Citizens Bank Common Stock excluding any holders of Dissenting Shares,
letters of transmittal specifying the procedures for delivery of such holders'
certificates to the Exchange Agent and describing the procedure for surrendering
certificates formerly representing Citizens Bank Common Stock in exchange for
new certificates of CBSI Common Stock. As soon as practicable, after surrender
to the Exchange Agent of the certificates of Citizens Bank Common Stock in
accordance with the instructions of the letter of transmittal, the Exchange
Agent shall distribute to the former holders of shares of Citizens Bank Common
Stock a certificate representing that number of shares of CBSI Common Stock that
such holder is entitled to receive pursuant to the Merger consideration set
forth in Section 2.2 of this Agreement. In no event, shall the holder of any
such surrendered certificates be entitled to receive interest on any amounts to
be received in the Merger. If any certificate surrendered for exchange is to be
issued in a name other than that in which a certificate surrendered is issued,
the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and the person requesting such exchange shall affix any
required stock transfer tax stamps to the certificate surrendered or provide
funds for their purchase or established to the satisfaction of the Exchange
Agent that such taxes are not payable.
(b) No dividends or other distributions declared after the Effective Date
with respect to CBSI Common Stock shall be paid to the holder of any
unsurrendered certificate until the holder thereof shall surrender such
certificate in accordance with this Section. After the surrender of a
certificate in accordance with this Section, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore have become payable with respect to shares
of CBSI Common Stock, represented by such certificate. Certificates surrendered
for exchange by any person who is an "affiliate" of CBSI for purposes of Rule
145(c) under the Securities Act of 1933, as amended, shall not be exchanged for
certificates representing shares of CBSI Common Stock until CBSI has received
the written agreement of such person contemplated by Section 5.10 of this
Agreement.
(c) On the Effective Date, the stock transfer books of Citizens Bank shall
be closed and no transfer of Citizens Bank Common Stock shall thereafter be made
or recognized. If, after the Effective Date, certificates representing such
shares are presented for transfer, they shall be cancelled and exchanged for the
Merger consideration as provided in this Section.
(d) In the event any certificate shall have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen, or destroyed and, if required by CBSI, the
posting by such person of a bond in such amount as CBSI may reasonably direct as
indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen, or
destroyed certificate the shares of CBSI Common Stock constituting the Merger
consideration deliverable in respect thereof pursuant to this Agreement.
2.6 Tax and Accounting Treatment. The Merger shall be treated as a
"purchase" for accounting purposes, and shall be structured to qualify as a tax
free reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CITIZENS BANK
Except as disclosed in the attached disclosure schedules or as Previously
Disclosed, Citizens Bank hereby represents and warrants to CBSI and Community
Bank as follows:
3.1 Capital Structure of Citizens Bank. The authorized capital stock
of Citizens Bank consists of 650,000 shares of common stock, par value
$0.625 per share ("Citizens Bank Common Stock"), of which 560,000 shares
are issued and outstanding and no shares are held in treasury. There are no
outstanding options, warrants, commitments or any similar rights in
existence for the purchase of, or which encumber in any way, Citizens Bank
Common Stock. All outstanding shares of Citizens Bank Common Stock have
been duly authorized and validly issued and are fully paid and
nonassessable. None of the shares of Citizens Bank's capital stock has been
issued in violation of the preemptive rights of any person.
3.2 Organization, Standing and Authority of Citizens Bank. Citizens
Bank is a duly organized national banking association, validly existing and
in good standing under The National Bank Act with full corporate power and
authority to carry on its business as now conducted and is duly licensed or
qualified to do business in the states of the United States and foreign
jurisdictions where its ownership or leasing of property or the conduct of
its business requires such qualification, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Citizens
Bank.
3.3 Ownership of Citizens Bank Subsidiaries; Capital Structure of
Citizens Bank Subsidiaries. Citizens Bank does not own, directly or
indirectly, 5% or more of the outstanding capital stock or other voting
securities of any corporation, bank or other organization, and Citizens
Bank does not have any Subsidiaries.
3.4 Authorized and Effective Agreement.
(a) Citizens Bank has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action in respect thereof on the part
of Citizens Bank, except for the affirmative vote of two-thirds of the
votes cast by the holders of Citizens Bank Common Stock entitled to vote
thereon, which is the only shareholder vote required to approve the Merger
pursuant to Citizens Bank's Articles of Association, as amended, and
Citizens Bank's Bylaws. The Board of Directors of Citizens Bank has
directed that this Agreement be submitted to Citizens Bank's stockholders
for approval at a special meeting to be held as soon as practicable. The
Board of Directors of Citizens Bank has approved the Merger as contemplated
by this Agreement and recommended that the stockholders of Citizens Bank
approve the Merger.
(b) Assuming the accuracy of the representation contained in Section
4.5(b) hereof, this Agreement constitutes the legal, valid and binding
obligations of Citizens Bank, enforceable against it in accordance with its
respective terms, subject as to enforceability, to bankruptcy, insolvency
and other laws of general applicability relating to or affecting creditors'
rights and to general equity principles.
(c) Neither the execution and delivery of this Agreement, nor
consummation of the transactions contemplated hereby or thereby, nor
compliance by Citizens Bank with any of the provisions hereof or thereof
shall (i) conflict with or result in a breach of any provision of the
articles of association, charter or bylaws of Citizens Bank, (ii) assuming
the consents and approvals contemplated by Section 5.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of
any lien, charge or encumbrance upon any property or asset of Citizens Bank
pursuant to, any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation, or (iii) assuming the consents and
approvals contemplated by Section 5.3 hereof and the consents and approvals
which are Previously
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Disclosed are duly obtained, violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Citizens Bank.
(d) Other than as contemplated by Section 5.3 hereof, no consent,
approval or authorization of, or declaration, notice, filing or
registration with, any governmental or regulatory authority, or any other
person, is required to be made or obtained by Citizens Bank on or prior to
the Closing Date in connection with the execution, delivery and performance
of this Agreement or the consummation of the transactions contemplated
hereby or thereby. As of the date hereof, Citizens Bank is not aware of any
reason that the condition set forth in Section 6.1(b) of this Agreement
would not be satisfied.
3.5 Regulatory Filings. Citizens Bank has filed all reports required
by statute or regulation to be filed with any federal or state bank
regulatory agency, except where the failure to so file would not have a
Material Adverse Effect on Citizens Bank, and such reports were prepared in
accordance with the applicable statutes, regulations and instructions in
existence as of the date of filing of such reports in all material
respects.
3.6 Financial Statements; Books and Records; Minute Books. The
Citizens Bank Financial Statements prior to the date of this Agreement
fairly present, and the Citizens Bank Financial Statements after the date
of this Agreement will fairly present, the consolidated financial position
of Citizens Bank as of the dates indicated and the consolidated income,
changes in shareholders' equity and cash flows of Citizens Bank and its
consolidated Subsidiaries for the periods then ended and each such
financial statement has been or will be, as the case may be, prepared in
conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis except as disclosed
therein. The books and records of Citizens Bank fairly reflect in all
material respects the transactions to which it is a party or by which its
properties are subject or bound. Such books and records have been properly
kept and maintained and are in compliance with all applicable legal and
accounting requirements in all material respects. The minute books of
Citizens Bank contain records which are accurate in all material respects
of all corporate actions of its shareholders and Board of Directors
(including committees of its Board of Directors).
3.7 Material Adverse Change. Citizens Bank has not, on a consolidated
basis, suffered any change in its financial condition, results of
operations or business since December 31, 1999 which individually or in the
aggregate with any other such changes would constitute a Material Adverse
Effect with respect to Citizens Bank.
3.8 Absence of Undisclosed Liabilities. Citizens Bank has no
liability (contingent or otherwise), excluding contractually assumed
contingencies, that is material to Citizens Bank on a consolidated basis,
or that, when combined with all similar liabilities, would be material to
Citizens Bank on a consolidated basis, except as disclosed in the Citizens
Bank Financial Statements.
3.9 Properties. Citizens Bank has good and marketable title free and
clear of all liens, encumbrances, charges, defaults or equitable interests
to all of the properties and assets, real and personal, which are material
to the business of Citizens Bank, and which are reflected on the Citizens
Bank Financial Statements as of December 31, 1999 or acquired after such
date, except (i) liens for taxes not yet due and payable, (ii) pledges to
secure deposits and other liens incurred in the ordinary course of banking
business as reflected in the books and records of Citizens Bank, (iii) such
imperfections of title, easements and encumbrances, if any, as are not
material in character, amount or extent and (iv) dispositions and
encumbrances for adequate consideration in the ordinary course of business.
All leases pursuant to which Citizens Bank, as lessee, leases real and
personal property which, individually or in the aggregate, are material to
the business of Citizens Bank are valid and enforceable in accordance with
their respective terms. All tangible property used in the business of
Citizens Bank is in good condition, reasonable wear and tear excepted, and
is usable in the ordinary course of business consistent with Citizens
Bank's past practices.
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3.10 Loans.
(a) Each loan reflected as an asset in the Citizens Bank Financial
Statements (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to
the extent secured, has been secured by valid liens and security interests
which have been perfected, and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights
and to general equity principles, in each case other than loans as to which
the failure to satisfy the foregoing standards, individually or in the
aggregate, would not have a Material Adverse Effect on Citizens Bank.
(b) The allowance for loan losses reflected on the Citizens Bank
Financial Statements, as of their respective dates, is in all material
respects consistent with the requirements of generally accepted accounting
principles to provide for reasonably anticipated losses with respect to
Citizens Bank's loan portfolio based upon information reasonably available
at the time.
3.11 Tax Matters.
(a) Citizens Bank has timely filed federal income tax returns for each
year through December 31, 1999 and has timely filed, or caused to be filed,
all other Tax Returns required to be filed with respect to Citizens Bank.
All Taxes due by or on behalf of Citizens Bank have been paid or adequate
reserves have been established on the Citizens Bank Financial Statements
for the payment of such Taxes. Citizens Bank will not have any liability
for any such Taxes in excess of the amounts so paid or reserves or accruals
so established.
(b) All Tax Returns filed by Citizens Bank are complete and accurate
in all material respects. Neither Citizens Bank is delinquent in the
payment of any material Tax, and none of them has requested any extension
of time within which to file any Tax Returns which have not since been
filed. No material audit examination, deficiency, adjustment, refund claim
or litigation with respect to Tax Returns, paid Taxes, unpaid Taxes or Tax
attributes of Citizens Bank has been proposed, asserted or assessed
(tentatively or otherwise). There are currently no agreements in effect
with respect to Citizens Bank to extend the period of limitations for the
assessment or collection of any Tax.
(c) Neither the transactions contemplated hereby nor the termination
of the employment of any employees of Citizens Bank prior to or following
consummation of the transactions contemplated hereby will result in
Citizens Bank (or any successor thereof) making or being required to make
any "excess parachute payment" as that term is defined in Section 280G of
the Code.
(d) Neither Citizens Bank is a party to any agreement providing for
the allocation or sharing of, or indemnification for, Taxes.
(e) Citizens Bank is not required to include in income any adjustment
in any taxable period ending after the date hereof pursuant to Section
481(a) of the Code.
(f) Citizens Bank has not executed or entered into any written
agreement with any Tax authority conceding or agreeing to any treatment of
Taxes or Tax attributes, including, without limitation, an Internal Revenue
Service Form 870 or Form 870-AD, closing agreement or special closing
agreement, affecting the Citizens Bank pursuant to Section 7121 of the Code
or any predecessor provision thereof or any similar provision of state,
local or foreign law, which agreement would have a material impact on the
calculation of the Taxes of CBSI or any CBSI Subsidiary after the Effective
Date.
3.12 Employee Benefit Plans.
(a) Schedule 3.13(a) hereto sets forth a true and complete list of
each Citizens Bank Plan. For purposes of this Section 3.13, the term
"Citizens Bank Plan" means each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, medical, life or
other insurance, profit-sharing, or pension plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by Citizens Bank or by any trade or business, whether or not
incorporated, that together with Citizens Bank would be deemed a "single
employer" under Section 414 of the Code (an "ERISA
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Affiliate") for the benefit of any employee or director or former employee
or former director of Citizens Bank or any ERISA Affiliate of Citizens
Bank.
(b) With respect to each of the Citizens Bank Plans, Citizens Bank has
made available to Community Bank true and complete copies of each of the
following documents: (a) the Citizens Bank Plan and related documents
(including all amendments thereto); (b) the most recent annual reports,
financial statements, and actuarial reports, if any; (c) the most recent
summary plan description, together with each summary of material
modifications, required under ERISA with respect to such Citizens Bank Plan
and all material communications relating to each such Citizens Bank Plan;
and (d) the most recent determination letter received from the IRS with
respect to each Citizens Bank Plan that is intended to be qualified under
the Code and all material communications to or from the IRS or any other
governmental or regulatory agency or authority relating to each Citizens
Bank Plan.
(c) No liability under Title IV of ERISA has been incurred by Citizens
Bank or any ERISA Affiliate of Citizens Bank that has not been satisfied in
full, and no condition exists that presents a material risk to Citizens
Bank or any ERISA Affiliate of Citizens Bank of incurring a liability under
such Title, other than liability for premium payments to the Pension
Benefit Guaranty Corporation, which premiums have been or will be paid when
due.
(d) Neither Citizens Bank nor, to the knowledge of Citizens Bank, any
ERISA Affiliate of Citizens Bank, nor any of the Citizens Bank Plans, nor,
to the knowledge of Citizens Bank, any trust created thereunder, nor any
trustee or administrator thereof has engaged in a prohibited transaction
(within the meaning of Section 406 of ERISA and Section 4975 of the Code)
in connection with which Citizens Bank or any ERISA Affiliate of Citizens
Bank could reasonably be expected to, either directly or indirectly, incur
any material liability or material cost.
(e) Full payment has been made, or will be made in accordance with
Section 404(a)(6) of the Code, of all amounts that Citizens Bank or any
ERISA Affiliate of Citizens Bank is required to pay under Section 412 of
the Code or under the terms of the Citizens Bank Plans.
(f) The fair market value of the assets held under each Citizens Bank
Plan that is subject to Title IV of ERISA equals or exceeds the actuarial
present value of all accrued benefits under each such Citizens Bank Plan.
No reportable event under Section 4043 of ERISA has occurred with respect
to any Citizens Bank Plan other than any reportable event occurring by
reason of the transactions contemplated by this Agreement or a reportable
event for which the requirement of notice to the PBGC has been waived.
(g) None of the Citizens Bank Plans is a "multiemployer pension plan,"
as such term is defined in Section 3(37) of ERISA, a "multiple employer
welfare arrangement," as such term is defined in Section 3(40) of ERISA, or
a single employer plan that has two or more contributing sponsors, at least
two of whom are not under common control, within the meaning of Section
4063(a) of ERISA.
(h) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each of the Citizens Bank Plans that is
intended to be "qualified" within the meaning of Section 401(a) of the Code
to the effect that such plan is so qualified and, to the knowledge of
Citizens Bank, no condition exists that could adversely affect the
qualified status of any such Citizens Bank Plan. Each of the Citizens Bank
Plans that is intended to satisfy the requirements of Section 125 or
501(c)(9) of the Code satisfies such requirements in all material respects.
Each of the Citizens Bank Plans has been operated and administered in all
material respects in accordance with its terms and applicable laws,
including but not limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the
knowledge of Citizens Bank, threatened or anticipated (other than routine
claims for benefits) against any Citizens Bank Plan, the assets of any
Citizens Bank Plan or against Citizens Bank or any ERISA Affiliate of
Citizens Bank with respect to any Citizens Bank Plan. There is no judgment,
decree, injunction, rule or order of any court, governmental body,
commission, agency or arbitrator outstanding against or in favor of any
Citizens Bank Plan or any fiduciary thereof (other than rules of general
applicability). There are no pending or, to the knowledge of
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Citizens Bank, threatened audits, examinations or investigations by any
governmental body, commission or agency involving any Citizens Bank Plan.
(j) Except as set forth in the disclosure schedule, the consummation
of the transactions contemplated by this Agreement will not result in, and
is not a precondition to, (i) any current or former employee or director of
Citizens Bank or any ERISA Affiliate of Citizens Bank becoming entitled to
severance pay, unemployment compensation or any similar payment, (ii) any
acceleration in the time of payment or vesting, or increase in the amount,
of any compensation due to any such current or former employee or director,
or (iii) any renewal or extension of the term of any agreement regarding
compensation for any such current or former employee or director.
3.13 Material Contracts.
(a) Except as set forth in Schedule 3.14, Citizens Bank is not a party
to, and is not bound by, (i) any material or similar arrangement (any
contract or commitment which could reasonably be expected to involve
expenditures in excess of $10,000 shall be deemed material) whether or not
made in the ordinary course of business (other than loans or loan
commitments and funding transactions in the ordinary course of business
including but not limited to transactions with the Federal Home Loan Bank
of New York) or any agreement restricting the nature or geographic scope of
its business activities in any material respect, (ii) any agreement,
indenture or other instrument relating to the borrowing of money by
Citizens Bank or the guarantee by Citizens Bank of any such obligation,
other than instruments relating to transactions entered into in the
ordinary course of business, (iii) any agreement, arrangement or commitment
relating to the employment of a consultant who was formerly a director or
executive officer or the employment, election, retention in office or
severance of any present or former director or officer, or (iv) any
contract, agreement or understanding with a labor union, in each case
whether written or oral.
(b) Citizens Bank is not in default under any material agreement,
commitment, arrangement, lease, insurance policy or other instrument
whether entered into in the ordinary course of business or otherwise and
whether written or oral, and there has not occurred any event that, with
the lapse of time or giving of notice or both, would constitute such a
default, except for such defaults which would not, individually or in the
aggregate, have a Material Adverse Effect on Citizens Bank.
3.14 Legal Proceedings.
(a) Except as set forth on Schedule 3.15, there are no actions, suits
or proceedings instituted, pending or, to the knowledge of Citizens Bank,
threatened against Citizens Bank or against any asset, interest or right of
Citizens Bank that might have a Material Adverse Effect on Citizens Bank.
There are no actual or threatened actions, suits or proceedings which
present a claim to restrain or prohibit the transactions contemplated
herein or to impose any material liability in connection therewith. There
are no actions, suits or proceedings instituted, pending or, to the
knowledge of Citizens Bank, threatened against any present or former
director or officer of Citizens Bank, that would reasonably be expected to
give rise to a claim for indemnification.
3.15 Compliance with Laws. Citizens Bank is in compliance in all
material respects with all statutes and regulations applicable to the
conduct of its business, and Citizens Bank has not received notification
from any agency or department of federal, state or local government (i)
asserting a violation of any such statute or regulation, (ii) threatening
to revoke any license, franchise, permit or government authorization or
(iii) restricting or in any way limiting its operations. Citizens Bank is
not subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment which would
be reasonably expected to have a Material Adverse Effect on Citizens Bank,
and has not received any communication contemplating any of the foregoing.
3.16 Labor Matters. With respect to their employees, Citizens Bank is
not a party to any labor agreement with any labor organization, group or
association and has not engaged in any unfair labor practice. Since January
1, 2000 and prior to the date hereof, Citizens Bank has not experienced any
attempt by organized labor or its representatives to make Citizens Bank
conform to demands of organized labor relating to their employees or to
enter into a binding agreement with organized labor that would
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cover the employees of Citizens Bank. To the knowledge of Citizens Bank,
there is no unfair labor practice charge or other complaint by any employee
or former employee of Citizens Bank against it pending before any court,
arbitrator or governmental agency arising out of Citizens Bank's activities
or employment with Citizens Bank.
3.17 Brokers and Finders. Neither Citizens Bank, nor any of its
respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein except
for retaining the firm of Crowe, Chizek and Company LLP to provide
financial advice with respect to the transaction provided for in this
Agreement.
3.18 Insurance. Citizens Bank currently maintains insurance in
amounts reasonably adequate for their operations. Citizens Bank has not
received any notice of a material premium increase over current rates or
cancellation with respect to any of its insurance policies or bonds, and
within the last three years, Citizens Bank has not been refused any
insurance coverage sought or applied for, and Citizens Bank has no reason
to believe that existing insurance coverage cannot be renewed as and when
the same shall expire, upon terms and conditions as favorable as those
presently in effect. Citizens Bank has Previously Disclosed a list of all
outstanding claims as of the date hereof by Citizens Bank under any
insurance policy. The deposits of Citizens Bank are insured by the FDIC in
accordance with the FDIA, and Citizens Bank has paid all assessments and
filed all reports required by the FDIA.
3.19 Environmental Liability. Citizens Bank has not received any
written notice of any legal, administrative, arbitral or other proceeding,
claim or action and, to the knowledge of Citizens Bank, there is no
governmental investigation of any nature ongoing, in each case that would
reasonably be expected to result in the imposition, on Citizens Bank of any
liability arising under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
there are no facts or circumstances which would reasonably be expected to
form the basis for any such proceeding, claim, action or governmental
investigation that would impose any such liability; and Citizens Bank is
not subject to any agreement, order, judgment, decree or memorandum by or
with any court, governmental authority, regulatory agency or third party
imposing any such liability.
3.20 Administration of Trust Accounts. Citizens Bank has properly
administered all common trust funds and collective investment funds and all
accounts for which it acts as a fiduciary or agent, including but not
limited to accounts for which it serves as a trustee, agent, custodian,
personal representative, guardian, conservator or investment advisor, in
accordance with the terms of the governing documents and applicable state
and federal law and regulation and common law, except where the failure to
do so would not, individually or in the aggregate, have a Material Adverse
Effect on Citizens Bank. Neither Citizens Bank, nor any director, officer
or employee of Citizens Bank acting on behalf of Citizens Bank, has
committed any breach of trust with respect to any such common trust fund or
collective investment fund or fiduciary or agency account, and the
accountings for each such common trust fund or collective investment fund
or fiduciary or agency account are true and correct in all material
respects and accurately reflect the assets of such common trust fund or
collective investment fund or fiduciary or agency account, except for such
breaches and failures to be true, correct and accurate which would not,
individually or in the aggregate, have a Material Adverse Effect on
Citizens Bank.
3.21 Intellectual Property. Citizens Bank owns the entire right,
title and interest in and to, or has valid licenses with respect to, all of
the Intellectual Property necessary in all material respects to conduct the
business and operations of Citizens Bank as presently conducted, except
where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on Citizens Bank. The ownership, licensing
or use of Intellectual Property by Citizens Bank does not conflict with,
infringe, misappropriate or otherwise violate the Intellectual Property
rights of any other person or entity. None of such Intellectual Property is
subject to any outstanding order, decree, judgment, stipulation,
settlement, lien, charge, encumbrance or attachment, which order, decree,
judgment, stipulation, settlement, lien, charge, encumbrance or attachment
would have a Material Adverse Effect on Citizens Bank. Except as
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set forth on Schedule 3.22, upon consummation of the transactions
contemplated by this Agreement, Community Bank will be entitled to continue
to use all such Intellectual Property without the payment of any fees,
licenses or other payments (other than ongoing payments required under
license agreements for software used by Citizens Bank in Previously
Disclosed amounts consistent with past practice).
3.22 Certain Information. When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness up to and including the time of the
Citizens Bank Shareholders' Meeting to vote upon the Merger, such
Registration Statement and all amendments or supplements thereto, with
respect to all information set forth or incorporated by reference therein
furnished by Citizens Bank relating to Citizens Bank, (i) shall comply in
all material respects with the applicable provisions of the Securities
Laws, and (ii) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading. All information
concerning Citizens Bank and its directors, officers, and shareholders
included (or submitted for inclusion) in any application and furnished by
it pursuant to Sections 5.2 or 5.3 of this Agreement shall be true, correct
and complete in all material respects.
3.23 Tax Treatment. As of the date of this Agreement, Citizens Bank
knows of no reason relating to it which would reasonably cause it to
believe that the Merger will not qualify as a reorganization under Section
368(a) of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
CBSI AND COMMUNITY BANK
Except as disclosed in any attached disclosure, CBSI and Community Bank
hereby jointly and severally represent and warrant to Citizens Bank as follows:
4.1 Capital Structure of CBSI. The authorized capital stock of CBSI
consists at June 30, 2000 of (i) 500,000 shares of preferred stock, ("CBSI
Preferred Stock"), none of which were issued and outstanding and (ii)
20,000,000 shares of common stock, no par value ("CBSI Common Stock"), of
which, as of the date hereof, 6,993,059 shares were issued and outstanding
and 648,100 shares were held in treasury. All outstanding shares of CBSI
capital stock have been duly authorized and validly issued and are fully
paid and nonassessable. None of the shares of CBSI's capital stock has been
issued in violation of the preemptive rights of any person. The shares of
CBSI Common Stock to be issued in connection with the Merger have been duly
authorized and, when issued in accordance with the terms of this Agreement
and Plan of Merger, will be validly issued, fully paid, nonassessable and
free and clear of any preemptive rights.
4.2 Organization, Standing and Authority of CBSI. CBSI is a duly
organized corporation, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to carry
on its business as now conducted and is duly licensed or qualified to do
business in the states of the United States and foreign jurisdictions where
its ownership or leasing of property or the conduct of its business
requires such qualification, except where the failure to be so licensed or
qualified would not have a Material Adverse Effect on CBSI. CBSI is
registered as a bank holding company under the Bank Holding Company Act.
4.3 Ownership of CBSI Subsidiaries; Capital Structure of CBSI
Subsidiaries. CBSI has no Subsidiary other than those disclosed in its
Annual Report on Form 10-K for the year ended December 31, 1999 or any
Subsidiary that is not a significant subsidiary under the SEC's Regulation
S-X. The outstanding shares of capital stock of Community Bank have been
duly authorized and validly issued and are fully paid and (except as
provided in 12 U.S.C. ss. 55 or Section 114 of the New York Banking Law)
nonassessable and all such shares are directly owned by CBSI free and clear
of all liens, claims and encumbrances. None of the shares of capital stock
of Community Bank has been issued in violation of the preemptive rights of
any person.
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4.4 Organization, Standing and Authority of CBSI Subsidiaries. Each
CBSI Subsidiary is a duly organized corporation or banking corporation,
validly existing and in good standing under applicable laws. Each CBSI
Subsidiary (i) has full power and authority to carry on its business as now
conducted, and (ii) is duly licensed or qualified to do business in the
states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
licensing or qualification and where failure to be licensed or qualified
would have a Material Adverse Effect on CBSI. Each CBSI Subsidiary has all
federal, state, local and foreign governmental authorizations necessary for
it to own or lease its properties and assets and to carry on its business
as it is now being conducted, except where the failure to be so authorized
would not have a Material Adverse Effect on CBSI.
4.5 Authorized and Effective Agreement.
(a) Each of CBSI and Community Bank has all requisite corporate power
and authority to enter into and perform all of its obligations under this
Agreement and Plan of Merger. The execution and delivery of this Agreement
and Plan of Merger and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of CBSI and Community Bank.
(b) Assuming the accuracy of the representation contained in Section
3.5(b) hereof, this Agreement and Plan of Merger constitute legal, valid
and binding obligations of each of CBSI and Community Bank, in each case
enforceable against it in accordance with their respective terms subject,
as to enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(c) Neither the execution and delivery of this Agreement and Plan of
Merger, nor consummation of the transactions contemplated hereby, nor
compliance by CBSI or Community Bank with any of the provisions hereof
shall (i) conflict with or result in a breach of any provision of the
articles or certificate of incorporation or association, charter or bylaws
of CBSI or Community Bank, (ii) assuming the consents and approvals
contemplated by Section 5.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, constitute or result in a breach of
any term, condition or provision of, or constitute a default under, or give
rise to any right of termination, cancellation or acceleration with respect
to, or result in the creation of any lien, charge or encumbrance upon any
property or asset of CBSI or Community Bank pursuant to, any note, bond,
mortgage, indenture, license, agreement or other instrument or obligation,
or (iii) assuming the consents and approvals contemplated by Section 5.3
hereof and the consents and approvals which are Previously Disclosed are
duly obtained, violate any order, writ, injunction, decree, statute, rule
or regulation applicable to CBSI or Community Bank, except (in the case of
clauses (ii) and (iii) above) for such violations, rights, conflicts,
breaches, creations or defaults which, either individually or in the
aggregate, will not have a Material Adverse Effect on CBSI.
(d) Except for approvals specified in Section 5.3 hereof and except as
expressly referred to in this Agreement, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
governmental or regulatory authority, or any other person, is required to
be made or obtained by CBSI or Community Bank on or prior to the Closing
Date in connection with the execution, delivery and performance of this
Agreement and Plan of Merger or the consummation of the transactions
contemplated hereby. As of the date hereof, CBSI is not aware of any reason
that the condition set forth in Section 6.1(b) of this Agreement would not
be satisfied.
4.6 SEC Documents; Regulatory Filings. CBSI has filed all SEC
Documents required by the Securities Laws and such SEC Documents complied,
as of their respective dates, in all material respects with the Securities
Laws. CBSI and each of the CBSI Subsidiaries has filed all reports required
by statute or regulation to be filed with any federal or state bank
regulatory agency, except where the failure to so file would not have a
Material Adverse Effect on CBSI, and such reports were prepared in
accordance with the applicable statutes, regulations and instructions in
existence as of the date of filing of such reports in all material
respects.
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4.7 Financial Statements; Books and Records; Minute Books. The CBSI
Financial Statements filed by CBSI in SEC documents prior to the date of
this Agreement fairly present, and the CBSI Financial Statements filed by
CBSI in SEC Documents after the date of the Agreement will fairly present
the consolidated financial position of CBSI and its consolidated
Subsidiaries as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity and cash flows of CBSI and its
consolidated Subsidiaries for the periods then ended and each such
financial statement has been or will be, as the case may be, prepared in
conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis except as disclosed
therein and except in the case of unaudited statements, as permitted by
Form 10-Q. The books and records of CBSI and each CBSI Subsidiary fairly
reflect in all material respects the transactions to which it is a party or
by which its properties are subject or bound. Such books and records have
been properly kept and maintained and are in compliance in all material
respects with all applicable legal and accounting requirements. The minute
books of CBSI and Community Bank contain records which are accurate in all
material respects of all corporate actions of its shareholders and Board of
Directors (including committees of its Board of Directors).
4.8 Material Adverse Change. CBSI has not, on a consolidated basis,
suffered any change in its financial condition, results of operations or
business since December 31, 1999 which individually or in the aggregate
with any other such changes would constitute a Material Adverse Effect with
respect to CBSI.
4.9 Absence of Undisclosed Liabilities. Neither CBSI nor any CBSI
Subsidiary has any liability (contingent or otherwise), excluding
contractually assumed contingencies, that is material to CBSI on a
consolidated basis, or that, when combined with all similar liabilities,
would be material to CBSI on a consolidated basis, except as disclosed in
the CBSI Financial Statements filed with the SEC prior to the date hereof.
4.10 Employee Benefit Plans. Each of the CBSI Plans complies in all
material respects with the requirements of applicable law, including ERISA
and the Code. For purposes of this Agreement, the term "CBSI Plan" means
each bonus, incentive compensation, severance pay, medical or other
insurance program, retirement plan, or other employee benefit plan program,
agreement or arrangement sponsored, maintained or contributed to by CBSI or
any trade or business, whether or not incorporated, that together with CBSI
or any of the CBSI Subsidiaries would be deemed a "single employer" under
Section 414 of the Code (an "ERISA Affiliate") or under which CBSI or any
ERISA Affiliate has any liability or obligation. No liability under Title
IV of ERISA has been incurred by CBSI or any ERISA Affiliate that has not
been satisfied in full, and no condition exists that presents a material
risk to CBSI or any ERISA Affiliate of incurring any such liability. Full
payment has been made, or will be made in accordance with Section 404(a)(6)
of the Code of all amounts that CBSI or any ERISA Affiliate is required to
pay under Section 412 of the Code or under the terms of the CBSI Plans, and
no accumulated funding deficiency (within the meaning of Section 412 of the
Code) exists with respect to any CBSI Plan.
4.11 Legal Proceedings. There are no actions, suits or proceedings
instituted, pending or, to the knowledge of CBSI and Community Bank,
threatened against CBSI, Community Bank or any CBSI Subsidiary or against
any asset, interest or right of CBSI or any CBSI Subsidiary that might have
a Material Adverse Effect on CBSI. There are no actual or threatened
actions, suits or proceedings which present a claim to restrain or prohibit
the transactions contemplated herein or to impose any material liability in
connection therewith.
4.12 Compliance with Laws. Except as Previously Disclosed, each of
CBSI and the CBSI Subsidiaries is in compliance in all material respects
with all statutes and regulations applicable to the conduct of its
business, and none of them has received notification from any agency or
department of federal, state or local government (i) asserting a material
violation of any such statute or regulation, (ii) threatening to revoke any
license, franchise, permit or government authorization or (iii) restricting
or in any way limiting its operations, except for such noncompliance,
violations, revocations and restrictions which would not, individually or
in the aggregate, have a Material Adverse Effect on CBSI. None of CBSI or
any CBSI Subsidiary is subject to any regulatory or supervisory cease and
desist order,
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agreement, directive, memorandum of understanding or commitment which could
be reasonably anticipated to have a Material Adverse Effect on CBSI, and
none of them has received any communication requesting that they enter into
any of the foregoing.
4.13 Tax Matters.
(a) CBSI and each CBSI Subsidiary have timely filed federal income tax
returns for each year through December 31, 1999 and have timely filed, or
caused to be filed, all other Tax Returns required to be filed with respect
to CBSI or any CBSI Subsidiary, except where the failure to file timely
such federal income and other Tax Returns would not, in the aggregate, have
a Material Adverse Effect on CBSI. All Taxes due by or on behalf of CBSI or
any CBSI Subsidiary have been paid or adequate reserves have been
established on the CBSI Financial Statements for the payment of such Taxes,
except where any such failure to pay or establish adequate reserves would
not, in the aggregate, have a Material Adverse Effect on CBSI. Neither CBSI
nor any CBSI Subsidiary will have any material liability for any such Taxes
in excess of the amounts so paid or reserves or accruals so established
except where such liability would not have a Material Adverse Effect on
CBSI.
(b) All Tax Returns filed by CBSI and each CBSI Subsidiary are
complete and accurate in all material respects. Neither CBSI nor any CBSI
Subsidiary is delinquent in the payment of any material Tax, and, except as
Previously Disclosed, none of them has requested any extension of time
within which to file any Tax Returns which have not since been filed.
Except as Previously Disclosed or as fully settled and paid or accrued on
the CBSI Financial Statements, no material audit examination, deficiency,
adjustment, refund claim or litigation with respect to Tax Returns, paid
Taxes, unpaid Taxes or Tax attributes of CBSI or any CBSI Subsidiary has
been proposed, asserted or assessed (tentatively or otherwise).
(c) Neither CBSI nor any CBSI Subsidiary is required to include in
income any adjustment in any taxable period ending after the date hereof
pursuant to Section 481(a) of the Code other than any adjustment for which
it already has made an accrual.
4.14 Brokers and Finders. Neither CBSI nor Community Bank, nor any of
their respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein.
4.15 Insurance. CBSI and the CBSI Subsidiaries each currently
maintains insurance in amounts considered by CBSI and any CBSI Subsidiary
as applicable, to be reasonably adequate for their operations. Neither CBSI
nor any CBSI Subsidiary has received any notice of a material premium
increase or cancellation with respect to any of its insurance policies or
bonds, and within the last three years, neither CBSI nor any CBSI
Subsidiary has been refused any insurance coverage sought or applied for,
and CBSI has no reason to believe that existing insurance coverage cannot
be renewed as and when the same shall expire, upon terms and conditions as
favorable as those presently in effect.
4.16 Environmental Liability. Neither CBSI nor any CBSI Subsidiary
has received any written notice of any legal, administrative, arbitral or
other proceeding, claim or action and, to the knowledge of CBSI and the
CBSI Subsidiaries, there is no governmental investigation of any nature
ongoing, in each case that could reasonably be expected to result in the
imposition, on CBSI or any CBSI Subsidiary of any liability arising under
any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, which liability would
have a Material Adverse Effect on CBSI; except as Previously Disclosed,
there are no facts or circumstances which could reasonably be expected to
form the basis for any such proceeding, claim, action or governmental
investigation that would impose any such liability; and neither CBSI nor
any CBSI Subsidiary is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency
or third party imposing any such liability.
4.17 Certain Information. When the Registration Statement or any
post-effective amendment thereto shall become effective, and at all times
subsequent to such effectiveness up to and including the
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time of the Citizens Bank Shareholders' Meeting to vote upon the Merger,
such Registration Statement and all amendments or supplements thereto, with
respect to all information set forth or incorporated by reference therein
furnished by CBSI relating to CBSI and the CBSI Subsidiaries, (i) shall
comply in all material respects with the applicable provisions of the
Securities Laws, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements contained therein not
misleading. All information concerning CBSI and its directors, officers,
shareholders and any Subsidiaries included (or submitted for inclusion) in
any application and furnished by it pursuant to Sections 5.2 or 5.3 of this
Agreement shall be true, correct and complete in all material respects.
4.18 Tax Treatment. As of the date of this Agreement, CBSI knows of
no reason relating to it or any of the CBSI Subsidiaries which would
reasonably cause it to believe that the Merger will not qualify as a
reorganization under Section 368(a) of the Code.
4.19 Merger Consideration. CBSI will have, at the Effective Time,
unissued shares of Common Stock and shares of Common Stock held in its
treasury that are not reserved for any other purpose sufficient to provide
the Merger consideration as set forth in Article II.
ARTICLE V
COVENANTS
5.1 Shareholders' Meeting. Citizens Bank shall submit this Agreement and
Plan of Merger to its shareholders for approval at a special meeting to be held
as soon as practicable. Subject to the fiduciary duties of the board of
directors of Citizens Bank as determined after consultation with counsel and
financial advisors, the board of directors of Citizens Bank shall recommend that
the shareholders vote in favor of and approve the Merger.
5.2 Proxy Statement; Registration Statement. As promptly as practicable
after the date hereof, CBSI shall prepare and file the Registration Statement
with the SEC, and Citizens Bank shall cooperate in the preparation of the
Registration Statement, which shall include the Proxy Statement to be mailed to
the shareholders of Citizens Bank in connection with obtaining the approval of
the Citizens Bank shareholders for the Merger. CBSI will advise Citizens Bank,
promptly after it receives notice thereof, of the time when the Registration
Statement or any post-effective amendment thereto has become effective or any
supplement or amendment has been filed, of the issuance of any stop order, of
the suspension of qualification of the CBSI Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction, or the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information. CBSI shall take all actions necessary to register or qualify the
shares of CBSI Common Stock to be issued in the Merger pursuant to all
applicable state "blue sky" or securities laws and shall maintain such
registrations or qualifications in effect for all purposes hereof. CBSI shall
apply for, and shall use reasonable best efforts to obtain, approval to list the
shares of CBSI Common Stock to be issued in the Merger on the NYSE, subject to
official notice of issuance, prior to the Effective Date.
5.3 Applications. As promptly as practicable after the date hereof, and
after a reasonable opportunity for review by counsel to Citizens Bank, CBSI,
Community Bank, and Citizens Bank shall submit any requisite applications for
prior approval of, and notices with respect to, the transactions contemplated
herein to the OCC and each of the parties hereto shall, and they shall cause
their respective Subsidiaries to, submit any applications, notices or other
filings to any other state or federal government agency, department or body the
approval of which is required for consummation of the Merger. Citizens Bank,
Community Bank, and CBSI each represents and warrants to the other that all
information concerning it and its directors, officers, shareholders and
subsidiaries included (or submitted for inclusion) in any such application and
furnished by it shall be true, correct and complete in all material respects.
Each party agrees to consult with the other parties with respect to obtaining
all necessary approvals and consents and each will keep the other apprised of
the status of matters relating to such approvals and consents.
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5.4 Best Efforts.
(a) Subject to the terms and conditions of this Agreement, CBSI, Community
Bank, and Citizens Bank shall each use its reasonable best efforts in good faith
to (i) furnish such information as may be required in connection with the
preparation of the documents referred to in Sections 5.2 and 5.3 above, and (ii)
take or cause to be taken all action necessary or desirable on its part so as to
permit consummation of the Merger at the earliest possible date, including,
without limitation, (1) obtaining the consent or approval of each individual,
partnership, corporation, association or other business or professional entity
whose consent or approval is required for consummation of the transactions
contemplated hereby, provided that Citizens Bank shall not agree to make any
payments or modifications to agreements in connection therewith without the
prior written consent of CBSI, which consent shall not be unreasonably withheld
and (2) requesting the delivery of appropriate opinions, consents and letters
from its counsel and independent auditors. Subject to the terms and conditions
of this Agreement, no party hereto shall take or fail to take, or cause or
permit its Subsidiaries to take or fail to take, or to the best of its ability
permit to be taken or omitted to be taken by any third persons, any action that
would substantially impair the prospects of completing the Merger pursuant to
this Agreement and Plan of Merger, that would materially delay such completion,
or that would adversely affect the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. In the event
that either party has taken any action, whether before, on or after the date
hereof, that would adversely affect such qualification, each party shall take
such action as the other party may reasonably request to cure such effect to the
extent curable without a Material Adverse Effect on either of the parties.
(b) Each party hereto shall give prompt notice to the other parties of (i)
the occurrence, or failure to occur, of any event which occurrence or failure
would be reasonably likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate at any time from the date hereof to
the Closing Date such that the condition set forth in Section 6.2(a) or 6.3(a),
as applicable, would not be met if such failure to be true or accurate were to
occur or be continuing on the Closing Date, and (ii) any material failure of any
party to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and each party shall use all
reasonable best efforts to remedy such failure.
(c) From the date of this Agreement through the Effective Date, to the
extent permitted by law, Citizens Bank shall provide such assistance to
Community Bank as reasonably necessary to assist Community Bank in preparing for
the conversion and transfer in connection with the merger all information
concerning the loans, deposits and other assets and liabilities of Citizens Bank
into Community Bank's own data processing system, with a view to facilitating
the integration of Community Bank's and Citizens Bank's systems and otherwise
combining Community Bank's and Citizens Bank's operations upon consummation of
the Merger. Such assistance shall include providing Community Bank with computer
file instructions with respect to the information in its data processing system
regarding the assets and liabilities of Citizens Bank, together with operational
procedures designed to implement the transfer of such information to Community
Bank, with a view to facilitating the integration of Community Bank's and
Citizens Bank's systems and otherwise combining Community Bank's and Citizens
Bank's operations upon consummation of the Merger, provided that the
confidentiality of customer information shall be preserved and no information
shall be transferred until the Effective Date. After execution of this
Agreement, Citizens Bank and Community Bank shall each designate an individual
to serve as liaison concerning the transfer of data processing information and
other similar operational matters.
(d) Each party shall provide and shall request its auditors to provide the
other party with such historical financial information regarding it (and related
audit reports and consents) as the other party may reasonably request for
disclosure purposes under the Securities Laws.
5.5 Investigation and Confidentiality. Citizens Bank and Community Bank
each will keep the other advised of all material developments relevant to its
business and to consummation of the transactions contemplated herein. Community
Bank and Citizens Bank each may make or cause to be made such investigation of
the financial and legal condition of the other as such party reasonably deems
necessary or advisable in connection with the transactions contemplated herein,
provided, however, that such investigation shall be reasonably related to such
transactions and shall not interfere unnecessarily with normal operations.
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Community Bank and Citizens Bank agree to furnish the other and the other's
advisors with such financial data and other information with respect to its
business and properties as such other party shall from time to time reasonably
request. No investigation pursuant to this Section 5.5 shall affect or be deemed
to modify any representation or warranty made by, or the conditions to the
obligations to consummate the Merger of, any party hereto. Each party hereto
shall hold all information furnished by the other party or any of such party's
Subsidiaries or representatives pursuant to this Agreement in confidence and in
accordance with, the confidentiality provisions of the letter of intent, dated
July 21, 2000, between Citizens Bank and Community Bank.
5.6 Press Releases. Citizens Bank and CBSI shall agree with each other as
to the form and substance of any press release related to this Agreement and
Plan of Merger or the transactions contemplated hereby, and shall consult each
other as to the form and substance of other public disclosures related thereto,
provided, however, that nothing contained herein shall prohibit any party,
following notification to the other parties, from making any disclosure which is
required by applicable law or NYSE rules.
5.7 Actions Pending the Merger.
(a) Prior to the Closing Date, and except as otherwise provided for by this
Agreement or consented to or approved by the other party hereto, each of CBSI
and Citizens Bank shall, and shall cause each of its Subsidiaries to, use its
reasonable best efforts to preserve its properties, business and relationships
with customers, employees and other persons.
(b) Citizens Bank shall not, except with the prior written consent of CBSI
(which consent will not be unreasonably withheld) or as expressly permitted by
this Agreement:
(1) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted,
or incur an obligation in excess of $25,000 or which requires performance
over more than one year (other than loans and investments booked in the
usual, regular and ordinary course of business);
(2) declare, set aside, make or pay any dividend or other distribution
in respect of its capital stock or earnings other than its regular
bi-annual cash dividends on Citizens Bank Common Stock in amounts not in
excess of $0.50 per share;
(3) issue any shares of its capital stock or permit any treasury
shares to become outstanding;
(4) incur any additional debt obligation or other obligation for
borrowed money other than in the ordinary course of business consistent
with past practice;
(5) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like
change in capitalization, or redeem, repurchase or otherwise acquire any
shares of its capital stock;
(6) amend its articles of association or bylaws; impose, or suffer the
imposition, on any share of stock of any Citizens Bank of any lien, charge
or encumbrance, or permit any such lien, charge or encumbrance to exist;
(7) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it
or consolidate with any other corporation, savings association or bank;
acquire control over any other firm, bank, corporation, savings association
or organization or create any Subsidiary;
(8) waive or release any material right or cancel or compromise any
material debt or claim other than in the ordinary course of business
consistent with past practice with prior notice to CBSI;
(9) liquidate or sell or dispose of, or acquire any, assets with a
value in excess of $25,000 (other than assets acquired in foreclosure, in
lieu of foreclosure or other legal proceedings relating to collateral for
loans); make any capital expenditure in excess of $25,000 in the aggregate;
or establish new branches
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or other similar facilities, close existing branches or similar facilities
or enter into or modify any leases or other contracts relating thereto;
(10) increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except in a manner consistent with past
practice or as required by law or contractual obligation in effect as of
the date hereof;
(11) change its lending, investment, asset/liability management or
other material banking policies in any material respect except as may be
required by changes in applicable law;
(12) change its methods of accounting in effect at December 31, 1999,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any
of its methods of reporting income, deductions or other items for federal
income tax purposes from those employed in the preparation of its federal
income tax returns for the year ended December 31, 1999, except as required
by applicable law;
(13) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"Takeover Proposal" (as defined below), or, except to the extent legally
required for the discharge of the fiduciary duties of its Board of
Directors, recommend or endorse any Takeover Proposal, or participate in
any discussions or negotiations, or provide third parties with any
nonpublic information, relating to any such inquiry or proposal or
otherwise facilitate any effort or attempt to make or implement a Takeover
Proposal; provided, however, that Citizens Bank may communicate information
about any such Takeover Proposal to its stockholders if, in the judgment of
Citizens Bank's Board of Directors, after consultation with outside counsel
and its financial advisor, such communication is necessary in order to
comply with its fiduciary duties to Citizens Bank's shareholders required
under applicable law. Citizens Bank will take all actions necessary or
advisable to inform the appropriate individuals or entities referred to in
the first sentence hereof of the obligations undertaken herein. Citizens
Bank will notify CBSI immediately if any such inquiries or Takeover
Proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with, Citizens Bank, and Citizens Bank will promptly inform CBSI in writing
of all of the relevant details with respect to the foregoing. As used in
this Agreement, "Takeover Proposal" shall mean any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving Citizens Bank or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
Citizens Bank other than the transactions contemplated or permitted by this
Agreement; or
(14) agree to do any of the foregoing or take any other action which
would in any manner interfere with, impede, delay, or make more costly the
consummation of the transactions contemplated hereby.
(c) Community Bank shall not except with the prior written consent of
Citizens Bank or as expressly permitted by this Agreement carry on its business
other than in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted.
5.8 Certain Policies. Prior to the Effective Date, Citizens Bank shall,
consistent with generally accepted accounting principles and on a basis mutually
satisfactory to it and Community Bank, modify and change its loan, litigation
and real estate valuation policies and practices (including loan classifications
and levels of reserves) so as to be applied on a basis that is consistent with
that of Community Bank.
5.9 Closing; Articles of Merger. The transactions contemplated by this
Agreement and Plan of Merger shall be consummated at a closing to be held at the
offices of the law firm of Bond, Schoeneck & King, LLP, One Lincoln Center,
Syracuse, New York on the first business day, or other mutually agreeable time,
following satisfaction of the conditions to consummation of the Merger set forth
in Article VI hereof in conjunction with the time specified in the certificate
of the OCC approving the Merger.
5.10 Affiliates. Citizens Bank and CBSI shall cooperate and use their best
efforts to identify those persons who may be deemed to be "affiliates" of
Citizens Bank within the meaning of Rule 145 promulgated by the Commission under
the Securities Act. Citizens Bank shall use its best efforts to cause each
person so
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identified to deliver to CBSI, no later than 30 days prior to the Effective
Date, a written Affiliate Agreement in a form to be agreed upon by CBSI and
Citizens Bank.
5.11 Citizens Bank Employees; Directors and Management; Indemnification.
(a) The current employees of Citizens Bank which continue as employees of
Community Bank after the Effective Date shall be given credit for past service
with Citizens Bank for purposes of determining eligibility for and vesting of
employee benefits (but not for pension benefit accrual purposes) under all
welfare and retirement programs maintained by Community Bank following the
Merger. Employees of Citizens Bank prior to the Effective Date who are provided
post-retirement health insurance benefits (including the current
Chairman/President) will be provided post-retirement health insurance benefits
under Community Bank's health insurance program on the same basis as employees
of Community Bank. The current Chairman/ President of Citizens Bank shall be
offered health insurance benefits for himself and his spouse through age 65,
subject to the terms and conditions under which such coverage is made available
to Community Bank employees. Nothing in this Section 5.11(a) shall be construed
to limit the ability of Community Bank to terminate the employment of any
employee for any reason or to review employee benefit programs from time to time
and to make changes as it deems appropriate or to require Community Bank to
provide employees or former employees of Citizens Bank with benefits more
favorable than those generally provided to employees of Community Bank.
(b) Prior to the Effective Date, Citizens Bank shall take all actions that
may be requested by CBSI in writing upon advance notice of not less than 30 days
with respect to (i) causing one or more Citizens Bank Plans to terminate as of
the Effective Date or for benefit accrual and entitlements to cease as of the
Effective Date, (ii) causing the continuation on and after the Effective Date of
any contract, arrangement or insurance policy relating to any Citizens Bank Plan
for such period as may be requested by CBSI, or (iii) cooperating with CBSI to
facilitate the merger of any Citizens Bank Plan into any CBSI Plan on or
following the Effective Date.
(c) CBSI and Community Bank and their respective Boards of Directors shall,
prior to the Effective Date, take all requisite action to, as of the Effective
Date, appoint Paul M. Cantwell, Jr. as a director of CBSI and Community Bank.
(d) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Date, a
director or officer of Citizens Bank is, or is threatened to be, made a party
based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director, officer or employee of
Citizens Bank, or (ii) this Agreement or any of the transactions contemplated
hereby or thereby, whether in any case asserted or arising before or after the
Effective Date, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. The parties will use its reasonable best
efforts directly or indirectly to cause the persons who served as directors or
officers of Citizens Bank on or before the Effective Date to be covered by
Citizens Bank's existing directors' and officers' liability insurance policy
(provided that CBSI may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not less
advantageous than such policy) but in no event shall any insured person be
entitled under this Section to insurance coverage more favorable than that
provided to him or her in such capacities as of the date hereof with respect to
acts or omissions resulting from their service as such on or prior to the
Effective Date. Such insurance coverage, if reasonably available at a reasonable
cost relative to the coverage obtained, shall commence on the Effective Date and
will be provided for a period of no less than four years after the Effective
Date; provided, however, that in no event shall CBSI be required to expend more
than the current amount expended by Citizens Bank (the "Insurance Amount") to
maintain or procure insurance coverage pursuant hereto and, provided, further,
that the Insurance Amount shall be deemed reasonable for purposes of this
Section. Citizens Bank agrees to renew any such existing insurance or to
purchase any "discovery period" insurance provided for thereunder at CBSI's
request.
5.12 Dividends. After the date of this Agreement, each of Community Bank
and Citizens Bank shall coordinate with the other the declaration of any
dividends in respect of CBSI Common Stock and Citizens
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Bank Common Stock and the record dates and payment dates relating thereto, it
being the intention of the parties hereto that holders of Citizens Bank Common
Stock shall not receive additional dividends, or fail to receive regular
dividends, for any period prior to the Effective Date with respect to their
shares of Citizens Bank Common Stock and for any period following the Effective
Date with respect to any shares of CBSI Common Stock any such holder receives as
Merger consideration. In keeping with this intent, assuming that the Effective
Date of the Merger is prior to the record date for the CBSI fourth quarter
dividend for fiscal year 2000, Citizens Bank and CBSI would coordinate the
declaration of dividends so that the Citizens Bank Board of Directors would
declare a special dividend to Citizen shareholders to cover the third quarter of
fiscal year 2000 and Citizen shareholders receiving CBSI stock in the Merger
would receive the CBSI fourth quarter dividend.
5.13 Advisory Council. Promptly following the Effective Date, Community
Bank shall cause to be formed an Advisory Council comprised of the members of
the board of directors of Citizens Bank as of the Effective Date, other than
such members as become directors of CBSI pursuant to Section 5.11(d) hereof, the
function of which is to advise Community Bank on deposit and lending activities
in Citizens Bank's market area and to insure a smooth transition of business
relationships in connection with the Merger and the continued development of
business relationships throughout Northern New York. As compensation for serving
on the Advisory Council for two years, its members shall each be entitled to
receive 1,000 shares of restricted CBSI Common Stock, 500 shares of which shall
vest at the conclusion of one year's service after the Closing Date and the
remaining 500 shares to vest at the conclusion of two years of service after the
Closing Date. The Advisory Council will be reconstituted at the second
anniversary of the Closing Date to consist of the members of the Advisory
Council who at that time would and continue to comply with Community Bank's
mandatory retirement policy for directors (age 70). Members of the Advisory
Council who continue to serve after the second anniversary of the Closing Date,
will be compensated at the rate of 250 shares of restricted CBSI Common Stock
per year for the third and fourth year's service on the Advisory Council
following the Closing Date. The Advisory Council may be continued beyond the
fourth year following the Closing Date at the discretion of the board of
directors of Community Bank.
5.14 Takeover Laws. No party hereto shall take any action that would cause
the transactions contemplated by this Agreement and Plan of Merger to be subject
to the requirements imposed by any Takeover Law, and each of them shall take all
necessary steps within its control to exempt (or ensure the continued exemption
of) the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Law, as now
or hereafter in effect. For purposes of this Section, Takeover Law shall mean
any legal requirement related to mergers, business combinations, sale of
control, affiliate transactions, or antitrust laws or regulations which is
applicable to the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of CBSI, Community Bank and
Citizens Bank. The respective obligations of the parties to effect the Merger
shall be subject to satisfaction or waiver of the following conditions at or
prior to the Closing Date:
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Agreement and Plan of Merger and
consummation of the transactions contemplated hereby and thereby, including
without limitation the stockholder approval contemplated by Section 5.1
hereof, shall have been duly and validly taken;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Agreement and Plan of Merger, all notice periods and
waiting periods required after the granting of any such approvals shall
have passed and all conditions contained in any such approval required to
have been satisfied prior to consummation of such transactions shall have
been satisfied;
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(c) The Registration Statement (including any post-effective amendment
thereto) shall be effective under the Securities Act, and no proceeding
shall be pending, or to the knowledge of CBSI, threatened by the Commission
to suspend the effectiveness of such Registration Statement, and CBSI shall
have received all state securities or "Blue Sky" permits or other
authorizations, or confirmations as to the availability of an exemption
from registration requirements as may be necessary;
(d) To the extent that any lease, license, loan, financing agreement
or other contract or agreement to which Citizens Bank is a party requires
the consent of or waiver from the other party thereto as a result of the
transactions contemplated by this Agreement, such consent or waiver shall
have been obtained, unless the failure to obtain such consents or waivers,
individually or in the aggregate, would not have a Material Adverse Effect
on Citizens Bank;
(e) None of the parties hereto shall be subject to any order, decree
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of the transactions contemplated by this
Agreement and Plan of Merger;
(f) The shares of CBSI Common Stock that may be issued in the Merger
which shall have been approved for listing on the NYSE, subject to official
notice of issuance; and
(g) CBSI and Citizens Bank shall have received an opinion in form and
substance reasonably satisfactory to CBSI and Citizens Bank, dated as of
the date the Registration Statement is effective and on the Effective Date,
substantially to the effect that, on the basis of facts, representations
and assumptions set forth or referred to in such opinion, the Merger will
be treated for federal income tax purposes as a reorganization or part of a
reorganization within the meaning of Section 368(a) of the Code, and that:
(i) Citizens Bank, CBSI and Community Bank will each be a party to
such reorganization within the meaning of Section 368(b) of the Code;
(ii) No gain or loss will be recognized by CBSI, Community Bank or
Citizens Bank as a result of the Merger (except for amounts resulting
from any required change in accounting methods, any income and deferred
gain recognized pursuant to Treasury regulations issued under Section
1502 of the Code, or other exceptions as set forth in such opinion);
(iii) No gain or loss will be recognized by Citizens Bank
shareholders with respect to shares of CBSI Common Stock received in
exchange for all of their shares of Citizens Bank Common Stock;
(iv) Each Citizens Bank shareholder's aggregate tax basis in any
shares of CBSI Common Stock received in the transaction will be the same
as the aggregate tax basis of the shares of Citizens Bank Common Stock
such shareholder surrendered in the exchange therefor; and
(v) Each Citizens Bank shareholder's holding period in any shares
of CBSI Common Stock received in the transaction will, in each instance,
include the period during which the shares of Citizens Bank Common Stock
surrendered in exchange therefor were held, provided that such shares of
Citizens Bank Common Stock were held as capital assets by the
shareholder on the Effective Date.
(h) The current Chairman/President of Citizens and Community Bank
shall have entered into a consulting agreement providing for the continued
service of Mr. Cantwell on a part-time basis (not to exceed 250 hours per
year) for a period of five years following the Closing Date. The agreement
shall provide, among other matters, for compensation at the rate of $50,000
per year (grossed-up for FICA taxes) and reimbursement for business
expenses. Mr. Cantwell's responsibilities shall include business
development activities and other responsibilities as may be reasonably
assigned in connection with corporate and business advisory matters with
respect to the markets served by Citizens Bank.
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6.2 Conditions Precedent to Obligations of Citizens Bank. The obligations
of Citizens Bank to effect the Merger shall be subject to satisfaction of the
following additional conditions at or prior to the Closing Date unless waived by
Citizens Bank pursuant to Section 7.4 hereof:
(a) The representations and warranties of CBSI and Community Bank set
forth in Article IV hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (or on the date when made in the
case of any representation and warranty which specifically relates to an
earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by Citizens Bank; provided, however, that (i) in
determining whether or not the condition contained in this paragraph (a)
shall be satisfied, no effect shall be given to any exceptions in such
representations and warranties relating to materiality or Material Adverse
Effect and (ii) the condition contained in this paragraph (a) shall be
deemed to be satisfied unless the failure of such representations and
warranties to be so true and correct constitute, individually or in the
aggregate, a Material Adverse Effect on CBSI;
(b) CBSI and Community Bank shall have in all material respects
performed all obligations and complied with all covenants required by this
Agreement and Plan of Merger to be performed or complied with at or prior
to the Closing Date;
(c) Each of CBSI and Community Bank shall have delivered to Citizens
Bank a certificate, dated the Closing Date and signed by its respective
President and CEO or Senior Vice President to the effect that the
conditions set forth in paragraphs (a) and (b) of this section have been
satisfied.
6.3 Conditions Precedent to Obligations of CBSI and Community Bank.
The respective obligations of CBSI and Community Bank to effect the Merger
shall be subject to satisfaction of the following additional conditions at or
prior to the Closing Date unless waived by CBSI pursuant to Section 7.4 hereof:
(a) The representations and warranties of Citizens Bank set forth in
Article III hereof shall be true and correct in all material respects as of
the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in
writing by CBSI; provided, however, that (i) in determining whether or not
the condition contained in this paragraph (a) shall be satisfied, no effect
shall be given to any exceptions in such representations and warranties
relating to materiality or Material Adverse Effect and (ii) the condition
contained in this paragraph (a) shall be deemed to be satisfied unless the
failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on
Citizens Bank;
(b) Citizens Bank shall have in all material respects performed all
obligations and complied with all covenants required by this Agreement and
Plan of Merger to be performed or complied with at or prior to the Closing
Date;
(c) Citizens Bank shall have delivered to CBSI and Community Bank a
certificate, dated the Closing Date and signed by its Chairman or President
and Chief Executive Officer to the effect that the conditions set forth in
paragraphs (a) and (b) of this section have been satisfied; and
(d) Dissenters' rights shall not have been exercised with respect to
more than 7.5% of the outstanding shares of Citizens Bank Common Stock.
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ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination. This Agreement and Plan of Merger may be terminated,
either before or after approval by the shareholders of Citizens Bank:
(a) At any time on or prior to the Effective Date, by the mutual
consent in writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by CBSI in writing,
if Citizens Bank has, or by Citizens Bank in writing, if CBSI or Community
Bank has, in any material respect, breached (i) any covenant or agreement
contained herein or (ii) any representation or warranty contained herein,
and in either case if (x) such breach has not been cured by the earlier of
30 days after the date on which written notice of such breach is given to
the party committing such breach or the Closing Date and (y) such breach
would entitle the non-breaching party not to consummate the transactions
contemplated hereby under Article V hereof;
(c) At any time, by any party hereto in writing, if the applications
for prior approval referred to in Section 5.3 hereof have been finally
denied, and the time period for appeals and requests for reconsideration
has run, or if any governmental entity of competent jurisdiction shall have
issued a final nonappealable order enjoining or otherwise prohibiting the
Merger;
(d) At any time, by any party hereto in writing, if the shareholders
of Citizens Bank do not approve the transactions contemplated herein at the
special meeting duly called for that purpose; or
(e) By any party hereto in writing, if the Closing Date has not
occurred by the close of business on March 31, 2001 unless the failure of
the Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements set forth herein.
7.2 Effect of Termination. In the event this Agreement and is terminated
pursuant to Section 7.1 hereof, this Agreement shall become void and have no
effect, except that (i) the provisions relating to confidentiality and expenses
set forth in Sections 5.5, 7.6 and 8.1 hereof, respectively, shall survive any
such termination and (ii) a termination pursuant to Section 7.1(b)(i) or (b)(ii)
shall not relieve the breaching party from liability for an uncured willful
breach of such covenant or agreement or representation or warranty giving rise
to such termination.
7.3 Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant hereto or thereto 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, that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive CBSI, Community Bank or Citizens Bank (or any
director, officer or controlling person thereof) of any defense in law or equity
which otherwise would be available against the claims of any person, including,
without limitation, any shareholder or former shareholder of either CBSI or
Citizens Bank, the aforesaid representations, warranties and covenants being
material inducements to the consummation by CBSI, Community Bank and Citizens
Bank of the transactions contemplated herein.
7.4 Waiver. Except where not permitted by law, CBSI, Community Bank and
Citizens Bank, respectively, by written instrument signed by an executive
officer of such party, may at any time (whether before or after approval of this
Agreement by the shareholders of Citizens Bank) extend the time for the
performance of any of the obligations or other acts of Citizens Bank, on the one
hand, or CBSI or Community Bank, on the other hand, and may waive (i) any
inaccuracies of such parties in the representations or warranties contained in
this Agreement or any document delivered pursuant hereto, (ii) compliance with
any of the covenants, undertakings or agreements of such parties, or
satisfaction of any of the conditions precedent to its obligations, contained
herein or (iii) the performance by such parties of any of its obligations set
out herein or therein; provided, however, that no such waiver, or amendment or
supplement contemplated by
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Section 7.5, executed after approval of this Agreement by the shareholders of
Citizens Bank shall, without the further approval thereof, change the amount or
kind of merger consideration set forth in Section 2.2.
7.5 Amendment or Supplement. This Agreement may be amended or supplemented
at any time only by mutual agreement of the parties hereto or thereto. Any such
amendment or supplement must be in writing and approved by their respective
boards of directors and/or officers authorized thereby and shall be subject to
the proviso in Section 7.4 hereto.
7.6 Termination Fee. If, within 12 calendar months following the date of
termination of this Agreement, an entity or person other than CBSI or an
affiliate of CBSI, enters into an agreement with Citizens Bank pursuant to which
such entity or person or affiliate would (i) merge or consolidate, or enter into
any similar transaction, with Citizens Bank, (ii) acquire all or substantially
all of the assets of Citizens Bank, or (iii) acquire beneficial ownership of
securities representing, or the right to acquire beneficial ownership or to vote
securities representing, 25% or more of the then outstanding shares of Citizens
Bank Common Stock, then Citizens Bank shall immediately pay to CBSI a fee of up
to $75,000 to reimburse CBSI and Community Bank for its costs and expenses,
including professional fees and expenses, incurred in connection with this
Agreement and the transactions contemplated hereby. Nothing in this Section 7.6
shall constitute a waiver or limitation, in whole or in part, of any legal or
equitable rights which CBSI may possess against any person or affiliate relating
to this Agreement, or relating to CBSI's relationship with Citizens Bank or for
any act or omission of such person or affiliate, including any tortious
interference with this Agreement or otherwise wrongfully inducing or causing any
breach of any such agreement. The provisions of this Section 7.6 shall not apply
in the event of termination of this Agreement pursuant to (i) Section 7.1(a),
(ii) Section 7.1(b) on account of an unremedied material breach by CBSI, (iii)
Section 7.1(c) or (d), or (iv) Section 7.1(e) (unless the failure to close shall
be due to the failure of Citizens Bank to perform or observe any of its
obligations set forth in this Agreement required to be performed or observed by
Citizens Bank on or before the Closing Date).
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses. Each party hereto shall bear and pay all costs and expenses
incurred by it in connection with the transactions contemplated in this
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that CBSI and Citizens Bank each shall bear and
pay 50% of all printing and mailing costs and filing fees associated with the
Registration Statement and the Proxy Statement.
8.2 Entire Agreement. This Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersede all prior arrangements or understandings with respect thereto, written
or oral, other than documents referred to herein. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and thereto and their respective successors. Except as specifically set
forth herein, nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto and thereto, and their
respective successors, any rights, remedies, obligations or liabilities. This
Agreement and the Plan of Merger, taken together, shall constitute a plan of
reorganization within the meaning of Section 368 of the Code.
8.3 No Assignment. No party hereto may assign any of its rights or
obligations under this Agreement to any other person.
8.4 Alternative Structure. Notwithstanding any provision of this Agreement
to the contrary, CBSI may, with the written consent of Citizens Bank, which
shall not be unreasonably withheld, elect, subject to the filing of all
necessary applications and the receipt of all required regulatory approvals, to
modify the structure of the acquisition of Citizens Bank set forth herein,
provided, that (i) the federal income tax consequences of any transactions
created by such modification shall not be other than those set forth in Section
6.1(g) hereof, (ii) the consideration to be paid to the holders of the Citizens
Bank Common Stock is not thereby changed in kind or reduced in amount as a
result of such modification and (iii) such modification will not materially
delay or jeopardize the consummation of the transactions contemplated by the
Agreement and the Plan of Merger.
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<PAGE> 84
8.5 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by facsimile transmission or overnight express or by registered or
certified mail, postage prepaid, addressed as follows:
If to Citizens Bank:
The Citizens National Bank of Malone
6 Elm Street
Malone, New York 12953
Attn: Paul M. Cantwell, Jr.
President
With a required copy to:
Mackenzie, Smith, Lewis, Michell & Hughes, LLP
600 M&T Building
Syracuse, New York 13221
Attn: Edward J. Moses, Esq.
If to CBSI or Community Bank:
Community Bank, N.A.
5790 Widewaters Parkway
Dewitt, New York 13214
Attn: Sanford A. Belden
President and Chief Executive Officer
With a required copy to:
Bond, Schoeneck & King, LLP
One Lincoln Center
Syracuse, New York 13202
Attn: George J. Getman, Esq.
8.6 Captions. The captions contained in this Agreement are for reference
purposes only and are not part of this Agreement.
8.7 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
[Remainder of this page left intentionally blank.]
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<PAGE> 85
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed by their duly authorized
officers, all as of the day and year first above written.
COMMUNITY BANK SYSTEM, INC.
/s/ SANFORD A. BELDEN
--------------------------------------
Sanford A. Belden
President and Chief Executive Officer
COMMUNITY BANK, N.A.
/s/ SANFORD A. BELDEN
--------------------------------------
Sanford A. Belden
President and Chief Executive Officer
THE CITIZENS NATIONAL BANK
OF MALONE
/s/ PAUL M. CANTWELL, JR.
--------------------------------------
Paul M. Cantwell, Jr.
President
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<PAGE> 86
ANNEX B
SECTION 215a OF TITLE 12 OF THE UNITED STATES CODE
MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
(a) APPROVAL OF COMPTROLLER, BOARD AND SHAREHOLDERS; MERGER AGREEMENT; NOTICE
CAPITAL STOCK; LIABILITY OF RECEIVING ASSOCIATION
One or more national banking associations or one more State banks, with the
approval of the Comptroller, under an agreement not inconsistent with this
subchapter, may merge into a national banking association located within the
same State, under the character of the receiving association. The merger
agreement shall --
(1) be agreed upon in writing by a majority of the board of directors
of each association or State bank participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least
two-thirds of its capital stock outstanding, or by a greater proportion of
such capital stock in the case of a State bank if the laws of the State
where it is organized so require, at a meeting to be held on the call of
the directors, after publishing notice of the time, place, and object of
the meeting for four consecutive weeks in a newspaper of general
circulation published in the place where the association or State bank is
located, or, if there is no such newspaper, then in the newspaper of
general circulation published nearest thereto, and after sending such
notice to each shareholder of record by certified or registered mail at
least ten days prior to the meeting, except to those shareholders who
specifically waive notice, but any additional notice shall be given to the
shareholders of such State bank which may be required by the laws of the
State where it is organized. Publication of notice may be waived, in cases
where the Comptroller determines that an emergency exists justifying such
waiver, by unanimous action of the shareholders of the association or State
banks;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located
and which will be outstanding upon completion of the merger, the amount of
stock (if any) to be allocated, and cash (if any) to be paid, to the
shareholders of the association or State bank being merged into the
receiving association; and
(4) provide that the receiving association shall be liable for all
liabilities of the association or State bank being merged into the
receiving association.
(b) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiving association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash; (2)
one selected by the directors of the receiving association; and (3) one selected
by the two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be satisfactory to any
dissenting shareholder who has requested payment, that shareholder may, within
five days after being notified
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<PAGE> 87
of the appraised value of his shares, appeal to the Comptroller, who shall cause
a reappraisal to be made which shall be final and binding as to the value of the
shares of the appellant.
(d) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS; APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES;
STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
(e) STATUS OF RECEIVING ASSOCIATION; PROPERTY RIGHTS AND INTERESTS VESTED AND
HELD AS FIDUCIARY
The corporate existence of each of the merging banks or banking
associations participating in such merger shall be merged into and continued in
the receiving association and such receiving association shall be deemed to be
the same corporation as each bank or banking association participating in the
merger. All rights, franchises, and interests of the individual merging banks or
banking associations in and to every type of property (real, personal, and
mixed) and choses in action shall be transferred to and vested in the receiving
association by virtue of such merger without any deed or other transfer. The
receiving association, upon the merger and without any order or other action on
the part of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of lunatics, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by any one of the merging banks or banking
associations at the time of the merger, subject to the conditions hereinafter
provided.
(f) REMOVAL AS FIDUCIARY; DISCRIMINATION
Where any merging bank or banking association, at the time of the merger,
was acting under appointment of any court as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver, or
committee of estates of lunatics, or in any other fiduciary capacity, the
receiving association shall be subject to removal by a court of competent
jurisdiction in the same manner and to the same extent as was such merging bank
or banking association prior to the merger. Nothing contained in this section
shall be considered to impair in any manner the right of any court to remove the
receiving association and to appoint in lieu thereof a substitute trustee,
executor, or other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor
shall any receiving association be removed solely because of the fact that it is
a national banking association.
(g) ISSUANCE OF STOCK BY RECEIVING ASSOCIATION; PREEMPTIVE RIGHTS
Stock of the receiving association may be issued as provided by the terms
of the merger agreement, free from any preemptive rights of the shareholders of
the respective merging banks.
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<PAGE> 88
PART II:
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify any director, officer, employee or other agent of the
corporation.
The Registrant's By-laws provide indemnity to the Registrant's directors
and officers in such capacity or as directors or officers of a wholly-owned
subsidiary of the Registrant for liability resulting from judgments, fines,
expenses or settlement amounts actually and reasonably incurred in connection
with any action brought against such person in such capacity to the fullest
extent and in the manner set forth in and permitted by the Delaware General
Corporation Law, and any other applicable law, as from time to time in effect.
Under Delaware law and the By-laws, no indemnification may be provided for any
person with respect to any matter as to which he or she shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his or her action was in the best interests of the Registrant or of
such subsidiary.
In addition, as permitted under Delaware law, the Registrant maintains
liability insurance covering directors and officers of the Registrant and its
subsidiaries.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated September 26, 2000, by and among the Registrant,
Community Bank, N.A. and The Citizens National Bank of Malone(1)
3.1 Certificate of Incorporation, as amended, of the Registrant
3.2 Bylaws, as amended, of the Registrant
5.1 Opinion of Bond, Schoeneck & King, LLP as to the validity of the securities being registered
8.1 Opinion of PricewaterhouseCoopers, LLP as to tax matters
10.1 Form of Agreement between Community Bank, N.A. and directors of The Citizens National Bank
of Malone
10.2 Form of Consulting Agreement between Community Bank, N.A. and Paul M. Cantwell, Jr.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Bond, Schoeneck & King, LLP (included in Exhibit 5.1)
23.3 Consent of PricewaterhouseCoopers LLP (included in Exhibit 8.1)
23.4 Consent of Mackenzie Smith Lewis Michell & Hughes LLP
23.5 Consent of Crowe, Chizek and Company LLP
24.1 Power of Attorney (included in signature page)
99.1 Form of proxy card
</TABLE>
---------------
(1) Attached as Annex A to the proxy statement/prospectus included in this
Registration Statement on Form S-4.
(b) Not applicable.
(c) Not applicable.
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<PAGE> 89
ITEM 22. UNDERTAKINGS
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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
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 herein, that was not the subject of and included
in the registration statement when it became effective.
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<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement or amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in DeWitt, New York on
this 20th day of October, 2000.
COMMUNITY BANK SYSTEM, INC.
By: /s/ SANFORD A. BELDEN
------------------------------------
Name: Sanford A. Belden
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints each of Sanford
A. Belden and David G. Wallace, severally, acting alone and without the other,
his true and lawful attorney-in-fact with the authority to execute in the name
of each such person, any and all amendments (including without limitation, post-
effective amendments) to this Registration Statement on Form S-4, to sign any
and all additional registration statements relating to the same offering of
securities as this Registration Statement that are filed pursuant to Rule 462(b)
of the Securities Act, and to file such registration statements with the
Securities and Exchange Commission, together with any exhibits thereto and other
documents therewith, necessary or advisable to enable the registrant to comply
with the Securities Act, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make
such other changes in the Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ SANFORD A. BELDEN Director, President and Chief October 20, 2000
--------------------------------------------------- Executive Officer (Principal
Sanford A. Belden Executive Officer)
/S/ DAVID G. WALLACE Treasurer October 20, 2000
--------------------------------------------------- (Principal Financial Officer)
David G. Wallace
/S/ CHARLES M. ERTEL Assistant Treasurer October 20, 2000
--------------------------------------------------- (Principal Accounting Officer)
Charles M. Ertel
/S/ JOHN M. BURGESS Director October 20, 2000
---------------------------------------------------
John M. Burgess
/S/ RICHARD C. CUMMINGS Director October 20, 2000
---------------------------------------------------
Richard C. Cummings
/S/ WILLIAM M. DEMPSEY Director October 20, 2000
---------------------------------------------------
William M. Dempsey
</TABLE>
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<PAGE> 91
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ NICHOLAS A. DICERBO Director October 20, 2000
---------------------------------------------------
Nicholas A. Dicerbo
/S/ JAMES A. GABRIEL Director October 20, 2000
---------------------------------------------------
James A. Gabriel
/S/ LEE T. HIRSCHEY Director October 20, 2000
---------------------------------------------------
Lee T. Hirschey
/S/ DAVID C. PATTERSON Director October 20, 2000
---------------------------------------------------
David C. Patterson
/S/ WILLIAM N. SLOAN Director October 20, 2000
---------------------------------------------------
William N. Sloan
</TABLE>
II-4
