As filed with the Securities and Exchange Commission on April 3,
1998
Registration No. 333-______
_________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE FIRST JERMYN CORP.
(Exact name of registrant as specified in its charter)
Pennsylvania 6720 23-2275242
(State or other jurisdic- (Primary Standard (I.R.S. Employer
of incorporation Industrial Class- Identification
or organization) ification Code No. No.)
645 Washington Avenue
Jermyn, Pennsylvania 18433
(717) 876-6500
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
William M. Davis
President and Chief Executive Officer
The First Jermyn Corp.
645 Washington Avenue
Jermyn, Pennsylvania 18433
(717) 876-6500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
David W. Swartz, Esquire Frederick D. Lipman, Esquire
Stevens & Lee Blank Rome Comisky &
111 North Sixth Street McCauley LLP
P.O. Box 679 One Logan Square
Reading, PA 19603 Philadelphia, PA 19103-6998
<PAGE>
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered
in connection with the formation of a holding company and there
is compliance with General Instruction G, check the following
box: [ ]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering.[ ]
CALCULATION OF REGISTRATION FEE
_________________________________________________________________
Title of Amount to be Proposed Proposed Amount of
each class registered (1) maximum maximum registra-
of secur- offering aggregate tion fee (2)
ities to be price per offering
registered unit price
_________________________________________________________________
Common Stock, 750,000 Not Not
$1.25 par shares applicable applicable $7,212.81
value (with rights)
_________________________________________________________________
(1) Based on the maximum number of shares of the Registrant's
common stock that may be issued in connection with the
proposed merger (the "Merger") of Upper Valley Bancorp Inc.
("Upper Valley") with and into the Registrant. In
accordance with Rule 416, this Registration Statement shall
also register any additional shares of the Registrant's
common stock which may become issuable to prevent dilution
resulting from stock splits, stock dividends or similar
transactions as provided by the agreement relating to the
Merger.
(2) Estimated solely for purposes of calculating the
registration fee. Computed in accordance with
Rule 457(f)(2), on the basis of the book value of the common
stock of Upper Valley on February 28, 1998 of $24,450,195
and based on 1,000,599 shares of Upper Valley common stock
to be exchanged in the Merger and unexercised options to
purchase up to 55,000 shares of Upper Valley common stock.
___________________________
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
_________________________________________________________________
<PAGE>
[Letterhead of The First Jermyn Corp.]
THE FIRST JERMYN CORP.
Jermyn, Pennsylvania
April __, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 annual
meeting of shareholders of The First Jermyn Corp. which will be
held in the Conference Room of The First National Bank of Jermyn,
located at 1700 North Keyser Avenue, Scranton, Pennsylvania, at
9:00 a.m., local time, on May __, 1998.
At the annual meeting, in addition to considering the
election of directors, you will be asked to approve and adopt an
Agreement and Plan of Merger providing for the merger of Upper
Valley Bancorp, Inc. with and into The First Jermyn Corp. This
combination will create a regional community bank with
approximately $600 million in total assets and strong geographic
market presence in northeastern Pennsylvania.
The proposed merger is described in the accompanying
Joint Proxy Statement/Prospectus and its annexes. Please read
all of these materials carefully.
FIRST JERMYN'S BOARD OF DIRECTORS HAS DETERMINED THAT
THE MERGER IS IN THE BEST INTERESTS OF THE FIRST JERMYN CORP. AND
ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD HAS, BY UNANIMOUS VOTE
OF ALL DIRECTORS, APPROVED THE MERGER AND RECOMMENDS THAT YOU
VOTE FOR THE MERGER AGREEMENT AND FOR THE PROPOSED SLATE OF
DIRECTORS NAMED HEREIN AT THE ANNUAL MEETING.
Because of the significance of these matters to our
company, your participation in the annual meeting, in person or
by proxy, is especially important. We hope you will be able to
attend the meeting. However, whether or not you anticipate
attending in person, we urge you to complete, sign and return the
enclosed proxy card promptly to ensure that your shares will be
represented at the special meeting. If you attend the special
meeting, you will, of course, be entitled to vote in person.
Thank you very much for your continued interest and
support. We look forward to seeing you at the meeting.
Sincerely,
<PAGE>
THE FIRST JERMYN CORP.
645 Washington Avenue
Jermyn, Pennsylvania 18433
(717) 876-6500
____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May __, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Shareholders (including any adjournment or postponement, the
"First Jermyn Annual Meeting") of THE FIRST JERMYN CORP., a
Pennsylvania business corporation ("First Jermyn"), will be held
in the Conference Room of The First National Bank of Jermyn,
located at 1700 North Keyser Avenue, Scranton, Pennsylvania, at
9:00 a.m., local time, on __________________, May __, 1998, to
consider the following matters:
1. To fix the number of directors at twelve (12).
2. To elect two (2) Class II directors to hold office
for two years from the date of election.
3. To elect three (3) Class III directors to hold
office for three years from the date of election.
4. To approve and adopt the Agreement and Plan of
Merger, dated October 15, 1997 (the "Merger Agreement"),
between First Jermyn and Upper Valley Bancorp, Inc. ("Upper
Valley") attached as Annex A to the accompanying Joint Proxy
Statement/Prospectus, providing for the merger of Upper
Valley with and into First Jermyn, pursuant to which each
share of Upper Valley common stock, $0.50 par value,
outstanding immediately prior to the Merger (other than
dissenting shares under Pennsylvania law and shares owned
directly or indirectly by First Jermyn or Upper Valley) will
be converted into .6890 shares of First Jermyn common stock,
par value $1.25 per share, plus cash in lieu of any
fractional interest.
5. To vote on adjournment of the First Jermyn Annual
Meeting, if necessary, to permit further solicitation of
proxies in the event there are not sufficient votes at the
time of the First Jermyn Annual Meeting to approve the
Merger Agreement.
6. To consider such other matters as may properly be
brought before the First Jermyn Annual Meeting.
Only those First Jermyn shareholders of record at the
close of business on April __, 1998, shall be entitled to notice
of, and to vote at, the First Jermyn Annual Meeting.
Each share of First Jermyn Common Stock outstanding
will entitle the holder thereof to one vote on each matter which
may properly come before the First Jermyn Annual Meeting.
By order of the Board of Directors
________________________________
Martha Myshak,
Secretary
April __, 1998
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL
IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. IF
YOU ATTEND THE FIRST JERMYN ANNUAL MEETING,
YOU MAY VOTE IN PERSON EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY CARD.
<PAGE>
[LETTERHEAD OF UPPER VALLEY BANCORP, INC.]
April __, 1998
Dear Shareholder:
You are cordially invited to attend a special meeting of
shareholders (the "Upper Valley Special Meeting") of Upper Valley
Bancorp, Inc. ("Upper Valley") to be held on __________________,
May __, 1998, at _________________, local time, at the Regal
Room, ___________________, Olyphant, Pennsylvania.
At the Upper Valley Special Meeting, shareholders will
consider and vote upon the Agreement and Plan of Merger dated
October 15, 1997 (the "Merger Agreement"), between The First
Jermyn Corp. ("First Jermyn") and Upper Valley, providing for the
merger of Upper Valley with and into First Jermyn (the "Merger")
and the conversion of each outstanding share of common stock,
$0.50 par value per share, of Upper Valley (other than dissenting
shares under Pennsylvania law and shares owned by First Jermyn or
Upper Valley) into .6890 shares of common stock, $1.25 par value
per share, of First Jermyn ("First Jermyn Common Stock"), all as
more fully described in the accompanying Joint Proxy Statement/
Prospectus. First Jermyn will pay cash to Upper Valley
shareholders in lieu of issuing fractional shares of First Jermyn
Common Stock. Completion of the Merger is subject to certain
conditions, including the approval of the Merger Agreement by the
shareholders of First Jermyn and Upper Valley and the approval of
the Merger by various regulatory agencies.
The attached Joint Proxy Statement/Prospectus contains
important information concerning the Merger. We urge you to give
it your careful attention.
The Board of Directors of Upper Valley has carefully
considered and approved the Merger Agreement and believes that
the Merger is in the best interests of Upper Valley and its
shareholders. ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY
HAS APPROVED AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
MERGER AGREEMENT.
Your vote is important regardless of the number of shares
you own. Whether or not you plan to attend the Upper Valley
Special Meeting, the Board of Directors of Upper Valley urges you
to complete, sign, date, and return the enclosed Proxy Card
promptly in the enclosed postage-paid envelope. This will not
prevent you from voting in person at the First Jermyn Annual
Meeting but will assure that your vote is counted if you are
unable to attend.
On behalf of the Board of Directors and our employees, I
wish to thank you for your continued support. We appreciate your
interest.
Sincerely,
<PAGE>
UPPER VALLEY BANCORP, INC.
128 Lackawanna Avenue
Olyphant, Pennsylvania 18447-0010
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May __, 1998
____________________
NOTICE IS HEREBY GIVEN that a Special Meeting of
Shareholders (including any adjournment or postponement, the
"Upper Valley Special Meeting") of Upper Valley Bancorp, Inc.
("Upper Valley"), a Pennsylvania business corporation, will be
held on ________________, May __, 1998, at __________, local
time, at the Regal Room, _____________________, Olyphant,
Pennsylvania, to consider and vote upon the following matters,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus:
1. The approval and adoption of the Agreement
and Plan of Merger dated October 15, 1997 (the "Merger
Agreement") between The First Jermyn Corp. ("First Jermyn")
and Upper Valley, attached as Annex A to the accompanying
Proxy Statement/Prospectus, providing for the merger of
Upper Valley with and into First Jermyn (the "Merger"),
pursuant to which each share of Upper Valley common stock,
$0.50 par value per share, outstanding immediately prior to
the Merger (other than dissenting shares under Pennsylvania
law and shares owned directly or indirectly by First Jermyn
or Upper Valley) will be converted into .6890 shares of
First Jermyn common stock, $1.25 par value per share.
2. The adjournment of the Upper Valley Special
Meeting, if necessary, to permit further solicitation of
proxies in the event there are not sufficient votes at the
time of the Upper Valley Special Meeting to approve the
Merger Agreement.
3. The transaction of such other business as may
properly be brought before the Upper Valley Special Meeting.
THE BOARD OF DIRECTORS OF UPPER VALLEY HAS DETERMINED
THAT AN AFFIRMATIVE VOTE ON EACH PROPOSAL TO BE CONSIDERED AT THE
UPPER VALLEY SPECIAL MEETING IS IN THE BEST INTERESTS OF UPPER
VALLEY AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
"FOR" EACH PROPOSAL.
The Board of Directors of Upper Valley has fixed the
close of business on April __, 1998 as the record date for
determining shareholders entitled to notice of, and to vote at,
the Upper Valley Special Meeting.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF
SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE UPPER
VALLEY SPECIAL MEETING, THE BOARD OF DIRECTORS OF UPPER VALLEY
URGES YOU TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY
CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE UPPER
VALLEY SPECIAL MEETING BUT WILL ASSURE THAT YOUR VOTE IS COUNTED
IF YOU ARE UNABLE TO ATTEND.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES
AT THIS TIME.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph P. Coviello, Secretary
Olyphant, Pennsylvania
April __, 1998
IF YOU HAVE ANY QUESTIONS, PLEASE CALL
UPPER VALLEY AT (717) 489-1038
Attention: _____________________
<PAGE>
________________________________________________________________
THE FIRST JERMYN CORP. AND UPPER VALLEY BANCORP, INC.
JOINT PROXY STATEMENT
____________________
THE FIRST JERMYN CORP.
PROSPECTUS
________________________________________________________________
This Joint Proxy Statement/Prospectus ("Proxy
Statement/Prospectus") is being furnished to shareholders of The
First Jermyn Corp. ("First Jermyn"), a Pennsylvania business
corporation, and to shareholders of Upper Valley Bancorp, Inc.
("Upper Valley"), a Pennsylvania business corporation, in
connection with the solicitation of proxies by the respective
Boards of Directors of First Jermyn and Upper Valley for use at
the Annual Meeting of Shareholders of First Jermyn (including any
adjournments or postponements thereof, the "First Jermyn Annual
Meeting") and the Special Meeting of Shareholders of Upper Valley
(including any adjournments or postponements thereof, the "Upper
Valley Special Meeting" and, together with the First Jermyn
Annual Meeting, the "Meetings") to be held on May __, 1998 and
May __, 1998, respectively.
This Proxy Statement/Prospectus relates to up to
727,308 shares of common stock, par value, $1.25 per share, of
First Jermyn ("First Jermyn Common Stock") which may be issued
upon the merger of Upper Valley with and into First Jermyn (the
"Merger"), pursuant to an Agreement and Plan of Merger, dated
October 15, 1997 (the "Merger Agreement"). In the Merger, each
outstanding share of common stock, par value $0.50 per share, of
Upper Valley ("Upper Valley Common Stock") (other than any
dissenting shares under Pennsylvania law ("Dissenting Shares")
and shares, if any, then owned directly or indirectly by First
Jermyn or Upper Valley ("Excluded Shares")), will be converted
into and become the right to receive .6890 shares of First Jermyn
Common Stock.
The number of shares of First Jermyn Common Stock into
which each share of Upper Valley Common Stock (other than any
Dissenting Shares or Excluded Shares) will be converted in the
Merger will be further adjusted to prevent dilution in the event
of additional stock splits, reclassifications, or other similar
events, if any. First Jermyn will pay cash to Upper Valley
shareholders in lieu of issuing fractional shares of First Jermyn
Common Stock.
This Proxy Statement/Prospectus constitutes both
(i) the proxy statement of each of First Jermyn and Upper Valley
relating to the solicitation of proxies by their respective
Boards of Directors for use at the Meetings to be held for the
purpose of considering and voting upon the Merger Agreement and
(ii) the prospectus of First Jermyn with respect to the First
Jermyn Common Stock to be issued in the Merger.
This Proxy Statement/Prospectus is also being furnished
to holders of First Jermyn Common Stock in connection with the
solicitation of proxies to be used at the First Jermyn Annual
Meeting to elect two Class II directors for a term of two years
each and to elect three Class III directors for a term of three
years each. For convenience of reference, matters common to both
Upper Valley and First Jermyn are addressed first in this Proxy
Statement/Prospectus. Matters relating to the other matters to
be considered at the First Jermyn Annual Meeting can be found in
this Proxy Statement/Prospectus under the caption "FIRST JERMYN
ANNUAL MEETING -- OTHER MATTERS."
This Proxy Statement/Prospectus and the accompanying
form of proxy are first being mailed on or about April __, 1998.
THE SHARES OF FIRST JERMYN COMMON STOCK OFFERED HEREBY
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF FIRST JERMYN COMMON STOCK OFFERED HEREBY
ARE NOT SAVINGS ACCOUNTS, DEPOSITS, OR OTHER OBLIGATIONS OF A
BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
________________
The date of this Proxy Statement/Prospectus is
April __, 1998.
<PAGE>
Table of Contents
Page
AVAILABLE INFORMATION.................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......... 2
SUMMARY.................................................. 3
The Companies...................................... 3
The Meetings....................................... 4
The Merger......................................... 6
Certain Related Transactions....................... 14
Interests of Certain Persons in the Merger......... 14
Comparative Per Common Share Data.................. 15
SELECTED FINANCIAL DATA.................................. 18
PRO FORMA COMBINED FINANCIAL INFORMATION................. 21
Pro Forma Unaudited Combined Condensed Balance
Sheet as of December 31, 1997................ 21
Pro Forma Unaudited Combined Condensed Statements
of Income for the Years Ended December 31,
1997, 1996, and 1995......................... 23
THE MEETINGS............................................. 27
Date, Time and Place............................... 27
Matters To Be Considered at the Annual Meetings.... 27
Votes Required..................................... 28
Voting of Proxies.................................. 29
Revocability of Proxies............................ 30
Record Date; Stock Entitled to Vote; Quorum........ 30
Solicitation of Proxies............................ 30
THE MERGER............................................... 32
Background of and Reasons for the Merger;
Recommendations of the Boards of Directors... 32
Terms of the Merger................................ 36
Opinions of Investment Bankers..................... 37
Effective Date of the Merger....................... 46
Exchange of Upper Valley Stock Certificates........ 46
Conditions to the Merger........................... 48
Subsidiary Bank Merger............................. 49
Regulatory Approvals............................... 49
Representations and Warranties..................... 50
Business Pending the Merger........................ 50
Dividends.......................................... 52
No Solicitation of Transactions.................... 52
Amendment; Waivers................................. 53
Termination; Effect of Termination................. 53
Restated Articles of Incorporation and Bylaws...... 55
Management and Operations after the Merger......... 59
Employee Benefits.................................. 59
Accounting Treatment............................... 59
Certain Federal Income Tax Consequences............ 60
Expenses........................................... 61
Resale of First Jermyn Common Stock................ 61
Dissenters' Rights of Appraisal.................... 62
INTERESTS OF CERTAIN PERSONS IN THE MERGER............... 65
Stock Options...................................... 65
Indemnification; Directors and Officers Insurance.. 65
Employment Agreement............................... 66
INFORMATION WITH RESPECT TO FIRST JERMYN................. 67
General............................................ 67
Market Price of and Dividends on First Jermyn
Common Stock and Related Shareholder
Matters...................................... 67
DESCRIPTION OF FIRST JERMYN CAPITAL SECURITIES........... 69
Common Stock....................................... 69
Special Charter and Pennsylvania Corporate Law
Provisions................................... 70
COMPARISON OF SHAREHOLDER RIGHTS......................... 73
Directors.......................................... 73
Shareholder Meetings............................... 75
Inspection Rights.................................. 76
Antitakeover Provisions............................ 76
Required Shareholder Vote.......................... 77
Amendment of Bylaws................................ 78
Mandatory Tender Offer Provision................... 79
Dissenters' Rights................................. 79
Dividends.......................................... 80
Preemptive Rights.................................. 80
INFORMATION WITH RESPECT TO UPPER VALLEY................. 80
Description of Business............................ 80
Management's Discussion and Analysis of Financial
Condition and Results of Operations.......... 81
Market Price of and Dividends on Upper Valley
Common Stock and Related Shareholder Matters. 93
ADJOURNMENT.............................................. 94
FIRST JERMYN ANNUAL MEETING - OTHER MATTERS.............. 95
General............................................ 95
Election of Directors.............................. 95
Board and Committee Meetings; Director
Compensation................................. 98
Executive Compensation............................. 98
Report of the Compensation Committee............... 99
Performance Graph..................................100
Pension Plan.......................................101
Certain Transactions...............................102
Principal Shareholders of First Jermyn.............102
Independent Auditors...............................103
Other Matters......................................103
EXPERTS..................................................104
LEGAL MATTERS............................................104
OTHER MATTERS............................................104
SHAREHOLDER PROPOSALS....................................104
INDEX TO UPPER VALLEY FINANCIAL STATEMENTS...............F-1
ANNEXES
A. Agreement and Plan of Merger between
The First Jermyn Corp. and Upper Valley
Bancorp, dated October 15, 1997....................A-1
B. Amended and Restated Articles of Incorporation.....B-1
C. Amended and Restated Bylaws........................C-1
D. Opinion of Berwind Financial, L.P..................D-1
E. Opinion of Fox-Pitt Kelton, Inc....................E-1
F. Sections 1930 and 1571-1580 of the Pennsylvania
Business Corporation Law of 1988, as amended.......F-1
<PAGE>
No persons have been authorized to give any information
or to make any representations other than those contained in this
Proxy Statement/Prospectus in connection with the solicitation of
proxies or the offering of securities made hereby and, if given
or made, such information or representation must not be relied
upon as having been authorized by First Jermyn or Upper Valley.
This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, or
the solicitation of a proxy, in any jurisdiction to or from any
person to whom it is not lawful to make any such offer or
solicitation in such jurisdiction. Neither the delivery of this
Proxy Statement/Prospectus nor any distribution of securities
made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of First
Jermyn or Upper Valley since the date hereof or that the
information herein is correct as of any time subsequent to its
date.
All information concerning First Jermyn and its
subsidiaries contained herein, incorporated herein by reference,
or supplied herewith, has been furnished by First Jermyn, and all
information concerning Upper Valley and its subsidiaries
contained herein or supplied herewith, has been furnished by
Upper Valley.
AVAILABLE INFORMATION
First Jermyn is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The
reports, proxy statements, and other information filed by First
Jermyn with the Commission can be inspected and copied at the
offices of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Seven World Trade Center, New York, New York
10048, and Citicorp Center, 500 West Madison Avenue, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material also can
be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates, and from the web site that the Commission maintains at
http://www.sec.gov.
First Jermyn has filed with the Commission a
Registration Statement on Form S-4 (together with any amendments
thereto, the "Registration Statement") under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the
First Jermyn Common Stock to be issued pursuant to the Merger
Agreement. This Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement and the
exhibits thereto. Such additional information may be obtained
from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement/Prospectus or in any
document incorporated in this Proxy Statement/Prospectus by
reference or supplied herewith as to the contents of any contract
or other document referred to herein or therein are not
necessarily complete, and, in each instance, reference is made to
the copy of such contract or other document filed as an exhibit
to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by
First Jermyn (File No. 0-13312) pursuant to the Exchange Act are
incorporated by reference in this Proxy Statement/Prospectus:
- First Jermyn's Annual Report on Form 10-K for the
year ended December 31, 1997.
In addition, all documents filed by First Jermyn
pursuant to Section 13(a), 13(c), 14 and 15(d) of the Exchange
Act subsequent to the date of this Proxy Statement/Prospectus and
prior to the date of the Meetings shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and
to be a part hereof from the dates of filing of such documents or
reports. Any statement contained herein or in a document all or
a portion of which is incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except
as modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
A copy of First Jermyn's 1997 Annual Report accompanies
this Prospectus/Proxy Statement.
<PAGE>
SUMMARY
The following is a summary of certain information
contained elsewhere in this Proxy Statement/Prospectus.
Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained or
incorporated by reference in this Proxy Statement/Prospectus and
the Annexes hereto. A copy of the Merger Agreement (excluding
exhibits thereto) is set forth in Annex A to this Proxy
Statement/Prospectus and reference is made thereto for a complete
description of the terms of the Merger. Shareholders of First
Jermyn and Upper Valley are urged to read carefully this entire
Proxy Statement/Prospectus, including the Annexes hereto.
The Companies
First Jermyn
First Jermyn, a Pennsylvania business corporation, is
the holding company for The First National Bank of Jermyn, a
national banking association ("FNBJ"). At December 31, 1997,
First Jermyn and its subsidiaries had total consolidated assets,
deposits and shareholders' equity of approximately
$325.7 million, $292.1 million, and $31.3 million, respectively.
The primary operating entity of First Jermyn is FNBJ. The
primary business of FNBJ consists of attracting deposits from its
network of community banking offices, and originating commercial,
consumer, and residential mortgage and construction loans and
lines of credit in the communities served by those offices.
Those offices are located in Jermyn, Scranton, Jessup,
Carbondale, Minooka, and Daleville, Pennsylvania.
The principal executive offices of First Jermyn are
located at 645 Washington Avenue, Jermyn, Pennsylvania 18433, and
its telephone number is (717) 876-6500. For further information
concerning First Jermyn and its subsidiaries, see "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE,"
"FIRST JERMYN SELECTED FINANCIAL DATA," "INFORMATION WITH RESPECT
TO FIRST JERMYN" and "DESCRIPTION OF FIRST JERMYN CAPITAL
SECURITIES."
Upper Valley
Upper Valley, a Pennsylvania business corporation, is
the holding company for NBO National Bank, a national banking
association ("NBO"). At December 31, 1997, Upper Valley had
total consolidated assets, deposits, and shareholders' equity of
approximately $259.3 million, $192.7 million, and $24.4 million,
respectively. NBO has three full-service branches located in
Olyphant, Pittston and Scranton, Pennsylvania. NBO is
principally engaged in the business of taking deposits and making
residential mortgage, consumer, and commercial loans. NBO also
maintains a loan production office in Pittston, Pennsylvania and
offers trust services at its Scranton branch.
The principal executive offices of Upper Valley are
located at 114-116 Lackawanna Avenue, Olyphant, Pennsylvania
18447-0010 and its telephone number is (717) 489-1038. For
additional information concerning Upper Valley, see "UPPER VALLEY
SELECTED FINANCIAL DATA" and "INFORMATION WITH RESPECT TO UPPER
VALLEY."
The Meetings
General
The First Jermyn Annual Meeting will be held in the
Conference Room of The First National Bank of Jermyn, located at
1700 North Keyser Avenue, Scranton, Pennsylvania at 9:00 a.m.,
local time, on May __, 1998.
The Upper Valley Special Meeting will be held at the
Regal Room, located at ___________________, Olyphant,
Pennsylvania, at ___________________, local time, on May __,
1998.
Record Dates
The record date for the First Jermyn Annual Meeting is
March __, 1998 (the "First Jermyn Record Date"). The record date
for the Upper Valley Special Meeting is March __, 1998 (the
"Upper Valley Record Date"). Only shareholders of record at the
close of business on the First Jermyn Record Date or the Upper
Valley Record Date, as applicable, will be entitled to receive
notice of, and to vote at, the Meetings.
Matters to be Considered at the Meetings
First Jermyn. At the First Jermyn Annual Meeting,
holders of First Jermyn Common Stock will consider and vote upon
a proposal to approve and adopt the Merger Agreement attached as
Annex A to this Proxy Statement/Prospectus and incorporated
herein by reference. First Jermyn shareholders will also
consider and vote upon the election of two Class II directors to
serve for a term of two years each and three Class III directors
to serve for a term of three years each. See "FIRST JERMYN
ANNUAL MEETING -- OTHER MATTERS." In addition, shareholders of
First Jermyn are being asked to approve a proposal to adjourn the
First Jermyn Annual Meeting, if necessary, to permit further
solicitation of proxies in the event there are not sufficient
votes at the First Jermyn Annual Meeting to approve the Merger
Agreement (the "First Jermyn Adjournment Proposal").
Shareholders will also consider and vote upon any other matters
that may properly come before the First Jermyn Annual Meeting.
Upper Valley. At the Upper Valley Special Meeting,
holders of Upper Valley Common Stock will consider and vote upon
a proposal to approve and adopt the Merger Agreement attached as
Annex A to this Proxy Statement/Prospectus and incorporated
herein by reference. Shareholders of Upper Valley are being
asked to approve a proposal to adjourn the Upper Valley Special
Meeting, if necessary, to permit further solicitation of proxies
in the event there are not sufficient votes at the Upper Valley
Special Meeting to approve the Merger Agreement (the "Upper
Valley Adjournment Proposal"), and any other matter that may
properly come before the Upper Valley Special Meeting.
See "THE MEETINGS -- Matters to be Considered at the
Meetings."
Votes Required
First Jermyn. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the First Jermyn Record Date must be represented in person or
by proxy at the First Jermyn Annual Meeting for a quorum to be
present for purposes of voting on the Merger Agreement and the
other matters to be considered at the First Jermyn Annual Meeting
(other than the First Jermyn Adjournment Proposal). The approval
and adoption of the Merger Agreement will require the affirmative
vote of holders of at least 66-2/3% of the First Jermyn Common
Stock outstanding, in person or by proxy, at the First Jermyn
Annual Meeting. The approval of the First Jermyn Adjournment
Proposal will require the affirmative vote of a majority of the
votes cast, in person of by proxy, at the First Jermyn Annual
Meeting. Directors are elected by a plurality of the votes cast,
in person or by proxy, at the First Jermyn Annual Meeting.
Shareholders of First Jermyn are not entitled to cumulate votes
for the election of directors. On the First Jermyn Record Date,
directors and executive officers of First Jermyn owned
approximately 285,639 shares of First Jermyn Common Stock, or
approximately 32.2% of the then outstanding shares of First
Jermyn Common Stock; it is expected that all or substantially all
of these shares will be voted in favor of the Merger Agreement,
in favor of the First Jermyn Adjournment Proposal and for the
election as directors of the nominees of the Board of Directors.
Upper Valley. Shareholders entitled to cast at least a
majority of the votes which all shareholders are entitled to cast
on the Upper Valley Record Date must be represented in person or
by proxy at the Upper Valley Special Meeting for a quorum to be
present for purposes of voting on the Merger Agreement and on the
other matters to be considered at the Upper Valley Special
Meeting. The approval and adoption of the Merger Agreement and
the approval of the Upper Valley Adjournment Proposal will each
require the affirmative vote of a majority of the votes cast, in
person or by proxy, at the Upper Valley Special Meeting.
The directors and executive officers of Upper Valley
have indicated their intention to vote all shares of Upper Valley
Common Stock owned by such persons on the Upper Valley Record
Date in favor of the approval and adoption of the Merger
Agreement. On the Upper Valley Record Date, directors and
executive officers of Upper Valley owned approximately
_____________ shares of Upper Valley Common Stock or
approximately ____% of the then outstanding shares of Upper
Valley Common Stock that are entitled to be voted at the Upper
Valley Special Meeting.
See "THE MEETINGS -- Votes Required."
The Merger
Terms of the Merger
At the Effective Date of the Merger, each outstanding
share of Upper Valley Common Stock (other than any Dissenting
Shares or any Excluded Shares) will be automatically converted
into, and become a right to receive 0.689 shares of First Jermyn
Common Stock (the "Exchange Ratio"). The Exchange Ratio will be
adjusted to prevent dilution in the event of additional stock
splits, reclassifications, or other similar events.
First Jermyn will in all events pay cash to Upper
Valley shareholders in lieu of issuing fractional shares of First
Jermyn Common Stock.
In connection with the Merger, from and after the
Effective Date, all stock options to purchase shares of Upper
Valley Common Stock (the "Upper Valley Stock Options"), which are
then outstanding and unexercised, will be converted into and
become options to purchase shares of First Jermyn Common Stock.
First Jermyn will assume each such Upper Valley Stock Option in
accordance with the terms of the plan and agreement by which it
is evidenced; provided, however, that from and after the
Effective Date (i) each such Upper Valley Stock Option assumed by
First Jermyn may be exercised solely to purchase shares of First
Jermyn Common Stock, (ii) the number of shares of First Jermyn
Common Stock purchasable upon exercise of such Upper Valley Stock
Option shall be equal to the number of shares of Upper Valley
Common Stock purchasable under such Upper Valley Stock Option
immediately prior to the Effective Date multiplied by the
Exchange Ratio, and rounding up to the nearest whole share, and
(iii) the per share exercise price under each such Upper Valley
Stock Option shall be adjusted by dividing the per share exercise
price of each such Upper Valley Stock Option by the Exchange
Ratio, and rounding up to the nearest cent. See "THE MERGER --
Terms of the Merger" and "-- Accounting Treatment."
The Effective Date will be the date specified by the
parties to occur within five business days after satisfaction of
all conditions precedent to completion of the Merger. On the
Effective Date, Articles of Merger will be filed with the
Pennsylvania Department of State (the "PDS"). See "THE MERGER --
Effective Date."
Pursuant to the Merger Agreement, NBO will merge with
and into FNBJ as soon as practicable following the Merger, in
accordance with the terms of the Bank Plan of Merger (the "Bank
Plan of Merger"), dated October 15, 1997 (the "Bank Merger").
First Jermyn and Upper Valley presently contemplate that the Bank
Plan of Merger will occur during the fourth quarter of 1998. See
"THE MERGER -- Bank Merger."
Dissenters' Rights
Under Section 1930 and Chapter 15, Subchapter D, of the
Pennsylvania Business Corporation Law (the "BCL"), holders of
First Jermyn Common Stock and holders of Upper Valley Common
Stock who, prior to the vote of shareholders on the Merger,
properly file with First Jermyn or Upper Valley, as the case may
be, a written notice of intention to dissent will have the right
to obtain a cash payment for the "fair value" of their shares
(excluding any element of value arising in anticipation of the
Merger). In order to exercise such rights, a shareholder must
comply with the procedural requirements of Chapter 15,
Subchapter D, of the BCL, a description of which is provided in
"THE MERGER -- Dissenters' Rights" and the full text of which is
attached to this Proxy Statement/Prospectus as Annex F. Such
"fair value" would be determined in judicial proceedings, the
result of which cannot be predicted. Failure to take any of the
steps required under Chapter 15, Subchapter D, of the BCL on a
timely basis may result in the loss of dissenters' rights. See
"THE MERGER -- Dissenters' Rights of Appraisal."
Accounting Treatment and Certain Federal Income Tax
Consequences
The Merger is intended to qualify as a pooling of
interests for financial accounting purposes and is expected to
constitute a tax-free reorganization for federal income tax
purposes. It is a condition to completion of the Merger that
First Jermyn receive an opinion from its independent auditors
that the Merger will be treated as a pooling of interests for
financial accounting purposes and that both parties receive an
opinion from First Jermyn's counsel that the Merger will
constitute a tax-free reorganization for federal income tax
purposes. As of the date of the Proxy Statement/Prospectus,
First Jermyn has no reason to believe that its independent
auditors or its counsel will be unable to deliver such opinions.
See "THE MERGER -- Certain Federal Income Tax Consequences," "--
Accounting Treatment" and "-- Conditions to the Merger."
Recommendations of Boards of Directors and Reasons for
the Merger
First Jermyn. The Board of Directors of First Jermyn
believes that the terms of the Merger are fair and in the best
interests of the shareholders of First Jermyn and has unanimously
approved the Merger Agreement. The Board of Directors of First
Jermyn unanimously recommends that the shareholders of First
Jermyn approve the Merger Agreement.
Upper Valley. The Board of Directors of Upper Valley
believes that the terms of the Merger are fair and in the best
interests of the shareholders of Upper Valley and has unanimously
approved the Merger Agreement. The Board of Directors of Upper
Valley unanimously recommends that the shareholders of Upper
Valley approve the Merger Agreement.
Opinions of Investment Bankers
Berwind Financial, L.P. ("Berwind") has rendered its
oral opinion as of October 15, 1997, and its written opinion,
dated __________, 1998, to the Board of Directors of First Jermyn
that, as of the respective dates of such opinions, and subject to
the assumptions and considerations set forth therein, the
Exchange Ratio is fair from a financial point of view to the
holders of First Jermyn Common Stock. A copy of the opinion of
Berwind dated the date of this Proxy Statement/Prospectus, is
attached hereto as Annex D.
Fox-Pitt Kelton, Inc. ("Fox-Pitt Kelton") has rendered
its written opinion, dated October 15, 1997, and updated as of
____________, 1998, to the Board of Directors of Upper Valley
that, as of the respective dates of such opinions, and subject to
the assumptions and considerations set forth therein, the
consideration to be received is fair from a financial point of
view to the holders of Upper Valley Common Stock. A copy of the
opinion of Fox-Pitt Kelton, dated the date of this Proxy
Statement/Prospectus, is attached hereto as Annex E.
As of the date of this Proxy Statement/Prospectus, each
of First Jermyn and Upper Valley has paid all fees to Berwind and
Fox-Pitt Kelton, respectively, for services in connection with
the Merger.
For information on the assumptions made, matters
considered and limits of the reviews by Berwind and Fox-Pitt
Kelton, see "THE MERGER -- Opinions of the Investment Bankers."
Conditions to the Merger; Regulatory Approvals
The obligations of First Jermyn and Upper Valley to
complete the Merger are subject to various conditions usual and
customary in transactions similar to the Merger, including,
without limitation, obtaining requisite regulatory approvals and
obtaining approvals of the shareholders of both First Jermyn and
Upper Valley. Application has been made to obtain required
regulatory approvals for the Merger and, as of the date of this
Proxy Statement/Prospectus, such approvals have been obtained.
No assurance can be given that all required approvals will be
received or as to the timing or conditions of such approvals.
See "THE MERGER --Regulatory Approvals." The obligation of First
Jermyn to complete the Merger is also subject to certain other
conditions, including, among other things, receipt of an opinion
from First Jermyn's independent auditors to the effect that the
Merger will be treated as a pooling of interests for financial
accounting purposes. No assurances can be given that all such
conditions will be met. See "THE MERGER -- Conditions to the
Merger."
No Solicitation of Transactions
Upper Valley has agreed in the Merger Agreement that,
during the term of the Merger Agreement, neither it nor any of
its subsidiaries, affiliates, or representatives will solicit or
engage in any discussions with any person other than First Jermyn
concerning any acquisition of Upper Valley or any of its
subsidiaries, except that Upper Valley may respond to inquiries
from analysts, regulatory authorities, and shareholders in the
ordinary course of business. See "THE MERGER -- No Solicitation
of Transactions."
Termination; Effect of Termination
The Merger Agreement may be terminated on or at any
time prior to the Effective Date by mutual consent of First
Jermyn and Upper Valley or by either party if (i) the other party
breaches any representation or warranty contained in the Merger
Agreement which results in a Material Adverse Effect (as defined
in the Merger Agreement; see "THE MERGER -- Conditions to the
Merger") to the breaching party, and such breach has not or
cannot be cured within thirty days from the date written notice
of such breach was given to such party committing the breach,
(ii) the other party breaches any material covenant or
obligation, and such breach has not or cannot be cured within
thirty days from the date written notice of such breach was given
to such party committing the breach, (iii) the closing date (the
"Closing Date," which, under the terms of the Merger Agreement,
is the same date as the Effective Date) of the Merger shall not
have occurred by June 30, 1998, (iv) either party is notified by
a regulatory authority that a necessary approval is unlikely to
be granted unless the failure of such occurrence shall be due to
the failure of the party seeking to terminate the Merger
Agreement to perform or observe any agreements required to be
performed by such party by the Effective Date, or (iv) the amount
of the combined nonperforming assets of the other party and its
subsidiaries at the Closing Date increase by more that $1,000,000
over the amount of such combined nonperforming assets at
September 30, 1997.
In the event of termination of the Merger Agreement by
either First Jermyn or Upper Valley, there will be no liability
or obligation on the part of First Jermyn or Upper Valley other
than the obligation dealing with confidentiality and other than
any liabilities or damages incurred as a result of the willful
breach by a party of any of its representations, warranties,
covenants, or agreements set forth in the Merger Agreement;
provided, however, that (a) if, within 18 calendar months
following the date of termination of the Merger Agreement, a
person, group or entity other than First Jermyn or an affiliate
of First Jermyn, enters into an agreement with Upper Valley or
NBO pursuant to which such person, group or entity would
(i) merge or consolidate, or enter into any similar transaction,
with Upper Valley or NBO, (ii) acquire all or substantially all
of the assets of Upper Valley or NBO, 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 Upper Valley Common Stock
or NBO common stock, then Upper Valley shall immediately pay to
First Jermyn a termination fee ("Termination Fee") of
$1.5 million; or (b) if, within 18 calendar months following the
date of termination of this Agreement, a person, group or entity
other than Upper Valley or an affiliate of Upper Valley, enters
into an agreement with First Jermyn or FNBJ pursuant to which
such person, group or entity would (i) merge or consolidate, or
enter into any similar transaction, with First Jermyn or FNBJ,
(ii) acquire all or substantially all of the assets of First
Jermyn or FNBJ, 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 First Jermyn Common Stock or FNBJ
common stock, then First Jermyn shall immediately pay Termination
Fee to Upper Valley. No Termination Fee will be payable in the
event that the Merger Agreement is terminated pursuant to the
mutual written consent of the parties. In addition, no
Termination Fee will be payable in the event of termination of
the Merger Agreement following (i) an unremedied breach of a
representation or warranty by the party which would otherwise be
entitled to the Termination Fee which results in a Material
Adverse Effect, (ii) an unremedied breach of any material
covenant or other obligation by the party which would otherwise
be entitled to receive the Termination Fee, (iii) the failure to
complete the Merger by June 30, 1998, unless the failure of such
occurrence is due to the failure of the party which would
otherwise be required to pay the Termination fee to perform or
observe its agreements set forth in the Merger Agreement required
to be performed or observed prior to the Effective Date, (iv) the
notification of either party by a regulatory authority that a
necessary approval is unlikely to be granted, unless the failure
of such occurrence shall be due to the failure of the party which
would otherwise be required to pay the Termination Fee to perform
or observe any agreements set forth in the Merger Agreement
required to be performed or observed by such party prior to the
Effective Date, or (v) an increase in the amount of nonperforming
assets of the party which would otherwise be entitled to receive
the Termination Fee at the Effective Date by more than $1,000,000
from the amount of such nonperforming assets at September 30,
1997. See "THE MERGER -- Termination; Effect of Termination."
Comparison of Shareholder Rights
Both First Jermyn and Upper Valley are Pennsylvania
corporations subject to the provisions of the Pennsylvania
Business Corporation Law of 1988, as amended (the "Pennsylvania
BCL"). Upon completion of the Merger, shareholders of Upper
Valley will become shareholders of First Jermyn, and their rights
as such will be governed by the Articles of Incorporation and the
Bylaws of First Jermyn then in effect. The Merger Agreement sets
forth amended and restated Articles of Incorporation (the
"Restated Articles of Incorporation") and Bylaws (the "Restated
Bylaws") of First Jermyn which will be effective on and after the
Effective Date. In the event that shareholders of First Jermyn
and Upper Valley approve the Merger Agreement, the Restated
Articles of Incorporation and Restated Bylaws will also be
approved. Accordingly, upon completion of the Merger, both
shareholders of First Jermyn and shareholders of Upper Valley
will be governed by the Restated Articles of Incorporation and
the Restated Bylaws of First Jermyn. The rights of shareholders
of First Jermyn prior to the Merger and the rights of the
shareholders of Upper Valley are different in certain respects
from the rights of shareholders as they will exist upon
completion of the Merger under the Restated Articles of
Incorporation and the Restated Bylaws of First Jermyn. See "THE
MERGER -- Restated Articles of Incorporation and Bylaws of First
Jermyn" and "COMPARISON OF SHAREHOLDER RIGHTS."
Restated Articles of Incorporation and Bylaws
A fundamental consideration of the Boards of Directors
of each of First Jermyn and Upper Valley in deciding to approve
the Merger Agreement were provisions to be included in the
Restated Articles of Incorporation and Restated Bylaws of First
Jermyn attached hereto as Annexes B and C, respectively, which
are designed to discourage a nonnegotiated change of control of
First Jermyn after the Effective Date in order to permit
sufficient time for the combined companies to implement a
strategic plan and gain name recognition in the marketplace.
Provisions of the Restated Articles of Incorporation,
among other things, (i) require, until January 1, 2004, an 80%
vote of directors and the affirmative vote of the holders of 80%
of outstanding shares of First Jermyn Common Stock to approve a
merger, or other fundamental transaction involving First Jermyn
(unless First Jermyn would be the surviving entity in any such
transaction in which case the vote requirements would be 80% of
directors and 66-2/3% of outstanding shares, and (ii) require, on
and after January 1, 2004, a 66-2/3% vote of directors and
66-2/3% of outstanding shares of First Jermyn Common Stock to
approve a merger, or other fundamental transaction involving
First Jermyn. These supermajority shareholder voting provisions
do not apply to any transaction approved in advance by the
unanimous vote of the Board of Directors of First Jermyn. The
Restated Articles of Incorporation of First Jermyn also (i)
require any person or group who or which becomes the beneficial
owner of 25% or more of First Jermyn's Common Stock to offer to
purchase all other outstanding shares of such Common Stock for
cash at a price equal to the highest price paid by such person or
group for any shares of such Common Stock or, if the Board of
Directors so elects, at a price determined by an investment
banking firm selected by the Board of Directors and (ii) contain
supermajority voting provisions to amend certain provisions of
the Restated Articles of Incorporation and the Restated Bylaws.
Certain provisions of the Restated Bylaws (i) require,
until January 1, 2004, a supermajority vote of 80% of directors
to adopt or approve resolutions to study sale as a strategic
alterative for First Jermyn, approve a merger or other
fundamental transaction involving First Jermyn, or solicit
indications of interest or respond to proposals involving a
merger or other fundamental transaction involving First Jermyn in
which First Jermyn would not be the surviving or controlling
entity and (ii) contain director qualification requirements
which prohibit individual directors, absent an 80% vote of
directors, from soliciting proposals for the sale of First
Jermyn, providing nonpublic information to third parties
regarding First Jermyn or publicly commenting on First Jermyn's
strategic alternatives.
This summary is qualified in its entirety by the
complete copy of the Restated Articles of Incorporation and
Restated Bylaws appearing at Annexes B and C, respectively.
Certain provisions of the Restated Articles of Incorporation and
Restated Bylaws may have the effect of precluding or discouraging
persons who might otherwise be interested in acquiring all or a
significant interest in First Jermyn after the Effective Date
from doing so even if such persons were willing to pay a price
higher than prevailing market prices. See "THE MERGER--Restated
Articles of Incorporation and Bylaws of First Jermyn" and
"COMPARISON OF SHAREHOLDER RIGHTS."
Management and Operations after the Merger
On the Effective Date the Board of Directors of First
Jermyn, as the surviving corporation in the Merger, will consist
of those persons holding such office immediately prior to the
Effective Date and Saul Kaplan (to be elected as Class III
Director to serve until 2001), Harold S. Kaplan (to be elected as
Class III Director to serve until 2001), Joseph P. Coviello (to
be elected as a Class III Director to serve until 2001), Fred J.
Gentile (to be elected as a Class I Director to serve until
1999), Michael A. Barbetti (to be elected as a Class I Director
to serve until 1999), and Norman Woodworth (to be elected as
Class I Director to serve until 1999), all as further set forth
in the form of Restated Articles of Incorporation of First Jermyn
attached hereto as Annex B. In the Merger Agreement, First
Jermyn has agreed (i) to cause Messrs. Harold Kaplan, Saul Kaplan
and Coviello to be renominated for election to the Board of
Directors of First Jermyn at any annual or special meeting of the
shareholders of First Jermyn held through December 31, 2004 at
which the class of directors in which such individuals are
serving is considered for re-election and (ii) to cause Messrs
Gentile, Barbetti and Woodworth to be renominated for election to
the Board of Directors of First Jermyn at any annual or special
meeting of the shareholders of First Jermyn held through
December 31, 1999 at which the class of directors in which such
individuals are serving is considered for re-election.
The officers of First Jermyn duly elected and holding
office immediately prior to the effective date will be the
officers of First Jermyn, as surviving corporation in the merger,
existing on the Effective Date. Although the Merger Agreement
provided that John R. Adonizio, President of NBO and CEO of Upper
Valley, would be elected as an executive vice president of First
Jermyn effective as of the Effective Date, Mr. Adonizio has
advised the Board of Directors that he intends to terminate his
employment as of the Effective Date.
On the Effective Date of the Bank Merger, the directors
of FNBJ, as the surviving institution in the Bank Merger, will
consist of those persons holding such offices immediately prior
to the Effective Date and Messrs. Saul Kaplan, Harold Kaplan,
Joseph Coviello, Fred J. Gentile, Michael A. Barbetti, and Norman
Woodworth. In the Merger Agreement, First Jermyn has agreed to
cause such individuals to be elected to the Board of Directors of
FNBJ at any annual meeting or special meeting of First Jermyn, in
its capacity as sole shareholder of FNBJ, held during the time
that such individuals are serving as directors of First Jermyn.
On the Effective Date of the Bank Merger the officers
of FNBJ duly elected and holding office immediately prior to such
Effective Date will be the officers of FNBJ as the surviving
corporation in the Bank Merger.
The Merger Agreement provides that, on the Effective
Date the name of First Jermyn shall be changed to such name as
may be mutually agreed by First Jermyn and Upper Valley. The
parties have agreed that the name of First Jermyn will be changed
to "______________" on the Effective Date. The parties further
anticipate that the name of FNBJ will be changed to
"____________" or a name substantially similar on the effective
date of the Bank Merger.
See "THE MERGER -- Subsidiary Bank Merger," "--
Management and Operations after the Merger" and "--Employee
Benefits and Severance."
Exchange of Certificates
After the Effective Date, First Jermyn will send
transmittal materials to Upper Valley shareholders for use in
effecting the exchange of their certificates representing whole
shares of Upper Valley Common Stock for certificates representing
shares of First Jermyn Common Stock. First Jermyn will pay
holders of Upper Valley Common Stock cash in lieu of issuing
fractional shares of First Jermyn Common Stock. See "THE
MERGER -- Exchange of Upper Valley Stock Certificates."
Certain Related Transactions
The directors and executive officers of Upper Valley
have agreed to vote shares of Upper Valley Common Stock owned by
them on the date of the Upper Valley Special Meeting in favor of
the Merger Agreement. See "THE MERGER -- Matters to be
Considered at the Meeting."
The agreements of Upper Valley's directors and
executive officers to vote in favor of the Merger may have the
effect of precluding or discouraging persons who might now or
prior to the Effective Date be interested in acquiring all of or
a significant interest in Upper Valley from considering or
proposing such an acquisition, even if such persons were prepared
to pay a higher price per share for Upper Valley Common Stock
than the price per share being paid by First Jermyn under the
Merger Agreement, or might result in a potential acquiror
proposing to pay a lower price per share to acquire Upper Valley
than it might otherwise have proposed to pay.
Interests of Certain Persons in the Merger
Certain directors and executive officers of Upper
Valley are the holders of stock options to acquire Upper Valley
Common Stock, which will be converted into options to acquire
First Jermyn Common Stock.
John W. Adonizio, President and Chief Executive Officer
of Upper Valley and President of NBO, is a party to an employment
agreement, dated July 5, 1994 and amended on March 25, 1997, with
Upper Valley and NBO. The employment agreement is for a period
ending on July 5, 1999 and provides, among other things, that, in
the event that Mr. Adonizio's employment contract is terminated
by reason of a change in control of Upper Valley, Mr. Adonizio
shall be paid for the remainder of the contract term, but in no
event less than twelve months severance pay equal to his then
base salary, payable in a lump-sum within ten days of the date of
termination. Assuming that Mr. Adonizio's employment agreement
were terminated within the meaning of the agreement on May 31,
1998 as a result of a change in control of Upper Valley,
Mr. Adonizio would be entitled to a lump-sum severance payment in
an amount equal to approximately $141,000.
Comparative Per Common Share Data
The following table sets forth certain unaudited
comparative per share data relating to book value per common
share, cash dividends declared per common share and income from
continuing operations per common share (i) on an historical basis
for First Jermyn and Upper Valley, (ii) on a pro forma basis per
share of First Jermyn Common Stock to reflect completion of the
Merger, and (iii) on an equivalent pro forma basis per share of
Upper Valley Common Stock to reflect completion of the Merger.
The pro forma information has been prepared giving effect to the
Merger using the pooling of interests accounting method. For a
description of the effect of pooling of interests accounting, see
"THE MERGER -- Accounting Treatment." The following equivalent
per share data assume an Exchange Ratio of .6890 shares of First
Jermyn Common Stock for each share of Upper Valley Common Stock.
See "THE MERGER -- Terms of the Merger." This information should
be read in conjunction with the consolidated financial statements
of First Jermyn and Upper Valley, including the notes thereto,
incorporated by reference or appearing elsewhere in this Proxy
Statement/Prospectus, and the other financial data appearing
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE INFORMATION,"
"SELECTED FINANCIAL DATA" and "PRO FORMA COMBINED FINANCIAL
INFORMATION," and "INFORMATION REGARDING UPPER VALLEY."
The following information is not necessarily indicative
of the results of operations of future periods or future combined
financial position.
At December 31,
1997
Book Value Per Common Share:
Historical:
First Jermyn. . . . . . . . . . . . . . . . . $35.35
Upper Valley. . . . . . . . . . . . . . . . . 24.29
Pro Forma(1):
Pro forma per share of First Jermyn Common
Stock . . . . . . . . . . . . . . . . . . . 35.38
Equivalent pro forma per share of Upper
Valley Common Stock . . . . . . . . . . . . 24.38
For the year ended
December 31,
1997 1996 1995
Cash Dividends Paid Per Common Share:
Historical:
First Jermyn. . . . . . . . . . . $1.40 $1.25 $1.15
Upper Valley. . . . . . . . . . . .88 .82 .95
Pro Forma(2):
Pro forma per share of First
Jermyn Common Stock . . . . . . 1.40 1.25 1.15
Equivalent pro forma per share
of Upper Valley Common Stock. . .96 .86 .79
Income from Continuing Operations
Per Common Share:
Historical:
First Jermyn (basic and diluted). $3.94 3.96 3.68
Upper Valley, basic . . . . . . . 1.64 1.57 .17
Upper Valley, diluted . . . . . . 1.59 1.55 .17
Pro Forma(3):
Pro forma per share of First
Jermyn Common Stock, basic. . . 3.25 3.22 2.17
Pro forma per share of First
Jermyn Common Stock, diluted. . 3.21 3.21 2.17
Equivalent per share of Upper
Valley Common Stock, basic . . 2.24 2.22 1.50
Equivalent pro forma per share of
Upper Valley Common Stock,
diluted . . . . . . . . . . . 2.21 2.21 1.50
__________________
(1) Pro forma book value per share of First Jermyn Common Stock
was calculated by dividing total pro forma combined
shareholders' equity amounts as of the applicable date by
the sum of (i) the total number of shares of First Jermyn
Common Stock outstanding at December 31, 1997 (884,680
shares), and (ii) the total number of shares of Upper Valley
Common Stock outstanding at December 31, 1997, (1,000,599
shares), multiplied by the Exchange Ratio. Equivalent pro
forma book value per share of Upper Valley Common Stock
represents the pro forma book value per share of First
Jermyn Common Stock multiplied by the Exchange Ratio. See
"THE MERGER -- Terms of the Merger."
(2) First Jermyn pro forma dividends per share represent
historical dividends paid by First Jermyn. Upper Valley pro
forma equivalent dividends per share represent such amounts
multiplied by the Exchange Ratio. See "THE MERGER -- Terms
of the Merger."
(3) First Jermyn pro forma income from continuing operations per
common share, basic and diluted, represents historical net
income from continuing operations for First Jermyn and Upper
Valley combined on the assumption that First Jermyn and
Upper Valley had been combined for the periods presented on
a pooling of interests basis, divided by the number of
shares of First Jermyn Common Stock which will be issued and
outstanding following completion of the Merger based on the
Exchange Ratio. Upper Valley equivalent pro forma income
from continuing operations per common share represents such
amounts multiplied by the Exchange Ratio. See "THE
MERGER -- Terms of the Merger."
Market Value of Securities
The following table sets forth the market value per
share of First Jermyn Common Stock, the market value per share of
Upper Valley Common Stock and the equivalent market value per
share of Upper Valley Common Stock on October 14, 1997 (the last
business day preceding public announcement of the Merger) and
_____________________, 1998 (the latest practicable trading day
before the printing of this Proxy Statement/Prospectus). The
equivalent market value per share of Upper Valley Common Stock
indicated in the table is based upon the Exchange Ratio. See
"THE MERGER -- Terms of the Merger."
First Jermyn Upper Valley
Equivalent
Market Value
Historical Historical Per Share
October 14, 1997 $51.50 $38.00 $35.48
April __, 1998 _______ ________ ________
For information concerning cash dividends paid by First
Jermyn, see "INFORMATION WITH RESPECT TO FIRST JERMYN -- Market
Price of and Dividends on First Jermyn Common Stock and Related
Shareholder Matters."
[END OF SUMMARY]<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth (i) certain historical
consolidated summary financial data for First Jermyn and
(ii) certain historical consolidated summary financial data for
Upper Valley. Data relating to First Jermyn are derived from,
and should be read in conjunction with, among other things, the
consolidated financial statements of First Jermyn, including the
notes thereto, incorporated by reference in this Proxy Statement/
Prospectus, and the pro forma combined financial information,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. Data relating to Upper Valley are derived
from, and should be read in conjunction with, the consolidated
financial statements of Upper Valley, including the notes
thereto, and the pro forma combined financial information,
including the notes thereto, appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "AVAILABLE INFORMATION," "PRO FORMA COMBINED
FINANCIAL INFORMATION," "INFORMATION RELATING TO UPPER VALLEY,"
and "INDEX TO UPPER VALLEY FINANCIAL STATEMENTS."
<PAGE>
FIRST JERMYN SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
Balance Sheet Data
Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total assets. . . . . . . . . . . . . $325,737 $321,563 $309,986 $278,015 $263,427
Loans, gross. . . . . . . . . . . . . 204,464 197,598 124,470 168,808 163,585
Allowance for loan losses . . . . . . 2,696 3,111 3,015 2,835 2,849
Investment and mortgage-backed
securities available-for-sale . . . 56,436 49,241 39,581 30,238 --
Investment and mortgage-backed
securities held-to-maturity . . . . 45,033 57,827 75,317 62,226 83,307
Deposits. . . . . . . . . . . . . . . 292,110 290,115 281,298 250,842 239,007
Borrowings. . . . . . . . . . . . . . 744 821 891 954 1,012
Shareholders' equity. . . . . . . . . 31,277 28,674 26,209 23,164 22,506
<CAPTION>
Summary Statement of Operations
Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total interest income . . . . . . . . $ 22,600 $ 22,722 $ 21,492 $ 18,103 $ 17,401
Total interest expense. . . . . . . . 11,288 11,401 10,282 7,197 7,127
Net interest income . . . . . . . . . 11,312 11,321 11,210 10,906 10,274
Provision for loan losses . . . . . . 180 183 365 454 1,403
Net interest income after provision
for loan losses . . . . . . . . . . 11,132 11,138 10,845 10,452 8,871
Other income. . . . . . . . . . . . . 696 1,136 582 577 500
Other expenses. . . . . . . . . . . . 7,055 7,462 6,804 6,726 6,284
Income tax provision. . . . . . . . . 1,290 1,308 1,369 1,366 927
Net income. . . . . . . . . . . . . . 3,483 3,504 3,254 2,937 2,160
Share Data
Common shares outstanding at end of
period (in thousands) . . . . . . . 885 885 885 885 885
Earnings per common share (basis
and diluted). . . . . . . . . . . . $ 3.94 $ 3.96 $ 3.68 $ 3.32 $ 2.44
Book value per common share at end
of period . . . . . . . . . . . . . 35.35 32.41 29.63 26.18 25.44
Dividends paid per common share . . . 1.40 1.25 1.15 1.05 1.00
Dividend payout ratio . . . . . . . . 35.57% 31.54% 31.28% 31.66% 40.97%
Return on average assets. . . . . . . 1.09 1.10 1.12 1.10 .85
Return on average stockholders'
equity. . . . . . . . . . . . . . . 11.66 12.71 13.20 12.83 9.90
Equity to assets. . . . . . . . . . . 9.34 8.62 8.48 8.56 8.62
________________
</TABLE>
<PAGE>
UPPER VALLEY SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total Assets $259,314 $255,133 $236,497 $229,374 $212,911
Loans 156,984 145,866 127,151 118,539 119,928
Allowance for loan losses 1,866 1,906 1,772 2,358 2,042
Investment and mortgage-backed
securities available-for-sale 67,329 74,506 88,449 34,045 45,129
Investment and mortgage-backed
securities held to maturity 16,331 9,634 -- 61,151 39,294
Deposits 192,692 197,469 221,490 206,757 187,489
Borrowings 40,000 32,000 -- -- --
Shareholders' equity 24,307 22,968 22,449 20,261 23,282
Summary Statement of Operations
Total interest income 18,716 17,217 16,235 15,129 14,544
Total interest expense 10,287 9,122 9,669 7,479 7,034
Provision for loan losses 420 650 1,000 1,391 --
Net interest income after provision
for possible loan losses 8,009 7,445 5,566 6,259 7,510
Other income 1,348 1,186 887 796 578
Other expenses 7,273 6,630 6,786 5,786 4,964
Income tax provision 447 435 (500) -- 677
Net income 1,637 1,566 167 1,269 2,447
Share Data
Common shares outstanding at end of
period (in thousands) 1,001 1,000 1,000 1,000 1,000
Earnings per common share: $ 1.59 $ 1.57 $ 0.17 $ 1.27 $ 2.45
Book value per common share at end
of period 24.29 22.97 22.45 20.26 23.28
Dividends paid per common share 0.88 0.82 .95 1.00 0.50
Dividend payout ratio 55.35% 52.36% 558.86% 78.80% 20.43%
Return on average assets 0.63 0.66 0.07 0.52 1.13
Return on average stockholders' equity 6.97 7.05 0.80 5.27 10.77
Equity to assets 9.37 9.00 9.49 9.93 10.51
________________
</TABLE>
<PAGE>
PRO FORMA COMBINED FINANCIAL INFORMATION
The following tables set forth selected unaudited pro
forma financial data reflecting the Merger.
The pro forma information has been prepared assuming
that shareholders of Upper Valley will receive in the Merger
.6890 shares of First Jermyn Common Stock for each share of Upper
Valley Common Stock they own. See "THE MERGER -- Terms of the
Merger." The pro forma financial information included in this
Proxy Statement/Prospectus is presented for illustrative purposes
only. Such pro forma financial information does not necessarily
reflect what the actual results of First Jermyn would be
following completion of the Merger.
The following pro forma information does not give
effect to any potential cost savings or any merger-related
expenses which may be realized or incurred as a result of the
Merger. See "THE MERGER -- Management and Operations After the
Merger."
Pro Forma Unaudited Combined Condensed Balance Sheet as of
December 31, 1997
The following unaudited pro forma combined condensed
balance sheet information reflects (i) the historical
consolidated balance sheets of First Jermyn and Upper Valley as
of December 31, 1997, and (ii) the pro forma combined condensed
balance sheet of First Jermyn as of such date, after giving
effect to the Merger. The Merger has been reflected as a pooling
of interests effective as of December 31, 1997. The unaudited
information should be read in conjunction with the historical
consolidated financial statements of First Jermyn and Upper
Valley, including the notes thereto, incorporated by reference or
appearing elsewhere in this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE
INFORMATION," "SELECTED FINANCIAL DATA," and "INDEX TO UPPER
VALLEY FINANCIAL STATEMENTS."
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA UNAUDITED COMBINED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 1997
(In thousands)
First Jermyn
and
Upper Valley
First Jermyn Upper Valley Adjustments Combined
<S> <C> <C> <C>
Cash and amounts due
from depository
institutions....... $ 13,212 $ 8,177 -- $ 21,389
Investment securities 101,469 83,660 -- 185,129
Loans (1)............ 203,610 156,984 -- 360,594
Allowance for
loan losses ....... 2,696 1,866 -- 4,562
Other assets ........ 10,142 12,359 -- 22,501
Total assets ...... $325,737 $259,314 -- $585,051
Deposits ............ 292,110 192,692 -- 484,802
Borrowings .......... 744 40,000 -- 40,744
Other liabilities ... 1,606 2,315 -- 3,921
Total liabilities.. 294,460 235,007 -- 529,467
Common Stock......... 1,125 500 -- 1,625
Additional paid-in
capital............ 3,876 1,833 -- 5,709
Net unrealized loss on
available for sale
securities......... (115) (52) -- (167)
Treasury Stock....... (196) -- -- (196)
Retained Earnings.... 26,857 22,026 -- 48,613
Total shareholders'
equity ............ 31,277 24,307 -- 55,584
Total liabilities and
shareholders'
equity ............ $325,737 $259,314 -- $585,051
____________________________
</TABLE>
(1) Loans are shown net of unearned discounts and origination
fees.
<PAGE>
Pro Forma Unaudited Combined Condensed Statements of Income for
the Years Ended December 31, 1997, 1996, and 1995
The following unaudited pro forma combined condensed
statements of income reflect the historical consolidated
statements of income of First Jermyn and Upper Valley, as
indicated below, for each period presented and the pro forma
combined condensed statements of income of First Jermyn after
giving effect to the Merger. The Merger has been reflected as a
pooling of interests. See "THE MERGER -- Accounting Treatment."
The pro forma combined condensed statements of income for the
years ended December 31, 1997, 1996, and 1995 were prepared on
the assumption that the Merger had been effected as of the
beginning of the applicable annual period for First Jermyn or
Upper Valley, as the case may be. The unaudited information
should be read in conjunction with the historical consolidated
financial statements of First Jermyn and Upper Valley, including
the notes thereto, incorporated by reference in or appearing
elsewhere in this Proxy Statement/Prospectus. See "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE," "AVAILABLE INFORMATION,"
"SELECTED FINANCIAL DATA," and "INDEX TO UPPER VALLEY FINANCIAL
STATEMENTS."
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Jermyn
and
Upper Valley
First Jermyn Upper Valley Adjustments Combined
<S> <C> <C> <C> <C>
Interest income........ $22,600 $18,716 -- $41,316
Interest expense....... 11,288 10,287 -- 21,575
Net interest income.... 11,312 8,429 -- 19,741
Provision for
loan losses.......... 180 420 -- 600
Net interest income
after provision for
loan losses.......... 11,132 8,009 -- 19,141
Other non-interest
income............... 696 1,348 -- 2,044
Non-interest expense... 7,055 7,273 -- 14,328
Income before taxes.... 4,773 2,084 -- 6,857
Income taxes........... 1,290 447 -- 1,737
Net income............. $ 3,483 $ 1,637 -- $ 5,120
Earnings per share,
basic(1)............. $ 3.94 $ 1.64 -- $ 3.25
Earnings per share,
diluted(2)........... 3.94 1.59 -- 3.21
______________________
</TABLE>
(1) Combined basic earnings per share are calculated based on
combined net income divided by the sum of (i) the weighted
average number of shares of First Jermyn Common Stock
outstanding during 1997 of 884,680 shares plus (ii) the
weighted average number of shares of Upper Valley Common
Stock outstanding during 1997 of 1,000,599 shares multiplied
by the Exchange Ratio.
(2) Combined diluted earnings per share are calculated based on
combined net income divided by the sum of (i) the weighted
average number of shares of First Jermyn Common Stock
outstanding during 1997 of 884,680 shares plus (ii) the
weighted average number of diluted shares of Upper Valley
Common Stock outstanding during 1997 of 1,024,198 multiplied
by the Exchange Ratio.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Jermyn
and
Upper Valley
First Jermyn Upper Valley Adjustments Combined
<S> <C> <C> <C> <C>
Interest income........ $22,722 $17,217 -- $39,939
Interest expense....... 11,401 9,122 -- 20,523
Net interest income.... 11,321 8,095 -- 19,416
Provision for
loan losses.......... 183 650 -- 833
Net interest income
after provision for
loan losses.......... 11,138 7,445 -- 18,583
Other non-interest
income............... 1,136 1,118 -- 2,254
Non-interest expense... 7,462 6,562 -- 14,024
Income before taxes.... 4,812 2,001 -- 6,813
Income taxes........... 1,308 435 -- 1,743
Net income............. $ 3,504 $ 1,566 -- $ 5,070
Earnings per share,
basic(1)............. $ 3.96 $ 1.57 -- $ 3.22
Earnings per share,
diluted(2)........... 3.96 1.55 -- 3.21
</TABLE>
_____________________
(1) Combined basic earnings per share are calculated based on
combined net income divided by the sum of (i) the weighted
average number of shares of First Jermyn Common Stock
outstanding during 1996 of 884,680 shares plus (ii) the
weighted average number of shares of Upper Valley Common
Stock outstanding during 1996 of 1,000,000 shares multiplied
by the Exchange Ratio.
(2) Combined diluted earnings per share are calculated based on
combined net income divided by the sum of (i) the weighted
average number of shares of First Jermyn Common Stock
outstanding during 1996 of 884,680 shares plus (ii) the
weighted average number of diluted shares of Upper Valley
Common Stock outstanding during 1996 of 1,008,533 multiplied
by the Exchange Ratio.
<PAGE>
PRO FORMA UNAUDITED COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Jermyn
and
Upper Valley
First Jermyn Upper Valley Adjustments Combined
<S> <C> <C> <C> <C>
Interest income........ $21,492 $16,235 -- $37,727
Interest expense....... 10,282 9,669 -- 19,951
Net interest income.... 11,210 6,566 -- 17,776
Provision for
loan losses.......... 365 1,000 -- 1,365
Net interest income
after provision for
loan losses.......... 10,845 5,566 -- 16,411
Other non-interest
income............... 582 887 -- 1,469
Non-interest expense... 6,804 6,786 -- 13,590
Income (loss) before
taxes................ 4,623 (333) -- 4,290
Income tax expense
(benefit)............ 1,369 (500) -- 869
Net income............. $ 3,254 $ 167 -- $ 3,421
Earnings per share,
basic and diluted(1). $ 3.68 $ .17 -- $ 2.17
</TABLE>
_____________________
(1) Combined basic earnings per share are calculated based on
combined net income divided by the sum of (i) the weighted
average number of shares of First Jermyn Common Stock
outstanding during 1995 of 884,680 shares plus (ii) the
weighted average number of shares of Upper Valley Common
Stock outstanding during 1995 of 1,000,000 shares multiplied
by the Exchange Ratio.
<PAGE>
THE MEETINGS
Date, Time and Place
First Jermyn. The First Jermyn Annual Meeting will be
held in The Conference Room of The First National Bank of Jermyn,
located at 1700 North Keyser Avenue, Scranton, Pennsylvania, at
9:00 a.m. local time, on May __, 1998.
Upper Valley. The Upper Valley Special Meeting will be
held at The Regal Room, located at _____________________________
________, Olyphant, Pennsylvania, at _____________ local time, on
May __, 1998.
Matters To Be Considered at the Annual Meetings
First Jermyn. At the First Jermyn Annual Meeting,
holders of First Jermyn Common Stock will be asked to consider
and vote upon the approval and adoption of the Merger Agreement
and the approval of the First Jermyn Adjournment Proposal. In
addition, holders of First Jermyn Common Stock will be asked to
elect two Class II directors for a term of two years each and
three Class III directors for a term of three years each.
Shareholders may also consider such other matters as may properly
be brought before the First Jermyn Annual Meeting.
The Board of Directors of First Jermyn has unanimously
approved the Merger Agreement and recommends a vote FOR approval
and adoption of the Merger Agreement. The Board of Directors has
also, by unanimous vote, approved, and recommends a vote FOR the
election, as directors, of the nominees of the Board of Directors
and FOR approval of the First Jermyn Adjournment Proposal.
Upper Valley. At the Upper Valley Special Meeting,
holders of Upper Valley Common Stock will be asked to consider
and vote upon the approval and adoption of the Merger Agreement
and the approval of the Upper Valley Adjournment Proposal.
Shareholders may also consider and vote upon such other matters
as may properly be brought before the Upper Valley Special
Meeting.
The Board of Directors of Upper Valley has unanimously
approved the Merger Agreement and recommends a vote FOR approval
and adoption of the Merger Agreement. The Board of Directors has
also, by unanimous vote, approved, and recommends a vote FOR
approval of, the Upper Valley Adjournment Proposal.
Votes Required
First Jermyn. The approval and adoption of the Merger
Agreement will require the affirmative vote of holders of at
least 66-2/3% of the First Jermyn Common Stock outstanding, in
person or by proxy, at the First Jermyn Annual Meeting. The
approval of the First Jermyn Adjournment Proposal will require
the affirmative vote of a majority of the votes cast in person or
by proxy at the First Jermyn Annual Meeting. Directors are
elected by a plurality of the votes cast in person or by proxy at
the First Jermyn Annual Meeting. Accordingly, with respect to
the election of directors, the nominees who receive the greatest
number of votes at the First Jermyn Annual Meeting will be
elected as directors.
Each holder of shares of First Jermyn Common Stock
outstanding on the First Jermyn Record Date will be entitled to
one vote for each share held of record on each matter to be
considered at the First Jermyn Annual Meeting. Shareholders of
First Jermyn are not entitled to cumulate votes for the election
of directors.
As of the First Jermyn Record Date, directors and
executive officers of First Jermyn and their affiliates
beneficially owned and were entitled to vote 285,639 shares of
First Jermyn Common Stock, which represented approximately 32.2%
of the shares of First Jermyn Common Stock outstanding on the
First Jermyn Record Date. Each First Jermyn director and
executive officer has indicated his present intention to vote the
First Jermyn Common Stock so owned by him for approval and
adoption of the Merger Agreement.
Upper Valley. The approval and adoption of the Merger
Agreement and the approval of the Upper Valley Adjournment
Proposal will each require the affirmative vote of a majority of
the votes cast at the Upper Valley Special Meeting.
Holders of record of Upper Valley Common Stock on the
Upper Valley Record Date are each entitled to one vote per share
on each matter to be voted on at the Upper Valley Special
Meeting.
As of the Record Date, directors and executive officers
of Upper Valley and their affiliates beneficially owned and were
entitled to vote _________ shares of Upper Valley Common Stock,
which represented approximately ___% of the shares of Upper
Valley Common Stock outstanding on the Upper Valley Record Date.
Each Upper Valley director has indicated his present intention to
vote the Upper Valley Common Stock so owned by him for approval
of the Merger Agreement and the Upper Valley Adjournment
Proposal. As of the Upper Valley Record Date, Upper Valley and
its subsidiaries, as fiduciaries, custodians or agents, did not
have voting power with respect to any shares of Upper Valley
Common Stock.
Voting of Proxies
Shares represented by all properly executed proxies
received in time for the Meetings will be voted at such Meetings
in the manner specified therein by the holders thereof. In the
case of shares of First Jermyn, properly executed proxies that do
not contain voting instructions will be voted in favor of the
Merger Agreement, in favor of the election, as directors, of the
nominees of the Board of Directors, and in favor of the First
Jermyn Adjournment Proposal. In the case of shares of Upper
Valley, properly executed proxies that do not contain voting
instructions will be voted in favor of the Merger Agreement and
in favor of the Upper Valley Adjournment Proposal.
First Jermyn and Upper Valley each intend to count
shares of First Jermyn Common Stock or Upper Valley Common Stock,
as the case may be, present in person at the Meetings but not
voting, and shares of First Jermyn Common Stock or Upper Valley
Common Stock, as the case may be, for which they have received
proxies but with respect to which holders of shares have
abstained or not voted on any matter, as present at the Meetings
for purposes of determining the presence or absence of a quorum
for the transaction of business.
Under Pennsylvania law and First Jermyn's Articles of
Incorporation, the affirmative vote of holders of at least 66-
2/3% of the First Jermyn Common Stock outstanding, in person or
by proxy, at the First Jermyn Annual Meeting is required to
approve the Merger Agreement. The approval of the First Jermyn
Adjournment Proposal will require the affirmative vote of a
majority of the votes cast, in person or by proxy, at the First
Jermyn Annual Meeting. Abstentions and broker non-votes relating
to shares of First Jermyn Common Stock will not constitute or be
counted as votes "cast" for purposes of the First Jermyn Annual
Meeting. Directors are elected by a plurality of the votes cast
in person or by proxy at the First Jermyn Annual Meeting.
Accordingly, with respect to the election of directors, the
nominees who receive the greatest number of votes cast at the
First Jermyn Annual Meeting will be elected as directors.
Under Pennsylvania law and Upper Valley's Articles of
Incorporation, the affirmative vote of a majority of all votes
cast at the Upper Valley Special Meeting is required to approve
the Merger Agreement and the Upper Valley Adjournment Proposal.
Abstentions and broker non-votes relating to shares of Upper
Valley Common Stock will not constitute or be counted as "votes"
cast for purposes of the Upper Valley Special Meeting.
It is not expected that any matter other than those
referred to herein will be brought before either of the Meetings.
If, however, other matters are properly presented for a vote, the
persons named as proxies will vote in accordance with their
judgment with respect to such matters.
Revocability of Proxies
The grant of a proxy on the enclosed First Jermyn or
Upper Valley form of proxy does not preclude a shareholder of
First Jermyn or Upper Valley from voting in person at the
applicable Meeting. A First Jermyn shareholder or an Upper
Valley shareholder may revoke a proxy at any time prior to its
exercise by filing with the Secretary of First Jermyn (in the
case of a First Jermyn shareholder) or the Secretary of Upper
Valley (in the case of an Upper Valley shareholder) a duly
executed revocation of proxy, by submitting a duly executed proxy
bearing a later date, or by appearing at the applicable Meeting
and voting in person at such Meeting. Attendance at the
applicable Meeting will not, in and of itself, constitute
revocation of a proxy.
Record Date; Stock Entitled to Vote; Quorum
First Jermyn. Only holders of record of First Jermyn
Common Stock on the First Jermyn Record Date will be entitled to
notice of, and to vote at, the First Jermyn Annual Meeting. On
the First Jermyn Record Date, 884,680 shares of First Jermyn
Common Stock were issued and outstanding and held by
approximately 1,240 holders of record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the
First Jermyn Record Date must be represented in person or by
proxy at the First Jermyn Annual Meeting in order for a quorum to
be present for purposes of voting on approval of the Merger
Agreement and the other matters to be considered at the First
Jermyn Annual Meeting.
Upper Valley. Only holders of record of Upper Valley
Common Stock on the Upper Valley Record Date will be entitled to
notice of, and to vote at, the Upper Valley Special Meeting. On
the Upper Valley Record Date, 1,000,599 shares of Upper Valley
Common Stock were issued and outstanding and held by
approximately ______ holders of record.
Shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast on the
Upper Valley Record Date must be represented in person or by
proxy at the Upper Valley Special Meeting in order for a quorum
to be present for purposes of voting on approval of the Merger
Agreement and the Upper Valley Adjournment Proposal.
Solicitation of Proxies
Each of First Jermyn and Upper Valley will bear the
cost of the solicitation of proxies from its own shareholders,
except that First Jermyn and Upper Valley will share equally the
cost of printing and mailing this Proxy Statement/Prospectus. In
addition to solicitation by mail, the directors, officers, and
employees of each of First Jermyn and Upper Valley and their
subsidiaries may solicit proxies from shareholders of such
company by telephone or telegram or in person. Arrangements will
also be made with brokerage houses and other custodians,
nominees, and fiduciaries for the forwarding of solicitation
material to the beneficial owners of stock held of record by such
persons, and First Jermyn and Upper Valley will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-
pocket expenses in connection therewith.
UPPER VALLEY SHAREHOLDERS SHOULD NOT SEND STOCK
CERTIFICATES WITH THEIR PROXY CARDS. AS DESCRIBED BELOW UNDER
THE CAPTION "THE MERGER -- EXCHANGE OF UPPER VALLEY STOCK
CERTIFICATES," EACH UPPER VALLEY SHAREHOLDER WILL BE PROVIDED
WITH MATERIALS FOR EXCHANGING SHARES OF UPPER VALLEY COMMON STOCK
AS PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE DATE.
<PAGE>
THE MERGER
Background of and Reasons for the Merger; Recommendations of the
Boards of Directors
Background of the Merger
The Board of Directors and management of First Jermyn
have for some time perceived and have discussed from time to time
the potential advantages to community banks in its market area,
the area of northeastern Pennsylvania surrounding
Scranton/Wilkes-Barre and its various communities, that could
effectively combine operations to achieve larger scale while
maintaining a community bank orientation. In the view of the
Board and management, the changing competitive situation in the
financial services industry, the increasing frequency of mergers
and acquisitions of large financial institutions with operations
in First Jermyn's market area, and the benefits that can accrue
from an increased scale of operation in terms of product delivery
and technology, have created opportunity in First Jermyn's market
area for a community-based banking institution with the
appropriate level of capital and resources and a service strategy
that focuses locally.
It was in the context of this philosophy that
management of First Jermyn first commenced informal discussions
with representatives of Upper Valley in January 1997 to determine
whether there was any interest between the parties in further
pursuing a possible combination of the two institutions. As a
result of those informal discussions, in February 1997, William
M. Davis, the President and Chief Executive Officer of First
Jermyn, reported to First Jermyn's Board of Directors that there
would be an interest on the part of Upper Valley in commencing
discussions. The Board of Directors authorized Mr. Davis to seek
advice from First Jermyn's counsel and independent auditors on
the feasibility and possible structure of a potential transaction
and such meetings were held in late February and early March
1997. Mr. Davis subsequently met again with representatives of
Upper Valley.
On March 26, 1997, the Board of Directors of First
Jermyn readdressed a potential business combination with Upper
Valley. The Board acknowledged the natural extension to its
market area that would be added by Upper Valley's branch system,
particularly as a potential toe-hold in Luzerne County through
the Pittston branch office of NBO. The Board also discussed the
fact that the combination would result in no market duplication
and would in all likelihood not require the closing or sale of
any branch offices. The Board also discussed the fact that NBO
had an active trust department that would complement First
Jermyn's banking business. Finally, the Board noted that the pro
forma combined capitalization of First Jermyn and Upper Valley
would be sufficiently strong to permit expansion through
acquisitions of branches of larger institutions that were
vacating or decreasing their branch presence in the market. The
Board concluded that a transaction with Upper Valley might be
beneficial to First Jermyn and its shareholders provided that
sufficient protections could be incorporated into the transaction
to prevent a significant shareholder of the combined entity, of
which there would be some because of the concentration of
ownership of Upper Valley Common Stock, from causing the combined
institution to be sold or put "in play" prior to being able to
implement its business strategy.
As a result of the discussion at the March 1997 Board
meeting, First Jermyn's Board passed a resolution authorizing Mr.
Davis to continue discussions with representatives of Upper
Valley, authorized Mr. Davis to prepare and execute mutual
confidentiality agreements with Upper Valley and to begin to
exchange due diligence materials. This process continued over
the summer months. In late August, a draft merger agreement was
presented to Upper Valley and its counsel and the merger
agreement was negotiated over the next several weeks.
At a meeting held on October 15, 1997, the Board of
Directors of First Jermyn reviewed with First Jermyn's financial
advisor, independent auditors, and counsel the results of the due
diligence examination of Upper Valley, the proposed form of
merger agreement including a detailed review of the terms of the
proposed forms of restated articles of incorporation and bylaws
of First Jermyn, the potential financial and strategic benefits
of the transaction, and various financial and valuation analyses
prepared by First Jermyn's financial advisor. At the meeting,
Berwind rendered its opinion that, as of October 15, 1997, the
consideration to be paid by First Jermyn in the Merger was fair,
from a financial point of view, to the shareholders of First
Jermyn. At such meeting, First Jermyn's Board of Directors
unanimously adopted and approved the Merger, the Merger
Agreement, and the transactions contemplated thereby.
Also on October 15, 1997, Upper Valley's Board of
Directors held a meeting at which the Merger was reviewed and
approved unanimously by all the directors present. At this
meeting, counsel to Upper Valley reviewed the terms of the Merger
Agreement and the directors' duties in connection therewith and
Fox-Pitt, Kelton rendered its opinion that, as of October 15,
1997, the Exchange Ratio is fair, from a financial point of view,
to Upper Valley.
Reasons for the Merger
First Jermyn's Reasons for the Merger
In reaching its decision to approve the Merger
Agreement, the First Jermyn Board of Directors consulted with its
legal advisors regarding the legal terms of the transaction,
including the terms of the proposed Merger Agreement, and the
obligations of First Jermyn's Board in connection with its
consideration of the proposed transaction, its independent
auditors with respect to a due diligence investigation of Upper
Valley performed by such auditors, its financial advisors
regarding the financial aspects of the proposed transaction, as
well as with management. Without assigning any relative or
specific weights to any particular factor, the Board considered a
number of factors and information, including the following:
(i) information concerning the businesses, operations,
financial condition, prospects, capital levels and asset quality
of First Jermyn and Upper Valley, including a presentation
regarding a due diligence investigation of Upper Valley
undertaken by a team of First Jermyn management and First Jermyn
advisors;
(ii) financial advice of Berwind, as investment banker
to First Jermyn that the Exchange Ration is fair, from a
financial point of view to the shareholders of First Jermyn;
(iii) the terms of the Merger Agreement and the other
documents executed in connection with the Merger, including
without limitation the provisions of the proposed forms of
amended and restated articles of incorporation and bylaws of
First Jermyn which are designed to require a supermajority vote
of directors and shareholders to approve a change in control of
First Jermyn for a period of time in order for the combined
company to achieve name recognition in the marketplace and take
advantage of the perceived business opportunities available to
the combined company in its market areas;
(iv) the complementary nature and desirability of the
trust department business engaged in by Upper Valley;
(v) the high level of beneficial ownership of Upper
Valley directors who were in agreement with respect to the terms
of the proposed transaction and the perceived compatibility of
the former Upper Valley directors who would serve on the Board of
Directors of First Jermyn upon completion of the Merger with the
present members of First Jermyn's Board;
(vi) the fixed nature of the Exchange Ratio at .689
shares of First Jermyn Common Stock for each share of Upper
Valley Common Stock; and
(v) the current and prospective economic, competitive
and regulatory conditions applicable to the businesses of each of
First Jermyn in its market area and the perceived advantages of
larger size to compete effectively.
Upper Valley's Reasons for the Merger
The Board of Directors of Upper Valley considered many
factors in reaching its determination to approve, and recommend
shareholder approval of, the Merger, including the following:
(i) the similar (but not overlapping) market areas and the
similar community-banking business philosophies of Upper Valley
and First Jermyn, which could be expected to facilitate a
continuity of service and community involvement, (ii) the
financial benefits to Upper Valley shareholders resulting from
the Merger, such as the Exchange Ratio for Upper Valley Common
Stock and the dividend rate following the Merger; (iii) the
realization that rapid consolidation in the banking and financial
services industry would continue to impose competitive pressures
on Upper Valley which could be mitigated as part of a larger
organization; (iv) the expectation that the Merger would result
in certain economies of scale and other efficiencies which would
benefit shareholder value, such as, for example, the extension of
Upper Valley's trust business to customers of First Jermyn;
(v) the willingness of First Jermyn to accept certain
restrictions on further business combinations following the
Merger in order to focus first on assimilation of Upper Valley
and First Jermyn; (vi) the ability of the combined entity to
expand the products and services that can be offered to
customers, such as, for example, the ability to make larger
loans.
Recommendation of the First Jermyn Board of Directors
The Board of Directors of First Jermyn believes that
the terms of the Merger are fair to, and in the best interests
of, First Jermyn and its shareholders and has unanimously
approved the Merger Agreement. The Board of Directors of First
Jermyn unanimously recommends that the shareholders of First
Jermyn approve the Merger Agreement.
Recommendation of the Upper Valley Board of Directors
The Board of Directors of Upper Valley believes that
the terms of the Merger are fair to, and in the best interests
of, Upper Valley and its shareholders and has unanimously
approved the Merger Agreement. The Board of Directors of Upper
Valley unanimously recommends that the shareholders of Upper
Valley approve the Merger Agreement.
Terms of the Merger
Upon completion of the Merger, the separate legal
existence of Upper Valley will cease. All property, rights,
powers, duties, obligations, debts, and liabilities of Upper
Valley will automatically be taken and deemed to be transferred
to and vested in First Jermyn, in accordance with Pennsylvania
law. First Jermyn, as the surviving corporation, will be
governed by the Restated Articles of Incorporation and the
Restated Bylaws of First Jermyn attached hereto on Annexes B and
C, respectively.
Upon completion of the Merger, each outstanding share
of First Jermyn Common Stock (other than Dissenting Shares) will
continue to be outstanding as an identical share of First Jermyn
Common Stock. Under the Merger Agreement, each outstanding share
of Upper Valley Common Stock on the Effective Date (other than
Dissenting Shares and Excluded Shares) will be converted into and
become the right to receive .6890 shares of First Jermyn Common
Stock.
The number of shares of First Jermyn Common Stock
issuable in exchange for shares of Upper Valley Common Stock (as
set forth in the Merger Agreement, the "Exchange Ratio") will be
adjusted to prevent dilution in the event of additional stock
splits, reclassifications, or other similar events.
Shareholders of Upper Valley will receive cash in lieu
of fractional shares of First Jermyn Common Stock. See " --
Exchange of Upper Valley Stock Certificates" herein.
As of the Record Date, directors and officers of Upper
Valley or NBO, have been granted options to purchase
_______ shares of Upper Valley Common Stock (the "Management
Options"). On the Effective Date, each Management Option,
whether or not such Management Option is exercisable on the
Effective Date, will cease to be outstanding and will be
converted on the Effective Date into and become an option to
acquire that number of shares of First Jermyn Common Stock equal
to the number of shares of Upper Valley Common Stock covered by
the Management Option multiplied by the Exchange Ratio, at an
exercise price equal to the present stated exercise price of such
Management Option divided by the Exchange Ratio. Shares issuable
upon the exercise of such options to acquire First Jermyn Common
Stock will be issuable in accordance with the terms of the
respective plans and grant agreements of Upper Valley under which
they were issued.
Opinions of Investment Bankers
Opinion of First Jermyn's Investment Banker
First Jermyn has retained Berwind to render a fairness
opinion in connection with the Merger. Berwind has rendered its
opinion to the Board of Directors of First Jermyn that, based
upon and subject to the various considerations set forth therein,
as of October 15, 1997 (the "October Opinion"), and as of the
date of this Proxy Statement/Prospectus (the "Proxy Opinion"),
the consideration to be received in the Merger is fair, from a
financial point of view, to the holders of First Jermyn Common
Stock.
The full text of Berwind's Proxy Opinion, which sets
forth the assumptions made, matters considered and limitations of
the review undertaken, is attached as Annex D to this Proxy
Statement/Prospectus, is incorporated herein by reference, and
should be read in its entirety in connection with this Proxy
Statement/Prospectus. This summary of the Proxy Opinion of
Berwind set forth herein is qualified in its entirety by
reference to the full text of such Proxy Opinion attached as
Annex D to this Proxy Statement/Prospectus.
Berwind was selected to issue a fairness opinion by
First Jermyn in connection with the Merger based upon its
qualifications, expertise and experience. Berwind has knowledge
of, and experience with, Pennsylvania and surrounding banking
markets as well as banking organizations operating in those
markets and was selected by First Jermyn because of its knowledge
of, experience with, and reputation in the financial services
industry. Berwind, as part of its investment banking business,
is engaged regularly in the valuation of assets, securities and
companies in connection with various types of asset and
securities transactions, including mergers, acquisitions, private
placements, and valuations for various other purposes and in the
determination of adequate consideration in such transactions.
On October 15, 1997, First Jermyn's Board of Directors
approved and executed the Merger Agreement. Prior to such
approval, Berwind delivered its October Opinion to First Jermyn's
Board stating that, as of such date, the consideration to be
received in the Merger was fair to the shareholders of First
Jermyn from a financial point of view. Berwind reached the same
opinion as of the date of its Proxy Opinion. No limitations were
imposed by First Jermyn's Board of Directors upon Berwind with
respect to the investigations made or procedures followed by
Berwind in rendering the October Opinion or the Proxy Opinion.
In rendering the Proxy Opinion, Berwind: (i) reviewed
the historical financial performances, current financial
positions and general prospects of First Jermyn and Upper Valley;
(ii) reviewed the Agreement; (iii) reviewed and analyzed the
stock market performance of First Jermyn and Upper Valley;
(iv) studied and analyzed the consolidated financial and
operating data of First Jermyn and Upper Valley; (v) considered
the terms and conditions of the proposed Merger as compared with
the terms and conditions of comparable bank and bank holding
company mergers and acquisitions; (vi) met or communicated with
certain members of First Jermyn's and Upper Valley's senior
management to discuss their respective operations, historical
financial statements, and future prospects; (vii) reviewed the
Proxy Statement/Prospectus, and (viii) conducted such other
financial analyses, studies and investigations as Berwind deemed
appropriate.
In delivering its October Opinion and Proxy Opinion,
Berwind assumed that in the course of obtaining the necessary
regulatory and governmental approvals for the Merger, no
restriction will be imposed on Upper Valley or First Jermyn that
would have a material adverse effect on the contemplated benefits
of the Merger. Berwind also assumed that there will not occur
any change in applicable law or regulation that would cause a
material adverse effect on the contemplated benefits of the
Merger.
Berwind relied without independent verification upon
the accuracy and completeness of all of the financial and other
information reviewed by and discussed with it for purposes of its
opinions. With respect to First Jermyn's financial forecasts
reviewed by Berwind in rendering its opinions, Berwind assumed
that such financial forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the management of First Jermyn as to the future financial
performance of First Jermyn. Berwind did not make an independent
evaluation or appraisal of the assets (including loans) or
liabilities of First Jermyn or Upper Valley nor was it furnished
with any such evaluation or appraisal. Berwind also did not
independently verify and has relied on and assumed that all
allowances for loan and lease losses set forth in the balance
sheets of First Jermyn and Upper Valley were adequate and
compiled fully with applicable law, regulatory policy and sound
banking practice as of the date of such financial statements.
The following is a summary of selected analyses
prepared by Berwind and presented to First Jermyn's Board in
connection with the October Opinion and analyzed by Berwind in
connection with the October Opinion and Proxy Opinion. In
connection with delivering its Proxy Opinion, Berwind updated
certain analyses aforementioned to reflect current market
conditions and events occurring since the date of the October
Opinion. Such reviews and updates led Berwind to conclude that
it was not necessary to change the conclusions it had reached in
connection with rendering the October Opinion.
Comparable Companies and Comparable Acquisition
Transaction Analyses. Berwind compared selected financial and
operating data for First Jermyn with those of a peer group of
selected banks and bank holding companies with assets between
$150 million and $500 million, as of the most recent financial
period publicly available, headquartered in Lackawanna and other
surrounding Pennsylvania counties. Financial data and operating
ratios compared in the analysis of the First Jermyn peer group
included but were not limited to: return on average assets,
return on average shareholders' equity, shareholders' equity to
assets ratio and certain asset quality ratios.
Berwind also compared selected financial, operating and
stock market data for Upper Valley with those of a peer group of
selected bank holding companies with assets between $150 million
and $500 million, as of the most recent period publicly
available, headquartered in Lackawanna and other surrounding
Pennsylvania counties. Financial, operating and stock market
data, ratio and multiples compared in the analysis of the Upper
Valley peer group included but were not limited to: return on
average assets, return on average shareholders' equity,
shareholders' equity to asset ratios, certain asset quality
ratios, price to book value, price to tangible book value, price
to earnings (latest twelve months) and dividend yield.
Berwind also compared the multiples of book value,
tangible book value and latest twelve months' earnings inherent
to the Merger with the multiples paid in recent acquisitions of
banks and bank holding companies that Berwind deemed comparable.
The transactions deemed comparable by Berwind included both
intrastate and interstate acquisitions announced during the
twelve month period ending as of the date of its Proxy Opinion,
in which the selling institution's assets were between
$100 million and $750 million as of the most recent period
publicly available prior to the Proxy Opinion. No company or
transaction, however, used in this analysis is identical to First
Jermyn, Upper Valley or the Merger. Accordingly, an analysis of
the result of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning
differences in financial and operating characteristics of the
companies and other factors that would affect the public trading
values of the companies or company to which they are being
compared.
Pro Forma Contribution Analysis. Berwind analyzed the
contribution of each of Upper Valley and First Jermyn of selected
balance sheet and income statement items to the pro forma
combined company as if the Merger had been consummated on
December 31, 1997. The analysis demonstrated that, among other
factors, Upper Valley would have contributed ___% of total
assets, ___% of total loans, ___% of total loan loss reserve,
___% of total deposits, ___% of shareholders' equity and ___% of
net income of the pro forma company, with First Jermyn
contributing the balance. Berwind did not consider estimated
cost savings and earnings improvements from the Merger in this
contribution analysis.
In connection with rendering its October Opinion and
Proxy Opinion, Berwind performed a variety of financial analyses.
Although the evaluation of the fairness, from a financial point
of view, of the consideration to be paid in the Merger was to
some extent a subjective one based on the experience and judgment
of Berwind and not merely the result of mathematical analysis of
financial data, Berwind principally relied on the previously
discussed financial valuation methodologies in its
determinations. Berwind believes its analyses must be considered
as a whole and that selecting portions of such analyses and
factors considered by Berwind without considering all such
analyses and factors could create an incomplete view of the
process underlying Berwind's opinions. In its analysis, Berwind
made numerous assumptions with respect to business, market,
monetary and economic conditions, industry performance and other
matters, many of which are beyond First Jermyn's and Upper
Valley's control. Any estimates contained in Berwind's analyses
are not necessarily indicative of future results or values, which
may be significantly more or less favorable than such estimates.
In reaching its opinion as to fairness, none of the
analyses performed by Berwind was assigned a greater or lesser
weighting by Berwind than any other analysis. Although the
foregoing summary describes the material provisions of the
analyses conducted by Berwind in connection with the delivery of
the October and Proxy Opinion, it does not purport to be a
complete description of all the analyses performed by Berwind and
is qualified by reference to the written opinion of Berwind set
forth in Annex D. As a result of its consideration of the
aggregate of all factors present and analyses performed, Berwind
reached the conclusion, and opined, that the consideration to be
received in the Merger as set forth in the Agreement, is fair
from a financial point of view to First Jermyn and its
shareholders.
Berwind's Proxy Opinion was based solely upon the
information available to it and the economic, market and other
circumstances as they existed as of the date its Proxy Opinion
was delivered; events occurring after the date of its Proxy
Opinion could materially affect the assumptions used in preparing
its Proxy Opinion. Berwind has not undertaken to reaffirm and
revise its Proxy Opinion or otherwise comment upon any events
occurring after the date thereof.
Pursuant to the terms of the engagement letter dated
October 3, 1997, First Jermyn has paid Berwind $50,000 for
delivering its October Opinion and Proxy Opinion. Whether or not
the Merger is completed, First Jermyn has also agreed to
indemnify Berwind and certain related persons against certain
liabilities relating to or arising out of its engagement.
The full text of the Proxy Opinion of Berwind dated as
of the date of this Proxy Statement/Prospectus, which sets forth
assumptions made and matters considered, is attached hereto as
Annex D. First Jermyn's shareholders are urged to read the Proxy
Opinion in its entirety. Berwind's Proxy Opinion is directed
only to the fairness of the transaction, from a financial point
of view, and does not constitute a recommendation to any holder
of First Jermyn Common Stock as to how such holder should vote at
the First Jermyn Special Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY
OPINION OF BERWIND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THAT OPINION, WHICH IS SET FORTH IN ANNEX D
TO THIS PROXY STATEMENT/PROSPECTUS.
Opinion of Upper Valley's Investment Banker
Fox-Pitt, Kelton has acted as financial advisor to
Upper Valley in connection with the Merger. In connection with
such engagement, at the October 15, 1997 meeting of the Upper
Valley Board, Fox-Pitt, Kelton delivered its opinion to the Upper
Valley Board to the effect that, based upon and subject to
various considerations set forth in such opinion, as of
October 15, 1997, the Exchange Ratio was fair, from a financial
point of view, to Upper Valley. Fox-Pitt, Kelton subsequently
confirmed Its opinion by delivery to the Upper Valley Board of a
written opinion dated the date of this Joint Proxy Statement
Prospectus that is substantially identical to the October 15,
1997 opinion, No limitations were imposed by the Upper Valley
Board upon Fox-Pitt, Kelton with respect to investigations made
or the procedures followed by Fox-Pitt, Kelton in rendering its
opinion.
The full text of the written opinion by Fox-Pitt,
Kelton, dated the date of this Joint Proxy Statement-Prospectus,
which sets forth the assumptions made, matters considered and
limits on the review taken, is attached as Appendix X to this
Joint Proxy Statement-Prospectus. Upper Valley stockholders are
urged to read this opinion carefully and in its entirety.
Fox-Pitt, Kelton's opinion is directed only to the fairness of
the Exchange Ratio to Upper Valley from a financial point of
view, has been provided to the Upper Valley Board in connection
with its evaluation of the Merger and docs not constitute a
recommendation to any Upper Valley stockholder as to how such
stockholder should vote. The summary of the opinion set forth in
this Joint Proxy Statement Prospectus is qualified in its
entirety by reference to the full text of such opinion.
In arriving at its opinion, Fox-Pitt, Kelton, among
other things, (i) reviewed and analyzed certain publicly
available financial statements for Upper Valley and First Jermyn;
(ii) analyzed certain internal financial statements, including
financial projections and other financial and operating data
prepared by the managements of Upper Valley and First Jermyn;
(iii) discussed the past, present and future operations,
financial condition and prospects of Upper Valley and First
Jermyn with senior executives of the respective companies;
(iv) reviewed reported prices and trading activity of Upper
Valley Common Stock and First Jermyn Common Stock; (v) compared
the financial performance and condition of Upper Valley and First
Jermyn with that of certain other comparable publicly-traded
companies; (vi) reviewed and discussed with senior executives of
Upper Valley and First Jermyn the strategic objectives of the
Merger and certain other benefits of the Merger to Upper Valley,
(vii) reviewed publicly-available information concerning the
financial terms of certain merger and acquisition transactions
comparable, in whole or in part, to the Merger; (viii) reviewed
the Merger Agreement relating to the Merger and; (ix) performed
such other analyses and investigations as Fox-Pitt, Kelton deemed
appropriate.
In rendering its opinion, Fox-Pitt, Kelton assumed and
relied upon, without independent verification, the accuracy and
completeness of all financial and other information reviewed by
Fox-Pitt, Kelton for the purposes of providing, its opinion, and
did not assume any responsibility for independent verification of
such information. Fox-Pitt, Kelton did not assume any
responsibility for independent verification of the assets and
liabilities of Upper Valley or First Jermyn or for reviewing loan
files or visiting branch locations. With respect to financial
forecasts, projections and estimates, Fox-Pitt, Kelton assumed
that they were reasonably prepared by the respective managements
of Upper Valley and First Jermyn on bases reflecting the best
currently available estimates and judgments of future financial
performance, including projected cost savings from the Merger.
Fox-Pitt, Kelton expressed no view as to such projections or the
assumptions on which they were based. Fox-Pitt, Kelton's opinion
is based upon economic, market and other conditions as they
existed and could be evaluated on October 14, 1997, and
________________, 1998, respectively.
The forecasts or projections furnished to Fox-Pitt,
Kelton for each of Upper Valley and First Jermyn and estimates of
synergies resulting from the Merger were prepared by the
respective managements of each company. As a matter of policy,
neither Upper Valley nor First Jermyn publicly discloses internal
management forecasts, projections or estimates of the type @shed
to Fox-Pitt, Kelton in connection with its analysis of the
Merger, and such forecasts, projections and estimates were not
prepared with a view towards public disclosure. These forecasts,
projections and estimates were based on numerous variables and
assumptions which are inherently uncertain and which may not be
within the control of management, including, without limitation,
factors related to the integration of Upper Valley and First
Jermyn and general economic, regulatory and competitive
conditions. Accordingly, actual results could vary materially
from those set forth in such forecasts, projections and
estimates. (Cross Reference - Forward Looking Statements
Disclaimer).
The following is a summary of the material analyses
presented by Fox-Pitt, Kelton in connection with the delivery of
its opinion to the Upper Valley Board.
Comparable Public Company Analysis. Fox-Pitt, Kelton
reviewed certain publicly available financial and stock market
performance data of selected publicly traded Pennsylvania banks
with assets between $100 million and $500 million (the "Peer
Companies"). The following comprised the Peer Companies: BCB
Financial Services Corporation, Bryn Mawr Bank Corporation,
Century Financial Corporation, Codorus Valley Bancorp,
Incorporated, Comm Bancorp, Inc., Commerce Bank/Harrisburg, N.A.,
Commercial National Financial Corporation, Community Banks, Inc.,
First Colonial Group, Inc., First Leesport Bancorp, Inc.,
Heritage Bancorp, Inc., Lake Ariel Bancorp, Inc., Madison
Bancshares Group, Ltd., NSD Bancorp, Inc., Regent Bancshares
Corp., Republic First Bancorp, Inc. and Royal Bancshares of
Pennsylvania, Inc.
Fox-Pitt, Kelton analyzed the relative performance and
value of both Upper Valley and First Jermyn by comparing certain
publicly available financial data of Upper Valley find First
Jermyn with the Peer Companies. This analysis yielded the
following ratios and multiples for the Peer Companies, Upper
Valley and First Jermyn, respectively: (i) loans-to-deposits
ratio of 82.31%, 78.76% and 68.64%; (ii) equity-to-assets ratio
of 8.92%, 9.11% and 9.48%; (iii) multiple of market price to
earnings per share for the last twelve months of 16.9x, 13.5x and
14.3x; (iv) multiple of market price to estimated 1997 earnings
per share of 18.1x, 19.Ox and 12.1x; and (v) market price to
tangible book value ratio of 217.9%, 149.0% and 147.2%.
Comparable Transactions Analysis. Fox-Pitt, Kelton
reviewed the consideration paid or proposed to be paid in U.S.
banking industry mergers of equals transactions ("MOEs") since
1995, involving parties with assets greater than $100 million.
The ratios provided below assume an Upper Valley Common Stock
price of $36.00 (the reported price per share Upper Valley Common
Stock on October 13, 1997) and a First Jermyn Common Stock price
of $51.50 (the reported price per share of First Jermyn Common
Stock on that date) and use publicly available financial
information as of September 30, 1997. In reviewing the
comparable transactions, Fox-Pitt, Kelton examined the multiples
paid relative to previous twelve month earnings, book value,
tangible book value and core deposits. This analysis yielded the
following medians for the MOEs and the Merger, respectively.
(i) price to earnings multiples of 11.2x and 18.9x; (ii) price to
book value ratios of 139.1% and 146.8%; (iii) price to tangible
book value ratios of 167.5% and 146.8%; and (iv) tangible book
value premium to core deposits ratios of 6.2% and 6.9%.
Stock Trading History. Fox-Pitt, Kelton reviewed the
performance of the weekly stock prices and trading volumes of the
Upper Valley Common Stock and the First Jermyn Common Stock
during the period from March 1996 through the first week of
October 1997. Fox-Pitt, Kelton compared the per share stock
prices and trading volumes of the Upper Valley Common Stock and
the First Jermyn Common Stock to those o[ the Peer Companies for
the same period.
Pro Forma Per Share Analysis. Fox-Pitt, Kelton
analyzed certain pro forma effects resulting from the Merger,
based on a fl%cd exchange ratio of 0.689 shares of First Jermyn
for each share of Upper Valley, discussions with the managements
of both Upper Valley and First Jermyn, estimates provided by
research analysts, estimated annual after tax cost savings of
approximately $760,000 in fiscal 1998 and an estimated tax rate
of 40%. This analysis showed an accretion of 1.45% in 1998
earnings per share of First Jermyn Common Stock, a dilution of
12-69% in the December 31, 1997 book value per share of First
Jermyn Common Stock, and an increase in dividend of $0.12 per
share per Upper Valley Common Stock. No transaction costs were
taken into account in this analysis.
Dividend Discount Analysis. Fox-Pitt, Kelton performed
a dividend discount analysis to determine a range of present
values per share of Upper Valley Common Stock assuming Upper
Valley continued to operate as a stand-alone entity. The range
was determined by adding (i) the present value of the estimated
future dividend stream generated by Upper Valley during the years
1998 through 2002, and; (ii) the present value of the terminal
value of Upper Valley at the end of that period. To determine a
projected dividend stream, Fox-Pitt, Kelton assumed (i) an
increase in assets of 5% in each year from 1998 through 2002;
(ii) a growth in earnings per share of 20% in 1998, 7% in each of
1999 and 2000 and 5% in each of 2001 and 2002; and (iii) a
dividend payout ratio of 43% in each year from 1998 through 2002.
The terminal values are based upon a range of price-to-
earnings and price-to-book value multiples consistent with the
trading multiples of banks comparable to Upper Valley. The
dividend discount analysis assumed price-to-earnings and price-
to-book value multiples of 15x to 17x previous twelve month
earnings per share and 1.5x to 2.Ox book value per share, and a
range of discount rates of 13% to 15%, which Fox-Pitt, Kelton
viewed as an appropriate range. Applying the foregoing
multiples, discount rates and assumptions, Fox-Pitt, Kelton
determined that the fully diluted value per Upper Valley Common
Stock ranged from approximately $27.45 to $33.22 based on the
price-to-earnings multiple assumptions and from approximately
$27.92 to $39.02 based on the price-to-book value multiple
assumptions.
In arriving at its opinions, Fox-Pitt, Kelton performed
a variety of financial analyses, the material portions of which
are summarized above. The summary does not purport to be a
complete description of the analyses performed by Fox-Pitt,
Kelton or of Fox-Pitt Kelton's presentation to the Upper Valley
Board. The preparation of a fairness opinion is a complex
analytical process, involving various determination as to the
most appropriate and relevant methods of financial analyses and
the application of those methods to the particular circumstances,
and, therefore, such an opinion is not necessarily susceptible to
partial analysis or summary description. In arriving at its
opinion, Fox-Pitt, Kelton did not attribute any particular weight
to any analysis or factor considered by it, but rather made
qualitative judgments as to significance and relevance of each
analysis and factor. Accordingly, Fox-Pitt, Kelton believes that
its analyses must be considered as a whole and that selecting
portions of such analyses and the factors considered by it,
without considering all such analyses and factors, could create
an incomplete view of the process underlying its analyses set
forth in its opinion. With regard to the comparable public
company analysis and the comparable transactions analysis,
Fox-Pitt, Kelton selected comparable public companies on the
basis of various factors, but no public company or transaction
Utilized as a comparison is identical to Upper Valley, First
Jermyn or the Merger. Accordingly, an analysis of the foregoing
is not mathematical; rather, it involves complex considerations
and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors
that could affect the acquisition or public trading value of the
comparable companies or transactions to which Upper Valley, First
Jermyn and the Merger are being compared.
Fox-Pitt, Kelton's opinion does not imply any
conclusion as to the likely trading range for First Jermyn Common
Stock following consummation of the Merger, and does not address
Upper Valley's underlying business decision to undertake the
Merger. In performing its analyses, Fox-Pitt, Kelton made
numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and
other matters, many of which are beyond the control of Upper
Valley and First Jermyn. Any estimates contained in such
analyses are not necessarily indicative of actual, past or future
results or values, which may be significantly more or less than
such estimates. Actual values will depend upon several factors,
including changes in interest rates. dividend rates, market
conditions, general economic conditions and other factors that
generally influence the price of securities. (Cross Reference -
Forward Looking, Statements Disclaimer).
Fox-Pitt, Kelton is an internationally recognized
investment banking firm and was selected by Upper Valley based on
Fox-Pitt, Kelton's experience and expertise. Fox-Pitt, Kelton
regularly engages in evaluation of banks and bank holding company
securities in connection with acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for various other
purposes. In the ordinary course of its business, Fox-Pitt,
Kelton may effect transactions, for its own account or for the
accounts of clients, and hold at any time a long or short
position in securities of Upper Valley or First Jermyn.
Pursuant to a letter agreement dated September 29, 1997
between Upper Valley and Fox-Pitt, Kelton, Fox-Pitt, Kelton
agreed to act as financial advisor to Upper Valley in connection
with the Merger. Upper Valley paid Fox-Pitt, Kelton $25,000
upon the signing of the agreement and an additional $25,000 upon
Fox-Pitt, Kelton's rendering of its opinion to the Board of Upper
Valley. Upper Valley also reimbursed Fox-Pitt, Kelton for its
reasonable out-of-pocket expenses, including travel, outside
legal fees and related charges, and agreed to indemnify Fox-Pitt,
Kelton and related persons against certain liabilities, including
certain liabilities under the federal securities laws, from and
arising out of or based upon Fox-Pitt, Kelton's engagement on its
behalf.
Effective Date of the Merger
Under the Merger Agreement, the Effective Date is the
date upon which the Articles of Merger shall be filed in the PDS
and shall be the same as the Closing Date. The parties presently
expect that the Effective Date will occur on or about June __,
1998. See " -- Conditions to the Merger" herein.
On or prior to the Effective Date, Articles of Merger,
between First Jermyn and Upper Valley, setting forth the
Effective Date, will be filed with the Pennsylvania Department of
State. The Merger Agreement may be terminated by either party
if, among other reasons, the Merger closing does not occur on or
before June 30, 1998 and the terminating party is not in breach
of or has not failed to perform or observe any of the agreements
under the Merger Agreements to be performed or observed by it.
See "--Termination; Effect of Termination."
Exchange of Upper Valley Stock Certificates
The conversion of Upper Valley Common Stock into First
Jermyn Common Stock will occur automatically at the Effective
Date. Each holder of shares of Upper Valley Common Stock, other
than holders of Dissenting Shares, who surrenders to First Jermyn
(or its agent) the certificate or certificates representing such
shares will be entitled to receive, as soon as practicable after
the Effective Date, in exchange therefor a certificate or
certificates for the number of whole shares of First Jermyn
Common Stock into which such holders' shares of Upper Valley
Common Stock have been converted pursuant to the Merger, together
with a check for cash in lieu of any fractional shares. As soon
as practicable after the Effective Date, First Jermyn, or a bank
or trust company designated by First Jermyn, in the capacity of
exchange agent (the "Exchange Agent"), will send a transmittal
form to each Upper Valley shareholder of record. The transmittal
form will contain instructions with respect to the surrender of
certificates representing Upper Valley Common Stock to be
exchanged for First Jermyn Common Stock. Under the Merger
Agreement, certificates representing shares of First Jermyn
Common Stock and checks for cash in lieu of fractional shares
must be mailed to former shareholders of Upper Valley as soon as
reasonably possible, but in no event later than 20 business days
following the receipt of duly endorsed certificates representing
former shares of Upper Valley Common Stock (except in the case of
share certificates containing a restrictive legend or with
respect to which stop transfer instructions pertain).
UPPER VALLEY SHAREHOLDERS SHOULD NOT FORWARD UPPER
VALLEY STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE
RECEIVED TRANSMITTAL FORMS. UPPER VALLEY SHAREHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
Until the certificates representing Upper Valley Common
Stock are surrendered for exchange after completion of the
Merger, holders of such certificates will not receive, and will
not be paid dividends on, the First Jermyn Common Stock into
which such shares have been converted. When such certificates
are surrendered, any unpaid dividends will be paid without
interest. For all other purposes, however, each certificate
which represents shares of Upper Valley Common Stock outstanding
at the Effective Date (other than any Dissenting Shares and
Excluded Shares) will be deemed to evidence ownership of and the
right to receive the shares of First Jermyn Common Stock (and
cash in lieu of fractional shares) into which those shares have
been converted by virtue of the Merger. Neither First Jermyn nor
Upper Valley will be liable to any holder of shares of Upper
Valley Common Stock for any amount paid in good faith to a public
official pursuant to any applicable abandoned property, escheat,
or similar law.
All shares of First Jermyn Common Stock issued upon
conversion of shares of Upper Valley Common Stock shall be deemed
to have been issued in full satisfaction of all rights pertaining
to such shares of Upper Valley Common Stock, subject, however, to
First Jermyn's obligation to pay any dividends or make any other
distributions with a record date on or prior to the Effective
Date, which may have been declared or made by Upper Valley on
such shares of Upper Valley Common Stock in accordance with the
Merger Agreement and which remain unpaid at the Effective Date.
No fractional shares of First Jermyn Common Stock will
be issued to any shareholder of Upper Valley upon completion of
the Merger. For each fractional share that would otherwise be
issued, First Jermyn will pay by check an amount equal to the
product obtained by multiplying the fractional share interest to
which such holder would otherwise be entitled by the average
closing prices of a share of First Jermyn Common Stock for the
twenty-day period preceding the Effective Date.
Conditions to the Merger
The obligations of First Jermyn and Upper Valley to
effect the Merger are subject to various conditions, which
include, among other customary provisions for transactions of
this type, the following:
(a) the Merger Agreement shall have been duly
approved by the holders of First Jermyn Common Stock and Upper
Valley Common Stock;
(b) all necessary governmental approvals for the
Merger shall have been obtained, and all waiting periods required
by law or imposed by any governmental authority with respect to
the Merger shall have expired (see " -- Regulatory Approvals"
herein);
(c) there shall not be any order, decree, or
injunction in effect preventing the completion of the
transactions contemplated by the Merger Agreement;
(d) there shall have been delivered to each of
First Jermyn and Upper Valley an opinion of counsel that, among
other things, the Merger will be treated for federal income tax
purposes as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code") (see " -- Certain Federal Income Tax Consequences");
(e) there shall not have been any material
adverse effect on the consolidated assets, financial condition or
results of operations of the other since December 31, 1996,
except for any material adverse effect caused by any change in
the value of the respective investment portfolios of First Jermyn
or Upper Valley resulting from a change in interest rates
generally or any change occurring after the date of the Agreement
in any federal or state law, rule or regulation or in GAAP, which
change affects banking institutions generally, including any
change affecting the Bank Insurance Fund (the "BIF") or the
Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (a "Material Adverse Effect");
(f) the Articles of Incorporation and Bylaws of
First Jermyn shall have been amended to read in their entirety as
set forth on Annexes B and C, respectively, to this Proxy
Statement/Prospectus;
(g) shareholders owning 9% or more of the issued
and outstanding shares of Upper Valley Common Stock shall not
have asserted and duly perfected dissenters' rights under the
Pennsylvania BCL; and
(h) First Jermyn shall have received an opinion
from its independent auditors that the Merger will be treated as
a pooling of interests for financial accounting purposes.
Except for the requirements of shareholder approval,
regulatory approvals and the absence of any order, decree, or
injunction preventing the transactions contemplated by the Merger
Agreement, each of the conditions described above may be waived
in the manner and to the extent described in " -- Amendment;
Waivers" herein. First Jermyn does not, however, anticipate
waiving the condition that it receive an opinion from its
independent auditors that the Merger will be treated as a pooling
of interests for financial accounting purposes. As of the date
of this Proxy Statement/Prospectus, First Jermyn has no reason to
believe that it will not receive such an opinion from its
independent auditors.
Subsidiary Bank Merger
Pursuant to the Merger Agreement, NBO will merge with
and into FNBJ as soon as practicable following the Merger, in
accordance with the terms of the Bank Plan of Merger. First
Jermyn and Upper Valley presently contemplate that the Bank Plan
of Merger will occur during the fourth quarter of 1998.
Regulatory Approvals
The Merger is subject to the prior approval of the
Federal Reserve under the Bank Holding Company Act and the
regulations adopted thereunder. An application for approval of
the Merger was filed with the Federal Reserve on or about
January 28, 1998. Under applicable regulations, the Federal
Reserve reviews the financial, managerial, competitive, legal,
disclosure, accounting, and tax aspects of the transaction, as
well as the convenience and needs of the community to be served.
The Federal Reserve approved the Merger on March 10,
1998. Separately, the Bank Merger is subject to the prior
approval of the OCC, which is required to consider the same
aspects as set forth above for the Federal Reserve.
The Merger may not be consummated until 30 days (15
days if the Attorney General does not object) after the date of
the Federal Reserve approval, during which time the Department of
Justice has the opportunity to challenge the Merger on antitrust
grounds. The commencement of an antitrust action by the
Department of Justice would stay the effectiveness of Federal
Reserve approval unless a court specifically orders otherwise.
In reviewing the Merger, the Department of Justice could analyze
the Merger's effect on competition differently than the Federal
Reserve, and thus it is possible that the Department of Justice
could reach a different conclusion than the Federal Reserve
regarding the Merger's competitive effects. Failure of the
Department of Justice to object to the Merger does not prevent
the filing of antitrust actions by private persons.
Representations and Warranties
The Merger Agreement contains customary representations
and warranties relating to, among other things, (a) the corporate
organization of First Jermyn, FNBJ, Upper Valley and NBO; (b) the
capital structures of First Jermyn and Upper Valley; (c) the due
authorization, execution, delivery, performance, and
enforceability of the Merger Agreement and the Bank Plan of
Merger; (d) consents or approvals of regulatory authorities or
third parties necessary to complete the Merger and the Bank
Merger; (e) the consistency of financial statements with
generally accepted accounting principles and, where appropriate,
applicable regulatory accounting principles; (f) the absence of
material adverse changes, since December 31, 1996, in the
consolidated assets, business, financial condition or results of
operations of First Jermyn or Upper Valley; (g) the filing of tax
returns and payment of taxes; (h) the absence of undisclosed
material pending or threatened litigation; (i) compliance with
applicable laws and regulations; (j) retirement and other
employee plans and matters relating to the Employee Retirement
Income Security Act of 1974; (k) the quality of title to assets
and properties; (l) the maintenance of adequate insurance;
(m) the absence of undisclosed brokers' or finders' fees; (n) the
absence of material environmental violations, actions, or
liabilities; (o) the consistency of the allowance for loan losses
with generally accepted accounting principles and all applicable
regulatory criteria; (p) the accuracy of information supplied by
First Jermyn and Upper Valley in connection with the Registration
Statement, this Proxy Statement/Prospectus and all applications
filed with regulatory authorities for approval of the Merger and
the Bank Merger; and (q) documents filed with the Commission with
respect to First Jermyn and the accuracy of information contained
therein.
The Merger Agreement also contains other
representations and warranties by each of First Jermyn and Upper
Valley relating to, among other things, (a) certain contracts
relating to employment, consulting, and employee benefits
matters; (b) the validity and binding nature of loans reflected
as assets in the financial statements of Upper Valley; and
(c) transactions with affiliates.
Business Pending the Merger
Pursuant to the Merger Agreement, First Jermyn and
Upper Valley have each agreed to use their best efforts to
preserve their business organizations intact, to maintain good
relationships with employees and to preserve the goodwill of
customers and others with whom business relationships exist.
First Jermyn and Upper Valley have each also agreed to conduct
its business and to engage in transactions only in the ordinary
course of business, consistent with past practice, except as
otherwise required by the Merger Agreement or with the written
consent of the other party.
In addition, each of First Jermyn and Upper Valley have
agreed in the Merger Agreement that neither it nor any of its
subsidiaries may, without the written consent of the other, among
other things, (i) change its articles of incorporation or bylaws;
(ii) change the number of authorized or issued shares of its
capital stock, except for the possible issuance of shares of
Upper Valley Common Stock upon the exercise of then outstanding
stock options; (iii) grant options or similar rights with respect
to its capital stock or any securities convertible into its
capital stock; (iv) split, combine, or reclassify any shares of
its capital stock; (v) declare, set aside or pay any dividend or
other distribution in respect of its capital stock, except as
otherwise specifically set forth in the Merger Agreement (see
"Dividends" herein); (vi) grant any severance pay, except in
accordance with written policies or written agreements in effect
on the date of the Merger Agreement, or enter into or amend any
employment agreement; (vii) grant any pay increase except for
routine periodic increases in accordance with past practice;
(viii) engage in any merger, acquisition, or similar transaction;
(ix) dispose of any assets other than in the ordinary course of
business; (x) change any accounting practices, except as may be
required by generally accepted accounting principles (without
regard to any optional early adoption date); (xi) implement any
new employee benefit or welfare plan, or amend any such plan,
unless such amendment does not result in an increase in cost
except as expressly permitted by the Merger Agreement;
(xii) purchase any security for its investment portfolio not
rated "A" or higher by either Standard & Poor's Corporation or
Moody's Investor Services, Inc.; (xiii) make, enter into, renew,
extend, modify or compromise any transaction (including loans and
commitments to lend) with any affiliate; (xiv) enter into any
interest rate swap or similar arrangement; (xv) take any action
which would give rise to a right of payment to any individual
under any employment agreement; (xvi) intentionally and knowingly
take any action that would preclude the treatment of the Merger
as a pooling of interests for financial accounting purposes;
(xvii) make any loan or other credit facility commitment to any
borrower in excess of $1,000,000, or compromise, extend, renew,
or modify any such loan or commitment outstanding in excess of
$1,000,000; (xviii) waive, release, grant or transfer any rights
of value, or modify or change in any material respect any
existing agreement to which either is a party, other than in the
ordinary course of business, consistent with past practice;
(xix) take any action which would cause any of the
representations and warranties set forth in the Merger Agreement
to be untrue or the conditions set forth in the Merger Agreement
to be unsatisfied; or (xx) agree to do any of the foregoing.
First Jermyn and Upper Valley have jointly agreed,
among other things: (i) to submit the Merger Agreement to their
shareholders for approval at meetings to be held as soon as
practicable, and use their best efforts to cause their Boards of
Directors to unanimously recommend approval of the Merger
Agreement to their shareholders; (ii) to prepare all applications
for, and use their best efforts to obtain, all required
regulatory consents; (iii) to permit a representative of the
other to attend committee meetings of its management and to
reasonably consider requests of the other to permit
representatives to attend meetings of its Board of Directors or
Executive Committee; (iv) if requested by the other at the
requesting party's sole expense, to cause its independent
certified public accountants to perform a review of its unaudited
consolidated financial statements as of the end of any calendar
quarter, in accordance with Statement of Auditing Standards
No. 36, and to issue their report on such financial statements;
(v) to take all actions necessary to complete the transactions
contemplated by the Merger Agreement; (vi) to maintain adequate
insurance; (vii) to maintain accurate books and records;
(viii) to file all tax returns and pay all taxes when due;
(ix) to cooperate with each other and use their best efforts to
identify those persons who may be deemed to be affiliates of
Upper Valley; (x) to agree upon the form and substance of any
press release or public disclosure related to the Merger
Agreement, the Merger, and the Bank Merger; and (xi) to deliver
to the other copies of all securities documents when filed.
Dividends
The Merger Agreement permits Upper Valley to pay a
regular quarterly cash dividend not to exceed $.22 per share of
Upper Valley Common Stock outstanding and First Jermyn to pay a
regular semi-annual cash dividend not to exceed $.70 per share of
First Jermyn Common Stock outstanding from October 15, 1997
through the Closing Date. In the Merger Agreement, First Jermyn
and Upper Valley have agreed to consult with and coordinate with
the other the payment of dividends, including record and payment
dates, so that holders of Upper Valley Common Stock will not
receive two dividends, or fail to receive one dividend, with
respect to any calendar quarter. Each of FNBJ and NBO,
respectively, may pay cash dividends sufficient to permit payment
of the dividends permitted to be paid by First Jermyn or Upper
Valley. No other dividends may be paid by either First Jermyn or
Upper Valley without the prior written consent of the other.
No Solicitation of Transactions
The Merger Agreement provides that, so long as the
Merger Agreement is in effect, neither First Jermyn nor Upper
Valley or any of their respective subsidiaries or affiliates,
will, directly or indirectly, solicit, encourage, initiate, or
engage in discussions or negotiations with, or respond to
requests for information, inquiries, or other communications
from, any person other than the other party concerning the fact
of, or the terms and conditions of, the Merger Agreement, or
concerning any acquisition of First Jermyn or Upper Valley, any
First Jermyn and Upper Valley subsidiary, or any assets or
business thereof, except that First Jermyn's and Upper Valley's
officers may respond to inquiries from analysts, regulatory
authorities and holders of First Jermyn Common Stock or Upper
Valley Common Stock in the ordinary course of business. The
Merger Agreement provides that the contacted party shall notify
the other immediately if any such discussions or negotiations are
sought to be initiated by any person other than First Jermyn or
Upper Valley or if any such requests for information, inquiries,
proposals, or communications are received from any person other
than the other party.
The directors and executive officers of both First
Jermyn and Upper Valley have executed letter agreements
containing provisions similar to those described above relating
to third party discussions or solicitations. Copies of the forms
of letter agreement executed by the directors and executive
officers of First Jermyn and Upper Valley are included as
Exhibits 1 and 2, respectively, to the Merger Agreement attached
hereto as Annex A.
Amendment; Waivers
Subject to applicable law, at any time prior to the
consummation of the transactions contemplated by the Merger
Agreement, First Jermyn and Upper Valley may (a) amend the Merger
Agreement, (b) extend the time for the performance of any of the
obligations or other acts of First Jermyn and Upper Valley
required in the Merger Agreement, (c) waive any inaccuracies in
the representations and warranties contained in the Merger
Agreement, or (d) waive compliance with any of the agreements or
conditions contained in the Merger Agreement
Termination; Effect of Termination
The Merger Agreement may be terminated on or at any
time prior to the Effective Date, which First Jermyn and Upper
Valley presently anticipate to occur on or about May 15, 1998,
(a) by the mutual written consent of First Jermyn and Upper
Valley; or (b) by First Jermyn or Upper Valley if: (i) the other
party breaches any representation or warranty contained in the
Merger Agreement which results in a Material Adverse Effect to
the breaching party, and such breach has not or cannot be cured
within thirty days from the date written notice of such breach
was given to such party committing the breach, (ii) the other
party breaches any material covenant or obligation, and such
breach has not or cannot be cured within thirty days from the
date written notice of such breach was given to such party
committing the breach, (iii) the Closing Date shall not have
occurred by June 30, 1998, or (iv) either party is notified by a
regulatory authority that a necessary approval is unlikely to be
granted unless the failure of such occurrence shall be due to the
failure of the party seeking to terminate the Merger Agreement to
perform or observe any agreements required to be performed by
such party by the Effective Date.
In addition, the Merger Agreement may be terminated by:
(a) First Jermyn if the amount of nonperforming assets (as
defined below) of Upper Valley and the Upper Valley subsidiaries
at the Closing Date increase by more than $1,000,000 over the
amount of such nonperforming assets as of September 30, 1997; or
(b) Upper Valley if the amount of nonperforming assets of First
Jermyn and the First Jermyn subsidiaries at the Closing Date
increase by more than $1,000,000 over the amount of such
nonperforming assets as of September 30, 1997. For purposes of
the Merger Agreement, the term "nonperforming assets" means
(i) loans that are "troubled debt restructurings" (as defined in
Statement of Financial Accounting Standards 15) or loans which
are otherwise restructured, excluding, in each case, restructured
loans the terms and conditions of which were approved in writing
in advance, (ii) loans on nonaccrual, including loans placed on
nonaccrual that may have been previously restructured, (iii) real
estate owned, or (iv) real estate construction loans on interest
reserved which have been extended as to maturity at least once).
In the event of termination of the Merger Agreement by
either First Jermyn or Upper Valley, there will be no liability
or obligation on the part of First Jermyn or Upper Valley other
than the obligation dealing with confidentiality and other than
any liabilities or damages incurred as a result of the willful
breach by a party of any of its representations, warranties,
covenants, or agreements set forth in the Merger Agreement;
provided, however, that (a) if, within 18 calendar months
following the date of termination of the Merger Agreement, a
person, group or entity other than First Jermyn or an affiliate
of First Jermyn, enters into an agreement with Upper Valley or
NBO pursuant to which such person, group or entity would
(i) merge or consolidate, or enter into any similar transaction,
with Upper Valley or NBO, (ii) acquire all or substantially all
of the assets of Upper Valley or NBO, 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 Upper Valley Common Stock
or NBO common stock, then Upper Valley shall immediately pay to
First Jermyn a termination fee ("Termination Fee") of
$1.5 million; or (b) if, within 18 calendar months following the
date of termination of this Agreement, a person, group or entity
other than Upper Valley or an affiliate of Upper Valley, enters
into an agreement with First Jermyn or FNBJ pursuant to which
such person, group or entity would (i) merge or consolidate, or
enter into any similar transaction, with First Jermyn or FNBJ,
(ii) acquire all or substantially all of the assets of First
Jermyn or FNBJ, 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 First Jermyn Common Stock or FNBJ
common stock, then First Jermyn shall immediately pay a
Termination Fee to Upper Valley. No Termination Fee will be
payable in the event that the Merger Agreement is terminated
pursuant to the mutual written consent of the parties. In
addition, no Termination Fee will be payable in the event of
termination of the Merger Agreement following (i) an unremedied
breach of a representation or warranty by the party which would
otherwise be entitled to receive the Termination Fee which
results in a Material Adverse Effect, (ii) an unremedied breach
of any material covenant or other obligation by the party which
would otherwise be entitled to receive the Termination Fee,
(iii) the failure to complete the Merger by June 30, 1998, unless
the failure of such occurrence shall be due to the failure of the
party which would otherwise be required to pay the Termination
Fee to perform or observe its agreements set forth in the Merger
Agreement required to be performed or observed prior to the
Effective Date, (iv) the notification of either party by a
regulatory authority that a necessary approval is unlikely to be
granted, unless the failure of such occurrence shall be due to
the failure of the party which would otherwise be required to pay
the Termination Fee to perform or observe any agreements set
forth in the Merger Agreement required to be performed or
observed by such party prior to the Effective Date, or (v) the
amount of nonperforming assets of the party which would otherwise
be entitled to receive the Termination Fee at the Effective Date
increase by more than $1,000,000 from the amount of such
nonperforming assets at September 30, 1997.
Restated Articles of Incorporation and Bylaws
The Merger Agreement sets forth Restated Articles of
Incorporation and Restated Bylaws of First Jermyn which will be
applicable following completion of the Merger. The following
summarizes certain of the significant provisions of the Restated
Articles of Incorporation and Restated Bylaws of First Jermyn.
The following summary is qualified in its entirety by the full
text of the Restated Articles of Incorporation and Restated
Bylaws attached to this Proxy Statement/Prospectus as Annexes B
and C, respectively. See also, "DESCRIPTION OF FIRST JERMYN
CAPITAL SECURITIES" and "COMPARISON OF SHAREHOLDER RIGHTS."
Restated Articles of Incorporation
Name. The name of First Jermyn under the Restated
Articles of Incorporation will be changed to "________________."
Authorized Capital. The aggregate number of shares of
authorized capital of First Jermyn under the Restated Articles of
Incorporation will be 10,000,000 shares of common stock, $1.25
par value per share. Authorized shares of common stock can only
be issued for cash by a vote of 80% of the total number of
directors then in office, except for shares issued under employee
benefit plans.
Board of Directors. The Restated Articles of
Incorporation provide that the management of the corporation will
be vested in a Board of Directors consisting of not less than
five or more than 25 persons, as fixed by the Board of Directors
from time to time. The Board of Directors will be divided into
three classes, each class serving staggered three-year terms.
Once the number of directors in a class is fixed for any term of
office, it cannot be increased except by a vote of 80% of the
total number of directors in office until January 1, 2004 and by
a vote of 66-2/3% of the directors in office thereafter.
Shareholders will not be entitled to cumulate votes in elections
of directors.
Supermajority Voting Requirements for Fundamental
Transactions. The Restated Articles of Incorporation require,
until January 1, 2004, an 80% vote of directors and the
affirmative vote of the holders of 80% of the outstanding shares
of First Jermyn Common Stock to approve a merger or consolidation
of First Jermyn with or into another corporation or any division
involving the corporation, a share exchange involving an exchange
of shares of First Jermyn capital stock, a sale, lease, exchange
or other transfer of all or substantially all of the assets of
First Jermyn, a liquidation or dissolution involving First
Jermyn, or any transaction similar to or having similar effects
as any of the foregoing (each, a "Fundamental Transaction"). In
any Fundamental Transaction occurring prior to January 1, 2004 in
which individuals serving on the Board of Directors of First
Jermyn immediately prior to the Fundamental Transaction continue
to constitute at least a majority of the Board of Directors after
the Fundamental Transaction and shareholders of First Jermyn
immediately prior to the Fundamental Transaction continue to own
at least a majority of the outstanding voting securities of the
entity resulting from the Fundamental Transaction, the
shareholder voting requirement decreases from 80% of outstanding
shares to 66-2/3% of outstanding shares. On and after January 1,
2004, approval of a Fundamental Transaction involving First
Jermyn requires a 66-2/3% vote of directors and the affirmative
vote of the holders of 66-2/3% of the outstanding shares of First
Jermyn Common Stock. The supermajority shareholder voting
requirements do not apply to any Fundamental Transaction approved
in advance unanimously by the Board of Directors.
Action By Written Consent of Shareholders. The
Restated Articles of Incorporation eliminate the ability of
shareholders to act without a meeting by written consent.
Amendment of Bylaws. The Restated Articles of
Incorporation vest the ability to amend the corporation's bylaws
in the Board of Directors by a 66-2/3% vote of directors then in
office, subject to the ability of shareholders to amend the
Bylaws by the affirmative vote of 80% of the total votes which
all shareholders are entitled to cast until January 1, 2004 (and
the affirmative vote of a majority of the total votes entitled to
be cast by the holders of any class of shares that is entitled to
vote as a separate class) and by a vote of 66-2/3% of the total
votes which all shareholders are entitled to cast thereafter (and
the affirmative vote of a majority of the total votes entitled to
be cast by the holders of any class of shares that is entitled to
vote as a separate class).
Mandatory Tender Offer Provision. The Restated
Articles of Incorporation include a provision requiring any
person or group that becomes the beneficial owner, directly or
indirectly, of capital stock having the right to cast 25% or more
of all votes entitled to be cast by all outstanding shares of
capital stock to offer to purchase all shares of capital stock of
the corporation at a price equal to the higher of (i) the highest
price paid by such person or group for any shares of the
corporation's capital stock during the preceding twelve months or
(ii), if the Board of Directors so elects, the fair market value
of a share of the corporation's capital stock determined in
writing by an investment firm selected by the Board and
experienced in the valuation of financial institutions. These
provisions do not apply in the event that 80% of the total number
of directors then in office approve in advance the acquisition of
beneficial ownership by such person or group.
Amendment. The Restated Articles of Incorporation can
generally be amended in the manner specified by Pennsylvania law,
except that provisions set forth in Articles Sixth, Seventh and
Eighth (relating to the classification of directors, the number
of directors, and the absence of cumulative voting for directors
cannot be amended unless the amendment is approved by either (i)
the affirmative vote of shareholders entitled to cast at least
66-2/3% of all votes which all shareholders are then entitled to
cast (plus a majority of the votes entitled to be cast by any
class entitled to vote separately) or (ii) the affirmative vote
of 66-2/3% of the total number of directors then in office and
the affirmative vote of shareholders entitled to cast at least a
majority of all votes which shareholders are entitled to cast
(plus a majority of the votes entitled to be cast by any class
entitled to vote). In addition, the provisions of Articles
Ninth, Tenth, Eleventh, Twelfth, and Thirteenth (relating to
supermajority voting requirements for fundamental transactions,
prohibition on shareholder actions without a meeting, bylaw
amendments, mandatory tender offer provision and article
amendments) cannot be amended prior to January 1, 2004 unless the
amendment is approved by the affirmative vote of 80% of the total
number of directors then in office and the affirmative vote of
shareholders entitled to cast at least 80% of all votes which all
shareholders are then entitled to cast (plus a majority of the
votes entitled to be cast by any class entitled to vote
separately) and after January 1, 2004 unless the amendment is
approved by the affirmative vote of 66-2/3% of all directors then
in office and the affirmative vote of shareholders entitled to
cast at least 66-2/3% of all votes which all shareholders are
then entitled to cast (plus a majority of the votes entitled to
be cast by any class entitled to vote separately).
Bylaws
Time, Date and Place of Annual Meeting. Under the
Restated Bylaws the Board of Directors sets the time, date and
place of the annual meeting of shareholders.
Meeting Agenda. Matters to be placed on the agenda for
consideration at an annual meeting of shareholders must be made
by notice in writing to the corporation not less than 60 days
prior to an meeting, unless less than 21 days notice of the
meeting is given by the corporation in which case written notice
must be given not less than seven days following the date of
mailing of notice of the meeting.
Conduct of Shareholder Meetings. The Restated Bylaws
give the Chairman of the meeting broad authority to conduct an
orderly meeting of shareholders, including the power to
temporarily adjourn or postpone a meeting.
Shareholder Nominations for Director. Shareholders
desiring to nominate a person for election as a director of the
corporation must submit a written notice to the corporation not
less than 20 days prior to the meeting. The notice must specify
certain biographical information with respect to the proposed
nominee.
Mandatory Retirement of Directors. Except for
directors of the Corporation on _____________, 1998, any person
who has attained the age of 75 shall not be eligible for election
as a member of the Board of Directors.
Special Director Voting Requirements. The Restated
Bylaws require, until January 1, 2004, a vote of 80% of the
members of the Board of Directors then in office to take certain
actions which may result in a change in control of the
corporation. These actions include adopting a motion or
resolution to study sale as a strategic alternative or engaging a
financial advisor with respect thereto, adopting a motion or
resolution approving a fundamental transaction involving the
corporation (such as a merger or share exchange), recommending
that shareholders of the corporation accept a transaction or
tender their shares in a tender or exchange offer for the
corporation's securities, or soliciting indications of interest
or responding to proposals relating to a fundamental transaction
involving the corporation following which the corporation would
not be the surviving or controlling entity.
Limitation of Director Liability and Indemnification.
The Restated Bylaws contain provisions similar to those contained
in the present articles of incorporation of First Jermyn limiting
the personal liability of directors and providing for the
indemnification of directors, officers, employees, and agents of
the corporation to the maximum extent permissible by Pennsylvania
law.
Management and Operations after the Merger
On the Effective Date, the Board of Directors of First
Jermyn as surviving corporation in the Merger, shall consist of
those persons holding such office immediately prior to the
Effective Date and Saul Kaplan (to be elected as Class III
Director to serve until 2001), Harold S. Kaplan (to be elected as
Class III Director to serve until 2001), Joseph P. Coviello (to
be elected as Class III Director to serve until 2001), Fred J.
Gentile (to be elected as Class I Director to serve until 1999),
Michael A. Barbetti (to be elected as Class I Director to serve
until 1999), and Norman Woodworth (to be elected as Class I
Director to serve until 1999), all as further set forth in the
form of Restated Articles of Incorporation of First Jermyn
attached hereto as Annex B. First Jermyn has agreed in the
Merger Agreement to cause Messrs. S. Kaplan, H. Kaplan, and
Coviello to be nominated for re-election to the Board of
Directors of First Jermyn at any annual or special meeting of
shareholders of First Jermyn held 2004 at which the class in
which such individuals are serving is considered for reelection
and to cause Messrs. Gentile, Barbetti, and Woodworth to be
nominated for re-election to the Board of Directors of First
Jermyn at any annual or special meeting of shareholders of First
Jermyn held through December 31, 1999, at which the class in
which such individuals are serving is considered for reelection.
Employee Benefits
First Jermyn intends to maintain employee benefits for
Upper Valley and NBO employees at levels which, in the aggregate,
are at least as favorable as the benefits to which such persons
were entitled on December 31, 1996. On and after the Effective
Date, so long as such level of benefits is maintained, the
employee pension and welfare benefit plans of First Jermyn and
Upper Valley may, at First Jermyn's election and subject to the
requirements of the IRC, continue to be maintained separately or
consolidated. In the event of a consolidation of any or all of
such plans, Upper Valley and NBO employees shall receive credit
for service with Upper Valley or NBO under any First Jermyn
benefit plan or new First Jermyn benefit plan in which such
employees would be eligible to enroll, for purposes of
eligibility and vesting determination but not for purposes of
benefit accrual.
Accounting Treatment
The Merger is expected to qualify as a pooling of
interests for accounting and financial reporting purposes. Under
this method of accounting, the recorded assets and liabilities of
First Jermyn and Upper Valley will be carried forward to the
combined corporation at their recorded amounts; income of the
combined corporation will include income of both First Jermyn and
Upper Valley for the entire fiscal year of First Jermyn in which
the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as
income of the combined corporation. Expenses incurred in
connection with the Merger will constitute expenses for the
accounting periods to which such expenses relate. The receipt of
a letter from First Jermyn's independent auditors confirming that
the Merger will qualify for pooling of interests accounting is a
condition to First Jermyn's and Upper Valley's obligations to
complete the Merger.
Certain Federal Income Tax Consequences
Completion of the Merger is conditioned upon there
being delivered to First Jermyn and to Upper Valley an opinion of
Stevens & Lee, P.C., counsel to First Jermyn, that for federal
income tax purposes, under current law, assuming that the Merger
and related transactions will take place as described in the
Merger Agreement, among other things, the Merger will constitute
a reorganization within the meaning of Section 368(a) of the
Code, and First Jermyn and Upper Valley will each be a party to
the reorganization within the meaning of Section 368(b) of the
Code.
In that case, in the opinion of Stevens & Lee, P.C.,
the following would be the material federal income tax
consequences of the Merger:
(i) no gain or loss will be recognized by First
Jermyn or Upper Valley in the Merger;
(ii) no gain or loss will be recognized by
holders of shares of Upper Valley Common Stock upon their receipt
of First Jermyn Common Stock in exchange for their Upper Valley
Common Stock, except that shareholders who receive cash proceeds
for fractional interests in First Jermyn Common Stock will
recognize gain or loss equal to the difference between such
proceeds and the tax basis allocated to their fractional share
interests, and such gain or loss will constitute capital gain or
loss if their Upper Valley Common Stock is held as a capital
asset at the Effective Date;
(iii) the tax basis of the shares of First Jermyn
Common Stock (including fractional share interests) received by
the shareholders of Upper Valley will be the same as the tax
basis of their Upper Valley Common Stock exchanged therefor; and
(iv) the holding period of the First Jermyn
Common Stock in the hands of the Upper Valley shareholders will
include the holding period of their Upper Valley Common Stock
exchanged therefor, provided such Upper Valley Common Stock is
held as a capital asset at the Effective Date.
Under the Merger Agreement, the condition that
Stevens & Lee deliver the opinion described above can be waived
by First Jermyn and Upper Valley. However, in the event that the
delivery of such opinion of counsel is waived, or such opinion
would otherwise set forth tax consequences materially different
to a shareholder than those described above, First Jermyn and
Upper Valley intend to resolicit proxies as required in
accordance with the rules and regulations of the Commission.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON CURRENTLY EXISTING PROVISIONS OF
THE CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER,
AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF
THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. THE DISCUSSION
IS NOT A COMPLETE DESCRIPTION OF ALL THE FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND, IN PARTICULAR, DOES NOT ADDRESS
TAX CONSIDERATIONS THAT MAY AFFECT THE TREATMENT OF SHAREHOLDERS
WHO ACQUIRED THEIR UPPER VALLEY COMMON STOCK PURSUANT TO THE
EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION,
OR SHAREHOLDERS WHICH ARE EXEMPT ORGANIZATIONS OR WHO ARE NOT
CITIZENS OR RESIDENTS OF THE UNITED STATES. EACH SHAREHOLDER'S
INDIVIDUAL CIRCUMSTANCES MAY AFFECT THE TAX CONSEQUENCES OF THE
MERGER TO SUCH SHAREHOLDER. IN ADDITION, NO INFORMATION IS
PROVIDED HEREIN WITH RESPECT TO THE TAX CONSEQUENCES OF THE
MERGER UNDER APPLICABLE STATE, LOCAL, OR FOREIGN LAWS.
ACCORDINGLY, EACH UPPER VALLEY SHAREHOLDER IS ADVISED TO CONSULT
A TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER
TO SUCH SHAREHOLDER.
Expenses
First Jermyn and Upper Valley will each pay all costs
and expenses incurred by it in connection with the transactions
contemplated by the Merger Agreement, including fees and expenses
of financial consultants, accountants, and legal counsel, except
that the costs of printing and mailing this Proxy Statement/
Prospectus will be shared equally by First Jermyn and Upper
Valley.
Resale of First Jermyn Common Stock
The First Jermyn Common Stock issued pursuant to the
Merger will be freely transferable under the Securities Act
except for shares issued to any Upper Valley shareholder who may
be deemed to be an "affiliate" of Upper Valley or First Jermyn
for purposes of Rule 145 under the Securities Act. Each director
and executive officer of Upper Valley has entered into an
agreement with First Jermyn providing that, as an affiliate, he
or she will not transfer any First Jermyn Common Stock received
in the Merger except in compliance with the Securities Act and
will make no dispositions of any First Jermyn Common Stock or
Upper Valley Common Stock (or any interest therein) during the
period commencing 30 days prior to the Effective Date through the
date on which financial results covering at least 30 days of
combined operations of First Jermyn and Upper Valley after the
Merger have been made public. This Proxy Statement/Prospectus
does not cover resales of First Jermyn Common Stock received by
any person who may be deemed an affiliate of Upper Valley or
First Jermyn.
Dissenters' Rights of Appraisal
Pursuant to the Pennsylvania BCL, shareholders of First
Jermyn and Upper Valley have the right to dissent from the
Merger, and to obtain payment of the "fair value" (as defined
therein) of their First Jermyn Common Stock or Upper Valley
Common Stock, as the case may be, if the Merger is consummated.
The term "fair value" means the value of First Jermyn Common
Stock or Upper Valley Common Stock immediately before completion
of the Merger, taking into account all relevant factors, but
excluding any appreciation or depreciation in anticipation of the
Merger.
The following summary of the steps to be taken if the
right to dissent is to be exercised is qualified in its entirety
by the full text of Section 1930 and Subchapter D of Chapter 15
of the BCL, which are attached as Annex F to this Proxy
Statement/Prospectus. Each step must be taken in the indicated
order and in strict compliance with the applicable provisions of
the statute in order to perfect dissenters' rights. The failure
of any shareholder to comply with the aforesaid steps will result
in the shareholder receiving the consideration contemplated by
the Agreement. See "THE MERGER -- Terms of the Merger." Any
shareholder of First Jermyn or Upper Valley who contemplates
exercising the right to dissent is urged to read carefully the
provisions of Section 1930 and Subchapter D of Chapter 15 of the
BCL.
Any written notice or demand which is required in
connection with the exercise of dissenters' rights, whether
before or after the Effective Date, must be sent, in the case of
a First Jermyn shareholder, to First Jermyn, 645 Washington
Avenue, Jermyn, Pennsylvania 18433 (Attention: Martha Myshak,
Secretary), and, in the case of a Upper Valley shareholder,
114-116 Lackawanna Avenue, Olyphant, Pennsylvania 18447-0010
(Attention: ___________________, Secretary).
A shareholder who wishes to dissent must file with
First Jermyn or Upper Valley, as the case may be, prior to the
vote of shareholders on the Merger at the First Jermyn Annual
Meeting or the Upper Valley Special Meeting, as the case may be,
a written notice of intention to demand that he be paid the fair
value for his shares of First Jermyn Common Stock or Upper Valley
Common Stock, as the case may be, if the Merger is effected, must
effect no change in the beneficial ownership of his First Jermyn
Common Stock or Upper Valley Common Stock, as the case may be,
from the date of such filing through the Effective Date, and must
refrain from voting his First Jermyn Common Stock or Upper Valley
Common Stock, as the case may be, to approve the Merger. Neither
a proxy nor a vote against approval of the Merger will constitute
the necessary written notice of intention to dissent. A
beneficial owner of First Jermyn Common Stock or Upper Valley
Common Stock whose shares are held of record in "street name" by
a brokerage firm or other nominee must obtain the written consent
of such record holder to such beneficial owner's exercise of
dissenters' rights and must submit such consent to First Jermyn
or Upper Valley, as the case may be, no later than the time of
the filing of his notice of intention to dissent.
If the Merger is approved by the required vote of First
Jermyn's and Upper Valley's shareholders at the Meetings, First
Jermyn and Upper Valley will mail a notice to all dissenters who
gave due notice of intention to demand payment and who refrained
from voting in favor of the Merger. The notice will state where
and when a demand for payment must be sent and certificates for
First Jermyn Common Stock and Upper Valley Common Stock must be
deposited in order to obtain payment, and will include a form for
demanding payment and a copy of Subchapter D of Chapter 15 of the
BCL. The time set for receipt of the demand for payment and
deposit of stock certificates will not be less than 30 days from
the date of mailing of the notice.
A shareholder who fails to timely demand payment or
fails to timely deposit stock certificates, as required by First
Jermyn's or Upper Valley's notice, as the case may be, will not
have any right to receive payment of the fair value of his First
Jermyn Common Stock or Upper Valley Common Stock, as the case may
be.
Promptly after completion of the Merger, or upon timely
receipt of demand for payment if the Merger already has been
completed, First Jermyn will either remit to dissenters who have
made demand and have deposited their stock certificates the
amount that First Jermyn estimates to be the fair value of the
First Jermyn and Upper Valley Common Stock or give written notice
that no such remittance is being made. The remittance or notice
will be accompanied by (i) a closing balance sheet and an income
statement of First Jermyn or Upper Valley, as the case may be,
for a fiscal year ending not more than 16 months before the date
of remittance, together with the latest available interim
financial statements, (ii) a statement of First Jermyn's estimate
of the fair value of the First Jermyn Common Stock or Upper
Valley Common Stock, as the case may be, and (iii) notice of the
right of the dissenter to demand payment or supplemental payment
under the BCL, as the case may be, accompanied by a copy of
Subchapter D of Chapter 15 of the BCL. If First Jermyn does not
remit the estimated fair value for shares with respect to which
demand for payment has been made and stock certificates have been
deposited, then First Jermyn will return any certificates that
have been deposited. Returned certificates, and any certificates
subsequently issued in exchange therefor, will be marked to
record the fact that demand for payment has been made.
Transferees of shares so marked shall not acquire any rights in
First Jermyn or Upper Valley other than those rights held by the
original dissenter after such dissenter demanded payment of fair
value.
If a dissenter believes that the amount stated or
remitted by First Jermyn is less than the fair value of the First
Jermyn Common stock or Upper Valley Common Stock, he may send
First Jermyn his own estimate of the fair value of the First
Jermyn Common Stock or Upper Valley Common Stock, as the case may
be, which shall be deemed to be a demand for payment of the
amount of the deficiency. If First Jermyn remits payment of its
estimated value of a dissenter's First Jermyn Common Stock or
Upper Valley Common Stock, as the case may be, and the dissenter
does not file his own estimate within 30 days after the mailing
by First Jermyn of its remittance, the dissenter will be entitled
to no more than the amount remitted to him by First Jermyn.
Within 60 days after the latest to occur of completion
of the Merger, timely receipt by First Jermyn or Upper Valley, as
the case may be, of any demands for payment, or timely receipt by
First Jermyn or Upper Valley, as the case may be, of any
estimates by dissenters of fair value, if any demands for payment
remain unsettled, First Jermyn or Upper Valley, as the case may
be, may file, in the case of First Jermyn, in the Court of Common
Pleas of Lackawanna County or, in the case of Upper Valley, in
the Court of Common Pleas of Lackawanna County, an application
requesting that the fair value of the First Jermyn Common Stock
or Upper Valley Common Stock be determined by the Court. In such
case, all dissenters, wherever residing, whose demands have not
been settled shall be made parties to the proceeding as in an
action against their shares, and a copy of the application shall
be served on each such dissenter.
If First Jermyn or Upper Valley, as the case may be,
were to fail to file such an application, then any dissenter, on
behalf of all dissenters who have made a demand and who have not
settled their claim against First Jermyn or Upper Valley may file
an application in the name of First Jermyn or Upper Valley at any
time within the 30-day period after the expiration of the 60-day
period and request that the fair value be determined by the
Court. The fair value determined by the Court may, but need not,
equal the dissenters' estimates of fair value. If no dissenter
files such an application, then each dissenter entitled to do so
shall be paid First Jermyn's or Upper Valley's, as the case may
be, estimate of the fair value of the First Jermyn Common Stock
or Upper Valley Common Stock, as the case may be, and no more,
and may bring an action to recover any amount not previously
remitted, plus interest at a rate the Court finds fair and
equitable.
First Jermyn and/or Upper Valley, as the case may be,
intend to negotiate in good faith with any dissenting
shareholder. If after negotiation, a claim cannot be settled,
then First Jermyn and/or Upper Valley intends to file an
application requesting that the fair value of the First Jermyn
Common Stock or Upper Valley Common Stock, as the case may be, be
determined by the Court.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Upper Valley's management, NBO's
management, the Board of Directors of Upper Valley and the Board
of Directors of NBO may be deemed to have interests in the Merger
in addition to their interests, if any, in Upper Valley Common
Stock. The Upper Valley Board of Directors was aware of these
factors and considered them, among other matters, in approving
the Merger Agreement and the transactions contemplated thereby.
Stock Options
As of the Record Date, the directors and officers of
Upper Valley beneficially own approximately _________ shares of
Upper Valley Common Stock and Management Options to purchase
_______ shares of Upper Valley Common Stock. On the Effective
Date, each Management Option, whether or not such Management
Option is exercisable on the Effective Date, will cease to be
outstanding and will be converted on the Effective Date into and
become an option to acquire that number of shares of First Jermyn
Common Stock equal to the number of shares of Upper Valley Common
Stock covered by the Management Option multiplied by the Exchange
Ratio and rounded up to the nearest whole share, at an exercise
price equal to the present stated exercise price of such
Management Option divided by the Exchange Ratio. Shares issuable
upon the exercise of such options to acquire First Jermyn Common
Stock shall be issuable in accordance with the terms of the
respective plans and grant agreements of Upper Valley under which
they were issued.
Indemnification; Directors and Officers Insurance
First Jermyn has agreed in the Merger Agreement that,
on or after the Effective Date, First Jermyn shall indemnify,
defend, and hold harmless all prior and then-existing directors
and officers of Upper Valley and NBO against (i) all losses,
claims, damages, costs, expenses, liabilities, or judgments or
amounts that are paid in settlement (with the approval of First
Jermyn which approval shall not be unreasonably withheld) of or
in connection with any claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director,
officer, or employee of Upper Valley or any Upper Valley
subsidiary, whether pertaining to any matter existing or
occurring at or prior to the Effective Date and whether asserted
or claimed prior to, or at or after, the Effective Date
("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on, or arising in whole or in part out
of, or pertaining to the Merger Agreement or the transactions
contemplated by the Merger Agreement, to the same extent as such
director, officer, or employee would be indemnified by Upper
Valley or NBO as of the Effective Date, including the right to
advancement of expenses, provided, however, that any such
director, officer, or employee of Upper Valley or NBO may not be
indemnified by First Jermyn and/or FNBJ if such indemnification
is prohibited by applicable law.
First Jermyn has agreed to maintain Upper Valley's
existing directors' and officers' liability insurance policy, or
a policy providing comparable coverage amounts on terms no less
favorable, including First Jermyn's existing policy if it meets
the foregoing standard, covering persons currently covered by
such insurance for a period of five years after the Effective
Date, subject to certain maximum cost limits.
Employment Agreement
John W. Adonizio, President and Chief Executive Officer of
Upper Valley and President of NBO, is a party to an employment
agreement, dated July 5, 1994 and amended on March 25, 1997, with
Upper Valley and NBO. The employment agreement is for a period
ending on July 5, 1999 and provides, among other things, that, in
the event that Mr. Adonizio's employment contract is terminated
by reason of a change in control of Upper Valley, Mr. Adonizio
shall be paid for the remainder of the contract term, but in no
event less than twelve months severance pay equal to his then
base salary, payable in a lump-sum within ten days of the date of
termination. Assuming that Mr. Adonizio's employment agreement
were terminated within the meaning of the agreement on May 31,
1998 as a result of a change in control of Upper Valley, Mr.
Adonizio would be entitled to a lump-sum severance payment in an
amount equal to approximately $141,000.
<PAGE>
INFORMATION WITH RESPECT TO FIRST JERMYN
General
Financial and other information relating to First
Jermyn, including information relating to First Jermyn's
directors and executive officers, is incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
and "AVAILABLE INFORMATION."
Market Price of and Dividends on First Jermyn Common Stock and
Related Shareholder Matters
The First Jermyn Common Stock is not listed or traded
on a recognized securities exchange and is inactively traded. As
of the First Jermyn Record Date, First Jermyn had approximately
1,240 shareholders of record. The table below sets forth for the
periods indicated the amount of dividends paid per share and the
quarterly ranges of high and low sales prices for First Jermyn
Common Stock. The range of sale prices are based on reports from
purchasers or sellers for sales of 100 shares or more. First
Jermyn has historically paid cash dividends semi-annually.
Quarterly
Quarter Ended Dividend High Low
June 30, 1998(1)........... $_____ $_____ $_____
March 31, 1998............. _____ _____ _____
December 31, 1997.......... .70 62.00 50.00
September 30, 1997......... -- 50.00 46.00
June 30, 1997.............. .70 49.00 44.25
March 31, 1997............. -- 45.50 43.25
December 31, 1996.......... .65 44.25 43.00
September 30, 1996......... -- 43.00 41.00
June 30, 1996.............. .60 42.25 38.75
March 31, 1996............. -- 38.50 34.00
__________________
(1) Through _______, 1998.
On October 14, 1997, the last business day preceding
public announcement of the Merger, the last sale price for First
Jermyn Common Stock was $51.50 per share. On _______, 1998, the
last sale price for the First Jermyn Common Stock was $__________
per share.
The Merger Agreement permits First Jermyn to pay a
regular semi-annual cash dividend not to exceed $.70 per share of
First Jermyn Common Stock outstanding from October 15, 1997
through the Closing Date. In the Merger Agreement, Upper Valley
and First Jermyn have agreed to consult and coordinate with the
other the payment of dividends with respect to First Jermyn
Common Stock and Upper Valley Common Stock and the record and
payment dates relating thereto. See "THE MERGER -- Dividends."
For certain limitations on the ability of FNBJ to pay
dividends to First Jermyn, see First Jermyn's Annual Report on
Form 10-K for the year ended December 31, 1997, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
<PAGE>
DESCRIPTION OF FIRST JERMYN CAPITAL SECURITIES
The authorized capital stock of First Jermyn consists
of 2,500,000 shares of common stock, $1.25 par value ("First
Jermyn Common Stock"). As of the First Jermyn Record Date, there
were 884,680 shares of First Jermyn Common Stock issued and
outstanding, and no shares held by First Jermyn as treasury
stock. There are no other shares of capital stock of First
Jermyn authorized, issued, or outstanding. First Jermyn has no
options, warrants, or other rights authorized, issued, or
outstanding, except as may be required under the Merger
Agreement.
Common Stock
The holders of First Jermyn Common Stock are entitled
to share ratably in dividends when and if declared by the First
Jermyn Board of Directors from funds legally available therefor.
Declaration and payment of cash dividends by First Jermyn depends
upon dividend payments by FNBJ, which is First Jermyn's primary
source of revenue and cash flow. First Jermyn is a legal entity
separate and distinct from its subsidiaries. Accordingly, the
right of First Jermyn, and consequently the right of creditors
and shareholders of First Jermyn, to participate in any
distribution of the assets or earnings of any subsidiary is
necessarily subject to the prior claims of creditors of the
subsidiary, except to the extent that claims of First Jermyn in
its capacity as a creditor may be recognized.
FNBJ will be permitted to pay cash dividends sufficient
to fund any dividend by First Jermyn subject to applicable
regulatory restrictions.
For certain limitations on the ability of FNBJ to pay
dividends to First Jermyn, see First Jermyn's Annual Report on
Form 10-K for the year ended December 31, 1997, which is
incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
The holders of shares of First Jermyn Common Stock
possess exclusive voting rights in First Jermyn. Each holder of
shares of First Jermyn Common Stock will be entitled to one vote
for each share held on matters upon which shareholders have the
right to vote. First Jermyn shareholders are not entitled to
cumulate votes in the election of directors.
The First Jermyn Board of Directors is divided into
three classes, each serving three-year terms, so that
approximately one-third of the directors of First Jermyn are
elected at each annual meeting of shareholders of First Jermyn.
Classification of the First Jermyn Board of Directors has the
effect of decreasing the number of directors that could be
elected in a single year by any person who seeks to elect its
designees to a majority of the seats on the First Jermyn Board of
Directors and thereby could impede a change in control of First
Jermyn.
The holders of First Jermyn Common Stock have no
preemptive rights to acquire any additional shares of First
Jermyn. In addition, the First Jermyn Common Stock is not
subject to redemption.
First Jermyn's Articles of Incorporation authorize the
First Jermyn Board of Directors to issue authorized shares of
First Jermyn Common Stock without shareholder approval. First
Jermyn Common Stock is not listed or traded on a recognized
securities exchange and is inactively traded.
In the event of liquidation, dissolution, or winding-up
of First Jermyn, whether voluntary or involuntary, holders of
First Jermyn Common Stock will be entitled to share ratably in
any of its assets or funds that are available for distribution to
its shareholders after the satisfaction of its liabilities (or
after adequate provision is made therefor).
Special Charter and Pennsylvania Corporate Law Provisions
First Jermyn's Restated Articles of Incorporation and
Restated Bylaws, which will be applicable to shareholders of
First Jermyn and Upper Valley in the event the Merger is
completed, contain certain provisions which may have the effect
of deterring or discouraging, among other things, a non-
negotiated tender or exchange offer for First Jermyn stock, a
proxy contest for control of First Jermyn, the assumption of
control of First Jermyn by a holder of a large block of First
Jermyn stock and the removal of First Jermyn's management. These
provisions: (1) divide the First Jermyn Board of Directors into
three classes serving staggered three-year terms; (2) require a
supermajority vote of directors (80% until January 1, 2004 and
66-2/3% thereafter to increase the size of any class of the Board
of Directors; (3) require a supermajority vote of directors and
shareholders (80% of directors and 80% of shareholders until
January 1, 2004 and 66-2/3% of directors and 66-2/3% of
shareholders thereafter) to approve certain mergers, asset sales
and similar transactions if the transaction is not approved, in
advance, unanimously by the First Jermyn Board or if the
transaction is not approved, in advance, unanimously by the First
Jermyn Board of Directors; (4) prohibit shareholders' actions
without a meeting; (5) require any person or group who or which
becomes the beneficial owner of 25% or more of the outstanding
shares of First Jermyn Common Stock to offer to purchase all
other outstanding shares of such Common Stock for cash at a price
equal to the highest price paid by such person or group for any
such shares of Common Stock or, if the Board of Directors so
elects, at fair market value determined by an investment banking
firm selected by the Board of Directors; (6) require a
supermajority vote of shareholders and directors to approve the
repeal or amendment of certain provisions of the Restated
Articles of Incorporation and Restated Bylaws; (7) eliminate
cumulative voting in elections of directors; (8) require a
supermajority vote of directors to take certain actions which
might result in a change in control of First Jermyn; and
(8) require advance notice of nominations for the election of
directors and the presentation of shareholder proposals at
meetings of shareholders.
The Pennsylvania BCL also contains certain provisions
applicable to First Jermyn after completion of the Merger which
may have the effect of impeding a change in control of First
Jermyn. These provisions, among other things: (1) prohibit for
five years, subject to certain exceptions, a "business
combination" (which includes a merger or consolidation of the
corporation or a sale, lease, or exchange of assets) with a
shareholder or group of shareholders beneficially owning 20% or
more of a public corporation's voting power; (2) require
disgorgement by any person or group who or which has acquired or
publicly disclosed an intent to acquire 20% or more of a public
corporation's voting power of any profit realized from the sale
of any shares acquired within specified time periods of such
acquisition or disclosure if the shares are sold within eighteen
months thereafter; and (3) generally prohibit a person or group
who or which exceeds certain stock ownership thresholds (20%, 33-
1/3% and 50%) for the first time from voting the "control shares"
(i.e., the shares owned in excess of the applicable threshold)
unless voting rights are restored by a vote of disinterested
shareholders.
In 1990, Pennsylvania adopted legislation further
amending the Pennsylvania BCL. To the extent applicable to First
Jermyn at the present time, this legislation generally:
(1) expands the factors and groups (including shareholders) which
the First Jermyn Board of Directors can consider in determining
whether a certain action is in the best interests of the
corporation; (2) provides that the First Jermyn Board of
Directors need not consider the interests of any particular group
as dominant or controlling; (3) provides that First Jermyn's
directors, in order to satisfy the presumption that they have
acted in the best interests of the corporation, need not satisfy
any greater obligation or higher burden of proof with respect to
actions relating to an acquisition or potential acquisition of
control; (4) provides that actions relating to acquisitions of
control that are approved by a majority of "disinterested
directors" are presumed to satisfy the directors' standard,
unless it is proven by clear and convincing evidence that the
directors did not assent to such action in good faith after
reasonable investigation; and (5) provides that the fiduciary
duty of First Jermyn's directors is solely to the corporation and
may be enforced by the corporation or by a shareholder in a
derivative action, but not by a shareholder directly.
The 1990 amendments to the Pennsylvania BCL explicitly
provide that the fiduciary duty of directors shall not be deemed
to require directors (1) to redeem any rights under, or to modify
or render inapplicable, any shareholder rights plan; (2) to
render inapplicable, or make determinations under, provisions of
the Pennsylvania BCL relating to control transactions, business
combinations, control-share acquisitions, or disgorgement by
certain controlling shareholders following attempts to acquire
control; or (3) to act as the board of directors, a committee of
the board or an individual director solely because of the effect
such action might have on an acquisition or potential or proposed
acquisition of control of the corporation or the consideration
that might be offered or paid to shareholders in such an
acquisition. One of the effects of the 1990 fiduciary duty
statutory provisions may be to make it more difficult for a
shareholder to successfully challenge the actions of the First
Jermyn Board of Directors in a potential change in control
context. Pennsylvania case law appears to provide that the
fiduciary duty standard under the 1990 amendments to the
Pennsylvania BCL grants directors the statutory authority to
reject or refuse to consider any potential or proposed
acquisition of the corporation.
<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS
At the Effective Date, shareholders of Upper Valley
automatically will become shareholders of First Jermyn, and their
rights as shareholders will be determined by the Pennsylvania BCL
and by First Jermyn's Restated Articles of Incorporation and
Restated Bylaws. The following is a summary of material
differences among the rights of holders of First Jermyn Common
Stock prior to the Merger, the rights of holders of Upper Valley
Common Stock prior to the Merger, and the rights of shareholders
following completion of the Merger under First Jermyn's Restated
Articles of Incorporation and Restated Bylaws. These differences
arise from various provisions of the Articles of Incorporation
and Bylaws, of First Jermyn, the Articles of Incorporation and
Bylaws of Upper Valley, and the Restated Articles of
Incorporation and Restated Bylaws of First Jermyn.
This summary does not purport to be a complete
statement of the rights of First Jermyn or Upper Valley
shareholders under the applicable Pennsylvania law, their
respective Articles of Incorporation or Bylaws or a comprehensive
comparison among the rights of shareholders under applicable
Pennsylvania law, First Jermyn's or Upper Valley's Articles of
Incorporation and Bylaws, and First Jermyn's Restated Articles of
Incorporation and Bylaws, or a complete description of the
specific provisions referred to herein. This summary is not
meant to be relied upon as an exhaustive list or a detailed
description of the provisions discussed and is qualified in its
entirety by reference to the Pennsylvania BCL and the governing
corporate instruments of First Jermyn and Upper Valley. Copies
of such governing corporate instruments of Upper Valley and First
Jermyn are available, without charge, to any person, including
any beneficial owner to whom this Proxy Statement/Prospectus is
delivered, by following the instructions listed under
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "AVAILABLE
INFORMATION." Any description of First Jermyn's Restated
Articles of Incorporation or Restated Bylaws is qualified in its
entirety by reference to Annexes B and C, respectively, attached
to this Prospectus/Proxy Statement.
Directors
Nomination
Shareholders of both First Jermyn and Upper Valley are
required to submit to their respective companies, in writing and
in advance, any nomination of a candidate for election as a
director.
First Jermyn's Bylaws provide that such nominations
generally must be submitted not less than 20 days prior to a
scheduled meeting for the election of directors.
Upper Valley's Bylaws provide that its shareholders
must submit written nominations not less than 14 days nor more
than 50 days prior to any meeting of shareholders (except that if
less than 21 days notice is given to shareholders, such
nomination should be mailed or delivered to the President of
Upper Valley not later than the close of business on the seventh
day on which the notice of the meetings was mailed).
The Restated Articles of Incorporation and Bylaws of
First Jermyn also requires advance notice of nominations of
directors not less than 20 days prior to the meeting date.
Election of Directors
First Jermyn's Articles of Incorporation and Bylaws
provide that its Board of Directors shall be composed of not less
than five nor more than 25 directors, the number of which is
determined by majority vote of the shareholders. The Board of
Directors has proposed that the number of directors be set at
twelve persons. The First Jermyn Board of Directors is divided
into three classes, each serving three-year terms, so that
approximately one-third of the directors are elected at each
annual meeting of shareholders. See "FIRST JERMYN ANNUAL MEETING
- - OTHER MATTERS." Classification of the Board of Directors has
the effect of decreasing the number of directors that could be
elected in a single year by any person who seeks to elect its
designees to a majority of the seats on the First Jermyn Board of
Directors and thereby could impede a change in control of First
Jermyn.
Upper Valley's Articles of Incorporation provide that
the Board of Directors shall be composed of not less than seven
or more than 15 directors which number may be increased or
decreased by resolution of the Board of Directors. Presently,
the Board of Directors is composed of eight members. All
directors of Upper Valley are elected annually.
The Restated Articles of Incorporation of First Jermyn
provide for a Board of Directors of from five to 25 directors, as
fixed by the Board of Directors from time to time, divided into
three classes serving staggered three-year terms, so that
approximately one-third of the directors are elected annually.
The initial size of the Board has been fixed at no more than 18
persons. The Restated Articles of Incorporation further provide
that any number of directors of a particular class is fixed for
any term of office, it cannot be increased during that term
except by a vote of 80% of the total number of directors then in
office until January 1, 2004 and by a vote of 66-2/3% of the
total number of directors then in office at any time thereafter.
Cumulative Voting
Neither First Jermyn's nor Upper Valley's shareholders
are permitted to cumulate votes in the election of directors.
Similarly, the Restated Articles of Incorporation and
Restated Bylaws of First Jermyn do not permit shareholders to
accumulate votes in elections of directors.
Limited Liability
As permitted by the Pennsylvania BCL, both First
Jermyn's and Upper Valley's Bylaws provide that their directors
are not personally liable to First Jermyn or Upper Valley, their
shareholders or others for any action taken or any failure to
take any action unless the director breached or failed to perform
the duties of his or her office as set forth under Pennsylvania
law and such breach or failure constitutes self-dealing, willful
misconduct or recklessness; provided, however, that there is no
such elimination of liability arising under any criminal statute
or with respect to the payment of taxes pursuant to local, state
or federal law.
Similar provisions eliminating the personal liability
of directors to the maximum extent permitted by Pennsylvania laws
are included in the Restated Bylaws of First Jermyn.
Indemnification
The Bylaws of First Jermyn and Upper Valley each
provide for indemnification of directors, officers, and agents
for certain litigation-related liabilities and expenses to the
maximum extent provided by Pennsylvania laws, as the case may be.
Directors, officers, employees, and agents of First
Jermyn and Upper Valley are entitled to indemnification in both
third party actions and derivative actions unless there is a
court finding that the act or failure to act giving rise to the
claim for indemnification constitutes willful misconduct or
recklessness. There is no requirement of a case-by-case
determination that the applicable standard of conduct has been
met for a person to be entitled to indemnification.
Similar provisions are included in the Restated Bylaws
of First Jermyn.
Shareholder Meetings
Special meetings of First Jermyn shareholders may be
called at any time by the Board of Directors or three or more
shareholders owning, in the aggregate, not less than 25% of the
outstanding shares of First Jermyn.
Special meetings of Upper Valley shareholders may be
called at any time by the Board of Directors, the President, or
by the shareholders entitled to cast at least one-fifth of the
vote which all shareholders are entitled to cast at the
particular meeting.
Under the Restated Articles of Incorporation and
Restated Bylaws of First Jermyn, special meetings of shareholders
may be called by the Board of Directors and may not be called by
shareholders except as specifically required by law.
Inspection Rights
The Pennsylvania BCL provides that every shareholder of
First Jermyn or Upper Valley, upon written demand under oath
stating the purpose thereof, shall have the right, for any proper
purpose, to examine during usual business hours the share
register, books, or records of account and records of the
proceedings of the shareholders and directors, and make copies or
extracts therefrom. These statutory rights will continue without
change following completion of the Merger.
Antitakeover Provisions
First Jermyn is presently subject to various provisions
of the Pennsylvania BCL which are triggered, in general, if any
person or group acquires, or discloses an intent to acquire, 20%
or more of the voting power of a covered corporation, other than
pursuant to a registered firm commitment underwriting or, in
certain cases, pursuant to the approving vote of the Board of
Directors. The relevant provisions are contained in
Subchapters 25E-H of the Pennsylvania BCL.
Subchapter 25E of the Pennsylvania BCL (relating to
control transactions) provides that if any person or group
acquires 20% or more of the voting power of a covered
corporation, the remaining shareholders may demand from such
person or group the fair value of their shares, including a
proportionate amount of any control premium.
Subchapter 25F of the Pennsylvania BCL (relating to
business combinations) delays for five years and imposes
conditions upon "business combinations" between an "interested
shareholder" and the corporation. The term "business
combination" is defined broadly to include various transactions
utilizing a corporation's assets for purchase price amortization
or refinancing purposes. For this purpose, an "interested
shareholder" is defined generally as the beneficial owner of at
least 20% of a corporation's voting shares.
Subchapter 25G of the Pennsylvania BCL (relating to
control share acquisitions) prevents a person who has acquired
20% or more of the voting power of a covered corporation from
voting such shares unless the "disinterested" shareholders
approve such voting rights. Failure to obtain such approval
exposes the owner to the risk of a forced sale of the shares to
the issuer. Even if shareholder approval is obtained, the
corporation is also subject to Subchapters 25I and J of the
Pennsylvania BCL. Subchapter 25I provides for a minimum
severance payment to certain employees terminated within two
years of the approval. Subchapter 25J prohibits the abrogation
of certain labor contracts prior to their stated date of
expiration.
Subchapter 25H of the Pennsylvania BCL (relating to
disgorgement) applies in the event that (i) any person or group
publicly discloses that the person or group may acquire control
of the corporation or (ii) a person or group acquires (or
publicly discloses an offer or intent to acquire) 20% or more of
the voting power of the corporation and, in either case, sells
shares within 18 months thereafter. Any profits from sales of
equity securities of the corporation by the person or group
during the 18-month period belong to the corporation if the
securities that were sold were acquired during the 18-month
period or within 24 months prior thereto.
Subchapters 25E-H of the Pennsylvania BCL contain a
wide variety of transactional and status exemptions, exclusions
and safe harbors.
Because Upper Valley does not have a class of
securities registered under the Exchange Act, the provisions of
Subchapters E-H are not applicable to Upper Valley at present.
Following completion of the Merger, the foregoing
provisions of the Pennsylvania BCL will continue to apply to
First Jermyn except that the Restated Articles of Incorporation
of First Jermyn opt out of coverage of Subchapter E of the
Pennsylvania BCL (relating to control transactions).
Required Shareholder Vote
General
Each holder of First Jermyn Common Stock and each
holder of Upper Valley Common Stock is entitled to one vote for
each share owned of record. For general corporate action of the
shareholders of First Jermyn or Upper Valley, the affirmative
vote of a majority of the votes cast at a meeting of shareholders
is required for approval (abstentions with respect to any matter
are not considered votes "cast" under Pennsylvania law).
The foregoing description relating to shareholder
voting generally will continue to apply after the Merger under
First Jermyn's Restated Articles of Incorporation.
Fundamental Changes
First Jermyn's Articles of Incorporation require that a
merger, consolidation, litigation or dissolution of First Jermyn
or any action that would require the sale or other disposition of
all or substantially all of the assets of First Jermyn must be
approved by at least 66-2/3% of the outstanding shares of First
Jermyn Common Stock.
Upper Valley's Articles of Incorporation do not include
any supermajority voting requirements of shareholders or
directors to approve a merger, consolidation, liquidation or
dissolution of Upper Valley or a Sale of all or substantially all
of the assets of Upper Valley.
The Restated Articles of Incorporation require, until
January 1, 2004, an 80% vote of directors and the affirmative
vote of the holders of 80% of the outstanding shares of First
Jermyn Common Stock to approve a merger or consolidation of First
Jermyn with or into another corporation or any division involving
the corporation, a share exchange involving an exchange of shares
of First Jermyn capital stock, a sale, lease, exchange or other
transfer of all or substantially all of the assets of First
Jermyn, a liquidation or dissolution involving First Jermyn, or
any transaction similar to or having similar effects as any of
the foregoing (each, a "Fundamental Transaction"). In any
Fundamental Transaction occurring prior to January 1, 2004 in
which individuals serving on the Board of Directors of First
Jermyn immediately prior to the Fundamental Transaction continue
to constitute at least a majority of the Board of Directors after
the Fundamental Transaction and shareholders of First Jermyn
immediately prior to the Fundamental Transaction continue to own
at least a majority of the outstanding voting securities of the
entity resulting from the Fundamental Transaction, the
shareholder voting requirements decreases from 80% of outstanding
shares to 66-2/3% of outstanding shares. On and after January 1,
2004, approval of a Fundamental Transaction involving First
Jermyn requires at 66-2/3% vote of directors and the affirmative
vote of the holders of 66-2/3% of the outstanding shares of First
Jermyn Common Stock. The supermajority shareholder voting
requirements do not apply to any Fundamental Transaction approved
in advance unanimously by the Board of Directors.
Amendment of Bylaws
The authority to amend or repeal First Jermyn's Bylaws
is vested in First Jermyn's Board of Directors, subject always to
the power of the shareholders of First Jermyn to change such
action by the affirmative vote of shareholders holding at least
two-thirds of First Jermyn's total voting power (except that any
amendment to the indemnification and limitation of director
liability provisions set forth in the Bylaws shall require the
affirmative vote of two-thirds of the entire Board of Directors
or shareholders holding 80% of the votes that all shareholders
are entitled to cast).
The authority to amend or repeal Upper Valley's Bylaws
is vested in the Board of Directors and the shareholders. In the
case of an amendment or repeal of the Bylaws by shareholders,
Upper Valley's Articles of Incorporation require the affirmative
vote of a majority of Upper Valley's total voting power unless
the amendment or repeal proposed by the shareholders is
recommended for adoption by a majority of the entire Upper Valley
Board of Directors, in which case such action requires the
affirmative vote of a majority of the votes cast by shareholders
entitled to vote generally in the election of directors, voting
together as a single class, unless a greater or lesser vote is
required by law.
Mandatory Tender Offer Provision
First Jermyn's Articles of Incorporation include a
provision requiring any person or group who or which becomes the
beneficial owner of 25% or more of the outstanding shares of
First Jermyn Common Stock to offer to purchase all other
outstanding shares of such Common Stock for cash at a price equal
to the highest price paid by such person or group for any shares
of First Jermyn common Stock, or if the Board of Directors so
elects, at fair market value determined by an investment banking
firm selected by the Board of Directors. This provision is also
included in First Jermyn's Restated Articles of Incorporation.
Upper Valley's Articles of Incorporation contain no similar
provision.
Dissenters' Rights
Under the Pennsylvania BCL, a shareholder of a
corporation is generally entitled to receive payment of the fair
value of such shareholder's shares if such shareholder duly
exercises its dissenters' rights with respect to a plan of merger
or consolidation, share exchange, asset transfer, division, or
conversion to which such corporation is a party, unless the
shares are (i) listed on a national securities exchange or
(ii) held of record by more than 2,000 shareholders. The
foregoing market exceptions do not apply, and dissenters' rights
generally are available in respect of, (i) shares that are not
converted solely into shares of the acquiring, surviving, new, or
other corporation or solely into such shares and money in lieu of
fractional shares, (ii) shares of any preferred or special class
unless the shareholders of the class are entitled to vote on the
plan and such class vote is required for the adoption of the plan
or to effectuate the transaction, and (iii) shares which under
the plan are treated differently from shares of the same class or
series and which are not entitled to vote as a special class
under Pennsylvania BCL Section 1906(c). Under the Pennsylvania
BCL, if a plan of merger or consolidation, share exchange, asset
transfer, division, or conversion is adopted by the directors
only, without any shareholder approvals required, the
shareholders have no statutory dissenters' rights in respect of
the plan other than optional dissenters' rights, if any.
Shareholders of each of First Jermyn and Upper Valley
will have dissenters' rights in connection with the Merger.
Dividends
Under the Pennsylvania BCL, a corporation may pay
dividends unless, after giving effect thereto, (i) the
corporation would be unable to pay its debts as they become due
in the usual course of its business, or (ii) the total assets of
the corporation would be less than the sum of its total
liabilities plus the amount that would be needed, if the
corporation were to be dissolved at the time as of which the
distribution is measured, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are
superior to those receiving the distribution.
These statutory provisions will continue to apply
following completion of the Merger.
Preemptive Rights
Neither the holders of First Jermyn Common Stock nor
Upper Valley Common Stock are entitled to preemptive rights.
Similarly, holders of First Jermyn Common Stock
following completion of the Merger will not be entitled to
preemptive rights.
INFORMATION WITH RESPECT TO UPPER VALLEY
Description of Business
Upper Valley is a Pennsylvania business corporation
organized in February, 1983, with its principal executive offices
located at 114-116 Lackawanna Avenue, Olyphant, Pennsylvania
18447-0010. Upper Valley is the holding company for NBO National
Bank ("NBO"), a national banking association formed in 1934 under
the original name The National Bank of Olyphant. As a bank
holding company, Upper Valley is regulated by the Board of
Governors of the Federal Reserve System. At December 31, 1997,
Upper Valley had total consolidated assets, deposits and
shareholders' equity of approximately $259 million, $193 million,
and $24 million, respectively.
NBO is principally engaged in the business of taking
deposits and making residential mortgage loans, consumer loans
and commercial/business loans. Deposits at NBO are insured by
the Federal Deposit Insurance Corporation ("FDIC") up to the
limits established by law. The majority of NBO's lending
activity is concentrated in Lackawanna County, Pennsylvania and
Luzerne County, Pennsylvania.
NBO has three full-serve branches located in Olyphant,
Pittston and Scranton, Pennsylvania, and operates automated
teller machines (ATMs) at six locations (including each of the
three branch locations). In Pittston, NBO also maintains a loan
production office. NBO offers trust services at the same
location as its Scranton branch office. Trust services include
the administration of personal trusts and estates, as well as
administration of certain pension and profit-sharing plans.
As a national bank, NBO is subject to regulation by the
Office of the Comptroller of the Currency ("OCC"). In addition,
NBO is regulated by the FDIC in connection with maintenance of
FDIC insurance on its deposits.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis presents an
evaluation of the major changes in Upper Valley's financial
condition and earnings performance for the periods shown. The
information presented should be read in conjunction with the
consolidated financial statements and notes appearing elsewhere
in this Proxy Statement/Prospectus.
Results of Operations
Net Income. Upper Valley's consolidated net income for
1997 was $1,637,000, an increase of $71,000 or 4.5% from the
prior year. Basic income per share was $1.64 in 1997, compared
to $1.57 in 1996. Diluted income per share was $1.59 in 1997,
compared to $1.55 in 1996.
The consolidated net income for 1996 was $1,566,000, an
increase of $1,399,000 from the prior year. Basic and diluted
income per share was $1.57 and $1.55 in 1996, respectively,
compared to $0.17 (basic and diluted) in 1995. Table I
represents the amount and percentages of increase (decrease) for
the major components of net income for the years under review.
<TABLE>
<CAPTION>
TABLE I
NET INCOME 1997 vs 1996 1996 vs 1995
Amount Percent Amount Percent
(dollars in thousands)
<S> <C> <C> <C> <C>
Interest income $1,499 8.71% $ 982 6.05%
Interest Expense 1,165 12.77% (547) -5.66%
Net interest income 334 4.13% 1,529 23.29%
Provision for loan losses (230) -35.38% (350) 35.00%
Net interest income after
provision for loan losses 564 7.58% 1,879 33.76%
Other operating income 230 20.57% 299 33.71%
Other operating expense 711 10.84% (156) -2.30%
Income before income taxes 83 4.15% 2,334 700.90%
Income tax provision 12 2.76% 935 187.00%
Net income $ 71 4.53% $1,399 837.72%
====== ======
</TABLE>
Net Interest Income. Table II illustrates average
balances and the average tax equivalent yield earned by Upper
Valley on its interest earning assets and the average interest
rate associated with its interest bearing liabilities for 1997,
1996, and 1995. Average balances represent average daily
balances. Table III exhibits the volume and yield/rate variances
for interest earning assets and interest bearing liabilities.
<TABLE>
<CAPTION>
TABLE II
AVERAGE BALANCES AND RATES
1997 1996 1995
-------------------------- --------------------------- --------------------------
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
(dollars in thousands) Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans:
Commercial, financial and
agricultural $66,306 $5,643 8.51% $51,831 $4,634 8.94% $43,384 $3,847 8.87%
Real estate - construction 4,604 399 8.67% 5,311 451 8.49% 5,519 369 6.69%
Real estate - mortgage 62,742 5,141 8.19% 64,501 5,361 8.31% 67,173 5,475 8.15%
Installment - net 19,003 1,854 9.76% 14,162 1,147 8.10% 8,329 734 8.81%
Fees on loans 189 253 227
-------- ------- -------- ------- -------- -------
Total loans (including
fees)(1) 152,655 13,226 8.66% 135,805 11,846 8.72% 124,405 10,652 8.56%
-------- ------- -------- ------- -------- -------
Securities:
Taxable 70,322 4,471 6.36% 79,126 4,966 6.28% 71,186 4,372 6.14%
Tax exempt 16,063 1,230 7.66% 6,466 441 6.82% 20,035 1,658 8.28%
-------- ------- ------ ------ -------- ------
Total securities 86,385 5,701 6.60% 85,592 5,407 6.32% 91,221 6,030 6.61%
Federal funds sold 6,020 333 5.53% 4,668 254 5.44% 5,519 327 5.92%
-------- ------- -------- ------- -------- -------
Total interest earning assets 245,060 $19,260 7.86% 226,065 $17,507 7.74% 221,145 $17,009 7.69%
------- ------- -------- -------
Non interest earning assets 14,572 12,013 11,657
-------- ---------
TOTAL ASSETS $259,632 $238,078 $232,802
======== ======== ========
Interest bearing liabilities:
Deposits:
Savings, Club, NOW and
money market accounts $52,129 $1,215 2.33% $53,031 $1,274 2.40% $53,064 $1,405 2.65%
Certificates of deposit 109,569 5,959 5.44% 111,079 5,941 5.35% 126,989 7,255 5.71%
Other time deposits 15,342 910 5.93% 15,221 932 6.12% 14,557 999 6.86%
-------- ------ ------- ------ ------- ------
Total interest bearing
deposits 177,040 8,084 4.57% 179,331 8,147 4.54% 194,610 9,659 4.96%
Federal funds purchased 32 2 6.25% 35 2 5.71% 179 10 5.59%
Borrowed funds 38,309 2,201 5.75% 17,023 973 5.72% - - -
-------- ------ ------- ------ -------- ------
Total interest bearing
liabilities 215,381 $10,287 4.78% 196,389 $9,122 4.64% 194,789 $9,669 4.96%
------- ------ ------
NonInterest bearing liabilities 20,757 19,481 17,079
-------- -------- --------
Shareholders' equity 23,494 22,208 20,934
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $259,632 $238,078 $232,802
======== ======== ========
Net interest income $8,973 $8,385 $7,340
====== ====== ======
Margin analysis:
Interest income/interest
earning assets 7.86% 7.74% 7.69%
Interest expense/interest
earning assets 4.20% 4.04% 4.37%
----- ----- ----
Net interest income/interest
earning assets 3.66% 3.70% 3.32%
===== ===== ====
Tax equivalent adjustments:
Loans $125 $140 $210
Securities 419 150 564
---- ---- ----
Total $544 $290 $774
==== ==== ====
Interest Rate Spread 3.08% 3.10% 2.73%
==== ==== ====
</TABLE>
_______________________________
(1) Average loan balances include non-accrual loans.
Table III presents, on a tax-equivalent basis using a
34% statutory income tax rate, the relative contribution of
changes in volumes and changes in rates in net interest income
for the periods presented. The changes in interest income and
expense attributable to the combined impact of both volume and
rate have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
TABLE III
VOLUME AND YIELD/RATE VARIANCES
1997 Compared to 1996 1996 Compared to 1995
--------------------- ---------------------
Yield/ Yield/
(dollars in thousands) Volume Rate Net Volume Rate Net
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $1,397 $(17) $1,380 $996 $198 $1,194
Securities:
Taxable (552) 57 (495) 495 99 594
Tax exempt 727 62 789 (965) (252) (1,217)
Federal funds sold 70 9 79 (50) (23) (73)
------ ---- ------ ------ ----- ------
Total interest earning assets 1,352 401 1,753 476 22 498
------ ---- ------ ------ ----- ------
Interest expense:
Savings, Club, NOW, and money
market accounts (22) (37) (59) 8 (139) (131)
Certificates of deposit (80) 98 18 (857) (457) (1,314)
Other time deposits 7 (29) (22) 40 (107) (67)
Federal funds purchased - - - (8) - (8)
Borrowed funds 1,217 11 1,228 973 - 973
------ ---- ----- ----- --- -----
Total interest bearing
liabilities 1,122 43 1,165 156 (703) (547)
------ ---- ------ ------ ----- ------
Net interest income $230 $358 $ 588 $ 320 $725 $1,045
------ ---- ------ ------ ----- ------
</TABLE>
Allowance and Provision for Loan Losses. The allowance
for loan losses was $1,866,000 at December 31, 1997 as compared
to $1,906,000 at December 31, 1996. The allowance was 1.19% of
total loans at December 31, 1997 and 1.31% of total loans at
December 31, 1996. The provision for loan losses totalled
$420,000, $650,000, $1,000,000, $1,391,000 and $0 in 1997, 1996,
1995, 1994 and 1993, respectively. The provision for loan
losses, which totaled $1,000,000 and $1,391,000 in 1995 and 1994,
respectively, resulted from the high level of problem assets in
1995 and 1994. At year end 1994, classified loans exceeded
$11 million and at December 31, 1995, classified loans were under
$5 million. Net charge-offs in 1995 approximated $1.6 million
compared to approximately $1.1 million in 1994. The decreases in
1997 from 1996 and in 1996 from 1995 in both categories were
possible through management's continued efforts to resolve
problem loans, and through the sale of approximately $6,500,000
of loans from the Bank's portfolio of mortgages originated in the
Binghamton, New York area.
Adequacy of the allowance is analyzed quarterly
utilizing a variety of factors. Consideration is given to
current economic conditions, the diversification of the loan
portfolio, the volume and nature of non-performing and impaired
loans, historical loss experience, the financial condition of
significant individual borrowers, the adequacy of any collateral
and other factors.
Table IV presents the changes in allowance for loan
losses for the previous five years including charge-offs,
recoveries and percent of net charge-offs to average loans
outstanding during each period. Table V shows the allocation of
the allowance for loans for each period. The allocations are
estimates and are subject to revision as conditions change.
<TABLE>
<CAPTION>
TABLE IV
CHANGES IN ALLOWANCE FOR LOAN LOSSES
Years Ended December 31
---------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Average loans, net of unearned
discount $152,655 $135,805 $124,405 $118,550 $119,652
======== ======== ======== ======== ========
Allowance for loan losses at
beginning of period 1,906 1,772 2,358 2,042 2,396
-------- -------- -------- -------- --------
Charge offs:
Domestic:
Commercial, financial and agricultural 141 326 294 260 191
Real estate - mortgage 262 236 1,391 1,048 505
Installment 121 33 31 25 61
-------- -------- -------- -------- --------
Total 524 595 1,716 1,333 757
-------- -------- -------- -------- --------
Recoveries:
Domestic:
Commercial, financial and agricultural 21 20 58 244 50
Real estate - mortgage 32 48 63 10 352
Installment 11 11 9 4 1
-------- -------- -------- -------- --------
Total 64 79 130 258 403
-------- -------- -------- -------- --------
Net charge offs 460 516 1,586 1,075 354
-------- -------- -------- -------- --------
Additions charged to operations 420 650 1,000 1,391 0
-------- -------- -------- -------- --------
Allowance for loan losses at end
of the period $1,866 $1,906 $1,772 $2,358 $2,042
======== ======== ======== ======== =======
Percentage of net charge offs during
the period to average loans
outstanding during the period 0.30% 0.38% 1.27% 0.87% 0.28%
Percentage of allowance for loan losses
to total loans net of unearned discount
and fees, period end 1.19% 1.31% 1.41% 2.03% 1.73%
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
TABLE V
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
1997 1996 1995 1994 1993
---------------- ----------------- ---------------- ---------------- ----------------
%Loans To %Loans To %Loans To %Loans To %Loans To
Total Total Total Total Total
(dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, financial and
agricultural $769 23.00% $744 11.00% $642 14.00% $400 10.00% $384 9.00%
Real estate - mortgage 554 66.00% 626 76.00% 1,024 73.00% 1,673 77.00% 1,542 79.00%
Installment 200 11.00% 153 13.00% 72 13.00% 34 13.00% 35 12.00%
Unallocated 343 - 383 - 34 - 251 - 81 -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $1,866 100.00% $1,906 100.00% $1,772 100.00% $2,358 100.00% $2,042 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Non-Interest Income. Non-interest income is made up of
service charges on deposits, fees for customer service, gains and
losses on the sale of securities, and trust fees. Non-interest
income decreased $649,000 from 1996 to 1997. Losses on
securities were $168,000 higher in 1997. This was due to NBO
continuing to restructure the investment portfolio. In 1997,
$385,000 was recognized as other income due to the restructuring
of the deferred compensation plan. In 1996 a one-time deferred
compensation death benefit of $330,000 was received, and service
charge income was $79,000 higher in 1997 than in 1996.
Table VI details the major components of non-interest
income for the periods shown.
<TABLE>
<CAPTION>
TABLE VI
COMPONENTS OF NON-INTEREST INCOME
1997 1996 1995
----------------- ----------------- -----------------
% To Total % To Total % To Total
Average Average Average
Int. Earn. Int. Earn. Int. Earn.
Amount Assets Amount Assets Amount Assets
(dollars in thousands) ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Service charges and fees $460 0.19% $381 0.16% $277 0.13%
Securities gains, net -- -- -- -- 189 0.08
Trust fees 402 0.16 317 0.14 108 0.04
Deferred compensation 385 0.16 -- -- -- --
Insurance policy proceeds -- -- 330 0.15 -- --
Other income 101 0.04 90 0.03 313 0.15
Total other operating income $1,348 0.55 $1,118 0.48 $887 0.40
</TABLE>
Non-Interest Expense. Salaries and employee benefits
increased 2% during 1997. This increase is due to recurring
merit raises offset by several staff vacancies going unfilled to
streamline operations and increase efficiencies. Salaries and
benefits increased 12.96% during 1996. This increase is
attributed to a full year's salaries and benefits after a steady
increase of full-time equivalents during 1995. The 1995 increase
in personnel resulted from the addition of NBO Trust Financial
Services, a new branch and business center in Pittston and
additions to the lending staff.
Furniture and equipment expenses increased by 45%
during 1997 as the full effect of the new computer system and the
addition of two ATMs was felt.
Foreclosure and other real estate expense decreased
44.18% in 1996. This is a direct result of the decrease in non-
accrual loans from $1,644,000 at year end 1995 to $1,369,000 at
year end 1996. Additionally, other real estate owned decreased
from $1,127,000 at year end 1995 to $618,000 at year end 1996.
The FDIC bank insurance fund became fully capitalized
during 1995, reflecting the lower insurance charge to the Bank
during 1996. This reduction was in excess of $200,000.
Other expenses increased by 14% from 1996 to 1997.
Other expenses increased a nominal 3.30% from 1995 to 1996.
Contributions increased $80,000 over 1995 through the donation of
two other real estate owned properties in Scranton to the
Lackawanna Housing Development Corporation allowing Upper Valley
to realize in $85,000 Pennsylvania Bank Shares Tax credit.
Depreciation expenses increased $98,000 in 1996 reflecting a full
year's depreciation of capital expenditures related to NBO Trust
Financial Services and the Pittston branch and business center.
The provision for income taxes remained consistent at
21% of pretax income in 1997 and 1996. The provision for income
taxes as a percentage of pretax income differs from the statutory
rate of 34% in 1997 and 1996 due principally to tax exempt
interest income and a non-taxable distribution of a life
insurance policy in 1996. In 1995, the Company realized an
income tax benefit of $500,000, which resulted from a pretax
operating loss of $333,000 and tax exempt interest income.
Table VII summarizes the major components of non-
interest expense for the periods shown.
<TABLE>
<CAPTION>
TABLE VII
COMPONENTS OF NON INTEREST EXPENSE
1997 1996 1995
----------------- ----------------- -----------------
% To Total % To Total % To Total
Average Average Average
Int. Earn. Int. Earn. Int. Earn.
Amount Assets Amount Assets Amount Assets
(dollars in thousands) ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $3,720 1.51% $3,660 1.62% $3,240 1.47%
Occupancy costs 370 0.15% 328 0.14% 359 0.16%
Furniture and equipment expense 511 0.21% 354 0.15% 249 0.11%
Foreclosure & other real estate expense 496 0.21% 475 0.21% 851 0.39%
FDIC and OCC assessments 97 0.04% 72 0.03% 308 0.14%
Advertising 292 0.12% 244 0.12% 344 0.16%
Security losses, net 191 0.08% 23 0.01% - -
Other expenses 1,596 0.65% 1,40_ 0.62% 1,435 0.64%
------ ----- ------ ----- ------ -----
Total $7,273 2.97% $6,562 2.90% $6,786 3.07%
------ ----- ------ ----- ------ -----
</TABLE>
Securities. During the last quarter of 1995 NBO
transferred substantially all of its securities held to maturity
to the available for sale category and sold approximately
$22,400,000 of selected U.S. Government and State and Municipal
securities. The funds were re-invested in U.S. Treasuries and
U.S. Government securities. The resulting portfolio mix provided
improved liquidity, earnings, and a lower level of interest rate
risk. Additional investment securities were classified as
available for sale at that time.
1996 saw similar but smaller restructures and also
resulted in $6,515,000 of state and municipal securities being
purchased and classified as held to maturity. Upper Valley's
return to a taxable status in 1996 caused management to increase
tax-exempt income.
During 1997, NBO continued the securities portfolio
restructuring begun in 1995, once again re-investing primarily in
state and municipal securities.
Table VIII shows maturity data and related weighted
average yields as of December 31, 1997. Maturity data do not
reflect call provisions in certain securities which would impact
short-term liquidity. Management evaluates the effect of calls
on liquidity and the impact on interest margins monthly. As a
result, management reacts by considering market conditions
including such items as loan demand, interest rates on deposits,
direction of national interest rates including the United States
Treasury note curve and economic condition as measured by
national data and available information on the local market.
<TABLE>
<CAPTION>
TABLE VIII
SECURITIES PORTFOLIO MATURITY SCHEDULE
December 31, 1997
------------------------------------------------
After 1 After 5
1 year year thru years thru After 10
(dollars in thousands) or less 5 years 10 years years Total
------- --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Securities available for sale
U.S. Treasury & other
U.S. government securities
Market value $4,996 $28,386 $18,582 $7,137 $59,101
Yield 5.44% 6.00% 6.60% 7.13% 6.27%
Collateralized mortgage obligations
of U.S. government agencies
Market value - $1,166 - $1,087 $2,253
Yield - 6.32% - 6.98% 6.64%
States and municipal securities
Market value - 4,431 1,226 - 5,657
Yield - 6.17% 6.38% - 6.22%
Other Securities
Market value - - 318 - 318
Yield - - 6.71% - 6.71%
Total market value $4,996 $33,983 $20,126 $8,224 $67,329
Weighted average yield 5.94% 6.03% 6.59% 7.11% 6.36%
Investment securities held to maturity
States and municipal securities
Carrying value - - - $13,038 $13,038
Yield - - - 8.17% 8.17%
Other Securities
Carrying value - - - 3,293 3,293
Yield 6.58% 6.58%
Total carrying value - - - $16,331 $16,331
Weighted average yield - - - 7.85% 7.85%
</TABLE>
The following table summarizes the securities portfolio
by available for sale and held to maturity for three years:
<TABLE>
<CAPTION>
Years ended December 31
-----------------------
SECURITIES PORTFOLIO 1997 1996 1995
(dollars in thousands) ---- ---- ----
<S> <C> <C> <C>
Securities available for sale:
U.S. Treasury & other
U.S. government securities $59,101 $60,986 $71,343
State and municipal 5,657 5,538 6,415
Mortgage-backed securities 2,253 7,601 9,328
Other 318 381 459
------- ------- -------
Total $67,329 $74,506 $87,545
------- ------- -------
Investment securities held to maturity:
State and municipal $13,038 $6,233 -
Other 3,293 3,401 904
------- ------- -------
Total $16,331 $9,634 $904
------- ------- -------
</TABLE>
Loans. Net loans grew to $156,984,000 at December 31,
1997. Increases of $18,289,000 and $1,113,000 occurred in
commercial and industrial loans, and obligations of states and
political subdivisions, respectively. Decreases of $6,190,000,
and $1,610,000 in real estate - commercial and residential and
consumer loans partially offset these increases. The decrease in
mortgages reflects the sale of approximately $6,500,000 of loans
from NBO's portfolio of mortgages originated in the Binghamton,
New York area.
Net loans grew to $145,866,000 at December 31, 1996.
Increases of $17,990,000, $3,653,000 and $1,419,000 occurred in
commercial and residential mortgage, commercial and industrial,
and consumer loan portfolios, respectively. Decreases of
$1,608,000 and $2,791,000 in real estate construction and
obligations of states and political subdivisions partially offset
these increases. The increases reflected aggressive marketing
and pricing strategies as well as a penetration into the Luzerne
County market area with the opening of the Pittston branch in
mid-1995.
Table IX summarizes the major components of loans for
the periods shown.
<TABLE>
<CAPTION>
TABLE IX
LOANS
Years ended December 31
---------------------------------------------
1997 1996 1995 1994 1993
(dollars in thousands) ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate- commercial &
residential mortgage $104,376 $110,566 $ 92,573 $ 90,858 $ 95,266
Commercial and industrial 25,962 7,673 4,020 2,517 2,333
Consumer 17,053 18,663 17,244 16,026 14,774
Real estate construction and
land development 4,741 5,108 6,716 4,347 3,831
Obligations of states and
political subdivisions 5,128 4,015 6,806 5,101 4,083
--------- -------- -------- -------- --------
Total loans - gross 157,260 146,025 127,359 118,849 120,287
Less unearned discount 276 159 208 310 359
--------- -------- -------- -------- --------
Total loans, net of unearned discount $156,984 $145,866 $127,151 $118,539 $119,928
========= ======== ======== ======== ========
</TABLE>
The following table summarizes the loan portfolio
maturity schedule for the year ended December 31, 1997.
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------
After 1
1 year year thru After 5
or less 5 years years Total
------- --------- -------- -----
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $12,015 $17,953 $42,110 $72,078
Real estate - construction 3,535 - - 3,535
Real estate - mortgage 5,883 20,518 35,535 61,936
Installment 1,948 12,887 4,185 19,020
------- ------- ------- --------
Total loans - gross (net of non-accrual
and unearned discount) $23,381 $51,358 $81,830 $156,569
======= ======= ======= ========
Fixed rate 12,151 41,399 35,710 89,260
Variable rate 11,230 9,959 46,120 67,309
------- ------- ------- --------
Total loans - gross (net of non-accrual
and unearned discount) $23,381 $51,358 $81,830 $156,569
======= ======= ======= ========
</TABLE>
Management notes the steady improvement in non-
performing assets totals since 1994. All non-performing asset
categories improved during 1997 with the exception of a slight
increase in real estate owned other than bank premises. No known
trends or uncertainties exist in the loan portfolio which should
materially impact operating results or capital resources for the
coming year. Management is not aware of any information which
would cause it to have serious doubts as to the availability of
its performing borrowers to comply with current loan repayment
terms.
Table X summarizes non-performing assets at
December 31, 1997, 1996, 1995, 1994, and 1993.
<TABLE>
<CAPTION>
TABLE X
NON-PERFORMING ASSETS
Years Ended December 31
-----------------------
(dollars in thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Non-accrual loans $415 $1,369 $1,644 $4,376 $2,120
Loans past due 90 days or more and still 48 245 67 23 1,350
accruing ---- ------ ------ ------ ------
Total non-performing loans 463 1,614 1,711 4,399 3,470
Real estate owned other than bank premise 765 618 1,127 938 921
------ ------ ------ ------ ------
Total $1,228 $2,232 $2,838 $5,337 $4,391
====== ====== ====== ====== ======
</TABLE>
An analysis of non-accrual loans as of December 31, 1977,
1996, 1995, 1994, and 1993 is listed below.
<TABLE>
<CAPTION>
NON-ACCRUAL LOANS
Years Ended December 31
-----------------------
(dollars in thousands) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate - commercial &
residential mortgage $206 $790 $1,172 $3,885 $1,800
Commercial 189 559 450 464 320
Installment 20 20 22 27 -
---- ------ ------ ------ ------
Total $415 $1,369 $1,644 $4,376 $2,120
==== ====== ====== ====== ======
</TABLE>
Deposits. Table XI summarizes the average deposits and
rates paid by deposit categories for the periods shown.
<TABLE>
<CAPTION>
TABLE XI
AVERAGE DEPOSITS AND RATES
1997 1996 1995
------------------ ------------------- -------------------
Average Average Average Average Average Average
(dollars in thousands) Deposits Rates Deposits Rates Deposits Rates
-------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Deposits:
NOW accounts $7,838 0.70% $9,056 2.00% $10,076 2.39%
Savings deposits 38,579 2.67% 37,214 2.61% 34,378 2.76%
Other time deposits 15,342 5.93% 15,220 6.12% 14,557 6.86%
Money market accounts 5,711 2.25% 6,762 2.27% 8,609 2.50%
Certificates of deposit 109,569 5.44% 111,079 5.31% 126,989 5.71%
------- ------- -------
Total interest bearing 177,039 4.57% 179,331 4.54% 194,609 4.96%
Noninterest bearing 18,521 17,164 14,571
-------- -------- --------
Total $195,560 $196,495 $209,180
======== ======== ========
</TABLE>
Table XII summarizes the maturity distribution of time
deposits greater than $100,000 at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
TABLE XII
MATURITY DISTRIBUTION OF TIME DEPOSITS GREATER THAN $100,000
Years ended December 31,
-------------------------
(dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Certificates of deposit:
3 months or less $13,003 $12,599
Over 3 months through 6 months 3,297 6,944
Over 6 months through 12 months 4,905 1,706
Over 12 months 4,962 5,661
------- -------
Total $26,167 $26,910
======= =======
</TABLE>
Capital Adequacy. A strong capital position is
important to the continued profitability of Upper Valley and
promotes depositor and investor confidence. Upper Valley's
capital consists of stockholders' equity, which provides a basis
for future growth and expansion and also provides a buffer
against unexpected losses. Retained earnings increased $868,000
to $22,137,000 at December 31, 1997. It is management's
intention to continue paying a reasonable return on stockholders'
investment while retaining adequate earnings to allow for
continued growth.
The Federal Reserve Board measures capital adequacy for
bank holding companies by using a risk-based capital framework
and by monitoring compliance with minimum leverage ratio
guidelines. The minimum ratio of total risk-based capital to
risk-adjusted assets is 8% at December 31, 1997, of which 4% must
be Tier I capital. The Company's total risk-based capital ratio
was 15.96% at December 31, 1997 and 16.18% at December 31, 1996.
The Company's Tier I risk-based capital ratio was 14.79% at
December 31, 1997 and 14.93% at December 31, 1996.
In addition, the Federal Reserve Board has established
minimum leverage ratio guidelines for bank holding companies.
These guidelines provide for a minimum leverage ratio of 4% for
bank holding companies that meet certain criteria, including that
they maintain the highest regulatory rating. All other bank
holding companies are required to maintain a leverage ratio of 4%
plus an additional cushion of at least 100 to 200 basis points.
The Federal Reserve Board has not advised the Company of any
specific minimum leverage ratio applicable to it. The Company's
leverage ratio was 9.05% at December 31, 1997 and 8.87% at
December 31, 1996.
Table XIII summarizes the Bank's sensitivity to
interest rate fluctuations for certain interest sensitivity
periods as of December 31, 1997.
<TABLE>
<CAPTION>
TABLE XIII
SENSITIVITY TO INTEREST RATE FLUCTUATIONS
Over 3 Over 6 After 1
3 Months mos. to mos. to but within After 5
(dollars in thousands) or Less 6 mos. 1 year 5 yrs. years Total
-------- -------- ------- ---------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Securities $ 2,996 - $ 2,000 $33,983 $ 44,681 $ 83,660
Loans (net of unearned discount
and deferred fees) 8,693 8,343 10,838 50,127 78,983 156,984
Federal funds sold 2,860 - - - - 2,860
------- ------- ------- ------- -------- --------
Total $14,549 $ 8,343 $12,838 $84,110 $123,664 $243,504
------- ------- ------- ------- -------- --------
Interest bearing liabilities:
Interest bearing DDA - - - 6,245 1,561 7,806
Money market accounts - 857 1,712 2,568 - 5,137
Savings - - - 29,727 7,432 37,159
Time 39,470 18,070 29,816 16,843 - 104,199
Other time 1,733 457 1,934 8,789 2,427 15,340
Repurchase agreements 3,704 - - - 3,704
Borrowed funds 10,000 - 10,000 20,000 - 40,000
------- ------- ------- ------- -------- --------
Total $54,907 $19,384 $43,462 $84,172 $11,420 $213,345
------- ------- ------- ------- -------- --------
Interest rate sensitivity gap ($40,358) ($11,041) ($30,624) $ (62) $112,244 $ 30,159
========= ========= ========= ======== ======== ========
Cumulative interest rate
sensitivity gap ($40,358) ($51,399) ($82,023)($82,085) $ 30,159 -
Cumulative interest rate
sensitivity gap to
total assets -15.58% -19.84% -31.67% -31.08% 12.26% -
</TABLE>
Market Price of and Dividends on Upper Valley Common Stock and
Related Shareholder Matters
The Upper Valley Common Stock is not listed or traded
on a recognized securities exchange and is inactively traded. As
of the Upper Valley Record Date, there were approximately
_________ shareholders of record. The table below sets forth for
the periods indicated the amount of dividends declared per share
and the quarterly ranges of high and low closing sales prices for
the Upper Valley Common Stock. The range of sale prices are
based on reports from purchasers and sellers for sales of 100
shares or more.
Quarterly
Quarter Ended Dividend High Low
June 30, 1998(1) $______ $_____ $_____
March 31, 1998 ______ _____ _____
December 31, 1997 .22 40.00 39.00
September 30, 1997 .22 41.00 36.00
June 30, 1997 .22 36.50 35.00
March 31, 1997 .22 33.00 28.00
December 31, 1996 .22 28.00 24.50
September 30, 1996 .20 20.00 20.00
June 30, 1996 .20 20.00 20.00
March 31, 1996 .20 20.00 20.00
__________________
(1) Through ___________________, 1998.
On October 14, 1997, the last business day preceding
public announcement of the Merger, the last sale price for Upper
Valley Common Stock was $38.00 per share. On _______, 1998, the
last sale price for Upper Valley Common Stock was $________ per
share.
The Merger Agreement permits Upper Valley to pay a
regular quarterly cash dividend not to exceed $.22 per share of
Upper Valley Common Stock outstanding from October 15, 1997
through the Closing Date. In the Merger Agreement, Upper Valley
and First Jermyn have agreed to consult and coordinate with the
other the payment of dividends with respect to First Jermyn
Common Stock and Upper Valley Common Stock and the record and
payment dates relating thereto. The Merger Agreement provides
that nothing contained therein shall be construed to permit
shareholders of Upper Valley to receive two dividends from Upper
Valley, First Jermyn, or one dividend from both, in any quarter
or to deny or prohibit shareholders of Upper Valley from
receiving one dividend from Upper Valley or First Jermyn in any
quarter. NBO may pay cash dividends sufficient to permit payment
of the dividends permitted to be paid by Upper Valley. No other
dividends may be paid by Upper Valley or NBO without the prior
written consent of First Jermyn. See "THE MERGER -- Dividends."
Upper Valley's ability to continue to pay dividends may be
dependent upon its receipt of dividends from NBO.
ADJOURNMENT
In the event that there are not sufficient votes to
constitute a quorum or approve the adoption of the Merger
Agreement at the time of one or both of the Meetings, such
proposal could not be approved unless the Meetings were adjourned
in order to permit further solicitation of proxies. In order to
allow proxies which have been received by Upper Valley or First
Jermyn, as the case may be, at the time of the applicable Meeting
to be voted for such adjournment, if necessary, each of Upper
Valley and First Jermyn has submitted the question of adjournment
under such circumstances to its shareholders as a separate matter
for their consideration.
The Boards of Directors of each of Upper Valley and
First Jermyn recommend that shareholders vote their proxies in
favor of the Upper Valley Adjournment Proposal or the First
Jermyn Adjournment Proposal, as the case may be, so that their
proxies may be used for such purposes in the event it becomes
necessary. Properly executed proxies will be voted in favor of
the Upper Valley Adjournment Proposal or the First Jermyn
Adjournment Proposal, as the case may be, unless otherwise
indicated thereon. If it is necessary to adjourn one or both of
the Meetings, no notice of the time and place of the adjourned
meeting is required to be given to shareholders other than an
announcement of such time and place at the Meeting.
FIRST JERMYN ANNUAL MEETING - OTHER MATTERS
General
In addition to voting on the approval and adoption of
the Merger Agreement and the First Jermyn Adjournment Proposal,
the shareholders of First Jermyn will also be asked to consider
and vote upon the following matters: (i) the election of
directors; and (ii) the transaction of such other business as may
properly come before the First Jermyn Annual Meeting.
Election of Directors
The Articles of Incorporation of First Jermyn provide
that First Jermyn's business shall be managed by a Board of
Directors of not less than five and not more than twenty-five
persons, the exact number to be fixed from time to time by
resolution of the shareholders. The Board of Directors of First
Jermyn presently consists of nine members, and the Board has
proposed that the number be fixed at twelve by the shareholders
at this Meeting. The Board of Directors of First Jermyn, as
provided in First Jermyn's Bylaws, is divided into three classes:
Class I, Class II, and Class III, with each class being as nearly
equal in number as possible. Only one Class is generally elected
at each annual meeting. The Articles of Incorporation provide,
however, that any director elected by the Board of Directors to
fill a vacancy on the Board of Directors shall hold office only
until the next annual meeting of shareholders notwithstanding
that the term of office of other directors in the same class does
not expire at the meeting. Accordingly, two Class II directors
and three Class III directors have been nominated to be elected
at the Meeting. The term of office of the Class III directors
have been nominated to be elected at the Meeting. The term of
office of the Class III directors elected at the Meeting will
expire on the date of the annual meeting in 2001. The term of
office of each continuing directors in Class I and II will expire
ont eh date of the annual meeting of shareholders in 1999 and
2000.
The Board of Directors has nominated William K. Nasser,
Jr. and Steven R. Tokach for election as Class II directors and
has nominated David M. Epstein, Esquire, Robert T. Kelly and
Harold P. McGovern as Class III directors. Each of these persons
is presently a director of First Jermyn.
The Bylaws of First Jermyn permit nominations for
election to the Board of Directors to be made by the Board of
Directors or by any shareholder entitled to vote for the election
of directors. Nominations for director made by shareholders
(other than by the Board of Directors) must be made, in writing,
delivered or mailed to First Jermyn not less than twenty days
prior to the date of a shareholder's meeting. Such notice must
contain the same information to the extent known to the notifying
shareholder as that required to be stated by First Jermyn in its
Proxy Statement with respect to nominees of the Board of
Directors. Any nominations that are not made in this manner or
any votes cast at the Meeting for any candidate not duly
nominated may be disregarded by the Chairman of the Meeting. Not
notice of nomination for election as a director has been received
form any shareholder as of the date of this Proxy Statement/
Prospectus.
Shares represented by properly executed proxies in the
accompanying form will be voted to fix the number of directors at
nine and for the nominees named below unless otherwise specified
in the proxy by the shareholder. Any shareholder who wishes to
withhold authority from the proxyholders to vote for the election
of directors or to withhold authority to vote for any individual
nominee may do so by marking his or her proxy to that effect. No
proxy may be voted for a greater number of persons than the
number of nominees named. If any nominee should become unable to
serve, the persons named in the proxy may vote for another
nominee. First Jermyn's management, however, has no present
reason to believe that any nominee listed below will be unable to
serve as a director, if elected.
The following table sets forth information concerning
the nominees for election as Class II and Class III directors and
the continuing Class I and Class II directors, including their
principal occupations or employment during the past five years
and their ownership of First Jermyn Common Stock as of March 1,
1998.
<TABLE>
<CAPTION>
Name and Principal Age and Sole Voting Shared Voting Total Shares Percent of
Occupation During Director and Investment and Investment Beneficially Total Shares
Past Five Years Since(1) Power Power Owned Outstanding
NOMINEES AS CLASS III DIRECTORS TO SERVE UNTIL 2001
<S> <C> <C> <C> <C> <C>
David M. Epstein, Esquire 59 3,685 9,275 29,140(2) 3.3%
Scranton, PA 1985
President, The Wellesley Group
(Hotel Management)
Robert T. Kelly 71 22,605 -- 22,950(3) 2.6
Jessup, PA 1971
Certified Public Accountant
Harold T. McGovern 39 830 -- 830 0.1
Carbondale, PA 1998
President, McGovern Insurance Agency
<CAPTION>
CONTINUING AS CLASS I DIRECTORS TO SERVE UNTIL 1999
<S> <C> <C> <C> <C> <C>
Kuzma Leschak, Jr. 73 -- 4,625 9,675(4) 1.1
Jermyn, PA 1950
Chairman, Board of Directors
I. Leo Moskovitz 93 1,000 -- 25,300(5) 2.9
Jermyn, PA 1953
Retired President of
FNBJ and First Jermyn
Garfield G. Thomas 95 4,500 -- 5,500(6) .6
Carbondale, PA 1958
Secretary to Board of Directors
FNBJ and First Jermyn
<CAPTION>
CONTINUING CLASS II DIRECTORS TO SERVE UNTIL 2000
<S> <C> <C> <C> <C> <C>
William M. Davis 62 2,000 20,430 23,030(7) 2.6
Jermyn, PA 1966
President and CEO of
FNBJ and First Jermyn
Peter A. Sabia 66 -- 100,780 118,050(8) 13.3
Dunmore, PA 1984
Owner of Valley Dodge
Truck Center
Edmund J. Biancarelli 84 28,900 6,425 35,325 4.0
Jessup, PA 1964
Medical Doctor
Thomas G. Speicher 51 -- 4,402 4,402 .5
Archbald, PA 1996
President and CEO of
TR Associates
<CAPTION>
NOMINEES AS CLASS II DIRECTORS TO SERVE UNTIL 2000
<S> <C> <C> <C> <C> <C>
William K. Nasser, Jr. 45 1,409 1,920 3,089(9) .4
Dunmore, PA 1997
President, Nasser & Co.
Steven R. Tokach 51 5,180 5,430
Wilkes-Barre, PA 1997
Executive Vice President
First Jermyn and FNBJ
All Directors and Officers as a -- 15,179 157,105 285,989 32.2
Group (13 Persons)
_____________________
</TABLE>
(1) Includes period served as director of FNBJ or Jessup Bank.
(2) Includes 4,750 shares owned by his mother and 11,730 shares
owned individually by his spouse.
(3) Includes 345 shares owned individually by his spouse.
(4) Includes 5,050 shares owned in various capacities by his
children.
(5) Includes 24,300 shares owned individually by his spouse.
(6) Includes 1,000 shares owned by his spouse.
(7) Includes 600 shares held in a self-directed IRA.
(8) Includes 17,270 shares owned in various capacities by his
children.
(9) Includes 100 shares owned by his children and 960 shares
held in a self-directed IRA.
Board and Committee Meetings; Director Compensation
First Jermyn's Board of Directors met 17 times during
1997. The FNBJ Board of Directors met 26 times in 1997. FNBJ
has a Personnel, Retirement and Compensation Committee which has
responsibility for all matters concerning employee compensation
and may exercise the authority of the FNBJ Board to the extent
permitted by law during intervals between Board meetings. The
Executive Committee did not meet in 1997. There are also the
following FNBJ committees: Audit (met 12 times), Personnel,
Retirement and Compensation (met 6 times), Building (met once),
Asset/Liability Committee (met 12 times), Credit Administration
Committee (met 12 times), and Public Relations (did not meet).
During 1997, all of the directors of First Jermyn attended at
least 75% of the aggregate of all meetings of First Jermyn's
Board of Directors and FNBJ committees on which they served
except for David M. Epstein, Esquire.
Executive Compensation
Set forth in the following table is certain
compensation information with respect to the Chief Executive
Officer of First Jermyn and each other executive officer of First
Jermyn who received compensation in excess of $100,000 for the
fiscal year ended December 31, 1997:
Annual Compensation
Name and Principal Position Year Salary Bonus
William M. Davis 1997 $177,788 $30,000
President & CEO 1996 162,192 25,000
1995 153,769 14,249
Steven R. Tokach 1997 $116,299 $20,000
Executive Vice President 1996 107,873 20,000
In June 1993, First Jermyn entered into employment
agreements with William M. Davis, President and Chief Executive
Officer of First Jermyn, and Steven R. Tokach, Executive Vice
President of First Jermyn. Each agreement was for an initial
three-year term and is renewed annually for a three-year period
unless notice of nonrenewal is given by either party in which
case the agreement will expire at the end of the then existing
term. Each agreement provided for an initial base salary which
First Jermyn may increase, but not decrease, from time to time.
The current base salaries for Mr. Davis and Mr. Tokach under the
agreements is $185,000 and $120,000, respectively. If the
executive's employment is terminated without "cause" (as defined
in the agreement) or the executive terminates his employment for
"good reason" (as defined in the agreement) following a "change
in control" of the Company, the executive becomes entitled to
severance benefits under the agreement. "Good reason" includes a
reduction in title, responsibilities, or authority, a
reassignment which requires the executive to travel from his
principal residence more than 25 miles, any removal of the
executive from office (subject to certain exceptions), a
reduction in base salary, or a failure to provide the executive
with comparable benefits following a "change in control." If any
such termination occurs following a "change in control,"
Mr. Davis and Mr. Tokach will be entitled to receive their
current salary for the remainder of the then existing contract
term plus certain welfare benefits in effect during the two (2)
years prior to such termination.
First Jermyn does not presently compensate executives
or employees by means of any stock option or long-term incentive
plan. A long-term incentive plan means a plan providing
compensation to serve as an incentive for performance over a
period longer than one fiscal year.
Report of the Compensation Committee
First Jermyn's salary and compensation policies are
administered by the Personnel, Retirement and Compensation
Committee of the Board of Directors. This Committee consists
entirely of nonemployee directors of First Jermyn. The primary
objective of the Committee is to set salaries and benefit levels
which are competitive with levels available at financial
institutions of similar size in First Jermyn's market area. The
Committee annually evaluates and recommends to the Board of
Directors compensation and bonus awards to employees of First
Jermyn, including the Chief Executive Officer.
At present, First Jermyn's executive compensation
program is comprised of salary and bonus. There are no long-term
incentive programs, including any stock-based forms of
remuneration. Salary levels are determined within ranges for
specific job descriptions for all executive employees other than
the Chief Executive Officer and the Executive Vice President.
Ranges are determined by comparing two commercially available
salary surveys and also data collected on comparable salaries
paid to officers who are similarly situated at other financial
institutions in First Jermyn's market area. Salaries are set
within the ranges for each job description based on an evaluation
by the Committee of an individual's job performance.
The salary level of the Chief Executive Officer was set
at $185,000 effective June 1, 1997 based on the Committee's and
the Board's perception of the Chief Executive Officer's
contribution to First Jermyn, including without limitation his
efforts to enhance First Jermyn's financial performance by
expanding the Bank's services and market area. The Chief
Executive Officer was also awarded a bonus of $30,000 for 1997.
The salary level and bonus for the Chief Executive Officer and
for other executive employees were not based on any quantitative
criteria.
First Jermyn presently does not maintain any long-term
incentive plans, including stock option plans or other stock-
based plans, for its employees. First Jermyn does maintain a
tax-qualified defined contribution plan for all of its employees.
In addition, First Jermyn has historically paid an annual bonus
to all employees based on the achievement of pre-determined
returns on shareholders' equity.
This report has been submitted by the Personnel,
Retirement and Compensation Committee of the Board of Directors,
the members of which are: Peter A. Sabia, Chairman; David M.
Epstein, Esquire; Garfield G. Thomas; Thomas G. Speicher;
William K. Nasser, Jr.
Performance Graph
Set forth below is a graph and table comparing the
yearly percentage change in the cumulative total shareholder
return on First Jermyn Common Stock against the cumulative total
return on the S&P 500 Index and the cumulative total return on
the NASDAQ Combination Bank Index for the five-year period
commencing January 1, 1993, and ending December 31, 1997.
Cumulative total return on First Jermyn Common Stock, the
S&P 500 Index and the NASDAQ Combination Bank Index equals the
total increase in value since January 1, 1993, assuming
reinvestment of all dividends. The graph and table were prepared
assuming that $100 was invested on January 1, 1993, in First
Jermyn Common Stock, the S&P 500 and the NASDAQ Combination Bank
Index.
The First Jermyn Corp.
Performance Graph
[Graph to be inserted separately]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
S&P 500 $100 $107.06 $105.41 $141.36 $170.01 $222.72
NASDAQ Combination 100 129.37 130.80 189.41 238.95 390.90
Bank Index
First Jermyn 100 110.83 122.23 142.16 179.18 259.15
____________
</TABLE>
Pension Plan
First Jermyn maintains a defined benefit retirement
plan ("Pension Plan") for all employees who have attained age 21
and have completed one year of eligibility service. The
following table sets forth the estimated annual benefits payable
upon retirement to participants at normal retirement age, in the
average annual salary and years of service classifications
specified.
THE FIRST JERMYN CORP. PENSION PLAN
ILLUSTRATION OF BENEFITS AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
Benefits Payable Per Years of Service(1)(2)
Remuneration(3) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
25,000 6,750 9,000 11,250 13,500 15,750
50,000 14,250 19,000 23,750 28,500 33,250
75,000 21,750 29,000 36,250 43,500 50,750
100,000 29,250 39,000 48,750 58,500 68,250
125,000 36,750 49,000 61,250 73,500 85,750
150,000 44,250 59,000 73,750 88,500 103,250
200,000 47,250(4) 63,000(4) 78,750(4) 94,500(4) 110,250(4)
</TABLE>
(1) The following are the years of credited service under the
Pension Plan for the persons named in the cash compensation
table: Mr. Davis-__ years; and Mr. Tokach-__ years.
(2) Benefits are computed in single life annuity amounts without
any reduction for Social Security or other offset amounts.
(3) Represents the highest average remuneration received over a
consecutive five-year period during the last ten years,
subject in the cases of Messrs. Davis and Tokach to a
compensation limit of $160,000 in 1997.
(4) The 1997 maximum annual benefit permitted when the Internal
Revenue Code's annual compensation limit of $160,000 and
maximum annual benefit limit are applied to the Pension
Plan's benefit formula.
Certain Transactions
Certain directors and executive officers of First
Jermyn, and associates of such persons (including corporations of
which such persons are officers or 10% beneficial owners), were
customers of and had transactions with First Jermyn and FNBJ in
the ordinary course of business during 1997 and to date in 1998.
All loans made to such persons by FNBJ were made in the ordinary
course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons, and did not
involve more than the normal risks of collectibility or present
other unfavorable features. It is expected that any other
transactions with directors and officers and their associates int
he future will be conducted on the same basis.
Principal Shareholders of First Jermyn
On the First Jermyn Record Date, there were
884,680 shares of First Jermyn Common Stock issued and
outstanding held by approximately 1,241 shareholders. The
following table set forth information with respect to persons
known by First Jermyn to have beneficially owned 5% or more of
the outstanding First Jermyn Common Stock as of the First Jermyn
Record Date:
Name and Address Amount and Nature of
of Beneficial Owner Beneficial Ownership Percent of Class
Peter A. Sabia 118,050 13.3%
402 Willow Street
Dunmore, PA
Janice Fiegleman 48,850 5.5
Family Trust
539 Clay Avenue
Scranton, PA
________________________
(1) Mr. Sabia is a director of First Jermyn and FNBJ. Amounts
include 100,780 shares over which he has shared voting and
investment power and 17,270 shares owned in various
capacities by his children.
(2) Amounts include 47,090 shares owned by the Janice Fiegleman
Family Trust, for which Janice Fiegleman is trustee, and
1,760 shares owned by her as co-trustee with others.
Independent Auditors
The Board of Directors of First Jermyn has appointed
the firm of KPMG Peat Marwick LLP, as independent auditors to
provide certain accounting services for First Jermyn and its
subsidiaries during fiscal year 1998. Representatives of this
firm are expected to attend the First Jermyn Annual Meeting, will
be afforded an opportunity to make a statement if they desire to
do so, and will be available to respond to questions from
shareholders.
Other Matters
Management knows of no business other than as described
above that is planned to be brought before the First Jermyn
Annual Meeting. If any business is presented at said meeting,
the form of First Jermyn proxy will be voted in accordance with
the discretion of the proxyholders.
<PAGE>
EXPERTS
The consolidated financial statements of First Jermyn,
as of December 31, 1997 and for each of the years in the three
year period ended December 31, 1997, included in First Jermyn's
Annual Report on Form 10-K for the year ended December 31, 1997,
have been incorporated by reference herein. In reliance upon the
report of KPMG Peat Marwick LLP, independent public accountants,
and upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of Upper Valley
as of December 31, 1997 and 1996 and for each of the years then
ended, appearing elsewhere herein, have been included in reliance
upon the report of Kronick Kalada Berdy & Co. P.C., independent
public accountants, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
The validity of the First Jermyn Common Stock to be
issued in the Merger, certain federal income tax consequences of
the Merger, and certain other legal matters relating to the
Merger are being passed upon for First Jermyn by the law firm of
Stevens & Lee, counsel to First Jermyn.
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, the
Boards of Directors of Upper Valley and First Jermyn know of no
matters which will be presented for consideration at the Meetings
other than as set forth in this Proxy Statement/Prospectus.
However, if any other matters shall come before either of the
Meetings or any adjournments thereof and be voted upon, the forms
of proxy shall be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares
represented by such proxy as to any such matters.
SHAREHOLDER PROPOSALS
First Jermyn's 1999 Annual Meeting of Shareholders will
be held on or about May ___, 1999. In accordance with the
Restated ByLaws of First Jermyn, a shareholder who desires to
propose a matter for consideration at an annual meeting of
shareholders must provide notice thereof in writing, delivered or
mailed by first-class United States mail, postage prepaid, to the
Secretary of First Jermyn, not less than sixty days prior to such
annual meeting. Any shareholder who desires to submit a proposal
to be considered for inclusion in First Jermyn's proxy materials
relating to its 1999 Annual Meeting of Shareholders must submit
such proposal in writing, addressed to First Jermyn at
645 Washington Avenue, Jermyn, Pennsylvania 18433 (Attn:
Secretary), on or before December __, 1999.
<PAGE>
UPPER VALLEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
Page
Independent auditors' report F-2
Consolidated financial statements:
Balance sheets F-3
Statements of income F-5
Statements of changes in stockholders' equity F-7
Statements of cash flows F-8
Notes to financial statements F-10
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
Upper Valley Bancorp, Inc.
Olyphant, Pennsylvania
We have audited the accompanying consolidated balance sheets of
Upper Valley Bancorp, Inc. and subsidiary as of December 31, 1997
and 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Upper Valley Bancorp, Inc. and subsidiary as of
December 31, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ Kronick Kalada Berdy & Co. P.C.
January 16, 1998
Kingston, Pennsylvania
<PAGE>
UPPER VALLEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
Cash and due from banks $ 5,317 $ 4,965
Federal funds sold 2,860 9,775
Investments:
Held to maturity (market value
$16,688 in 1997 and $9,645
in 1996) 16,331 9,634
Available for sale 67,329 74,506
Loans 156,984 145,866
Less allowance for loan losses ( 1,866) ( 1,906)
Net loans 155,118 143,960
Accrued interest receivable 2,139 1,997
Premises and equipment 4,310 4,414
Other assets 5,910 5,882
Total assets $ 259,314 $ 255,133
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 19,347 $ 18,354
Interest bearing 173,345 179,115
Total deposits 192,692 197,469
Borrowed funds 40,000 32,000
Accrued interest payable 935 941
Other liabilities 1,380 1,755
Total liabilities 235,007 232,165
Stockholders' equity:
Common stock, par value $.50 per share,
authorized 2,000,000 shares; issued
and outstanding 1,000,559, 1997;
1,000,000, 1996 500 500
Additional paid in capital 1,833 1,819
Retained earnings 22,026 21,269
Net unrealized loss on
available for sale securities ( 52) ( 620)
Total stockholders' equity 24,307 22,968
Total liabilities and stock-
holders' equity $259,314 $ 255,133
See notes to consolidated financial statements
<PAGE>
UPPER VALLEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Interest income:
Loans:
Taxable $ 12,859 $ 11,440
Tax exempt 242 266
Investments:
U.S. Treasury 392 666
U.S. Government Agencies 3,481 3,651
States and political subdivisions,
tax exempt 812 291
Mortgage-backed securities 570 616
Corporate 27 33
Federal funds sold 333 254
Total interest income 18,716 17,217
Interest expense:
Savings deposits 1,026 967
Time deposits 5,994 5,895
Money market deposits 1,066 1,287
Borrowed funds 2,201 973
Total interest expense 10,287 9,122
Net interest income 8,429 8,095
Provision for loan losses 420 650
Net interest income after provision
for loan losses 8,009 7,445
Other income:
Service charges and fees 460 381
Trust fees 402 317
Deferred compensation 385 -
Insurance policy proceeds - 330
Other income 101 90
Total other income 1,348 1,118
Other expenses:
Salaries and wages 2,783 2,779
Employee benefits 937 881
Foreclosure and other real estate
expense, net 496 475
Occupancy expense 370 328
Advertising 292 244
FDIC and OCC assessments 97 72
Securities loss, net 191 23
Other expenses 2,107 1,760
Total other expenses 7,273 6,562
Income before income taxes 2,084 2,001
Provision for income tax expense 447 435
Net income $ 1,637 $ 1,566
Basic income per share $ 1.64 $ 1.57
Diluted income per share $ 1.59 $ 1.55
See notes to consolidated financial statements
<PAGE>
UPPER VALLEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Net
unrealized
loss on
Additional available
Common paid in Retained for sale
stock capital earnings securities Total
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1996 $ 500 $1,819 $20,523 $( 393) $22,449
Net income 1,566 1,566
Cash dividends
$.82 per share ( 820) ( 820)
Net unrealized loss ( 227) ( 227)
Balances, December 31, 1996 500 1,819 21,269 ( 620) 22,968
Net income 1,637 1,637
Cash dividends
$.88 per share ( 880) ( 880)
Exercise of stock options 14 14
Net unrealized gain 568 568
Balances, December 1, 1997 $ 500 $1,833 $22,026 $( 52) $24,307
</TABLE>
See notes to consolidated financial statements
<PAGE>
UPPER VALLEY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
Cash flows from operating activities:
Net income $ 1,637 $ 1,566
Adjustments:
Depreciation 511 354
Provision for loan losses 420 650
Losses on other real estate 43 143
Amortization (accretion) of
investment premiums, net 54 ( 36)
Loss on sale of:
Available for sale securities, net 191 23
Loans 221
Changes in:
Accrued interest receivable ( 142) 151
Deferred income taxes 55 74
Other assets ( 229) ( 2,650)
Accrued interest payable ( 6) 54
Other liabilities ( 375) 64
Net cash provided by
operating activities 2,380 393
Cash flows from investing activities:
Increase in loans, net (18,894) (20,253)
Proceeds from investments:
Sale of available for sale 41,727 40,134
Maturities of available for sale 773 1,707
Maturities of held to maturity 108
Sale of other real estate 504 1,388
Sale of loans 6,401
Purchase of:
Investments, available for sale (34,717) (29,134)
Investments, held to maturity ( 6,795) ( 8,729)
Premises and equipment ( 407) ( 650)
Net cash used in
investing activities (11,300) (15,537)
Cash flows from financing activities:
Cash dividends paid ( 880) ( 800)
Decrease in deposits, net ( 4,777) (14,021)
Proceeds of stock issued 14
Proceeds of borrowed funds 20,000 32,000
Repayments of borrowed funds (12,000)
Net cash provided by
financing activities 2,357 17,179
Net (decrease) increase in cash and
cash equivalents ( 6,563) 2,035
Cash and cash equivalents, beginning
of year 14,740 12,705
Cash and cash equivalents, end of
year $ 8,177 $ 14,740
Supplementary schedule of cash flow
information:
Cash paid during the year for:
Interest $ 10,293 $ 9,068
Income taxes $ 350 $ 351
Non-cash items:
Transfers of loans to other
real estate owned $ 694 $ 1,022
Net unrealized gain (loss) on
available for sale securities $ 568 $( 227)
See notes to consolidated financial statements
<PAGE>
UPPER VALLEY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share)
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. Summary of significant accounting policies:
The consolidated financial statements include the accounts
of Upper Valley Bancorp, Inc. (UVB), a holding company, and
its wholly owned subsidiary, NBO National Bank (the Bank),
together, the Company. All intercompany accounts and
transactions have been eliminated in consolidation.
The Bank, with two locations in Lackawanna County and one
location in Luzerne County, provides lending, deposit and
other financial services to consumers and businesses located
in those counties.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results
could differ from those estimates.
Investments:
Investments are classified and accounted for as either
trading, available for sale, or held to maturity securities
based on management's intent at the time of acquisition.
Management is required to reassess the appropriateness of
the classifications at each reporting date. The Company
classifies securities as held to maturity securities when it
has the ability and positive intent to hold the securities
until maturity. Held to maturity securities are stated at
cost, adjusted for amortization of premium and accretion of
discount. Investment securities are classified as available
for sale securities when they are to be held for indefinite
periods of time and management intends to use such
securities in implementing asset/liability strategies or
would sell them in response to changes in interest rates or
resultant prepayment risk, liquidity requirements, or other
circumstances identified by management. Available for sale
securities are reported at fair value with unrealized gains
and losses, net of income taxes, excluded from earnings and
reported as a separate component of stockholders' equity.
The Company has not classified any securities as trading.
Estimated fair values for investment securities are based on
quoted market prices from an independent investment firm.
Premiums are amortized and discounts accreted over the lives
of the investment securities, using an interest method.
Management periodically evaluates each investment security
to determine whether a decline in fair value below the
amortized cost basis is other than temporary. If a decline
is judged to be other than temporary, the cost basis of the
individual security is written down to fair value with the
amount of the write-down included in earnings. Realized
gains and losses are computed using the specific
identification method.
Loans:
Loans are stated at principal amounts outstanding, net of
unamortized loan fees. Interest income is accrued on the
principal amount outstanding using actual interest rates
applied to the daily principal balances. Loan origination
fees, net of certain direct loan origination costs, are
amortized over the life of the loan as an adjustment of the
loan's yield.
Non-performing assets:
Non-performing assets consist of nonaccrual loans and other
real estate owned. Generally, a loan is classified as
nonaccrual when it is determined that the collection of
interest or principal is doubtful or when a default of
interest or principal has existed generally for 90 days or
more, unless such loan is well secured and in the process of
collection. When a loan is placed on nonaccrual status,
interest accruals discontinue and uncollected accrued
interest is reversed against income in the current period.
Interest collections after a loan has been placed on
nonaccrual status are credited to income when received
unless the collectibility of principal is in doubt causing
all collections to be applied as principal reductions. A
nonaccrual loan is not returned to performing status until
such loan is current as to principal and interest and has
performed with the contractual terms for a reasonable period
of time.
Other real estate owned is included in other assets and
consists of real estate acquired in settlement of loan
indebtedness. It is recorded at the lower of the estimated
fair value or the carrying amount of the loan on its
acquisition date and is recorded at the lower of that value
or estimated fair value, less estimated costs to sell,
thereafter, on an individual basis. Any excess of the loan
balance over the estimated fair value at time of acquisition
is charged to the allowance for loan losses. Costs to
maintain the assets and subsequent gains and losses
attributable to the disposal are included in other income or
expense.
Allowance for loan losses:
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans, or
portions of loans, which are determined to be uncollectible
are charged against the allowance account and subsequent
recoveries, if any, are credited to the account. The
allowance for loan losses is based on management's on-going
assessment of the Company's credit exposure, given its
judgement about a number of relevant variables. These
variables include prevailing and anticipated domestic
economic conditions, assigned risk ratings, the
diversification and size of the loan portfolio, the results
of the most recent regulatory examinations available to the
Company, off-balance sheet credit risks, the nature and
level of non-performing loans that have been identified as
potential problems, the adequacy of collateral, past and
expected loss experience and other factors deemed relevant
by management.
Premises and equipment, net:
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the estimated useful lives of the
assets.
Income taxes:
Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect
for the years in which the differences are expected to
reverse.
Statements of cash flows:
For the purpose of cash flows, cash and cash equivalents
include cash and due from banks and federal funds sold.
Federal funds are highly liquid investments sold for one day
periods.
Trust department:
Assets held in a fiduciary or agency capacity for customers
are not included in the accompanying consolidated balance
sheets, since such assets are not the assets of the Company.
Trust fees are recognized on the accrual basis.
Off-balance sheet financial instruments:
In the ordinary course of business, the Bank has entered
into off-balance sheet financial instruments consisting of
commitments to extend credit, unused portions of home equity
credit lines and commercial letters of credit. Such
financial instruments are recorded in the financial
statements when they are exercised.
Reclassifications:
Certain reclassifications were made to the 1996 financial
statements to conform to the 1997 presentation.
2. Income per share:
Basic income per share is computed by dividing earnings
applicable to common shareholders by the weighted average
number of common shares outstanding. The weighted average
number of shares outstanding in 1997 and 1996 were
1,000,228 and 1,000,000, respectively. Diluted income per
share is similar to basic income per share except that the
weighted average of common shares outstanding is increased
to include the number of additional common shares that would
have been outstanding if the dilutive potential common
shares had been issued. The additional common shares
included in the diluted income per share were 23,970 and
8,533 for 1997 and 1996, respectively. Income per share for
1996 has been restated based upon the provisions of a
revised accounting standards that become effective in 1997.
The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations for
"net income."
<TABLE>
<CAPTION>
1997
Per-share
Income Shares amount
<S> <C> <C> <C>
Basic EPS
Net income which is income
available to common
stockholders $ 1,637 1,000,228 $1.64
Effect of Dilutive Securities
Stock options 23,970
Diluted EPS
Income available to common
stockholders $ 1,637 1,024,198 $1.59
<CAPTION>
1996
Per-share
Income Shares amount
<S> <C> <C> <C>
Basic EPS
Net income which is income
available to common
stockholders $ 1,566 1,000,000 $1.57
Effect of Dilutive Securities
Stock options 8,533
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 1,566 1,008,533 $1.55
</TABLE>
3. Operating restrictions:
The Bank is required to maintain certain average reserve
balances with the Federal Reserve Bank (FRB) which amounted
to $425 at December 31, 1997 and 1996. It is also required
to maintain equity securities with an amortized cost of $68
with the FRB and $3,226 with the Federal Home Loan Bank
(FHLB), which are included in held to maturity investment
securities at December 31, 1997.
4. Investment securities:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
cost gains losses value
<S> <C> <C> <C> <C>
Securities available
for sale, December 31,
1997:
U.S. Treasury $10,481 $ 37 $ 3 $10,515
U.S. Government Agencies 48,700 177 291 48,586
Mortgage-backed securities 2,250 5 2 2,253
Corporate debt securities 319 1 318
State and political sub-
divisions 5,658 5 6 5,657
$67,408 $ 224 $ 303 $67,329
Securities available
for sale, December 31,
1996:
U.S. Treasury $ 7,027 $ 50 $ 6 $ 7,071
U.S. Government Agencies 54,773 99 957 53,915
Mortgage-backed securities 7,606 20 25 7,601
Corporate debt securities 385 4 381
State and political sub-
divisions 5,654 1 117 5,538
$75,445 $ 170 $1,109 $74,506
</TABLE>
The net unrealized holding loss, included as a separate
component of stockholders' equity, amounted to $52, net of
deferred income taxes of $27 at December 31, 1997. Such net
unrealized holding loss amounted to $620, net of deferred
income taxes of $319 at December 31, 1996.
Gross realized gains and losses on securities classified as
available for sale were $72 and $263, respectively, for the
year ended December 31, 1997, and $-0- and $23,
respectively, for the year ended December 31, 1996. Income
tax benefits amounted to $65 and $8 related to net realized
investment securities losses of $191 and $23 for 1997 and
1996, respectively.
Investments in mortgage backed securities are principally
issued by U.S. government agencies. Investments in U.S.
Treasury and U.S. government agencies securities, as a
group, both exceeded 10% of stockholders' equity at
December 31, 1996. A single investment in the Federal Home
Loan Mortgage Corporation individually exceeded 10% of
stockholders' equity at that date.
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
cost gains losses value
<S> <C> <C> <C> <C>
Securities held to
maturity, December 31,
1997:
Corporate debt securities $ 3,293 $ 3,293
State and political sub-
divisions 13,038 $ 357 $ 0 13,395
$16,331 $ 357 $ 0 $16,688
Securities held to
maturity, December 31,
1996:
Corporate debt securities $ 3,401 $ 3,401
State and political sub-
divisions 6,233 $ 28 $ 17 6,244
$ 9,634 $ 28 $ 17 $ 9,645
</TABLE>
The maturity distribution of the amortized cost and fair
value of available for sale investment securities at
December 31, 1997 were as follows:
Amortized Fair
cost value
Due in one year or less $ 4,996 $ 4,996
Due after one through five years 34,077 33,983
Due after five through ten years 20,115 20,126
Due after ten years 8,220 8,224
$67,408 $67,329
All held to maturity securities at December 31, 1997 are due
after ten years, except for FRB and FHLB which amount to
$3,294. These securities do not have scheduled maturities.
Expected maturities will differ from the contracted
maturities because borrowers have the right to call or
prepay obligations with or without call or prepayment
penalties.
Securities with an amortized cost and a fair value of
$14,988 and $14,990, respectively, at December 31, 1997 were
pledged to secure public funds and for other purposes as
required by law.
5. Loans and allowance for loan losses:
Loans are summarized as follows:
1997 1996
Real estate mortgage $ 104,376 $ 110,566
Commercial financial and
agricultural 25,962 7,673
Installment 17,053 18,663
Real estate construction
and land development 4,741 5,108
Obligations of states and
political subdivisions 5,128 4,015
Total loans - gross 157,260 146,025
Less unearned discount 276 159
Total loans, net of
unearned discount $ 156,984 $ 145,866
========= =========
<PAGE>
The following is an analysis of the allowance for loan
losses:
1997 1996
Allowance for loan losses at
beginning of period $ 1,906 $ 1,772
Charge offs:
Commercial 141 326
Real estate mortgage 262 236
Installment 121 33
Total 524 595
Recoveries:
Commercial 21 20
Real estate mortgage 32 48
Installment 11 11
Total 64 79
Net charge offs 460 516
Provision charged to
operations 420 650
Allowance for loan losses
at end of the period $ 1,866 $ 1,906
========= =========
Loans having carrying values of $531 and $1,486 at
December 31, 1997 and 1996, respectively, are considered to
be impaired. A loan is impaired when, based on current
information and events, it is probable that the Bank will be
unable to collect all amounts due according to the
contractual terms of the loan agreement. Included in
impaired loans are loans aggregating $116 and $580 at
December 31, 1997 and 1996, respectively, for which there is
a specific allowance for credit losses of $29 and $166 in
1997 and 1996, respectively. The average recorded
investment in impaired loans was $869 and $1,237 for 1997
and 1996, respectively. No interest income is recognized on
impaired loans which are nonaccrual, rather income is
recorded when cash is received. Had interest income on
nonaccrual loans been recorded at the contractual rates and
due dates, the Company would have recorded additional
interest income of $43 and $136 in 1997 and 1996,
respectively.
Substantially all of the loans subject to credit risk are
from individuals and businesses resident in Northeastern
Pennsylvania. The ability of these customers to honor their
obligations is dependent, to varying degrees, on the overall
economic performance of this region. Substantially all loans
are secured by real estate. The Bank has experienced
minimal difficulty accessing collateral when required.
6. Premises and equipment, net:
1997 1996
Land $ 444 $ 444
Buildings and improvements 3,511 3,446
Furniture, fixtures and equipment 2,479 2,192
Total cost 6,434 6,082
Accumulated depreciation 2,124 1,668
Net book value $ 4,310 $ 4,414
7. Time deposits of $100 or more:
At December 31, 1997, the Bank has $26,167 of time deposits
of $100 or more. Such certificates of deposit maturing
January 1, 1999 and thereafter aggregated $4,962 at
December 31, 1997.
8. Borrowed funds:
This debt consists of various advances from FHLB which bear
fixed interest rates ranging from 5.45% to 5.99%.
Substantially all assets are pledged as collateral:
Principal payments are as follows:
1999 $ 5,000
2000 10,000
2001 5,000
2002 20,000
$40,000
9. Income taxes:
The provisions for income taxes at the Company's effective
rate differed from the provision for income taxes at the
statutory rate of 34% for the years ended December 31, 1997
and 1996 as follows:
1997 1996
% of % of
pre-tax pre-tax
Amount income Amount income
Federal income tax at
the statutory rate $ 709 34.0% $ 680 34.0%
Tax exempt interest, net (304) (14.6) ( 158) ( 7.9)
Non-taxable distribution
of life insurance
policy ( 112) ( 5.6)
Other, net 42 2.0 25 1.2
Provisions for
income taxes $ 447 21.4% $ 435 21.7%
======== ===== ======== ====
Banks in Pennsylvania are not subject to state or local
income taxes, however, they pay a tax on capital which is
included in other expenses.
The current and deferred portions of applicable income taxes
were as follows:
1997 1996
Current tax $ 392 $ 361
Deferred 55 74
Applicable federal income
tax $ 447 $ 435
The tax effects of temporary differences that give rise to
the deferred tax assets and liabilities are presented below:
1997 1996
Deferred tax assets (liabilities):
Allowance for possible loan
losses $ 300 $ 312
Loans 134 141
Employee benefits 214 217
Securities 27 319
Premises and equipment ( 135) ( 102)
Net deferred tax asset $ 540 $ 887
10. Employee benefit plans:
A deferred compensation plan covers certain current and
former directors and senior management employees. Expense
for this plan, which is included in employee benefits
expense, amounted to $93 and $91 in 1997 and 1996,
respectively. Life insurance contracts are being used to
fund this plan. Since 1986, the plan has not been offered
to additional participants. During 1997, the Bank
restructured the deferred compensation plan and recognized
approximately $385,000 of income.
The Company also has a defined benefit pension plan which
covers substantially all full-time employees who meet
certain age and service requirements. Net plan assets
approximate the accumulated benefit obligation. The expense
aggregated $282 and $92 in 1997 and 1996, respectively.
During 1995, the Company approved a defined contribution
salary savings plan, which was effective January 1, 1996 and
covers all full time employees who meet age and service
requirements. Contributions to the plan are at the
discretion of the Board of Directors. No contribution was
made for 1997 or 1996.
11. Nonqualified stock option plans:
Nonqualified stock option plans provide for the grant of
options to purchase up to 100,000 shares. Upon termination
or expiration of any stock options granted, the shares
covered by such terminated or expired stock options will be
available for future grant. The Board of Directors, at the
date of grant of an option, determines the number of shares
subject to the grant and the terms of such option.
In August 1995, the Board granted options to purchase 58,600
shares at an exercise price of $23 per share, which are
exercisable through July 2005. Options issued to members of
the Board of Directors totaling 28,000 vested in 1996 and
are exercisable. Options issued to officers totaling
30,600, of which 1,201 and 1,000 were subsequently forfeited
in 1997 and 1996, respectively, vest in cumulative annual
installments of 33 1/3% beginning on the first anniversary
date of the grant. At December 31, 1997, 18,933 options
issued to officers were exercisable. 599 options have been
exercised as of December 31, 1997.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no
compensation cost has been recognized for the stock option
plans. Had compensation cost for the stock option plans
been determined based on the fair value at the grant date
for awards in 1995 consistent with the provisions of SFAS
No. 123, the Company's net earnings and basic earnings per
share would have been reduced to the pro forma amounts
indicated below:
1997 1996
Net income - as reported $1,637 $1,566
Net income - pro forma $1,592 $1,417
Basic income per share - as reported $ 1.64 $ 1.57
Basic income per share - pro forma $ 1.59 $ 1.42
The fair value of each option grant is estimated on the date
of grant using the minimum value option-pricing model with
the following weighted-average assumptions: dividend yield
of 2.0%; risk-free interest rate of 6.6%; and expected lives
of 10 years, which is the option term.
12. Financial instruments with off-balance sheet risk:
The Company has financial instruments principally issued to
meet customer financing needs which are not included in the
consolidated balance sheets. The gross contract amounts of
these instruments at December 31, 1997 and 1996 were
$12,537 and $12,714, respectively. These instruments
consist of unused lines of credit, letters of credit and
undisbursed loan proceeds which represent credit exposure in
the amounts stated. Before such instruments are issued,
they are subjected to the same credit control process as
loans. Provision for losses, if any, is included in the
Company's allowance for loan losses. No provision was
deemed necessary at December 31, 1997 and 1996. These
financial instruments are generally issued for one year or
less and often expire unused in whole or in part by the
customer. Collateral held varies but may include property,
plant and equipment, primary residential properties and
income producing properties.
13. Fair value of financial instruments:
Many of the Bank's financial instruments lack an available
trading market as characterized by a willing buyer and a
willing seller engaging in an exchange transaction. The
Bank's fair value estimates are based upon subjective
assumptions and involve significant uncertainties resulting
in estimates that vary with changes in assumptions. Any
changes in assumptions or estimation methodologies may have
a material effect on the estimated fair values disclosed.
The following methods and assumptions were used to estimate
the fair value of significant classes of financial
instruments.
Cash, due from banks, federal funds sold, and accrued
interest receivable represent financial instruments whose
carrying value equals or approximates fair value. Financial
instruments actively traded in a market have been valued
using quoted available market prices. A summary at
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
Cash and due from banks $5,317 $5,317 $4,965 $4,965
Federal funds sold 2,860 2,860 9,775 9,775
Investment securities 83,660 84,017 84,140 84,151
Accrued interest
receivable 2,139 2,139 1,997 1,997
</TABLE>
Fair value of net loans are estimated for portfolios with
similar characteristics. Loans are segregated into
commercial, real estate and installment. The loan
categories are further segmented into fixed and adjustable
types. Fair value for adjustable rate loans is considered
to be the same as the carrying value because these loans
reprice frequently at market rates. Fixed rate loans have
been revalued using discounted cash flows. A summary at
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
Net loans $155,118 $161,813 $143,960 $152,945
</TABLE>
Accrued interest payable is a financial instrument whose
carrying value equals or approximates fair value. Under
accounting standards the fair value of deposits with no
maturity, such as non-interest bearing demand deposits, NOW
accounts, money market accounts and savings accounts is
equal to the amount payable on demand at the valuation date.
The fair value of fixed rate time deposits is based on
discounted cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar
remaining maturities. The fair value of borrowed funds is
estimated based on the present values using a discount rate
equal to the rate currently offered on similar borrowings
with similar maturities. The fair value estimates do not
include the benefit that results from the low-cost funding
provided by the deposit liabilities compared to the cost of
borrowing funds in the market. A summary at December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
Deposits $192,692 $192,824 $197,469 $197,552
Borrowed funds 40,000 40,000 32,000 32,000
Accrued interest
payable 935 935 941 941
</TABLE>
Fair value estimates are based on existing financial
instruments without attempting to estimate the value of
future business and the value of assets and liabilities that
are not considered financial instruments. Significant
assets that are not considered financial assets include
deferred taxes and premises and equipment. In addition, the
tax ramifications related to the realization of unrealized
gains or losses can have a significant effect on the fair
value estimates.
14. Dividend and related party lending restrictions:
UVB and the Bank, as a National bank, are subject to the
dividend restrictions set forth by the Federal Reserve Bank
(FRB) and the Comptroller of the Currency (OCC),
respectively. Under such restrictions, UVB and the Bank may
not, without prior approval of their respective regulators,
declare dividends in excess of the current year's earnings
(as defined) plus the undistributed retained earnings (as
defined) from the prior two years. The dividends UVB and
the Bank could declare without prior approval at
December 31, 1997 aggregate $720,000 and $1,043,000,
respectively.
The Federal Reserve Act limits extensions of credit that can
be made from the Bank to UVB. These loans may not exceed
10% of the Bank's capital and surplus.
15. Regulatory matters:
The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional discretionary -
actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by
the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum
amounts and ratios set forth in the table below. Management
believes, as of December 31, 1997, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent
notifications from the Office of the Comptroller of the
Currency categorized the Bank as adequately capitalized
under the regulatory framework for prompt corrective action.
To be categorized as adequately capitalized the Bank must
maintain minimum ratios as set forth in the table. There
are no conditions or events since those notifications that
management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are presented
in the following table.
<TABLE>
<CAPTION>
Actual Required
Amount Ratio ratio
<S> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $25,422 15.9% 8.0%
Tier I Capital
(to Risk Weighted Assets) 23,556 14.8% 4.0%
Tier I Capital
(to Average Assets) 23,556 9.0% 4.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) 23,967 16.2% 8.0%
Tier I Capital
(to Risk Weighted Assets) 22,115 14.9% 4.0%
Tier I Capital
(to Average Assets) 22,115 8.9% 4.0%
</TABLE>
16. Related parties:
The Bank has entered into transactions with its directors,
parties). The aggregate amount of loans to such related
parties at December 31, 1997 and 1996 were $503 and $816,
respectively. Advances and repayments for such loans
aggregated $508 and $821, respectively. The aggregate
amount of deposits from such related parties at December 31,
1997 was $955.
17. Year 2000:
The Company recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 software
failures. Software failures due to processing errors
potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk
to the availability and integrity of financial systems and
the reliability of operational systems. The Company has
established processes for evaluating and managing the risks
and costs associated with this problem.
The total cost of compliance and its effect on the Company's
future results of operations is being determined as part of
the detailed conversion planning.
18. Parent company financial statements:
CONDENSED STATEMENTS OF INCOME
1997 1996
Income:
Dividends from subsidiary $ 880 $ 820
Expense:
Occupancy and equipment
expenses 7 7
Income before income taxes and
undistributed income of
subsidiary 873 813
Income tax benefits 2 2
Income before undistributed
income of subsidiary 875 815
Equity in undistributed income
of subsidiary 762 751
Net income $ 1,637 $ 1,566
========== =========
Assets:
Cash $ 171 $ 154
Investment in bank
subsidiary 23,941 22,610
Other assets 415 424
Total assets $ 24,527 $ 23,188
========= =========
Liabilities:
Dividends payable 220 220
Stockholders' equity 24,307 22,968
Total liabilities and
stockholders' equity $ 24,527 $ 23,188
========= =========
CONDENSED STATEMENTS OF CASH FLOWS
1997 1996
Cash flows from operating
activities:
Net income $ 1,637 $ 1,566
Adjustments:
Equity in undistributed
income of subsidiary ( 762) ( 751)
Depreciation 7 7
Change in other assets 1 ( 9)
Net cash provided by
operating activities 883 813
Cash flows from financing
activities:
Issuance of common stock 14
Cash dividends paid ( 880) ( 800)
Net cash used in financing
activities ( 866) ( 800)
Net increase in cash 17 13
Cash at beginning of year 154 141
Cash at end of year $ 171 $ 154
======== =========
Supplemental disclosure:
Noncash item:
Change in net unrealized
gains (losses) on
available-for-sale
securities $ 568,000 $(227,000)
========= =========
19. Litigation:
In the normal course of business, there are various
outstanding legal proceedings. In the opinion of
management, after consultation with legal counsel, the
financial position, results of operations and cash flows of
the Company will not be affected materially by the outcome
of such legal proceedings.
20. Business combination:
In 1997, the Company entered into a merger agreement with
another local financial institution. The transaction is
contingent upon, among other things, receiving regulatory
and shareholder approval. The transaction, which is
expected to be completed in the second quarter of 1998, will
be accounted for as a pooling of interests.
<PAGE>
ANNEX A
AGREEMENT AND PLAN
OF MERGER
between
THE FIRST JERMYN CORP.
and
UPPER VALLEY BANCORP, INC.
October 15, 1997
<PAGE>
AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of
October 15, 1997, is made by and between THE FIRST JERMYN CORP.
("First Jermyn"), a Pennsylvania corporation, having its
principal place of business in Jermyn, Pennsylvania, and UPPER
VALLEY BANCORP, INC. ("Upper Valley"), a Pennsylvania
corporation, having its principal place of business in Olyphant,
Pennsylvania.
BACKGROUND
1. First Jermyn and Upper Valley desire for Upper
Valley to merge with and into First Jermyn, with First Jermyn
surviving such merger, in accordance with the applicable laws of
the Commonwealth of Pennsylvania, and in accordance with the plan
of merger set forth herein.
2. At or prior to the execution and delivery of this
Agreement, certain directors, officers, and affiliates of each of
Upper Valley and First Jermyn have executed in favor of the
other, a Letter Agreement dated October 15, 1997, in the forms
attached hereto as Exhibits 1 and 2, respectively.
3. First Jermyn desires to merge NBO National Bank, a
national banking association and a wholly-owned subsidiary of
Upper Valley ("NBO"), into and with The First National Bank of
Jermyn, ("FNBJ"), a national banking association and a
wholly-owned subsidiary of First Jermyn ("FNBJ"), with FNBJ
surviving such merger in accordance with the Bank Plan of Merger
in the form attached hereto as Exhibit 3.
4. First Jermyn and Upper Valley desire to provide
the terms and conditions governing the transactions contemplated
herein, including specifically without limitation, the provisions
of the forms of Articles of Incorporation and Bylaws attached
hereto as Exhibit 4 which, among other things, require
supermajority voting requirements of shareholders and directors
to effect a change of control of the resulting corporation so
that the Board of Directors and management of the resulting
corporation can realize the potential for cost savings and
revenue enhancements without differences relating to strategic
direction.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants, agreements, representations and warranties
herein contained, the parties hereto, intending to be legally
bound, do hereby agree as follows:
ARTICLE I
THE MERGERS
Section 1.01 Definitions. As used in this Agreement,
the following terms shall have the indicated meanings (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Affiliate means, with respect to any Person, any
Person who directly, or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under
common control with, such Person and, without limiting the
generality of the foregoing, includes any executive officer
or director of such Person and any Affiliate of such
executive officer or director.
Agreement means this agreement, and any amendment
or supplement hereto, which constitutes a "plan of merger"
between First Jermyn and Upper Valley.
Applications means the applications for regulatory
approval which are required by the transactions contemplated
hereby.
Articles of Merger means the articles of merger to
be executed by First Jermyn and Upper Valley and to be filed
in the PDS, in accordance with the laws of the Commonwealth
of Pennsylvania.
Bank Merger means the merger of NBO with and into
FNBJ, with FNBJ surviving such merger, contemplated by
Section 1.03 of this Agreement.
Bank Plan of Merger has the meaning given to that
term in Section 1.03 of this Agreement.
BCL means the Pennsylvania Business Corporation
Law of 1988, as amended.
BHC Act means the Bank Holding Company Act of
1956, as amended.
Closing Date means the date specified by the
parties within five (5) business days after satisfaction or
waiver (subject to applicable law) of the conditions
(excluding conditions that, by their terms cannot be
satisfied until the Closing Date) set forth in Article V, or
such other date as First Jermyn and Upper Valley shall
agree.
Dissenting Upper Valley Shares has the meaning
given to that term in Section 1.02(e)(iii).
Effective Date means the date upon which the
Articles of Merger shall be filed in the PDS, and shall be
the same as the Closing Date.
Employee Benefit Plans has the meaning given to
that term in Section 2.12 of this Agreement.
Environmental Law means any federal, state, local
or foreign law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
Regulatory Authority relating to (i) the protection,
preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource),
and/or (ii) the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently
listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated,
whether by type or by quantity, including any material
containing any such substance as a component.
ERISA means the Employee Retirement Income
Security Act of 1974, as amended.
Exchange Act means the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated
from time to time thereunder.
Exchange Ratio has the meaning given to that term
in Section 1.02(e)(ii) of this Agreement.
FDIA means the Federal Deposit Insurance Act, as
amended.
FDIC means the Federal Deposit Insurance
Corporation.
First Jermyn Benefits Schedule has the meaning
given to that term in Section 3.19 of this Agreement.
First Jermyn Common Stock has the meaning given to
that term in Section 3.02(a) of this Agreement.
First Jermyn Disclosure Schedule means a
disclosure schedule delivered by First Jermyn to Upper
Valley pursuant to Article III of this Agreement.
First Jermyn Financials means (i) the audited
consolidated financial statements of First Jermyn as of
December 31, 1996 and for the three years ended December 31,
1996, including the notes thereto and (ii) the unaudited
interim consolidated financial statements of First Jermyn as
of each calendar quarter thereafter included in Securities
Documents filed by First Jermyn.
First Jermyn Market Price means, as of any date,
the average of the closing sale prices of a share of First
Jermyn Common Stock, as reported by an independent source in
the over-the-counter market, for the twenty (20) consecutive
trading days commencing twenty-one (21) trading days prior
to the date of determination.
First Jermyn Regulatory Reports means the Annual
Reports of First Jermyn on Form FRY-6 and any Current Report
of First Jermyn on Form FRY-6A filed with the FRB from
December 31, 1995 through the Closing Date and the Reports
of Condition and Income of FNBJ and accompanying schedules
for each calendar quarter, beginning with the quarter ended
December 31, 1995 through the Closing Date.
First Jermyn Subsidiaries means any corporation,
50% or more of the capital stock of which is owned, either
directly or indirectly, by First Jermyn, except any
corporation the stock of which is held in the ordinary
course of the lending activities of a bank.
FRB means the Federal Reserve Board.
GAAP means generally accepted accounting
principles as in effect at the relevant date.
IRC means the Internal Revenue Code of 1986, as
amended.
IRS means the Internal Revenue Service.
Material Adverse Effect shall mean, with respect
to First Jermyn or Upper Valley, any adverse effect on its
assets, financial condition or operations which is material
to its assets, financial condition or results of operations
on a consolidated basis, except for any material adverse
effect caused by (i) any change in the value of the
respective investment portfolios of First Jermyn or Upper
Valley resulting from a change in interest rates generally
or (ii) any change occurring after the date hereof in any
federal or state law, rule or regulation or in GAAP, which
change affects banking institutions generally, including any
changes affecting the Bank Insurance Fund or the Savings
Association Insurance Fund.
Merger means the merger of Upper Valley with and
into First Jermyn, with First Jermyn surviving such merger,
contemplated by this Agreement.
NBA means the National Bank Act.
OCC means the Office of the Comptroller of the
Currency.
PDS means the Department of State of the
Commonwealth of Pennsylvania.
Person means any individual, corporation,
partnership, joint venture, association, trust or "group"
(as that term is defined under the Exchange Act).
Prospectus/Proxy Statement means the
prospectus/proxy statement, together with any supplements
thereto, to be transmitted to holders of Upper Valley Common
Stock and First Jermyn Common Stock in connection with the
transactions contemplated by this Agreement.
Registration Statement means the registration
statement on Form S-4, including any pre-effective or
post-effective amendments or supplements thereto, as filed
with the SEC under the Securities Act with respect to the
First Jermyn Common Stock to be issued in connection with
the transactions contemplated by this Agreement.
Regulatory Agreement has the meaning given to that
term in Section 2.11 of this Agreement.
Regulatory Authority means any banking agency or
department of any federal or state government, including
without limitation, the FDIC, the OCC, the FRB, or the
respective staffs thereof.
Rights means warrants, options, rights,
convertible securities and other capital stock equivalents
which obligate an entity to issue its securities.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933,
as amended, and the rules and regulations promulgated from
time to time thereunder.
Securities Documents means all registration
statements, schedules, statements, forms, reports, proxy
material, and other documents required to be filed under the
Securities Laws.
Securities Laws means the Securities Act and the
Exchange Act and the rules and regulations promulgated from
time to time thereunder.
Subsidiary means any corporation or other entity,
50% or more of the capital stock or ownership interests of
which are owned, either directly or indirectly, by another
entity, except any corporation or other entity the capital
stock or ownership interests of which are held in the
ordinary course of the lending activities of a bank.
Transition Period means the period of time
beginning on the Effective Date and ending on December 31,
2004.
Upper Valley Benefits Schedule has the meaning
given to that term in Section 2.18 of this Agreement.
Upper Valley Common Stock means the common stock
of Upper Valley described in Section 2.02(a).
Upper Valley Disclosure Schedule means a
disclosure schedule delivered by Upper Valley to First
Jermyn pursuant to Article II of this Agreement.
Upper Valley Financials means (i) the audited
consolidated financial statements of Upper Valley as of
December 31, 1996 and for the three years ended December 31,
1996, including the notes thereto, (ii) the unaudited
interim consolidated financial statements of Upper Valley as
of and for each calendar quarter thereafter.
Upper Valley Regulatory Reports means the Annual
Reports of Upper Valley on Form FRY-6, any Current Report of
Upper Valley on Form FRY-6A filed with the FRB from
December 31, 1995 through the Closing Date and the Reports
of Condition and Income of NBO and accompanying schedules
for each calendar quarter, beginning with the quarter ended
December 31, 1995 through the Closing Date.
Upper Valley Stock Options has the meaning given
to that term in Section 1.02(f) of this Agreement.
Upper Valley Subsidiaries means any corporation,
50% or more of the capital stock of which is owned, either
directly or indirectly, by Upper Valley, except any
corporation the stock of which is held in the ordinary
course of the lending activities of NBO.
Section 1.02 The Merger.
(a) Closing. The closing will take place at
10:00 a.m. on the Closing Date at the offices of Stevens & Lee,
116 North Washington Avenue, Suite 2B, Scranton, Pennsylvania,
unless another time and place are agreed to by the parties
hereto; provided, in any case, that all conditions to closing set
forth in Article V have been satisfied or waived at or prior to
the Closing Date. On the Closing Date, Upper Valley and First
Jermyn shall cause the Articles of Merger to be duly executed and
to be filed in the PDS.
(b) The Merger. Subject to the terms and
conditions of this Agreement, on the Effective Date: Upper
Valley shall merge with and into First Jermyn; the separate
existence of Upper Valley shall cease; First Jermyn shall be the
surviving corporation in the Merger; and all of the property
(real, personal and mixed), rights, powers and duties and
obligations of Upper Valley shall be taken and deemed to be
transferred to and vested in First Jermyn, as the surviving
corporation in the Merger, without further act or deed; all
debts, liabilities and duties of each of Upper Valley and First
Jermyn shall thereafter be the responsibility of First Jermyn as
the surviving corporation; all in accordance with the applicable
laws of the Commonwealth of Pennsylvania.
(c) First Jermyn's Articles of Incorporation and
Bylaws. On and after the Effective Date, the articles of
incorporation and the bylaws of First Jermyn, as the surviving
corporation in the Merger, shall be the articles of incorporation
and bylaws attached hereto as Exhibit 4, until thereafter
altered, amended or repealed.
(d) Board of Directors and Officers of First
Jermyn and FNBJ; Name.
(i) On the Effective Date, the Board of
Directors of First Jermyn, as the surviving corporation in the
Merger, shall consist of (i) those persons holding such office
immediately prior to the Effective Date and (ii) Saul Kaplan (to
be elected as a Class III director to serve until 1998),
Harold S. Kaplan (to be elected as a Class III director to serve
until 1998), Joseph P. Coviello (to be elected as a Class III
director to serve until 1998), Fred J. Gentile (to be elected as
a Class I director to serve until 1999), Michael A. Barbetti (to
be elected as a Class I director to serve until 1999) and Norman
Woodworth (to be elected as a Class I director to serve until
1999), all as further set forth in the form of Restated Articles
of Incorporation of First Jermyn attached hereto as Exhibit 4.
First Jermyn (i) shall cause Messrs. Saul Kaplan, Harold Kaplan
and Coviello to be renominated for election to the Board of
Directors of First Jermyn at any annual or special meeting of
shareholders of First Jermyn held during the Transition Period at
which the Class in which such individuals are serving is
considered for re-election and (ii) shall cause Messrs. Gentile,
Barbetti and Woodworth to be renominated for re-election to the
Board of Directors of First Jermyn at any annual or special
meeting of shareholders of First Jermyn held through December 31,
1999 at which the Class in which such individuals are serving is
considered for re-election. In the event that any of such
individuals are unable or unwilling to serve as a member of the
Board of Directors at any time during their term as such, the
Board of Directors of First Jermyn shall fill the vacancy created
thereby. Upper Valley acknowledges that, prior to the Effective
Date, First Jermyn may add one (1) additional member to the Board
of Directors so that the total number of Directors of First
Jermyn on the Effective Date, including the representatives of
Upper Valley, will be eighteen (18).
(ii) On the Effective Date, the officers of
First Jermyn duly elected and holding office immediately prior to
the Effective Date shall be the officers of First Jermyn, as the
surviving corporation in the Merger, existing on such Effective
Date and John R. Adonizio shall be elected as an Executive Vice
President of First Jermyn effective as of the Effective Date.
(iii) On the effective date of the Bank
Merger, the directors of FNBJ as the surviving institution in the
Bank Merger shall consist of (i) those persons holding such
office immediately prior to the Effective Date and (ii) Messrs.
Saul Kaplan, Harold Kaplan, Joseph Coviello, Fred J. Gentile,
Michael A. Barbetti, and Norman Woodworth. First Jermyn and FNBJ
agree to cause such individuals to be elected to the Board of
Directors of FNBJ at any annual or special meeting of the sole
shareholder of FNBJ held during the time that such individuals
are serving as directors of First Jermyn.
(iv) On the effective date of the Bank
Merger, the officers of FNBJ duly elected and holding office
immediately prior to such effective date shall be the officers of
FNBJ, as the surviving corporation in the Bank Merger, and
John R. Adonizio shall be elected as an Executive Vice President
of FNBJ effective as of the Effective Date.
(v) On the Effective Date, the name of First
Jermyn shall be changed to such name as may be mutually agreed to
by First Jermyn and Upper Valley.
(e) Conversion of Shares.
(i) First Jermyn Common Stock.
(A) Each share of First Jermyn Common
Stock issued and outstanding immediately prior to the
Effective Date shall, on and after the Effective Date,
continue to be issued and outstanding as an identical share
of First Jermyn Common Stock. Shares of First Jermyn Common
Stock owned by Upper Valley (other than shares held in
trust, managed, custodial or nominee accounts and the like
that in any such case are beneficially owned by third
parties (any such shares, "trust account shares") and shares
acquired in respect of debts previously contracted (any such
shares, "DPC shares")) shall become treasury stock of First
Jermyn.
(B) Each share of First Jermyn Common
Stock issued and held in the treasury of First Jermyn as of
the Effective Date, if any, shall, on and after the
Effective Date, continue to be issued and held in the
treasury of First Jermyn.
(ii) Upper Valley Common Stock.
(A) Subject to the provisions of
Section 1.02(e)(iii) hereof with respect to dissenting
shares, each share of Upper Valley Common Stock issued and
outstanding immediately prior to the Effective Date (other
than shares then owned by First Jermyn, if any) shall, on
the Effective Date, by reason of the Merger and without any
action on the part of the holder thereof, be converted into
and become .6890 shares of First Jermyn Common Stock
(subject to possible adjustment as set forth in
Section 1.02(h), the "Exchange Ratio").
(B) Each share of Upper Valley Common
Stock (other than trust account shares or DPC shares) owned
by First Jermyn or a First Jermyn Subsidiary on the
Effective Date, if any, shall be cancelled.
(C) Each share of Upper Valley Common
Stock issued and held in the treasury of Upper Valley or
owned by Upper Valley or any Upper Valley Subsidiary (other
than trust account shares or DPC shares) as of the Effective
Date, if any, shall be cancelled, and no cash, stock or
other property shall be delivered in exchange therefor.
(D) No fraction of a whole share of
First Jermyn Common Stock and no scrip or certificates
therefor shall be issued in connection with the Merger. Any
former holder of Upper Valley Common Stock who would
otherwise be entitled to receive a fraction of a share of
First Jermyn Common Stock shall receive, in lieu thereof,
cash in an amount equal to such fraction of a share
multiplied by the First Jermyn Market Price determined as of
the Effective Date.
(iii) Dissenting Shareholders of Upper
Valley. If there are holders of Upper Valley Common Stock
who dissent from the Merger and exercise and perfect the
right to obtain valuation of and payment for their shares
("Dissenting Upper Valley Shares") pursuant to Section
1930(a) and Subchapter D of Chapter 15 of the BCL, the
following provisions will govern payments to be made in
respect of Dissenting Upper Valley Shares:
(A) all payments in respect of
Dissenting Upper Valley Shares, if any, will be made
directly by First Jermyn, as the surviving corporation in
the Merger; and
(B) Dissenting Upper Valley Shares, if
any, will be deemed to have been retired and cancelled
immediately prior to the Merger, with the effect that no
conversion thereof will occur pursuant to Section
1.02(e)(ii) hereof.
(f) Stock Options. From and after the Effective
Date, all stock options to purchase shares of Upper Valley Common
Stock ("Upper Valley Stock Options"), which are then outstanding
and unexercised, shall be converted into and become options to
purchase shares of First Jermyn Common Stock, and First Jermyn
shall assume each such Upper Valley Stock Option in accordance
with the terms of the plan and agreement by which it is
evidenced; provided, however, that from and after the Effective
Date (i) each such Upper Valley Stock Option assumed by First
Jermyn may be exercised solely to purchase shares of First Jermyn
Common Stock, (ii) the number of shares of First Jermyn Common
Stock purchasable upon exercise of such Upper Valley Stock Option
shall be equal to the number of shares of Upper Valley Common
Stock that was purchasable under such Upper Valley Stock Option
immediately prior to the Effective Date multiplied by the
Exchange Ratio and rounding up to the nearest whole share, and
(iii) the per share exercise price under each such Upper Valley
Stock Option shall be adjusted by dividing the per share exercise
price of each such Upper Valley Stock Option by the Exchange
Ratio, and rounding up to the nearest cent. The terms of each
Upper Valley Stock Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock
split, stock dividend, recapitalization or other similar
transaction with respect to First Jermyn Common Stock on or
subsequent to the Effective Date. It is intended that the
foregoing assumption shall be effected in a manner which is
consistent with the requirements of Section 424 of the Code, as
to any Upper Valley Stock Option that is an "incentive stock
option" (as defined in Section 422 of the Code).
(g) Surrender and Exchange of Upper Valley Stock
Certificates.
(i) Exchange of Certificates. Each holder
of shares of Upper Valley Common Stock, other than holders
of Dissenting Upper Valley Shares, who surrenders to First
Jermyn (or its agent) the certificate or certificates
representing such shares will be entitled to receive, as
soon as practicable after the Effective Date, in exchange
therefor a certificate or certificates for the number of
whole shares of First Jermyn Common Stock into which such
holder's shares of Upper Valley Common Stock have been
converted pursuant to the Merger, together with a check for
cash in lieu of any fractional share in accordance with
Section 1.02(e)(ii)(D) hereof.
(ii) Rights Evidenced by Certificates. Each
certificate for shares of First Jermyn Common Stock issued
in exchange for certificates for Upper Valley Common Stock
pursuant to Section 1.02(g)(i) hereof will be dated the
Effective Date and be entitled to dividends and all other
rights and privileges pertaining to such shares of stock
from and after the Effective Date. Until surrendered, each
certificate theretofore evidencing shares of Upper Valley
Common Stock will, from and after the Effective Date,
evidence solely the right to receive certificates for shares
of First Jermyn Common Stock pursuant to Section 1.02(g)(i)
hereof and a check for cash in lieu of any fractional share
in accordance with Section 1.02(e)(ii)(D) hereof. If
certificates for shares of Upper Valley Common Stock are
exchanged for First Jermyn Common Stock at a date following
one or more record dates for the payment of dividends or of
any other distribution on the shares of First Jermyn Common
Stock, First Jermyn will pay cash in an amount equal to
dividends theretofore payable on such First Jermyn Common
Stock and pay or deliver any other distribution to which
holders of shares of First Jermyn Common Stock have
theretofore become entitled. No interest will accrue or be
payable in respect of dividends or cash otherwise payable
under this Section 1.02(g) upon surrender of certificates
for shares of Upper Valley Common Stock. Notwithstanding
the foregoing, no party hereto will be liable to any holder
of Upper Valley Common Stock for any amount paid upon advice
of legal counsel and in good faith to a public official or
agency pursuant to any applicable abandoned property,
escheat or similar law. Until such time as certificates for
shares of Upper Valley Common Stock are surrendered by a
Upper Valley shareholder to First Jermyn for exchange, First
Jermyn shall have the right to withhold dividends or any
other distributions on the shares of First Jermyn Common
Stock issuable to such shareholder.
(iii) Exchange Procedures. Each certificate
for shares of Upper Valley Common Stock delivered for
exchange under this Section 1.02(g) must be endorsed in
blank by the registered holder thereof or be accompanied by
a power of attorney to transfer such shares endorsed in
blank by such holder. If more than one certificate is
surrendered at one time and in one transmittal package for
the same shareholder account, the number of whole shares of
First Jermyn Common Stock for which certificates will be
issued pursuant to this Section 1.02(g) will be computed on
the basis of the aggregate number of shares represented by
the certificates so surrendered. If shares of First Jermyn
Common Stock or payments of cash are to be issued or made to
a person other than the one in whose name the surrendered
certificate is registered, the certificate so surrendered
must be properly endorsed in blank, with signature(s)
guaranteed, or otherwise in proper form for transfer, and
the person to whom certificates for shares of First Jermyn
Common Stock is to be issued or to whom cash is to be paid
shall pay any transfer or other taxes required by reason of
such issuance or payment to a person other than the
registered holder of the certificate for shares of Upper
Valley Common Stock which are surrendered. As promptly as
practicable after the Effective Date, First Jermyn shall
send or cause to be sent to each shareholder of record of
Upper Valley Common Stock transmittal materials for use in
exchanging certificates representing Upper Valley Common
Stock for certificates representing First Jermyn Common
Stock into which the former have been converted in the
Merger. Certificates representing shares of First Jermyn
Common Stock and checks for cash in lieu of fractional
shares shall be mailed to former shareholders of Upper
Valley as soon as reasonably possible but in no event later
than twenty (20) business days following the receipt of
certificates representing former shares of Upper Valley
Common Stock duly endorsed or accompanied by the materials
referenced herein and delivered by certified mail, return
receipt requested (but in no event earlier than the second
business day following the Effective Date).
(iv) Closing of Stock Transfer Books;
Cancellation of Upper Valley Certificates. Upon the
Effective Date, the stock transfer books for Upper Valley
Common Stock will be closed and no further transfers of
shares of Upper Valley Common Stock will thereafter be made
or recognized. All certificates for shares of Upper Valley
Common Stock surrendered pursuant to this Section 1.02(g)
will be cancelled by First Jermyn.
(h) Anti-Dilution Provisions. If First Jermyn
shall, at any time before the Effective Date, (A) issue a
dividend in shares of First Jermyn Common Stock, (B) combine the
outstanding shares of First Jermyn Common Stock into a smaller
number of shares, (C) subdivide the outstanding shares of First
Jermyn Common Stock, or (D) reclassify the shares of First Jermyn
Common Stock, then, in any such event, the number of shares of
First Jermyn Common Stock to be delivered to Upper Valley
shareholders who are entitled to receive shares of First Jermyn
Common Stock in exchange for shares of Upper Valley Common Stock
shall be adjusted so that each Upper Valley shareholder shall be
entitled to receive such number of shares of First Jermyn Common
Stock as such shareholder would have been entitled to receive if
the Effective Date had occurred immediately prior to the
happening of such event. (By way of illustration, if First
Jermyn shall declare a stock dividend of 7% payable with respect
to a record date on or prior to the Effective Date, the Exchange
Ratio determined pursuant to Sections 1.02(e)(ii) hereof shall be
adjusted upward by 7%.)
Section 1.03 The Bank Merger. First Jermyn and Upper
Valley shall use their best efforts to cause NBO to merge with
and into FNBJ under the NBA, with FNBJ surviving such merger, as
soon as practicable after the Effective Date. Concurrently with,
or as soon as practicable after, the execution and delivery of
this Agreement, First Jermyn shall cause FNBJ, and Upper Valley
shall cause NBO, to execute and deliver the Bank Plan of Merger
attached hereto as Exhibit 3. In connection with the Bank
Merger, the name of FNBJ shall be changed to such name as may be
mutually agreed to by First Jermyn and Upper Valley.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF UPPER VALLEY
Upper Valley hereby represents and warrants to First
Jermyn that, except as specifically set forth in the Upper Valley
Disclosure Schedule (which Upper Valley Disclosure Schedule
qualifies and represents exceptions to all of the representations
and warranties of Upper Valley contained in this Agreement taken
as a whole and does not relate to particular representations and
warranties) delivered to First Jermyn by Upper Valley on the date
hereof:
Section 2.01 Organization.
(a) Upper Valley is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. Upper Valley is a bank holding
company duly registered under the BHC Act. Upper Valley has the
corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it. Upper
Valley is not qualified or licensed to do business as a foreign
corporation in any other jurisdiction and is not required to be
so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business except where
the failure to be so qualified or licensed would not have a
Material Adverse Effect.
(b) NBO is a national banking association duly
organized and validly existing under the laws of the United
States of America. NBO has the corporate power and authority to
carry on its business and operations as now being conducted and
to own and operate the properties and assets now owned and being
operated by it. Neither NBO nor any other Upper Valley
Subsidiary is qualified or licensed to do business as a foreign
corporation in any other jurisdiction and neither is required to
be so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business, except where
the failure to be so qualified or licensed would not have a
Material Adverse Effect.
(c) There are no Upper Valley Subsidiaries other
than NBO. There are no NBO Subsidiaries.
(d) The deposits of NBO are insured by the FDIC
to the extent provided in the Federal Deposit Insurance Act.
(e) The respective minute books of Upper Valley
and NBO and each other Upper Valley Subsidiary accurately record,
in all material respects, all material corporate actions of their
respective shareholders and boards of directors (including
committees) through the date of this Agreement.
(f) Prior to the date of this Agreement, Upper
Valley has delivered to First Jermyn true and correct copies of
the articles of incorporation and bylaws of Upper Valley and the
articles of association and bylaws of NBO as in effect on the
date hereof.
Section 2.02 Capitalization.
(a) The authorized capital stock of Upper Valley
consists of 2,000,000 shares of common stock, $0.50 par value
("Upper Valley Common Stock"), of which, at the date of this
Agreement, 1,000,599 shares are outstanding, validly issued,
fully paid and nonassessable and free of preemptive rights.
Neither Upper Valley nor NBO nor any other Upper Valley
Subsidiary has or is bound by any subscription, option, warrant,
call, commitment, agreement, plan or other Right of any character
relating to the purchase, sale or issuance or voting of, or right
to receive dividends or other distributions on any shares of
Upper Valley Common Stock or any other security of Upper Valley
or any securities representing the right to vote, purchase or
otherwise receive any shares of Upper Valley Common Stock or any
other security of Upper Valley, other than stock options
described in the Upper Valley Disclosure Schedule or in Note 10
to the audited financial statements included in Upper Valley's
1996 Annual Report to Shareholders.
(b) The authorized capital stock of NBO consists
of $100,000.00 divided into 5,000 shares of common stock, par
value $20.00 per share, all of the outstanding shares of which
are validly issued, fully paid, nonassessable, free of preemptive
rights and owned by Upper Valley. Neither Upper Valley nor any
Upper Valley Subsidiary has or is bound by any subscription,
option, warrant, call, commitment, agreement or other Right of
any character relating to the purchase, sale or issuance or
voting of, or right to receive dividends or other distributions
on any shares of the capital stock of any Upper Valley Subsidiary
or any other security of any Upper Valley Subsidiary or any
securities representing the right to vote, purchase or otherwise
receive any shares of the capital stock or any other security of
any Upper Valley Subsidiary. Either Upper Valley or NBO owns all
of the outstanding shares of capital stock of each Upper Valley
Subsidiary free and clear of all liens, security interests,
pledges, charges, encumbrances, agreements and restrictions of
any kind or nature.
(c) Neither (i) Upper Valley, (ii) NBO nor
(iii) any other Upper Valley Subsidiary, owns any equity
interest, directly or indirectly, treasury stock, in any other
company or controls any other company, except for equity
interests held in the investment portfolios of Upper Valley
Subsidiaries, equity interests held by Upper Valley Subsidiaries
in a fiduciary capacity, and equity interests held in connection
with the commercial loan activities of Upper Valley Subsidiaries.
There are no subscriptions, options, warrants, calls,
commitments, agreements or other Rights outstanding and held by
Upper Valley or NBO with respect to any other company's capital
stock or the equity of any other person.
(d) To Upper Valley's knowledge, without any
independent investigation, no person or "group" (as that term is
used in Section 13(d)(3) of the Exchange Act), is the beneficial
owner (as defined in Section 13(d) of the Exchange Act) of 5% or
more of the outstanding shares of Upper Valley Common Stock,
except as disclosed in reasonable detail (using the principles
described in Item 403 of the SEC's Regulation S-K) in the Upper
Valley Disclosure Schedule.
Section 2.03 Authority; No Violation.
(a) Upper Valley has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. NBO has full corporate
power and authority to execute and deliver the Bank Plan of
Merger and to consummate the Bank Merger. The execution and
delivery of this Agreement by Upper Valley and the consummation
by Upper Valley of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of Upper
Valley and, except for approval by the shareholders of Upper
Valley, no other corporate proceedings on the part of Upper
Valley are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by Upper Valley and, subject to approval of the
shareholders of Upper Valley and receipt of the required
approvals from Regulatory Authorities described in Section 3.04
hereof, constitutes the valid and binding obligation of Upper
Valley, enforceable against Upper Valley in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity. The Bank Plan
of Merger, upon its execution and delivery by NBO concurrently
with the execution and delivery of this Agreement, will
constitute the valid and binding obligation of NBO, enforceable
against NBO in accordance with its terms, subject to applicable
conservatorship or receivership provisions of the FDIA, or
insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of
equity.
(b) (A) The execution and delivery of this
Agreement by Upper Valley, (B) the execution and delivery of the
Bank Plan of Merger by NBO, (C) subject to receipt of approvals
from the Regulatory Authorities referred to in Section 3.04
hereof and Upper Valley's and First Jermyn's compliance with any
conditions contained therein, the consummation of the
transactions contemplated hereby, and (D) compliance by Upper
Valley or NBO with any of the terms or provisions hereof or of
the Bank Plan of Merger, will not (i) conflict with or result in
a breach of any provision of the articles of incorporation or
bylaws of Upper Valley or any Upper Valley Subsidiary or the
articles of association or bylaws of NBO; (ii) violate any
statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to Upper Valley or any
Upper Valley Subsidiary or any of their respective properties or
assets; or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default)
under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration
or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of Upper Valley
or any Upper Valley Subsidiary under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement, commitment or other
instrument or obligation to which Upper Valley or any Upper
Valley Subsidiary is a party, or by which they or any of their
respective properties or assets may be bound or affected, except
for such violations, conflicts, breaches or defaults under
clause (ii) or (iii) hereof which, either individually or in the
aggregate, will not have a Material Adverse Effect on Upper
Valley.
Section 2.04 Consents. Except for the consents,
approvals, filings and registrations from or with the Regulatory
Authorities referred to in Section 3.04 hereof and compliance
with any conditions contained therein, and the approval of this
Agreement by the shareholders of Upper Valley, and the approval
of the Bank Plan of Merger by Upper Valley as sole shareholder of
NBO under the FDIA, and by the NBO Board of Directors, no
consents or approvals of, or filings or registrations with, any
public body or authority are necessary, and no consents or
approvals of any third parties are necessary, or will be, in
connection with (a) the execution and delivery of this Agreement
by Upper Valley or the Bank Plan of Merger by NBO, and (b) the
completion by Upper Valley of the transactions contemplated
hereby or by NBO of the Bank Merger. Upper Valley has no reason
to believe that (i) any required consents or approvals will not
be received or will be received with conditions, limitations or
restrictions unacceptable to it or which would adversely impact
Upper Valley's ability to complete the transactions contemplated
by this Agreement or that (ii) any public body or authority, the
consent or approval of which is not required or any filing with
which is not required, will object to the completion of the
transactions contemplated by this Agreement.
Section 2.05 Financial Statements.
(a) Upper Valley has previously delivered, or
will deliver, to First Jermyn the Upper Valley Regulatory
Reports. The Upper Valley Regulatory Reports have been, or will
be, prepared in all material respects in accordance with
applicable regulatory accounting principles and practices
throughout the periods covered by such statements, and fairly
present, or will fairly present in all material respects, the
financial position, results of operations and changes in
shareholders' equity of Upper Valley as of and for the periods
ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
(b) Upper Valley has previously delivered to
First Jermyn the Upper Valley Financials. The Upper Valley
Financials have been, or will be, prepared in accordance with
generally accepted accounting principles and practices applied on
a consistent basis throughout the periods covered by such
statements, and fairly present, or will fairly present, the
consolidated financial position, results of operations and cash
flows of Upper Valley as of and for the periods ending on the
dates thereof, in accordance with generally accepted accounting
principles applied on a consistent basis.
(c) At the date of each balance sheet included in
the Upper Valley Financials or the Upper Valley Regulatory
Reports, neither Upper Valley nor NBO (as the case may be) had,
or will have, any liabilities, obligations or loss contingencies
of any nature (whether absolute, accrued, contingent or
otherwise) of a type required to be reflected in such Upper
Valley Financials or Upper Valley Regulatory Reports or in the
footnotes thereto which are not fully reflected or reserved
against therein or fully disclosed in a footnote thereto, except
for liabilities, obligations and loss contingencies which are not
material in the aggregate and which are incurred in the ordinary
course of business, consistent with past practice, and subject,
in the case of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
Section 2.06 Taxes.
(a) Upper Valley and the Upper Valley
Subsidiaries are members of the same affiliated group within the
meaning of IRC Section 1504(a). Upper Valley has duly filed, and
will file, all federal, state and local tax returns required to
be filed by or with respect to Upper Valley and all Upper Valley
Subsidiaries on or prior to the Closing Date (all such returns
being accurate and correct in all material respects) and has duly
paid or will pay, or made or will make, provisions for the
payment of all federal, state and local taxes which have been
incurred by or are due or claimed to be due from Upper Valley and
any Upper Valley Subsidiary by any taxing authority or pursuant
to any tax sharing agreement or arrangement (written or oral) on
or prior to the Closing Date other than taxes which (i) are not
delinquent or (ii) are being contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has
been filed (or will be filed prior to the Closing Date) by or
with respect to Upper Valley or any Upper Valley Subsidiary.
Section 2.07 No Material Adverse Effect. Upper Valley
has not suffered any Material Adverse Effect since December 31,
1996.
Section 2.08 Contracts.
(a) Except as described in Upper Valley's Annual
Reports to Shareholders for the years ended December 31, 1994,
1995 and 1996, previously delivered to First Jermyn, or in the
footnotes to the audited consolidated financial statements of
Upper Valley as of December 31, 1996, and for the three years
ended December 31, 1996, neither Upper Valley nor any Upper
Valley Subsidiary is a party to or subject to: (i) any
employment, consulting or severance contract or arrangement with
any past or present officer, director or employee of Upper Valley
or any Upper Valley Subsidiary, except for "at will"
arrangements; (ii) any plan, arrangement or contract providing
for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar arrangements for or with any
past or present officers, directors or employees of Upper Valley
or any Upper Valley Subsidiary; (iii) any collective bargaining
agreement with any labor union relating to employees of Upper
Valley or any Upper Valley Subsidiary; (iv) any agreement which
by its terms limits the payment of dividends by any Upper Valley
Subsidiary; (v) any instrument evidencing or related to
indebtedness for borrowed money whether directly or indirectly,
by way of purchase money obligation, conditional sale, lease
purchase, guaranty or otherwise, in respect of which Upper Valley
or any Upper Valley Subsidiary is an obligor to any person, which
instrument evidences or relates to indebtedness other than
deposits, repurchase agreements, bankers acceptances and
"treasury tax and loan" accounts established in the ordinary
course of business and transactions in "federal funds" or which
contains financial covenants or other restrictions (other than
those relating to the payment of principal and interest when due)
which would be applicable on or after the Closing Date to First
Jermyn or any First Jermyn Subsidiary; (vi) any contract (other
than this Agreement) limiting the freedom of any Upper Valley
Subsidiary to engage in any type of banking or bank-related
business permissible under law or (vii) any other material
contract.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 2.08(a) or
described in a footnote to such audited consolidated financial
statements, have been provided to First Jermyn on or before the
date hereof, are listed on the Upper Valley Disclosure Schedule
and are in full force and effect on the date hereof and neither
Upper Valley nor any Upper Valley Subsidiary (nor, to the
knowledge of Upper Valley, any other party to any such contract,
plan, arrangement or instrument) has breached any provision of,
or is in default in any respect under any term of, any such
contract, plan, arrangement or instrument which breach has
resulted in or will result in a Material Adverse Effect with
respect to Upper Valley. No party to any material contract,
plan, arrangement or instrument will have the right to terminate
any or all of the provisions of any such contract, plan,
arrangement or instrument as a result of the transactions
contemplated by this Agreement. None of the employees (including
officers) of Upper Valley or any Upper Valley Subsidiary, possess
the right to terminate their employment as a result of the
execution of this Agreement. No plan, employment agreement,
termination agreement, or similar agreement or arrangement to
which Upper Valley or any Upper Valley Subsidiary is a party or
under which Upper Valley or any Upper Valley Subsidiary may be
liable contains provisions which permit an employee or
independent contractor to terminate it without cause and continue
to accrue future benefits thereunder. No such agreement, plan or
arrangement (x) provides for acceleration in the vesting of
benefits or payments due thereunder upon the occurrence of a
change in ownership or control of Upper Valley or any Upper
Valley Subsidiary absent the occurrence of a subsequent event;
(y) provides for benefits which may cause the disallowance of a
federal income tax deduction under IRC Section 280G; or
(z) requires Upper Valley or any Upper Valley Subsidiary to
provide a benefit in the form of Upper Valley Common Stock or
determined by reference to the value of Upper Valley Common
Stock.
Section 2.09 Ownership of Property; Insurance
Coverage.
(a) Upper Valley and the Upper Valley
Subsidiaries have, or will have as to property acquired after the
date hereof, good and, as to real property, marketable title to
all assets and properties owned by Upper Valley or any Upper
Valley Subsidiary in the conduct of its business, whether such
assets and properties are real or personal, tangible or
intangible, including assets and property reflected in the
balance sheets contained in the Upper Valley Regulatory Reports
and in the Upper Valley Financials or acquired subsequent thereto
(except to the extent that such assets and properties have been
disposed of for fair value, in the ordinary course of business,
since the date of such balance sheets), subject to no
encumbrances, liens, mortgages, security interests or pledges,
except (i) those items that secure liabilities for borrowed money
and that are described in the Upper Valley Disclosure Schedule or
permitted under Article IV hereof and (ii) statutory liens for
amounts not yet delinquent or which are being contested in good
faith. Upper Valley and the Upper Valley Subsidiaries, as
lessee, have the right under valid and subsisting leases of real
and personal properties used by Upper Valley and its Subsidiaries
in the conduct of their businesses to occupy or use all such
properties as presently occupied and used by each of them.
(b) With respect to all agreements pursuant to
which Upper Valley or any Upper Valley Subsidiary has purchased
securities subject to an agreement to resell, if any, Upper
Valley or such Upper Valley Subsidiary, as the case may be, has a
valid, perfected first lien or security interest in the
securities or other collateral securing the repurchase agreement,
and the value of such collateral equals or exceeds the amount of
the debt secured thereby.
(c) Upper Valley and the Upper Valley
Subsidiaries currently maintain insurance in amounts considered
by Upper Valley to be reasonable for their respective operations
and similar in scope and coverage to that maintained by other
businesses similarly engaged. Neither Upper Valley nor any Upper
Valley Subsidiary has received notice from any insurance carrier
that (i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated or (ii) premium costs
with respect to such policies of insurance will be substantially
increased. There are presently no material claims pending under
such policies of insurance and no notices have been given by
Upper Valley or NBO under such policies. All such insurance is
valid and enforceable and in full force and effect, and within
the last three years Upper Valley has received each type of
insurance coverage for which it has applied and during such
periods has not been denied indemnification for any material
claims submitted under any of its insurance policies.
Section 2.10 Legal Proceedings. Neither Upper Valley
nor any Upper Valley Subsidiary is a party to any, and there are
no pending or, to the best of Upper Valley's knowledge,
threatened legal, administrative, arbitration or other
proceedings, claims (whether asserted or unasserted), actions or
governmental investigations or inquiries of any nature
(i) against Upper Valley or any Upper Valley Subsidiary, (ii) to
which Upper Valley or any Upper Valley Subsidiary's assets are or
may be subject, (iii) challenging the validity or propriety of
any of the transactions contemplated by this Agreement, or
(iv) which could adversely affect the ability of Upper Valley to
perform under this Agreement, except for any proceedings, claims,
actions, investigations or inquiries referred to in clauses (i)
or (ii) which, if adversely determined, individually or in the
aggregate, could not be reasonably expected to have a Material
Adverse Effect.
Section 2.11 Compliance With Applicable Law.
(a) Upper Valley and the Upper Valley
Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their
businesses under, and have complied in all material respects
with, applicable laws, statutes, orders, rules or regulations of
any federal, state or local governmental authority relating to
them, other than where such failure to hold or such noncompliance
will neither result in a limitation in any material respect on
the conduct of their businesses or otherwise have a Material
Adverse Effect.
(b) Neither Upper Valley nor any Upper Valley
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that Upper Valley or any
Upper Valley Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material
to Upper Valley or any Upper Valley Subsidiary; (iii) requiring
or threatening to require Upper Valley or any Upper Valley
Subsidiary, or indicating that Upper Valley or any Upper Valley
Subsidiary may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other
agreement restricting or limiting, or purporting to restrict or
limit, in any manner the operations of Upper Valley or any Upper
Valley Subsidiary, including without limitation any restriction
on the payment of dividends; or (iv) directing, restricting or
limiting, or purporting to direct, restrict or limit, in any
manner the operations of Upper Valley or any Upper Valley
Subsidiary, including without limitation any restriction on the
payment of dividends (any such notice, communication, memorandum,
agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Neither Upper Valley
nor any Upper Valley Subsidiary has consented to or entered into
any Regulatory Agreement, except as heretofore disclosed to First
Jermyn.
Section 2.12 ERISA. Upper Valley has previously
delivered to First Jermyn true and complete copies of all
employee pension benefit plans within the meaning of ERISA
Section 3(2), profit sharing plans, stock purchase plans,
deferred compensation and supplemental income plans, supplemental
executive retirement plans, employment agreements, annual or long
term incentive plans, settlement plans, policies and agreements,
group insurance plans, and all other employee welfare benefit
plans within the meaning of ERISA Section 3(1) (including
vacation pay, sick leave, short-term disability, long-term
disability, and medical plans) and all other employee benefit
plans, policies, agreements and arrangements ("Employee Benefit
Plans"), all of which are set forth in the Upper Valley
Disclosure Schedule, maintained or contributed to for the benefit
of the employees or former employees (including retired
employees) and any beneficiaries thereof or directors or former
directors of Upper Valley or any Upper Valley Subsidiary,
together with (i) the most recent actuarial (if any) and
financial reports relating to those plans which constitute
"qualified plans" under IRC Section 401(a), (ii) the most recent
annual reports relating to such plans filed by them,
respectively, with any government agency, and (iii) all rulings
and determination letters which pertain to any Upper Valley
Employee Benefit Plans. Neither Upper Valley nor any Upper
Valley Subsidiary, and no pension plan maintained by Upper Valley
or any Upper Valley Subsidiary, has incurred, directly or
indirectly, within the past six (6) years any liability under
Title IV of ERISA (including to the Pension Benefit Guaranty
Corporation) or to the IRS with respect to any pension plan
qualified under IRC Section 401(a) except liabilities to the
Pension Benefit Guaranty Corporation pursuant to ERISA
Section 4007, all of which have been fully paid, nor has any
reportable event under ERISA Section 4043(b) occurred with
respect to any such pension plan. With respect to each Upper
Valley Employee Benefit Plan that is subject to Title IV of
ERISA, the present value of the accrued benefits under such plan,
based upon the actuarial assumptions used for funding purposes in
the plan's most recent actuarial report did not, as of its latest
valuation date, exceed the then current value of the assets of
such plan allocable to such accrued benefits. With respect to
each Upper Valley Employee Benefit Plan, Upper Valley will have
made on or prior to the Closing Date, all payments required to be
made by it prior to the Closing Date and will have accrued as of
the Closing Date all payments due but not yet payable so that
there will not have been nor will there be any accumulated
funding deficiencies (as defined in ERISA or the Code) or waivers
of such deficiencies. Neither Upper Valley nor any Upper Valley
Subsidiary has incurred or is subject to any liability under
ERISA Section 4201 for a complete or partial withdrawal from a
multi-employer plan. All "employee benefit plans," as defined in
ERISA Section 3(3), comply, and within the past six (6) years
have complied, in all material respects with (i) relevant
provisions of ERISA and (ii), in the case of plans intended to
qualify for favorable income tax treatment, provisions of the IRC
relevant to such treatment. No prohibited transaction (which
shall mean any transaction prohibited by ERISA Section 406 and
not exempt under ERISA Section 408 or any transaction prohibited
under IRC Section 4975) has occurred within the past six (6)
years with respect to any employee benefit plan maintained by
Upper Valley or any Upper Valley Subsidiary that would result in
the imposition, directly or indirectly, of an excise tax under
IRC 4975 or other penalty under ERISA or the IRC, which,
individually or in the aggregate, has resulted in or will result
in a Material Adverse Effect with respect to Upper Valley. Upper
Valley and the Upper Valley Subsidiaries provide continuation
coverage under group health plans for separating employees and
"qualified beneficiaries" in accordance with the provisions of
IRC Section 4980B(f). Such group health plans are in compliance
with Section 1862(b)(1) of the Social Security Act. There are no
pending actions, claims or lawsuits which have been asserted or
instituted against any of Upper Valley's Employee Benefit Plans,
the assets of any of the trusts under such Plans, the plan
sponsor, the plan administrator or against any fiduciary of any
of Upper Valley's Employee Benefit Plans (other than routine
benefit claims) nor does Upper Valley have knowledge of facts
which could form the basis of any such action, claim or lawsuit.
There are no investigations or audits of any of Upper Valley's
Employee Benefit Plans, any trusts under such plans, the plan
sponsor, the plan administrator or any fiduciary of any of Upper
Valley's Employee Benefit Plans which have been threatened or
instituted nor does Upper Valley have knowledge of facts which
could form the basis for any such investigation or audit. No
event has occurred or will occur which will result in liability
to Upper Valley in connection with any Employee Benefit Plan
established, maintained, or contributed to (currently or
previously) by Upper Valley or by any other entity which,
together with Upper Valley, constitute elements of either (i) a
controlled group of corporations (within the meaning of IRC
Section 414(b)), (ii) a group of trades or businesses under
common control (within the meaning of IRC Sections 414(c) or
4001), (iii) an affiliated service group (within the meaning of
IRC Section 414(m), or (iv) another arrangement covered by IRC
Section 414(o).
Section 2.13 Brokers, Finders and Financial Advisors.
Neither Upper Valley nor any Upper Valley Subsidiary, nor any of
their respective officers, directors, employees or agents, has
employed any broker, finder or financial advisor in connection
with the transactions contemplated by this Agreement or in
connection with any transaction other than the Merger, or, except
for its commitments disclosed in Upper Valley Disclosure
Schedule, incurred any liability or commitment for any fees or
commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection with
any transaction other than the Merger, which has not been
reflected in the Upper Valley Financials.
Section 2.14 Environmental Matters. To the knowledge
of Upper Valley, neither Upper Valley nor any Upper Valley
Subsidiary, nor any properties owned or operated by Upper Valley
or any Upper Valley Subsidiary has been or is in violation of or
liable under any Environmental Law which violation or liability,
individually or in the aggregate, resulted in, or will result, in
a Material Adverse Effect with respect to Upper Valley. There
are no actions, suits or proceedings, or demands, claims, notices
or investigations (including without limitation notices, demand
letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of Upper
Valley, threatened, relating to the liability of any property
owned or operated by Upper Valley or any Upper Valley Subsidiary
under any Environmental Law.
Section 2.15 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the Upper Valley
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the Upper Valley Financials have been, and
will be, established in accordance with the requirements of
generally accepted accounting principles and all applicable
regulatory criteria. First Jermyn acknowledges that the
allowance for loan losses of Upper Valley as of September 30,
1997 reflected or to be reflected in the Upper Valley Regulatory
Reports and shown or to be shown on the balance sheets contained
in the Upper Valley Financials has been established in accordance
with the requirements of generally accepted accounting
principles.
Section 2.16 Information to be Supplied. The
information to be supplied by Upper Valley and NBO for inclusion
in the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is
declared effective pursuant to the Securities Act, contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not
misleading. The information supplied, or to be supplied, by
Upper Valley for inclusion in the Applications will, at the time
such documents are filed with any Regulatory Authority, be
accurate in all material aspects.
Section 2.17 Related Party Transactions. Except as
disclosed in the footnotes to the Upper Valley Financials, Upper
Valley is not a party to any transaction (including any loan or
other credit accommodation) with any Affiliate of Upper Valley
(except an Upper Valley Subsidiary). Any such transaction
(a) was made in the ordinary course of business, (b) was made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more
than the normal risk of collectability or present other
unfavorable features. No loan or credit accommodation to any
Affiliate of Upper Valley is presently in default or, during the
three year period prior to the date of this Agreement, has been
in default or has been restructured, modified or extended.
Neither Upper Valley nor NBO has been notified that principal and
interest with respect to any such loan or other credit
accommodation will not be paid when due or that the loan grade
classification accorded such loan or credit accommodation by NBO
is inappropriate.
Section 2.18 Schedule of Termination Benefits. The
Upper Valley Disclosure Schedule includes a schedule of a good
faith estimate of the present value as of December 31, 1997 of
termination benefits and related payments that would be payable
to the executive officers identified thereon, excluding any
options to acquire Upper Valley Common Stock granted to such
individuals, under any and all employment agreements, special
termination agreements, supplemental executive retirement plans,
deferred bonus plans, deferred compensation plans, salary
continuation plans, or any other pension benefit or welfare
benefit plan maintained by Upper Valley solely for the benefit of
officers of Upper Valley or Upper Valley Subsidiaries (the "Upper
Valley Benefits Schedule"), assuming their employment is
terminated as of December 31, 1997 and the Closing Date occurs
prior to such termination. No other individuals are entitled to
benefits under any such plans. The present value of the
termination benefits and related payments specified, including
required gross-up payments under Section 280G of the IRC, on the
Upper Valley Benefit Schedule with respect to each named
individual (based on a 6% per annum discount factor) is true and
correct in all material respects.
Section 2.19 Loans. Each loan reflected as an asset
in the Upper Valley Financial Statements (i) is evidenced by
notes, agreements or other evidences of indebtedness which are
true, genuine and correct (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 would not have a Material Adverse Effect on Upper
Valley.
Section 2.20 Quality of Representations. The
representations made by Upper Valley in this Agreement are true,
correct and complete in all material respects, and do not omit
statements necessary to make them not misleading under all facts
and circumstances.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST JERMYN
First Jermyn hereby represents and warrants to Upper
Valley that, except as set forth in the First Jermyn Disclosure
Schedule (which First Jermyn Disclosure Schedule qualifies and
represents exceptions to all of the representations and
warranties of First Jermyn contained in this Agreement taken as a
whole and does not relate solely to particular representations
and warranties) delivered by First Jermyn to Upper Valley on or
prior to the date hereof:
Section 3.01 Organization.
(a) First Jermyn is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. First Jermyn is a bank holding
company duly registered under the BHC Act. First Jermyn has the
corporate power and authority to carry on its business and
operations as now being conducted and to own and operate the
properties and assets now owned and being operated by it First
Jermyn is not qualified or licensed to do business as a foreign
corporation in any other jurisdiction and is not required to be
so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business, except where
the failure to be so qualified or licensed would not have a
Material Adverse Effect.
(b) FNBJ is a national banking association duly
organized and validly existing under the laws of the United
States of America. FNBJ has the corporate power and authority to
carry on its business and operations as now being conducted and
to own and operate the properties and assets now owned and being
operated by it. Neither FNBJ nor any other First Jermyn
Subsidiary is qualified or licensed to do business as a foreign
corporation in any other jurisdiction and neither is required to
be so qualified or licensed as the result of the ownership or
leasing of property or the conduct of its business, except where
the failure to be so qualified or licensed would not have a
Material Adverse Effect.
(c) There are no First Jermyn Subsidiaries other
than FNBJ or as disclosed in First Jermyn's Annual Report on
Form 10-K for the year ended December 31, 1996. There are no
FNBJ Subsidiaries.
(d) The deposits of FNBJ are insured by the FDIC
to the extent provided in the Federal Deposit Insurance Act.
(e) The respective minute books of First Jermyn
and FNBJ accurately record, in all material respects, all
material corporate actions of their respective shareholders and
boards of directors (including committees) through the date of
this Agreement.
(f) Prior to the execution of this Agreement,
First Jermyn has delivered to Upper Valley true and correct
copies of the articles of incorporation and the bylaws of First
Jermyn and the articles of association and bylaws of FNBJ as in
effect on the date hereof.
Section 3.02 Capital Structure.
(a) The authorized capital stock of First Jermyn
consists of (a) 2,500,000 shares of common stock, $1.25 par value
("First Jermyn Common Stock"), of which, at the date of this
Agreement, 15,205 shares are issued and held by First Jermyn as
treasury stock and 884,680 shares are outstanding, validly
issued, fully paid and nonassessable and free of preemptive
rights. Neither First Jermyn nor FNBJ nor any other First Jermyn
Subsidiary has or is bound by any subscription, option, warrant,
call, commitment, agreement, plan or other Right of any character
relating to the purchase, sale or issuance or voting of, or right
to receive dividends or other distributions on any shares of
First Jermyn Common Stock or any other security of First Jermyn
or any securities representing the right to vote, purchase or
otherwise receive any shares of First Jermyn Common Stock or any
other security of First Jermyn.
(b) The authorized capital stock of FNBJ consists
of 128,496 shares of common stock, par value $6.25 per share,
all of which shares are outstanding, validly issued, fully paid,
nonassessable, free of preemptive rights and owned by First
Jermyn. Neither First Jermyn nor any First Jermyn Subsidiary has
or is bound by any subscription, option, warrant, call,
commitment, agreement or other Right of any character relating to
the purchase, sale or issuance or voting of, or right to receive
dividends or other distributions on any shares of the capital
stock of any First Jermyn Subsidiary or any other security of any
First Jermyn Subsidiary or any securities representing the right
to vote, purchase or otherwise receive any shares of the capital
stock or any other security of any First Jermyn Subsidiary.
Either First Jermyn or FNBJ owns all of the outstanding shares of
capital stock of each First Jermyn Subsidiary free and clear of
all liens, security interests, pledges, charges, encumbrances,
agreements and restrictions of any kind or nature.
(c) Neither (i) First Jermyn, (ii) FNBJ nor
(iii) any other First Jermyn Subsidiary, owns any equity
interest, directly or indirectly, treasury stock, in any other
company or controls any other company, except for equity
interests held in the investment portfolios of First Jermyn
Subsidiaries, equity interests held by First Jermyn Subsidiaries
in a fiduciary capacity, equity interests held in connection with
the commercial loan activities of First Jermyn Subsidiaries, and
equity interests disclosed in First Jermyn's Annual Report on
Form 10-K for the year ended December 31, 1996. There are no
subscriptions, options, warrants, calls, commitments, agreements
or other Rights outstanding and held by First Jermyn or FNBJ with
respect to any other company's capital stock or the equity of any
other person.
(d) To First Jermyn's knowledge, without any
independent investigation, except as disclosed in First Jermyn's
proxy statement dated April 4, 1997, no person or "group" (as
that term is used in Section 13(d)(3) of the Exchange Act) is the
beneficial owner (as defined in Section 13(d) of the Exchange
Act) of 5% or more of the outstanding shares of First Jermyn
Common Stock.
Section 3.03 Authority; No Violation.
(a) First Jermyn has full corporate power and
authority to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. FNBJ has full corporate
power and authority to execute and deliver the Bank Plan of
Merger and to consummate the Bank Merger. The execution and
delivery of this Agreement by First Jermyn and the consummation
by First Jermyn of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors of First
Jermyn and, except for approval of the shareholders of First
Jermyn, no other corporate proceedings on the part of First
Jermyn are necessary to complete the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by First Jermyn and, subject to approval by the
shareholders of First Jermyn and receipt of the required
approvals of Regulatory Authorities described in Section 3.04
hereof, constitutes the valid and binding obligation of First
Jermyn, enforceable against First Jermyn in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity. The Bank Plan
of Merger, upon its execution and delivery by FNBJ concurrently
with the execution and delivery of this Agreement, will
constitute the valid and binding obligation of FNBJ, enforceable
against FNBJ in accordance with its terms, subject to applicable
conservatorship and receivership provisions of the FDIA, or
insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of
equity.
(b) (A) The execution and delivery of this
Agreement by First Jermyn, (B) the execution and delivery of the
Bank Plan of Merger by FNBJ, (C) subject to receipt of approvals
from the Regulatory Authorities referred to in Section 3.04
hereof and Upper Valley's and First Jermyn's compliance with any
conditions contained therein, the consummation of the
transactions contemplated hereby, and (D) compliance by First
Jermyn or FNBJ with any of the terms or provisions hereof or of
the Bank Plan of Merger will not (i) conflict with or result in a
breach of any provision of the articles of incorporation or
bylaws of First Jermyn or any First Jermyn Subsidiary or the
articles of association or bylaws of FNBJ; (ii) violate any
statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to First Jermyn or any
First Jermyn Subsidiary or any of their respective properties or
assets; or (iii) violate, conflict with, result in a breach of
any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default),
under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration
or the creation of any lien, security interest, charge or other
encumbrance upon any of the properties or assets of First Jermyn
or any First Jermyn Subsidiary under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or
obligation to which First Jermyn or FNBJ is a party, or by which
they or any of their respective properties or assets may be bound
or affected, except for such violations, conflicts, breaches or
defaults under clause (ii) or (iii) hereof which, either
individually or in the aggregate, will not have a Material
Adverse Effect on First Jermyn.
Section 3.04 Consents. Except for any required
consents, approvals, filings and registrations from or with the
FRB, the FDIC, the OCC, the SEC, and state "blue sky"
authorities, and compliance with any conditions contained
therein, and the approval of this Agreement by the shareholders
of First Jermyn, and the approval of the Bank Plan of Merger by
First Jermyn as sole shareholder of FNBJ under the FDIA, and by
the FNBJ Board of Directors, no consents or approvals of, or
filings or registrations with, any public body or authority are
necessary, and no consents or approvals of any third parties are
necessary, or will be, in connection with (a) the execution and
delivery of this Agreement by First Jermyn or the Bank Plan of
Merger by FNBJ, and (b) the completion by First Jermyn of the
transactions contemplated hereby or by FNBJ of the Bank Merger.
First Jermyn has no reason to believe that (i) any required
consents or approvals will not be received or will be received
with conditions, limitations or restrictions unacceptable to it
or which would adversely impact First Jermyn's ability to
complete the transactions contemplated by this Agreement or that
(ii) any public body or authority, the consent or approval of
which is not required or any filing with which is not required,
will object to the completion of the transactions contemplated by
this Agreement.
Section 3.05 Financial Statements.
(a) First Jermyn has previously delivered, or
will deliver, to Upper Valley the First Jermyn Regulatory
Reports. The First Jermyn Regulatory Reports have been, or will
be, prepared in all material respects in accordance with
applicable regulatory accounting principles and practices
throughout the periods covered by such statements, and fairly
present, or will fairly present in all material respects, the
financial position, results of operations and changes in
shareholders' equity of First Jermyn as of and for the periods
ended on the dates thereof, in accordance with applicable
regulatory accounting principles applied on a consistent basis.
(b) First Jermyn has previously delivered, or
will deliver, to Upper Valley the First Jermyn Financials. The
First Jermyn Financials have been, or will be, prepared in
accordance with generally accepted accounting principles and
practices applied on a consistent basis throughout the periods
covered by such statements, and fairly present, or will fairly
present, the consolidated financial position, results of
operations and cash flows of First Jermyn as of and for the
periods ending on the dates thereof, in accordance with generally
accepted accounting principles.
(c) At the date of each balance sheet included in
the First Jermyn Financials or the First Jermyn Regulatory
Reports, neither First Jermyn nor FNBJ (as the case may be) had
or will have any liabilities, obligations or loss contingencies
of any nature (whether absolute, accrued, contingent or
otherwise) of a type required to be reflected in such First
Jermyn Financials or the First Jermyn Regulatory Reports or in
the footnotes thereto which are not fully reflected or reserved
against therein or disclosed in a footnote thereto, except for
liabilities, obligations or loss contingencies which are not
material in the aggregate and which are incurred in the ordinary
course of business, consistent with past practice, and subject,
in the case of any unaudited statements, to normal, recurring
audit adjustments and the absence of footnotes.
Section 3.06 Taxes. (a) First Jermyn and the First
Jermyn Subsidiaries are members of the same affiliated group
within the meaning of IRC Section 1504(a). First Jermyn has duly
filed, and will file, all federal, state and local tax returns
required to be filed by or with respect to First Jermyn and all
First Jermyn Subsidiaries on or prior to the Closing Date (all
such returns being accurate and correct in all material respects)
and has duly paid or will pay, or made or will make, provisions
for the payment of all federal, state and local taxes which have
been incurred by or are due or claimed to be due from First
Jermyn and any First Jermyn Subsidiary by any taxing authority or
pursuant to any tax sharing agreement or arrangement (written or
oral) on or prior to the Closing Date other than taxes which
(i) are not delinquent or (ii) are being contested in good faith.
(b) No consent pursuant to IRC Section 341(f) has
been filed (or will be filed prior to the Closing Date) by or
with respect to First Jermyn or any First Jermyn Subsidiary.
Section 3.07 No Material Adverse Effect. First Jermyn
has not suffered any Material Adverse Effect since December 31,
1996.
Section 3.08 Contracts.
(a) Except as described in First Jermyn's Annual
Reports to Shareholders for the years ended December 31, 1994,
1995 and 1996, previously delivered to Upper Valley, or in the
footnotes to the audited consolidated financial statements of
First Jermyn as of December 31, 1996, and for the three years
ended December 31, 1996, neither First Jermyn nor any First
Jermyn Subsidiary is a party to or subject to: (i) any
employment, consulting or severance contract or arrangement with
any past or present officer, director or employee of First Jermyn
or any First Jermyn Subsidiary, except for "at will"
arrangements; (ii) any plan, arrangement or contract providing
for bonuses, pensions, options, deferred compensation, retirement
payments, profit sharing or similar arrangements for or with any
past or present officers, directors or employees of First Jermyn
or any First Jermyn Subsidiary; (iii) any collective bargaining
agreement with any labor union relating to employees of First
Jermyn or any First Jermyn Subsidiary; (iv) any agreement which
by its terms limits the payment of dividends by any First Jermyn
Subsidiary; (v) any instrument evidencing or related to
indebtedness for borrowed money whether directly or indirectly,
by way of purchase money obligation, conditional sale, lease
purchase, guaranty or otherwise, in respect of which First Jermyn
or any First Jermyn Subsidiary is an obligor to any person, which
instrument evidences or relates to indebtedness other than
deposits, repurchase agreements, bankers acceptances and
"treasury tax and loan" accounts established in the ordinary
course of business and transactions in "federal funds;" (vi) any
contract (other than this Agreement) limiting the freedom of any
First Jermyn Subsidiary to engage in any type of banking or
bank-related business permissible under law or (vii) any other
material contract.
(b) True and correct copies of agreements, plans,
arrangements and instruments referred to in Section 3.08(a) or
described in a footnote to such audited consolidated financial
statements, have been provided to Upper Valley on or before the
date hereof, are listed on the First Jermyn Disclosure Schedule
and are in full force and effect on the date hereof and neither
First Jermyn nor any First Jermyn Subsidiary (nor, to the
knowledge of First Jermyn, any other party to any such contract,
plan, arrangement or instrument) has breached any provision of,
or is in default in any respect under any term of, any such
contract, plan, arrangement or instrument which breach has
resulted in or will result in a Material Adverse Effect with
respect to First Jermyn. No party to any material contract,
plan, arrangement or instrument will have the right to terminate
any or all of the provisions of any such contract, plan,
arrangement or instrument as a result of the transactions
contemplated by this Agreement. None of the employees (including
officers) of First Jermyn or any First Jermyn Subsidiary, possess
the right to terminate their employment as a result of the
execution of this Agreement. No plan, employment agreement,
termination agreement, or similar agreement or arrangement to
which First Jermyn or any First Jermyn Subsidiary is a party or
under which First Jermyn or any First Jermyn Subsidiary may be
liable contains provisions which permit an employee or
independent contractor to terminate it without cause and continue
to accrue future benefits thereunder. No such agreement, plan or
arrangement (x) provides for acceleration in the vesting of
benefits or payments due thereunder upon the occurrence of a
change in ownership or control of First Jermyn or any First
Jermyn Subsidiary absent the occurrence of a subsequent event;
(y) provides for benefits which may cause the disallowance of a
federal income tax deduction under IRC Section 280G; or
(z) requires First Jermyn or any First Jermyn Subsidiary to
provide a benefit in the form of First Jermyn Common Stock or
determined by reference to the value of First Jermyn Common
Stock.
Section 3.09 Ownership of Property; Insurance
Coverage.
(a) First Jermyn and the First Jermyn
Subsidiaries have, or will have as to property acquired after the
date hereof, good and, as to real property, marketable title to
all assets and properties owned by First Jermyn or any First
Jermyn Subsidiary in the conduct of its business, whether such
assets and properties are real or personal, tangible or
intangible, including assets and property reflected in the
balance sheets contained in the First Jermyn Regulatory Reports
and in the First Jermyn Financials or acquired subsequent thereto
(except to the extent that such assets and properties have been
disposed of for fair value, in the ordinary course of business,
since the date of such balance sheets), subject to no
encumbrances, liens, mortgages, security interests or pledges,
except (i) those items that secure liabilities for borrowed money
and that are described in the First Jermyn Disclosure Schedule or
permitted under Article IV hereof and (ii) statutory liens for
amounts not yet delinquent or which are being contested in good
faith. First Jermyn and the First Jermyn Subsidiaries, as
lessee, have the right under valid and subsisting leases of real
and personal properties used by First Jermyn and its Subsidiaries
in the conduct of their businesses to occupy and use all such
properties as presently occupied and used by each of them.
(b) With respect to all agreements pursuant to
which First Jermyn or any First Jermyn Subsidiary has purchased
securities subject to an agreement to resell, if any, First
Jermyn or such First Jermyn Subsidiary, as the case may be, has a
valid, perfected first lien or security interest in the
securities or other collateral securing the repurchase agreement,
and the value of such collateral equals or exceeds the amount of
the debt secured thereby.
(c) First Jermyn and the First Jermyn
Subsidiaries currently maintain insurance in amounts considered
by First Jermyn to be reasonable for their respective operations
and similar in scope and coverage to that maintained by other
businesses similarly engaged. Neither First Jermyn nor any First
Jermyn Subsidiary has received notice from any insurance carrier
that (i) such insurance will be cancelled or that coverage
thereunder will be reduced or eliminated or (ii) premium costs
with respect to such insurance will be substantially increased.
There are presently no material claims pending under such
policies of insurance and no notices have been given by First
Jermyn or FNBJ under such policies. All such insurance is valid
and enforceable and in full force and effect, and within the last
three years First Jermyn has received each type of insurance
coverage for which it has applied and during such periods has not
been denied indemnification for any material claims submitted
under any of its insurance policies.
Section 3.10 Legal Proceedings. Neither First Jermyn
nor any First Jermyn Subsidiary is a party to any, and there are
no pending or, to the best of First Jermyn's knowledge,
threatened legal, administrative, arbitration or other
proceedings, claims (whether asserted or unasserted), actions or
governmental investigations or inquiries of any nature
(i) against First Jermyn or any First Jermyn Subsidiary, (ii) to
which First Jermyn's or any First Jermyn Subsidiary's assets are
or may be subject, (iii) challenging the validity or propriety of
any of the transactions contemplated by this Agreement, or
(iv) which could adversely affect the ability of First Jermyn to
perform under this Agreement, except for any proceedings, claims,
actions, investigations or inquiries referred to in clauses (i)
or (ii) which, individually or in the aggregate, could not be
reasonably expected to have a Material Adverse Effect.
Section 3.11 Compliance With Applicable Law.
(a) First Jermyn and the First Jermyn
Subsidiaries hold all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their
businesses under, and have complied in all material respects
with, applicable laws, statutes, orders, rules or regulations of
any federal, state or local governmental authority relating to
them, other than where such failure to hold or such noncompliance
will neither result in a limitation in any material respect on
the conduct of their businesses nor otherwise have a Material
Adverse Effect.
(b) Neither First Jermyn nor any First Jermyn
Subsidiary has received any notification or communication from
any Regulatory Authority (i) asserting that First Jermyn or any
First Jermyn Subsidiary is not in compliance with any of the
statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization which is material
to First Jermyn or any First Jermyn Subsidiary; (iii) requiring
or threatening to require First Jermyn or any First Jermyn
Subsidiary, or indicating that First Jermyn or any First Jermyn
Subsidiary may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other
agreement restricting or limiting, or purporting to restrict or
limit, in any manner the operations of First Jermyn or any First
Jermyn Subsidiary, including without limitation any restriction
on the payment of dividends; or (iv) directing, restricting or
limiting, or purporting to direct, restrict or limit, in any
manner the operations of First Jermyn or any First Jermyn
Subsidiary, including without limitation any restriction on the
payment of dividends (any such notice, communication, memorandum,
agreement or order described in this sentence is hereinafter
referred to as a "Regulatory Agreement"). Neither First Jermyn
nor any First Jermyn Subsidiary has consented to or entered into
any Regulatory Agreement, except as heretofore disclosed to Upper
Valley.
Section 3.12 ERISA. First Jermyn has previously made
available to Upper Valley true and complete copies of the First
Jermyn Employee Benefit Plans, all of which are set forth on the
First Jermyn Disclosure Schedule, maintained or contributed to
for the benefit of the employees or former employees (including
retired employees) and any beneficiaries thereof or directors or
former directors of First Jermyn or any First Jermyn Subsidiary,
together with (i) the most recent actuarial (if any) and
financial reports relating to those plans which constitute
"qualified plans" under IRC Section 401(a), (ii) the most recent
annual reports relating to such plans filed by them,
respectively, with any government agency, and (iii) all rulings
and determination letters which pertain to any First Jermyn
Employee Benefit Plans. Neither First Jermyn nor any First
Jermyn Subsidiary, and no pension plan maintained by First Jermyn
or any First Jermyn Subsidiary, has incurred, directly or
indirectly, within the past six (6) years any liability under
Title IV of ERISA (including to the Pension Benefit Guaranty
Corporation) or to the IRS with respect to any pension plan
qualified under IRC Section 401(a) except liabilities to the
Pension Benefit Guaranty Corporation pursuant to ERISA Section
4007, all of which have been fully paid, nor has any reportable
event under ERISA Section 4043(b) occurred with respect to any
such pension plan. With respect to each First Jermyn Employee
Benefit Plan that is subject to Title IV of ERISA, the present
value of the accrued benefits under such plan, based upon the
actuarial assumptions used for funding purposes in the plan's
most recent actuarial report did not, as of its latest valuation
date, exceed the then current value of the assets of such plan
allocable to such accrued benefits. With respect to each First
Jermyn Employee Benefit Plan, First Jermyn will have made on or
prior to the Closing Date, all payments required to be made by it
prior to the Closing Date and will have accrued as of the Closing
Date all payments due but not yet payable so that there will not
have been nor will there be any accumulated funding deficiencies
(as defined in ERISA or the Code) or waives of such deficiencies.
Neither First Jermyn nor any First Jermyn Subsidiary has incurred
or is subject to any liability under ERISA Section 4201 for a
complete or partial withdrawal from a multi-employer plan. All
"employee benefit plans," as defined in ERISA Section 3(3),
comply, and in the past six (6) years have complied, in all
material respects with (i) relevant provisions of ERISA and
(ii), in the case of plans intended to qualify for favorable
income tax treatment, provisions of the IRC relevant to such
treatment. No prohibited transaction (which shall mean any
transaction prohibited by ERISA Section 406 and not exempt under
ERISA Section 408 or any transaction prohibited under IRC
Section 4975) has occurred within the past six (6) years with
respect to any employee benefit plan maintained by First Jermyn
or any First Jermyn Subsidiary that would result in the
imposition, directly or indirectly, of an excise tax under IRC
Section 4975 or other penalty under ERISA or the IRC, which
individually or in the aggregate, has resulted in or will result
in a Material Adverse Effect with respect to First Jermyn. First
Jermyn and the First Jermyn Subsidiaries provide continuation
coverage under group health plans for separating employees and
"qualified beneficiaries" in accordance with the provisions of
IRC Section 4980B(f). Such group health plans are in compliance
with Section 1862(b)(1) of the Social Security Act. There are no
pending actions, claims or lawsuits which have been asserted or
instituted against any of First Jermyn's Employee Benefit Plans,
the assets of any of the trusts under such Plans, the plan
sponsor, the plan administrator or against any fiduciary of any
of First Jermyn's Employee Benefit Plans (other than routine
benefit claims) nor does First Jermyn have knowledge of facts
which could form the basis of any such action, claim or lawsuit.
There are no investigations or audits of any of First Jermyn's
Employee Benefit Plans, any trusts under such plans, the plan
sponsor, the plan administrator or any fiduciary of any of First
Jermyn's Employee Benefit Plans which have been threatened or
instituted nor does First Jermyn's have knowledge of facts which
could form the basis for any such investigation or audit. No
event has occurred or will occur which will result in liability
to First Jermyn in connection with any Employee Benefit Plan
established, maintained, or contributed to (currently or
previously) by First Jermyn or by any other entity which,
together with First Jermyn, constitute elements of either (i) a
controlled group of corporations (within the meaning of IRC
Section 414(b)), (ii) a group of trades or businesses under
common control (within the meaning of IRC Sections 414(c) or
4001), (iii) an affiliated service group (within the meaning of
IRC Section 414(m), or (iv) another arrangement covered by IRC
Section 414(o).
Section 3.13 Securities Documents. First Jermyn has
delivered, or will deliver, to Upper Valley copies of its
(i) annual reports on SEC Form 10-K for the years ended
December 31, 1996, 1995, and 1994, (ii) quarterly reports on SEC
Form 10-Q for the quarters ended June 30, 1997, March 31, 1997,
September 30, 1996, June 30, 1996 and March 31, 1996, and
(iii) proxy statement dated April 5, 1997 used in connection with
its annual meeting of shareholders held in May 1997. Such
reports and such proxy materials complied, at the time filed with
the SEC, in all material respects, with the Exchange Act and the
applicable rules and regulations of the SEC.
Section 3.14 Brokers and Finders. Neither First
Jermyn nor any First Jermyn Subsidiary, nor any of their
respective officers, directors, employees or agents, has employed
any broker, finder or financial advisor, or incurred any
liability for any fees or commissions to any such person, in
connection with the transactions contemplated by this Agreement
or in connection with any transaction other than the Merger, or,
except for its commitments disclosed in the First Jermyn
Disclosure Schedule, incurred any liability or commitment for any
fees or commissions to any such person in connection with the
transactions contemplated by this Agreement or in connection with
any transaction other than the Merger, which has not been
reflected in the First Jermyn Financials.
Section 3.15 Environmental Matters. To the knowledge
of First Jermyn, neither First Jermyn nor any First Jermyn
Subsidiary, nor any properties owned or operated by First Jermyn
or any First Jermyn Subsidiary has been or is in violation of or
liable under any Environmental Law which violation or liability,
individually or in the aggregate, resulted in or will result in a
Material Adverse Effect with respect to First Jermyn. There are
no actions, suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand
letters or requests for information from any environmental
agency) instituted or pending, or to the knowledge of First
Jermyn, threatened, relating to the liability of any property
owned or operated by First Jermyn or any First Jermyn Subsidiary
under any Environmental Law.
Section 3.16 Loan Portfolio. The allowance for loan
losses reflected, and to be reflected, in the First Jermyn
Regulatory Reports, and shown, and to be shown, on the balance
sheets contained in the First Jermyn Financials have been, and
will be, established in accordance with the requirements of
generally accepted accounting principles and all applicable
regulatory criteria. Upper Valley acknowledges that the
allowance for loan losses of First Jermyn as of September 30,
1997 reflected or to be reflected in the First Jermyn Regulatory
Reports and shown or to be shown on the balance sheets contained
in the First Jermyn Financials has been established in accordance
with the requirements of generally accepted accounting
principles.
Section 3.17 Information to be Supplied. The
information to be supplied by First Jermyn and FNBJ for inclusion
in the Registration Statement (including the Prospectus/Proxy
Statement) will not, at the time the Registration Statement is
declared effective pursuant to the Securities Act, contain any
untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein not
misleading. The information supplied, or to be supplied, by
First Jermyn for inclusion in the Applications will, at the time
such documents are filed with any Regulatory Authority, be
accurate in all material aspects.
Section 3.18 Related Party Transactions. Except as
disclosed in the footnotes to the First Jermyn Financials, First
Jermyn is not a party to any transaction (including any loan or
other credit accommodation) with any Affiliate of First Jermyn
(except a First Jermyn Subsidiary). Any such transaction (a) was
made in the ordinary course of business, (b) was made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other Persons, and (c) did not involve more
than the normal risk of collectability or present other
unfavorable features. No loan or credit accommodation to any
Affiliate of First Jermyn is presently in default or, during the
three year period prior to the date of this Agreement, has been
in default or has been restructured, modified or extended.
Neither First Jermyn nor FNBJ has been notified that principal
and interest with respect to any such loan or other credit
accommodation will not be paid when due or that the loan grade
classification accorded such loan or credit accommodation by FNBJ
is inappropriate.
Section 3.19 Schedule of Termination Benefits. The
First Jermyn Disclosure Schedule includes a schedule of a good
faith estimate of the present value as of December 31, 1997 of
termination benefits and related payments that would be payable
to the executive officers identified thereon, under any and all
employment agreements, special termination agreements,
supplemental executive retirement plans, deferred bonus plans,
deferred compensation plans, salary continuation plans, or any
other pension benefit or welfare benefit plan maintained by First
Jermyn solely for the benefit of officers of First Jermyn or
First Jermyn Subsidiaries (the "First Jermyn Benefits Schedule"),
assuming their employment is terminated as of December 31, 1997
and the Closing Date occurs prior to such termination. No other
individuals are entitled to benefits under any such plans. The
present value of the termination benefits and related payments
specified, including required gross-up payments under
Section 280G of the IRC, on the First Jermyn Benefit Schedule
with respect to each named individual (based on a 6% per annum
discount factor) is true and correct in all material respects.
Section 3.20 Loans. Each loan reflected as an asset
in the First Jermyn Financial Statements (i) is evidenced by
notes, agreements or other evidences of indebtedness which are
true, genuine and correct (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 would not have a Material Adverse Effect on First
Jermyn.
Section 3.21 Quality of Representations. The
representations made by First Jermyn in this Agreement are true,
correct and complete in all material respects and do not omit
statements necessary to make the representations not misleading
under the circumstances.
ARTICLE IV
COVENANTS OF THE PARTIES
Section 4.01 Conduct of Business.
(a) From the date of this Agreement to the
Closing Date, Upper Valley and each Upper Valley Subsidiary will
conduct its business and engage in transactions, including
extensions of credit, only in the ordinary course and consistent
with past practice and policies, except as otherwise required by
this Agreement or with the written consent of First Jermyn.
Upper Valley will use its reasonable good faith efforts, and will
cause NBO to use its reasonable good faith efforts, to
(i) preserve its business organizations intact, (ii) maintain
good relationships with employees, and (iii) preserve for itself
the good will of customers of Upper Valley and Upper Valley
Subsidiaries and others with whom business relationships exist.
From the date hereof to the Closing Date, except as otherwise
consented to or approved by First Jermyn in writing or as
permitted or required by this Agreement, Upper Valley will not,
and Upper Valley will not permit any Upper Valley Subsidiary to:
(i) amend or change any provision of its
articles of incorporation or association, charter, or
bylaws;
(ii) change the number of authorized or
issued shares of its capital stock or issue or grant any
option, warrant, call, commitment, subscription, Right or
agreement of any character relating to its authorized or
issued capital stock or any securities convertible into
shares of such stock, or split, combine or reclassify any
shares of capital stock, or declare, set aside or pay any
dividend or other distribution in respect of capital stock,
or redeem or otherwise acquire any shares of capital stock,
except that (A) Upper Valley may issue shares of Upper
Valley Common Stock upon the valid exercise, subject to the
terms of the letter agreement attached hereto as Exhibit 1,
of presently outstanding options to acquire Upper Valley
Common Stock under the Upper Valley Stock Option Plans and
(B) Upper Valley may pay a regular quarterly cash dividend,
not to exceed $.22 per share of Upper Valley Common Stock
outstanding; after the date of this Agreement, First Jermyn
and Upper Valley shall consult with and coordinate with the
other the payment of dividends with respect to First Jermyn
Common Stock and Upper Valley Common Stock and the record
and payment dates relating thereto, it being the intention
of First Jermyn and Upper Valley that holders of Upper
Valley Common Stock shall not receive two dividends, or fail
to receive one dividend, for any single calendar quarter
with respect to their shares of Upper Valley Common Stock;
subject to applicable regulatory restrictions, if any, NBO
may pay a cash dividend, in the aggregate, sufficient to
fund any dividend by Upper Valley permitted hereunder;
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of Upper Valley or Upper Valley Subsidiaries in
effect on the date hereof and provided to First Jermyn prior
to the date hereof) to, or enter into any new or amend any
existing employment agreement with, or increase the
compensation of, any employee, officer or director of Upper
Valley or any Upper Valley Subsidiary, except for routine
periodic increases, individually and in the aggregate, in
accordance with past practice, or hire or agree to hire any
additional employees, except for hiring in accordance with
past practice;
(iv) merge or consolidate Upper Valley or
any Upper Valley Subsidiary with any other corporation; sell
or lease all or any substantial portion of the assets or
business of Upper Valley or any Upper Valley Subsidiary;
make any acquisition of all or any substantial portion of
the business or assets of any other person, firm,
association, corporation or business organization other than
in connection with the collection of any loan or credit
arrangement between any Upper Valley Subsidiary and any
other person; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit
the revocation or surrender by any Upper Valley Subsidiary
of its certificate of authority to maintain, or file an
application for the relocation of, any existing branch
office, or file an application for a certificate of
authority to establish a new branch office;
(v) sell or otherwise dispose of the capital
stock of NBO or sell or otherwise dispose of any asset of
Upper Valley or of any Upper Valley Subsidiary other than in
the ordinary course of business consistent with past
practice or upon the valid exercise, subject to the terms of
the letter agreement attached hereto as Exhibit 1, of
presently outstanding options to acquire Upper Valley Common
Stock under the Upper Valley Stock Option Plans; subject any
asset of Upper Valley or of any Upper Valley Subsidiary to a
lien, pledge, security interest or other encumbrance (other
than in connection with deposits, repurchase agreements,
bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business and
transactions in "federal funds" and the satisfaction of
legal requirements in the exercise of trust powers) other
than in the ordinary course of business consistent with past
practice; incur any indebtedness for borrowed money (or
guarantee any indebtedness for borrowed money), except in
the ordinary course of business consistent with past
practice;
(vi) take any action which would result in
any of the representations and warranties of Upper Valley
set forth in this Agreement becoming untrue as of any date
after the date hereof or in any of the conditions set forth
in Article V hereof not being satisfied;
(vii) change any method, practice or
principle of accounting, except as may be required from time
to time by GAAP (without regard to any optional early
adoption date) or any Regulatory Authority responsible for
regulating Upper Valley or NBO;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which Upper Valley or any
Upper Valley Subsidiary is a party, other than in the
ordinary course of business, consistent with past practice;
(ix) implement any pension, retirement,
profit sharing, bonus, welfare benefit or similar plan or
arrangement that was not in effect on the date of this
Agreement, or materially amend any existing plan or
arrangement except to the extent such amendments do not
result in an increase in cost; provided, however, that Upper
Valley may contribute to the Upper Valley pension plan an
amount not to exceed the minimum amount required under ERISA
or the IRC only if (A) such amount is usual and ordinary,
consistent with past practice and (B) the full amount of
such contribution will be deductible by Upper Valley for
federal tax purposes;
(x) purchase any security for its investment
portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.,
except in the ordinary course of business consistent with
past practice;
(xi) make any new loan or other credit
facility commitment (including without limitation, lines of
credit and letters of credit) to any borrower or group of
affiliated borrowers in excess of $1,000,000 in the
aggregate, or increase, compromise, extend, renew or modify
any existing loan or commitment outstanding in excess of
$1,000,000, except for any commitment disclosed on the Upper
Valley Disclosure Schedule; provided that First Jermyn will
not unreasonably withhold its consent with respect to any
request by Upper Valley for permission to increase,
compromise, extend, renew or modify any loan subject to this
provision;
(xii) except as set forth on the Upper
Valley Disclosure Schedule, enter into, renew, extend or
modify any other transaction with any Affiliate other than
NBO;
(xiii) enter into any interest rate swap or
similar commitment, agreement or arrangement;
(xiv) except for the execution of this
Agreement, take any action that would give rise to a right
of payment to any individual under any employment agreement;
(xv) intentionally and knowingly take any
action that would preclude satisfaction of the condition to
closing contained in Section 5.02(k) relating to financial
accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for Upper Valley or
any Upper Valley Subsidiary to do any of the following: (i) make
any capital expenditure of $25,000 or more not disclosed on Upper
Valley Disclosure Schedule 4.01, without the prior written
consent of First Jermyn; (ii) make any sale, assignment,
transfer, pledge, hypothecation or other disposition of any
assets having a book or market value, whichever is greater, in
the aggregate in excess of $25,000, other than pledges of assets
to secure government deposits, to exercise trust powers, sales of
assets received in satisfaction of debts previously contracted in
the normal course of business, issuance of loans, or transactions
in the investment securities portfolio by Upper Valley or a Upper
Valley Subsidiary or repurchase agreements made, in each case, in
the ordinary course of business; or (iii) undertake or enter any
lease, contract or other commitment for its account, other than
in the normal course of providing credit to customers as part of
its banking business, involving a payment by Upper Valley or any
Upper Valley Subsidiary of more than $25,000 annually, or
containing a material financial commitment and extending beyond
12 months from the date hereof.
(b) From the date of this Agreement to the
Closing Date, First Jermyn and each First Jermyn Subsidiary will
conduct its business and engage in transactions, including
extensions of credit, only in the ordinary course of business and
consistent with past practice and policies, except as otherwise
required by this Agreement or with the written consent of Upper
Valley. First Jermyn will use its reasonable good faith efforts,
and will cause FNBJ to use its reasonable good faith efforts, to
(i) preserve its business organizations intact, (ii) maintain
good relationships with employees, and (iii) preserve for itself
the good will of customers of First Jermyn and First Jermyn
Subsidiaries and others with whom business relationships exist.
From the date hereof to the Closing Date, except as otherwise
consented to or approved by Upper Valley in writing or as
permitted or required by this Agreement, First Jermyn will not,
and First Jermyn will not permit any First Jermyn Subsidiary to:
(i) amend or change any provision of its
articles of incorporation or association, charter, or
bylaws, except as expressly contemplated by this Agreement;
(ii) change the number of authorized or
issued shares of its capital stock or issue or grant any
option, warrant, call, commitment, subscription, Right or
agreement of any character relating to its authorized or
issued capital stock or any securities convertible into
shares of such stock, or split, combine or reclassify any
shares of capital stock, or declare, set aside or pay any
dividend or other distribution in respect of capital stock,
or redeem or otherwise acquire any shares of capital stock,
except that First Jermyn may pay a regular semi-annual cash
dividend, not to exceed $.70 per share of First Jermyn
Common Stock outstanding; after the date of this Agreement,
First Jermyn and Upper Valley shall consult with and
coordinate with the other the payment of dividends with
respect to First Jermyn Common Stock and Upper Valley Common
Stock and the record and payment dates relating thereto, it
being the intention of First Jermyn and Upper Valley that
holders of Upper Valley Common Stock shall not receive two
dividends, or fail to receive one dividend, for any single
calendar quarter with respect to their shares of Upper
Valley Common Stock; subject to applicable regulatory
restrictions, if any, FNBJ may pay a cash dividend, in the
aggregate, sufficient to fund any dividend by First Jermyn
permitted hereunder;
(iii) grant any severance or termination pay
(other than pursuant to written policies or written
agreements of First Jermyn or First Jermyn Subsidiaries in
effect on the date hereof and provided to Upper Valley prior
to the date hereof) to, or enter into any new or amend any
existing employment agreement with, or increase the
compensation of, any employee, officer or director of First
Jermyn or any First Jermyn Subsidiary, except for routine
periodic increases, individually and in the aggregate, in
accordance with past practice, or hire any additional
employees, except in accordance with past practice;
(iv) merge or consolidate First Jermyn or
any First Jermyn Subsidiary with any other corporation; sell
or lease all or any substantial portion of the assets or
business of First Jermyn or any First Jermyn Subsidiary;
make any acquisition of all or any substantial portion of
the business or assets of any other person, firm,
association, corporation or business organization other than
in connection with the collection of any loan or credit
arrangement between any First Jermyn Subsidiary and any
other person; enter into a purchase and assumption
transaction with respect to deposits and liabilities; permit
the revocation or surrender by any First Jermyn Subsidiary
of its certificate of authority to maintain, or file an
application for the relocation of, any existing branch
office, or file an application for a certificate of
authority to establish a new branch office;
(v) sell or otherwise dispose of the capital
stock of FNBJ or sell or otherwise dispose of any asset of
First Jermyn or of any First Jermyn Subsidiary other than in
the ordinary course of business consistent with past
practice; subject any asset of First Jermyn or of any First
Jermyn Subsidiary to a lien, pledge, security interest or
other encumbrance (other than in connection with deposits,
repurchase agreements, bankers acceptances, "treasury tax
and loan" accounts established in the ordinary course of
business and transactions in "federal funds" and the
satisfaction of legal requirements in the exercise of trust
powers) other than in the ordinary course of business
consistent with past practice; incur any indebtedness for
borrowed money (or guarantee any indebtedness for borrowed
money), except in the ordinary course of business consistent
with past practice;
(vi) take any action which would result in
any of the representations and warranties of First Jermyn
set forth in this Agreement becoming untrue as of any date
after the date hereof or in any of the conditions set forth
in Article V hereof not being satisfied;
(vii) change any method, practice or
principle of accounting, except as may be required from time
to time by GAAP (without regard to any optional early
adoption date) or any Regulatory Authority responsible for
regulating First Jermyn or FNBJ;
(viii) waive, release, grant or transfer any
rights of value or modify or change in any material respect
any existing material agreement to which First Jermyn or any
First Jermyn Subsidiary is a party, other than in the
ordinary course of business, consistent with past practice;
(ix) implement any pension, retirement,
profit sharing, bonus, welfare benefit or similar plan or
arrangement that was not in effect on the date of this
Agreement, or materially amend any existing plan or
arrangement except to the extent such amendments do not
result in an increase in cost;
(x) purchase any security for its investment
portfolio not rated "A" or higher by either Standard &
Poor's Corporation or Moody's Investor Services, Inc.,
except in the ordinary course of business consistent with
past practice;
(xi) make any new loan or other credit
facility commitment (including without limitation, lines of
credit and letters of credit) to any borrower or group of
affiliated borrowers in excess of $1,000,000 in the
aggregate, or increase, compromise, extend, renew or modify
any existing loan or commitment outstanding in excess of
$1,000,000, except for any commitment disclosed on the First
Jermyn Disclosure Schedule; provided that Upper Valley will
not unreasonably withhold its consent with respect to any
request by First Jermyn for permission to increase,
compromise, extend, renew or modify any loan subject to this
provision;
(xii) except as set forth on the First
Jermyn Disclosure Schedule, enter into, renew, extend or
modify any other transaction with any Affiliate other than
FNBJ;
(xiii) enter into any interest rate swap or
similar commitment, agreement or arrangement;
(xiv) except for the execution of this
Agreement, take any action that would give rise to a right
of payment to any individual under any employment agreement;
(xv) intentionally and knowingly take any
action that would preclude satisfaction of the condition to
closing contained in Section 5.02(k) relating to financial
accounting treatment of the Merger; or
(xvi) agree to do any of the foregoing.
For purposes of this Section 4.01, it shall not be
considered in the ordinary course of business for First Jermyn or
any First Jermyn Subsidiary to do any of the following: (i) make
any capital expenditure of $25,000 or more not disclosed on First
Jermyn Disclosure Schedule 4.01, without the prior written
consent of Upper Valley; (ii) make any sale, assignment,
transfer, pledge, hypothecation or other disposition of any
assets having a book or market value, whichever is greater, in
the aggregate in excess of $25,000, other than pledges of assets
to secure government deposits, to exercise trust powers, sales of
assets received in satisfaction of debts previously contracted in
the normal course of business, issuance of loans, or transactions
in the investment securities portfolio by First Jermyn or a First
Jermyn Subsidiary or repurchase agreements made, in each case, in
the ordinary course of business; or (iii) undertake or enter any
lease, contract or other commitment for its account, other than
in the normal course of providing credit to customers as part of
its banking business, involving a payment by First Jermyn or any
First Jermyn Subsidiary of more than $25,000 annually, or
containing a material financial commitment and extending beyond
12 months from the date hereof.
Section 4.02 Access; Confidentiality.
(a) From the date of this Agreement through the
Closing Date, Upper Valley or First Jermyn, as the case may be,
shall afford to, and shall cause each Upper Valley Subsidiary or
First Jermyn Subsidiary to afford to, the other party and its
authorized agents and representatives, complete access to their
respective properties, assets, books and records and personnel,
at reasonable hours and after reasonable notice for the purpose
of undertaking a comprehensive due diligence investigation; and
the officers of Upper Valley and First Jermyn will furnish any
person making such investigation on behalf of the other party
with such financial and operating data and other information with
respect to the businesses, properties, assets, books and records
and personnel as the person making such investigation shall from
time to time reasonably request.
(b) Upper Valley and First Jermyn each agree to
conduct such investigation and discussions hereunder in a manner
so as not to interfere unreasonably with normal operations and
customer and employee relationships of the other party.
(c) In addition to the access permitted by
subparagraph (a) above, from the date of this Agreement through
the Closing Date, each of First Jermyn and Upper Valley shall
permit employees of the other reasonable access to and
participation in matters relating to problem loans, loan
restructurings and loan work-outs, provided that nothing
contained in this subparagraph shall be construed to grant First
Jermyn or Upper Valley or any of their respective employees any
final decision-making authority with respect to such matters.
(d) If the transactions contemplated by this
Agreement shall not be consummated, Upper Valley and First Jermyn
will each destroy or return all documents and records obtained
from the other party or its representatives, during the course of
its investigation and will cause all information with respect to
the other party obtained pursuant to this Agreement or
preliminarily thereto to be kept confidential, except to the
extent such information becomes public through no fault of the
party to whom the information was provided or any of its
representatives or agents and except to the extent disclosure of
any such information is legally required. Upper Valley and First
Jermyn shall each give prompt notice to the other party of any
contemplated disclosure where such disclosure is so legally
required.
Section 4.03 Regulatory Matters and Consents.
(a) First Jermyn and Upper Valley will prepare
all Applications and make all filings for, and use their best
efforts to obtain as promptly as practicable after the date
hereof, all necessary permits, consents, approvals, waivers and
authorizations of all Regulatory Authorities necessary or
advisable to consummate the transactions contemplated by this
Agreement.
(b) Upper Valley will furnish First Jermyn with
all information concerning Upper Valley and Upper Valley
Subsidiaries as may be necessary or advisable in connection with
any Application or filing made by or on behalf of First Jermyn to
any Regulatory Authority in connection with the transactions
contemplated by this Agreement.
(c) First Jermyn will promptly furnish Upper
Valley with copies of all material written communications to, or
received by First Jermyn or any First Jermyn Subsidiary from, any
Regulatory Authority in respect of the transactions contemplated
hereby.
(d) First Jermyn will furnish Upper Valley with
(i) copies of all Applications prior to filing with any
Regulatory Authority and provide Upper Valley a reasonable
opportunity to suggest changes to such Applications, which
suggested changes First Jermyn may, in its reasonable discretion
accept or reject, (ii) copies of all Applications filed by First
Jermyn and (iii) copies of all documents filed by First Jermyn
under the Exchange Act.
(e) Upper Valley will cooperate with First Jermyn
in the foregoing matters and will furnish First Jermyn with all
information concerning Upper Valley and Upper Valley Subsidiaries
as may be necessary or advisable in connection with any
Application or filing (including the Registration Statement and
any report filed with the SEC) made by or on behalf of First
Jermyn to any Regulatory Authority in connection with the
transactions contemplated by this Agreement, and such information
will be accurate and complete in all material respects. In
connection therewith, Upper Valley will provide certificates and
other documents reasonably requested by First Jermyn.
Section 4.04 Taking of Necessary Action.
(a) First Jermyn and Upper Valley shall each use
its best efforts in good faith, and each of them shall cause its
Subsidiaries to use their 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 Section 4.03
of this Agreement, and (ii) take or cause to be taken all action
necessary or desirable on its part using its best efforts so as
to permit completion of the Merger and the Bank Merger including,
without limitation, (A) obtaining the consent or approval of each
individual, partnership, corporation, association or other
business or professional entity whose consent or approval is
required or desirable for consummation of the transactions
contemplated hereby (including assignment of leases without any
change in terms), provided that neither Upper Valley nor any
Upper Valley Subsidiary shall agree to make any payments or
modifications to agreements in connection therewith without the
prior written consent of First Jermyn, and (B) requesting the
delivery of appropriate opinions, consents and letters from its
counsel and independent auditors. No party hereto shall take, or
cause, or to the best of its ability permit to be taken, any
action that would substantially impair the prospects of
completing the Merger and the Bank Merger pursuant to this
Agreement and the Bank Plan of Merger; provided that nothing
herein contained shall preclude First Jermyn or Upper Valley from
exercising its rights under this Agreement.
(b) Upper Valley and First Jermyn shall promptly
prepare a Prospectus/Proxy Statement to be mailed to their
respective shareholders in connection with the meetings of their
respective shareholders and transactions contemplated hereby, and
to be filed by First Jermyn with the SEC in the Registration
Statement, which Prospectus/Proxy statement shall conform in all
material respects to all applicable legal requirements. First
Jermyn shall, as promptly as practicable following the
preparation thereof, file the Registration Statement with the SEC
and Upper Valley and First Jermyn shall use all reasonable
efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such
filing. First Jermyn will advise Upper Valley, promptly after
First Jermyn receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or
the suspension of the qualification of the shares of capital
stock issuable pursuant to the Registration Statement, 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. First
Jermyn shall use its best efforts to obtain, prior to the
effective date of the Registration Statement, all necessary state
securities laws or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement. First
Jermyn will provide Upper Valley with as many copies of such
Registration Statement and all amendments thereto promptly upon
the filing thereof as Upper Valley may reasonably request.
Section 4.05 Certain Agreements.
(a) In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil,
criminal or administrative, whether or not brought by or in the
name of Upper Valley, 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 or employee of
Upper Valley or any of its Subsidiaries (the "Indemnified
Parties") is, or is threatened to be, made a party to a suit
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 Upper Valley, any of the Upper Valley's
Subsidiaries or any of their respective predecessors (including
in such person's capacity is a trustee of any pension plan of
Upper Valley or NBO) or (ii) this Agreement or any of the
transactions contemplated hereby, 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 to the maximum extent permitted by the BCL
and the Articles of Incorporation and Bylaws of Upper Valley. On
or after the Effective Date, First Jermyn shall indemnify, defend
and hold harmless all prior and then-existing directors and
officers of Upper Valley and NBO (including in such person's
capacity as a trustee of any pension plan of Upper Valley or
NBO), against (i) all losses, claims, damages, costs, expenses,
liabilities or judgments or amounts that are paid in settlement
(with the approval of First Jermyn which approval shall not be
unreasonably withheld) of or in connection with any claim,
action, suit, proceeding or investigation, whether or not brought
by or in the name of Upper Valley, based in whole or in part on
or arising in whole or in part out of the fact that such person
is or was a director, officer or employee of Upper Valley or any
Upper Valley Subsidiary, whether pertaining to any matter
existing or occurring at or prior to or after the Effective Date
and whether asserted or claimed prior to, or at or after, the
Effective Date ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising
in whole or in part out of, or pertaining to this Agreement or
the transactions contemplated hereby, to the same extent as such
officer, director or employee may be indemnified by Upper Valley
or NBO as of the date hereof including the right to advancement
of expenses, provided, however, that any such officer, director
or employee of Upper Valley or NBO may not be indemnified by
First Jermyn and/or FNBJ if such indemnification is prohibited by
applicable law.
(b) First Jermyn shall maintain Upper Valley's
existing directors' and officers' liability insurance policy (or
a policy providing comparable coverage amounts on terms generally
no less favorable, including First Jermyn's existing policy if it
meets the foregoing standard) covering persons who are currently
covered by such insurance for a period of five years after the
Effective Date; provided, however, that in no event shall First
Jermyn be obligated to expend, in order to maintain or provide
insurance coverage pursuant to this Section 4.05(b), any amount
per annum in excess of 150% of the amount of the annual premiums
paid as of the date hereof by Upper Valley for such insurance
(the "Maximum Amount"). If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds
the Maximum Amount, First Jermyn shall use all reasonable efforts
to maintain the most advantageous policies of directors' and
officers' insurance obtainable for an annual premium equal to the
Maximum Amount.
(c) First Jermyn agrees to honor and First Jermyn
agrees to cause FNBJ to honor all terms and conditions of all
existing employment contracts and special termination agreements
disclosed in the Upper Valley Disclosure Schedule.
Section 4.06 No Other Bids and Related Matters. So
long as this Agreement remains in effect, without the consent of
the other, each of First Jermyn and Upper Valley shall not, nor
shall either of them permit any Subsidiary or any other Affiliate
or any officer, director or employee of any of them, or any
investment banker, attorney, accountant or other representative
retained by either of them, any Subsidiary or any other Affiliate
to, directly or indirectly, solicit, encourage, initiate or
engage in discussions or negotiations with, or respond to
requests for information, inquiries, or other communications
from, any person other than the other concerning the fact of, or
the terms and conditions of, this Agreement, or concerning any
acquisition of First Jermyn or Upper Valley, any Subsidiary, or
any assets or business thereof (except that their respective
officers may respond to inquiries from analysts, Regulatory
Authorities and holders of First Jermyn Common Stock or Upper
Valley Common Stock, as the case may be, in the ordinary course
of business). Each of First Jermyn and Upper Valley shall notify
the other immediately if (i) any such discussions or negotiations
are sought to be initiated with them by any other person, or
(ii) if any such requests for information, inquiries, proposals
or communications are received from any other person, except
analysts, Regulatory Authorities and holders of First Jermyn
Common Stock or Upper Valley Common Stock in the ordinary course
of business.
Section 4.07 Duty to Advise; Duty to Update Upper
Valley's Disclosure Schedule. Upper Valley shall promptly advise
First Jermyn of any change or event having a Material Adverse
Effect on it or on any Upper Valley Subsidiary or which it
believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations,
warranties or covenants set forth herein. Upper Valley shall
update Upper Valley's Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in the Upper Valley
Disclosure Schedule. The delivery of such updated Disclosure
Schedule shall not relieve Upper Valley from any breach or
violation of this Agreement and shall not have any effect for the
purposes of determining the satisfaction of the condition set
forth in Sections 5.02(c) hereof.
Section 4.08 Board and Committee Minutes. Each of
First Jermyn and Upper Valley shall provide the other, within
30 days after any meeting of the Board of Directors of First
Jermyn or Upper Valley or any Subsidiary, or any committee
thereof, or any senior management committee, a copy of the
minutes of such meeting, except that with respect to any meeting
held within 30 days of the Closing Date, such minutes shall be
provided prior to the Closing Date.
Section 4.09 Additional Undertakings by First Jermyn
and Upper Valley.
(a) From and after the date of this Agreement,
Upper Valley shall:
(i) Approval of Bank Plan of Merger.
Approve the Bank Plan of Merger as sole shareholder of NBO
and obtain the approval of, and cause the execution and
delivery of, the Bank Plan of Merger by NBO;
(ii) Reserves and Merger-Related Costs. On
or before the Effective Date, establish such additional
accruals and reserves as may be necessary to conform the
accounting reserve practices and methods (including credit
loss practices and methods) of Upper Valley to those of
First Jermyn (as such practices and methods are to be
applied to Upper Valley from and after the Closing Date) and
First Jermyn's plans with respect to the conduct of the
business of Upper Valley following the Merger and otherwise
to reflect Merger-related expenses and costs incurred by
Upper Valley, provided, however, that Upper Valley shall not
be required to take such action (A) other than immediately
prior to Closing; and (B) unless First Jermyn agrees in
writing that all conditions to closing set forth in
Section 5.02 have been satisfied or waived (except for the
expiration of any applicable waiting periods); prior to the
delivery by First Jermyn of the writing referred to in the
preceding clause, Upper Valley shall provide First Jermyn a
written statement, certified without personal liability by
the chief executive officer of Upper Valley and dated the
date of such writing, that the representation made in
Section 2.15 hereof is true as of such date or,
alternatively, setting forth in detail the circumstances
that prevent such representation from being true as of such
date; and no accrual or reserve made by Upper Valley or any
Upper Valley Subsidiary pursuant to this subsection, or any
litigation or regulatory proceeding arising out of any such
accrual or reserve, shall constitute or be deemed to be a
breach or violation of any representation, warranty,
covenant, condition or other provision of this Agreement or
to constitute a termination event within the meaning of
Section 6.01 hereof.
(b) From and after the date of this Agreement,
First Jermyn shall:
(i) Approval of Bank Plan of Merger.
Approve the Bank Plan of Merger as sole shareholder of FNBJ
and obtain the approval of, and cause the execution and
delivery of, the Bank Plan of Merger.
(c) From and after the date of this Agreement,
First Jermyn and Upper Valley shall each:
(i) Shareholders Meetings. Submit this
Agreement to its shareholders for approval at a meeting to
be held as soon as practicable, and use their respective
best efforts to cause their Boards of Director to
unanimously recommend approval of this Agreement to their
respective shareholders;
(ii) Filings and Approvals. Cooperate with
the other in the preparation and filing, as soon as
practicable, of (A) the Applications, (B) the Registration
Statement and related filings under state securities laws
covering the First Jermyn Common Stock to be issued pursuant
to the Merger, (C) all other documents necessary to obtain
any other approvals and consents required to effect the
completion of the Merger and the Bank Merger, and (D) all
other documents contemplated by this Agreement;
(iii) Committee Meetings. Permit a
representative of the other, who is reasonably acceptable to
it, to attend all committee meetings of its management,
including, without limitation, any loan or asset/liability
committee. Each party shall respond reasonably and in good
faith to any request of the other to permit a
representative, who is reasonably acceptable to it, to
attend any meeting of its Board of Directors or the
Executive Committee thereof;
(iv) Public Announcements. Cooperate and
cause their respective officers, directors, employees and
agents to cooperate in good faith, consistent with their
respective legal obligations, in the preparation and
distribution of, and agree upon the form and substance of,
any press release related to this Agreement and the
transactions contemplated hereby, and any other public
disclosures related thereto, including without limitation
communications to their respective shareholders, internal
announcements and customer disclosures, but nothing
contained herein shall prohibit either party from making any
disclosure which its counsel deems legally necessary;
(v) Maintenance of Insurance. Maintain, and
cause their respective Subsidiaries to maintain, insurance
in such amounts as are reasonable to cover such risks as are
customary in relation to the character and location of its
properties and the nature of its business;
(vi) Maintenance of Books and Records.
Maintain, and cause their respective Subsidiaries to
maintain, books of account and records in accordance with
generally accepted accounting principles applied on a basis
consistent with those principles used in preparing the
financial statements heretofore delivered;
(vii) Delivery of Securities Documents.
Deliver to the other, copies of all Securities Documents
simultaneously with the filing thereof;
(viii) Taxes. File all federal, state, and
local tax returns required to be filed by them or their
respective Subsidiaries on or before the date such returns
are due (including any extensions) and pay all taxes shown
to be due on such returns on or before the date such payment
is due;
(ix) List of Nonperforming Assets. Provide
the other, within ten (10) days of the end of each calendar
month, a written list of its nonperforming assets (as
defined in Section 6.01(c) or 6.01(d), as the case may be)
as of the end of such month; and
(x) Timely Review. If requested by the
other at the requesting party's sole expense, cause its
independent certified public accountants to perform a review
of its unaudited consolidated financial statements as of the
end of any calendar quarter, in accordance with Statement of
Auditing Standards No. 71, and to issue their report on such
financial statements as soon as is practicable thereafter.
Section 4.10 Employee Benefits and Termination
Benefits.
(a) Employee Benefits. On and after the
Effective Date, the employee pension and welfare benefit plans of
First Jermyn and Upper Valley may, at First Jermyn's election and
subject to the requirements of the IRC, continue to be maintained
separately or consolidated, provided, however, that Upper Valley
employees shall receive benefits at least as favorable, in the
aggregate, as the benefits to which they were entitled on
December 31, 1996. In the event of a consolidation of any or all
of such plans or in the event of termination of the Upper Valley
benefit plans, Upper Valley and NBO employees shall receive
credit for service with Upper Valley or NBO under any First
Jermyn benefit plan, or new First Jermyn benefit plan in which
such employees would be eligible to enroll for purposes of
eligibility and vesting determination but not for purposes of
benefit accrual.
(b) Termination Benefits. Upper Valley shall
cause to be delivered to First Jermyn concurrently with the
execution of this Agreement with respect to each individual named
on the Upper Valley Benefits Schedule included in the Upper
Valley Disclosure Schedule, the written acknowledgment of each
such individual in the form attached hereto as Exhibit 5 pursuant
to which each such individual agrees and acknowledges that the
dollar amount set forth opposite such individual's name on such
Benefits Schedule is a good faith estimate of the entire amount
that would be due to such individual under any employment
agreement, special termination agreement, supplemental executive
retirement plan, deferred bonus plan, deferred compensation plan,
salary continuation plan, or any other benefit or welfare plan
maintained by Upper Valley solely for the benefit of officers of
Upper Valley or Upper Valley Subsidiaries assuming a termination
of such individual's employment on December 31, 1997, subsequent
to the Closing Date. Upper Valley and First Jermyn acknowledge
and agree that the amounts shown on the Upper Valley Benefits
Schedule and the letter of acknowledgement for each officer named
herein reflect a good faith estimate of the amounts that will be
payable to such individuals under the circumstances described and
may be subject to adjustment upon an actual termination of
employment in order to reflect increases in such individuals'
compensation and benefit plans consistent with past practices for
routine periodic increases.
Section 4.11 Duty to Advise; Duty to Update First
Jermyn's Disclosure Schedule. First Jermyn shall promptly advise
Upper Valley of any change or event having a Material Adverse
Effect on it or on any First Jermyn Subsidiary or which it
believes would or would be reasonably likely to cause or
constitute a material breach of any of its representations,
warranties or covenants set forth herein. First Jermyn shall
update First Jermyn's Disclosure Schedule as promptly as
practicable after the occurrence of an event or fact which, if
such event or fact had occurred prior to the date of this
Agreement, would have been disclosed in the First Jermyn
Disclosure Schedule. The delivery of such updated Disclosure
Schedule shall not relieve First Jermyn from any breach or
violation of this Agreement and shall not have any effect for the
purposes of determining the satisfaction of the condition set
forth in Sections 5.01(c) hereof.
ARTICLE V
CONDITIONS
Section 5.01 Conditions to Upper Valley's Obligations
under this Agreement. The obligations of Upper Valley hereunder
shall be subject to satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by Upper
Valley pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, First Jermyn and FNBJ to
authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by First Jermyn and FNBJ; and Upper Valley shall have
received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of
First Jermyn required by this Agreement to be performed by First
Jermyn at or prior to the Closing Date shall have been duly
performed and complied with in all material respects;
(c) Representations and Warranties. The
representations and warranties of First Jermyn set forth in this
Agreement shall be true and correct, as of the date of this
Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, constitute a Material Adverse
Effect with respect to First Jermyn;
(d) Approvals of Regulatory Authorities. First
Jermyn shall have received all required approvals of Regulatory
Authorities of the Merger, and delivered copies thereof to Upper
Valley; and all notice and waiting periods required thereunder
shall have expired or been terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since
December 31, 1996, there shall not have occurred any Material
Adverse Effect with respect to First Jermyn;
(g) Officer's Certificate. First Jermyn shall
have delivered to Upper Valley a certificate, dated the Closing
Date and signed, without personal liability, by its chairman or
president, to the effect that the conditions set forth in
subsections (a) through (e) of this Section 5.01 have been
satisfied, to the best knowledge of the officer executing the
same;
(h) Opinion of First Jermyn's Counsel. Upper
Valley shall have received an opinion of Stevens & Lee, counsel
to First Jermyn, dated the Closing Date, in form and substance
reasonably satisfactory to Upper Valley and its counsel to the
effect set forth on Exhibit 6 attached hereto;
(i) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained;
(j) Tax Opinion. Upper Valley shall have
received an opinion of Stevens & Lee, in form and substance
reasonably satisfactory to Upper Valley and its counsel to the
effect set forth on Exhibit 7 attached hereto;
(k) Approval of Upper Valley's Shareholders.
This Agreement shall have been approved by the shareholders of
Upper Valley by such vote as is required under Upper Valley's
articles of incorporation and bylaws and by law;
(l) Investment Banking Opinion. Upper Valley
shall have received an oral opinion from a financial adviser on
or before the date of this Agreement, and updated in writing as
of a date within five (5) days of mailing the Prospectus/Proxy
Statement, to the effect that the consideration to be received by
shareholders of Upper Valley pursuant to this Agreement is fair,
from a financial point of view, to such shareholders; and
(m) First Jermyn Articles of Incorporation and
Bylaws. The Articles of Incorporation and Bylaws of First Jermyn
shall have been amended to read in their entirety as set forth on
Exhibit 4.
(n) Pooling Letter. First Jermyn shall have
received an opinion from KPMG Peat Marwick, LLP to the effect
that the Merger will be treated as a "pooling of interests" for
financial accounting purposes;
(o) Upper Valley's Dissenting Shareholders.
Upper Valley shareholders owning 9% or more of the issued and
outstanding shares of Upper Valley Common Stock shall not have
asserted and duly perfected dissenters' rights with respect to
Upper valley Common Stock pursuant to the BCL;
Section 5.02 Conditions to First Jermyn's Obligations
under this Agreement. The obligations of First Jermyn hereunder
shall be subject to satisfaction at or prior to the Closing Date
of each of the following conditions, unless waived by First
Jermyn pursuant to Section 7.03 hereof:
(a) Corporate Proceedings. All action required
to be taken by, or on the part of, Upper Valley and NBO to
authorize the execution, delivery and performance of this
Agreement and the Bank Plan of Merger, respectively, and the
consummation of the transactions contemplated by this Agreement
and the Bank Plan of Merger, shall have been duly and validly
taken by Upper Valley and NBO; and First Jermyn shall have
received certified copies of the resolutions evidencing such
authorizations;
(b) Covenants. The obligations and covenants of
Upper Valley, required by this Agreement to be performed by it at
or prior to the Closing Date shall have been duly performed and
complied with in all material respects;
(c) Representations and Warranties. The
representations and warranties of Upper Valley set forth in this
Agreement shall be true and correct as of the date of this
Agreement, and as of the Closing Date as though made on and as of
the Closing Date, except as to any representation or warranty
(i) which specifically relates to an earlier date or (ii) where
the breach of the representation or warranty would not, either
individually or in the aggregate, result in a Material Adverse
Effect with respect to Upper Valley;
(d) Approvals of Regulatory Authorities. First
Jermyn shall have received all required approvals of Regulatory
Authorities for the Merger, without the imposition of any term or
condition that would have a Material Adverse Effect on First
Jermyn upon completion of the Merger; and all notice and waiting
periods required thereunder shall have expired or been
terminated;
(e) No Injunction. There shall not be in effect
any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits consummation of the
transactions contemplated hereby;
(f) No Material Adverse Effect. Since
December 31, 1996, there shall not have occurred any Material
Adverse Effect with respect to Upper Valley;
(g) Officer's Certificate. Upper Valley shall
have delivered to First Jermyn a certificate, dated the Closing
Date and signed, without personal liability, by its chairman of
the board or president, to the effect that the conditions set
forth in subsections (a) through (e) of this Section 5.02 have
been satisfied, to the best knowledge of the officer executing
the same;
(h) Opinions of Upper Valley's Counsel. First
Jermyn shall have received an opinion of Blank Rome Comisky &
McCauley, counsel to Upper Valley, dated the Closing Date, in
form and substance reasonably satisfactory to First Jermyn and
its counsel to the effect set forth on Exhibit 8 attached hereto;
(i) Registration Statement. The Registration
Statement shall be effective under the Securities Act and no
proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; and all required
approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement, shall
have been obtained;
(j) Tax Opinion. First Jermyn shall have
received an opinion of Stevens & Lee, its counsel, substantially
to the effect set forth on Exhibit 6 attached hereto;
(k) Approval of First Jermyn's Shareholders.
This Agreement shall have been approved by the shareholders of
First Jermyn by such vote as is required by law;
(l) Investment Banking Opinion. First Jermyn
shall have received an oral opinion from a financial advisor on
or before the date of this Agreement, and updated in writing as
of a date within five (5) days of mailing the Prospectus/Proxy
Statement, to the effect that the Merger is fair, from a
financial point of view, to the shareholders of First Jermyn;
(m) First Jermyn Articles of Incorporation and
Bylaws. The Articles of Incorporation and Bylaws of First Jermyn
shall have been amended to read in their entirety as set forth on
Exhibit 4;
(n) Pooling Letter. First Jermyn shall have
received an opinion from KPMG Peat Marwick, LLP to the effect
that the Merger will be treated as a "pooling of interests" for
financial accounting purposes;
(o) Upper Valley's Dissenting Shareholders.
Upper Valley shareholders owning 9% or more of the issued and
outstanding shares of Upper Valley common stock shall not have
asserted and duly perfected dissenters rights with respect to
Upper Valley common stock pursuant to the BCL;
(p) Advisor Fees. Upper Valley shall have
received a written acknowledgement from Fox-Pitt Kelton, Inc.
that no additional amounts are due for services performed for or
on behalf of Upper Valley or otherwise under the engagement
letters dated April 17, 1996 and July 9, 1996, respectively.
ARTICLE VI
TERMINATION, WAIVER AND AMENDMENT
Section 6.01 Termination. This Agreement may be
terminated on or at any time prior to the Closing Date:
(a) By the mutual written consent of the parties
hereto;
(b) By First Jermyn or Upper Valley:
(i) if, in the case of termination by Upper
Valley, there shall have been any breach of any
representation or warranty of First Jermyn which results in
a Material Adverse Effect with respect to First Jermyn, on
the one hand, or, in the case of termination by First
Jermyn, there shall have been any breach of any
representation or warranty of Upper Valley which results in
a Material Adverse Effect with respect to Upper Valley, on
the other hand, and such breach cannot be, or shall not have
been, remedied within 30 days after receipt by such other
party of notice in writing specifying the nature of such
breach and requesting that it be remedied;
(ii) if, in the case of termination by Upper
Valley, there shall have been any breach of any material
covenant or other obligation of First Jermyn, on the one
hand, or, in the case of termination by First Jermyn, there
shall have been any breach of any material covenant or other
obligation of Upper Valley, on the other hand, and such
breach cannot be, or shall not have been, remedied within 30
days after receipt by such other party of notice in writing
specifying the nature of such breach and requesting that it
be remedied;
(iii) if the Closing Date shall not have
occurred on or before June 30, 1998, unless the failure of
such occurrence shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe
its agreements set forth in this Agreement required to be
performed or observed by such party on or before the Closing
Date; or
(iv) if either party has been informed in
writing by a Regulatory Authority whose approval or consent
has been requested that such approval or consent is unlikely
to be granted, unless the failure of such occurrence shall
be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements set forth
herein required to be performed or observed by such party on
or before the Closing Date; or
(c) By First Jermyn, if the amount of
nonperforming assets of Upper Valley and the Upper Valley
Subsidiaries, at the Closing Date, increases by more than
$1,000,000 over the amount of such nonperforming assets as of
September 30, 1997 (the term "nonperforming assets," for purposes
of this subsection, means (i) loans that are "troubled debt
restructurings" (as defined in Statement of Financial Accounting
Standards 15) or loans which are otherwise restructured,
excluding, in each case, restructured loans the terms and
conditions of which were approved in writing in advance by First
Jermyn, (ii) loans on nonaccrual, including loans placed on
nonaccrual that may have been previously restructured with First
Jermyn's approval, (iii) real estate owned, and/or (iv) real
estate construction loans on interest reserve which have been
extended as to maturity at least once); or
(d) By Upper Valley, if the amount of
nonperforming assets of First Jermyn and the First Jermyn
Subsidiaries, at the Closing Date, increases by more than
$1,000,000 over the amount of such nonperforming assets as of
September 30, 1997 (the term "nonperforming assets," for purposes
of this subsection, means (i) loans that are "troubled debt
restructurings" (as defined in Statement of Financial Accounting
Standards 15) or loans which are otherwise restructured,
excluding, in each case, restructured loans the terms and
conditions of which were approved in writing in advance by Upper
Valley, (ii) loans on nonaccrual, including loans placed on
nonaccrual that may have been previously restructured with Upper
Valley's approval, (iii) real estate owned, and/or (iv) real
estate construction loans on interest reserve which have been
extended as to maturity at least once).
Section 6.02 Effect of Termination. If this Agreement
is terminated pursuant to Section 6.01 hereof, this Agreement
shall forthwith become void (other than Section 4.02(d),
Section 6.03 and Section 7.01 hereof, which shall remain in full
force and effect), and there shall be no further liability on the
part of First Jermyn or Upper Valley to the other, except for any
liability arising out of any breach of any covenant or other
agreement contained in this Agreement.
Section 6.03 Termination Fees.
(a) If, within 18 calendar months following the
date of termination of this Agreement, a Person other than First
Jermyn or an Affiliate of First Jermyn, enters into an agreement
with Upper Valley or NBO pursuant to which such Person or
Affiliate would (i) merge or consolidate, or enter into any
similar transaction, with Upper Valley or NBO, (ii) acquire all
or substantially all of the assets of Upper Valley or NBO, 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 Upper
Valley Common Stock or NBO common stock, then Upper Valley shall
immediately pay to First Jermyn a fee of $1.5 million, which fee
shall include reimbursement to First Jermyn for its costs and
expenses, including legal fees and expenses, incurred in
connection with this Agreement and the transactions contemplated
hereby. Nothing in this Section 6.03 shall constitute a waiver
or limitation, in whole or in part, of any legal or equitable
rights which First Jermyn may possess against any Person or
Affiliate relating to this Agreement or the Affiliate Agreement,
or relating to First Jermyn's relationship with Upper Valley or
for any act or omission of such Person or Affiliate, including
any tortious interference with this Agreement or the Affiliate
Agreement or otherwise wrongfully inducing or causing any breach
of any such agreement. The provisions of this Section 6.03(a)
shall not apply in the event of termination of this Agreement
pursuant to (i) Section 6.01(a), (ii) Section 6.01(b)(i) or (ii)
on account of an unremedied material breach by First Jermyn,
(iii) Section 6.01(b)(iii) or (iv) (unless in either case the
failure of such occurrence shall be due to the failure of Upper
Valley to perform or observe any of its agreements set forth in
this Agreement required to be performed or observed by Upper
Valley on or before the Closing Date), or (iv) Section 6.01(d).
(b) If, within 18 calendar months following the
date of termination of this Agreement, a Person other than Upper
Valley or an Affiliate of Upper Valley, enters into an agreement
with First Jermyn or FNBJ pursuant to which such Person or
Affiliate would (i) merge or consolidate, or enter into any
similar transaction, with First Jermyn or FNBJ, (ii) acquire all
or substantially all of the assets of First Jermyn or FNBJ, 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 First
Jermyn Common Stock or FNBJ common stock, then First Jermyn shall
immediately pay to Upper Valley a fee of $1.5 million, which fee
shall include reimbursement to Upper Valley for its costs and
expenses, including legal fees and expenses, incurred in
connection with this Agreement and the transactions contemplated
hereby. Nothing in this Section 6.03 shall constitute a waiver
or limitation, in whole or in part, of any legal or equitable
rights which Upper Valley may possess against any Person or
Affiliate relating to this Agreement or the Affiliate Agreement,
or relating to Upper Valley's relationship with First Jermyn or
for any act or omission of such Person or Affiliate, including
any tortious interference with this Agreement or the Affiliate
Agreement or otherwise wrongfully inducing or causing any breach
of any such agreement. The provisions of this Section 6.03(a)
shall not apply in the event of termination of this Agreement
pursuant to (i) Section 6.01(a), (ii) Section 6.01(b)(i) or (ii)
on account of an unremedied material breach by Upper Valley,
(iii) Section 6.01(b)(iii) or (iv) (unless in either case the
failure of such occurrence shall be due to the failure of First
Jermyn to perform or observe any of its agreements set forth in
this Agreement required to be performed or observed by Upper
Valley on or before the Closing Date), or (iv) Section 6.01(c).
(c) The provisions of this Section 6.03 shall not
apply in the event of a merger, consolidation or similar
transaction involving First Jermyn or Upper Valley, as the case
may be, in which (i) persons who were members of the Board of
Directors of First Jermyn or Upper Valley, as the case may be,
immediately prior to such termination continue to constitute at
least a majority of the members of the Board of Directors of the
surviving or resulting entity following completion of such
transaction and (ii) shareholders of First Jermyn or Upper
Valley, as the case may be, immediately prior to such transaction
continue to own at least a majority of the outstanding voting
securities of the surviving or resulting entity immediately
following completion of such transaction.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Expenses. Except for the cost of
printing and mailing the Proxy Statement/Prospectus which shall
be shared equally, each party hereto shall bear and pay all costs
and expenses incurred by it in connection with the transactions
contemplated hereby, including fees and expenses of its own
financial consultants, accountants and counsel.
Section 7.02 Non-Survival of Representations and
Warranties. All representations, warranties, agreements and
covenants set forth in this Agreement, shall terminate on the
Closing Date, except for covenants to be performed after the
Closing Date, which will continue until performed.
Section 7.03 Amendment, Extension and Waiver. Subject
to applicable law, at any time prior to the consummation of the
transactions contemplated by this Agreement, the parties may
(a) amend this Agreement, (b) extend the time for the performance
of any of the obligations or other acts of either party hereto,
(c) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto, or
(d) waive compliance with any of the agreements or conditions
contained in Articles IV and V hereof or otherwise. This
Agreement may not be amended except by an instrument in writing
authorized by the respective Boards of Directors and signed, by
duly authorized officers, on behalf of the parties hereto. Any
agreement on the part of a party hereto to any extension or
waiver shall be valid only if set forth in an instrument in
writing signed by a duly authorized officer on behalf of such
party, but such waiver or failure to insist on strict compliance
with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
Section 7.04 Entire Agreement. This Agreement,
including the documents and other writings referred to herein or
delivered pursuant hereto, contains the entire agreement and
understanding of the parties with respect to its subject matter.
This Agreement supersedes all prior arrangements and
understandings between the parties, both written or oral with
respect to its subject matter. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their
respective successors; provided, however, that nothing in this
Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto and their respective
successors, any rights, remedies, obligations or liabilities
other than pursuant to Sections 1.02(d)(i) and (iii), 1.02(f),
1.02(g), 4.05, and 4.10(a) and (b) with respect to
indemnification, employee benefits and certain other matters.
Section 7.05 No Assignment. Neither party hereto may
assign any of its rights or obligations hereunder to any other
person, without the prior written consent of the other party
hereto.
Section 7.06 Notices. All notices or other
communications hereunder shall be in writing and shall be deemed
given if delivered personally, mailed by prepaid registered or
certified mail (return receipt requested), or sent by telecopy,
addressed as follows:
(a) If to First Jermyn, to:
The First Jermyn Corp.
645 Washington Avenue
P.O. Box 39
Jermyn, Pennsylvania 18433-0039
Attention: William M. Davis, President and
Chief Executive Officer
Telecopy No.: (717) 876-5209
with a copy to:
Stevens & Lee
111 North Sixth Street
Reading, Pennsylvania 19601
Attention: Joseph M. Harenza, Esquire and
David W. Swartz, Esquire
Telecopy No.: (610) 376-5610
(b) If to Upper Valley, to:
Upper Valley Bancorp, Inc.
114-116 Lackawanna Avenue
Olyphant, Pennsylvania 18447-0010
Attention: Saul Kaplan
Chairman Emeritus
Telecopy No.: (717) 383-2710
with copies to:
Blank Rome Comisky & McCauley
One Logan Square
Philadelphia, Pennsylvania 19103
Attention: Frederick A. Lipman, Esquire
Telecopy No.: (215) 569-5628
Section 7.07 Captions. The captions contained in this
Agreement are for reference purposes only and are not part of
this Agreement.
Section 7.08 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.
Section 7.09 Severability. If any provision of this
Agreement or the application thereof to any person or
circumstance shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such
provisions to other persons or circumstances shall not be
affected thereby and shall be enforced to the greatest extent
permitted by law.
Section 7.10 Governing Law. This Agreement shall be
governed by and construed in accordance with the domestic
internal law (without regard to the law of conflicts of law) of
the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their duly authorized officers as of
the day and year first above written.
THE FIRST JERMYN CORP.
By /s/ William M. Davis
UPPER VALLEY BANCORP, INC.
By /s/ John W. Adonizio
<PAGE>
The following members of the Board of Directors of Upper
Valley hereby acknowledge, without personal liability with
respect to any representation, warranty, covenant or agreement
made by Upper Valley, their approval of the foregoing Agreement
this 15th day of October, 1997.
/s/ Saul Kaplan
/s/ Joseph P. Coviello
/s/ John W. Adonizio
/s/ Michael A. Barbetti
/s/ Fred J. Gentile
/s/ Harold S. Kaplan
/s/ George A. Pann
/s/ Norman E. Woodworth
<PAGE>
The following members of the Board of Directors of First
Jermyn hereby acknowledge, without personal liability with
respect to any representation, warranty, covenant or agreement
made by First Jermyn, their approval of the foregoing Agreement
this 15th day of October, 1997.
/s/ William K. Nasser, Jr. /s/ Peter A. Sabia
/s/ David M. Epstein /s/ I. Leo Moskovitz
/s/ Steven R. Tokach /s/ Robert T. Kelly
/s/ William M. Davis /s/ Thomas G. Speicher
/s/ Garfield G. Thomas /s/ Edmund J. Biancarelli
/s/ Kuzma Leschak, Jr.
<PAGE>
Exhibit 1
October 15, 1997
The First Jermyn Corp.
645 Washington Avenue
Jermyn, Pennsylvania 18433
Ladies and Gentlemen:
The First Jermyn Corp. ("First Jermyn") and Upper Valley
Bancorp, Inc. ("Upper Valley") desire to enter into an agreement
dated October 15, 1997 ("Agreement"), pursuant to which, subject
to the terms and conditions set forth therein, (a) Upper Valley
will merge with and into Jermyn with Jermyn surviving the merger,
and (b) shareholders of Upper Valley will receive common stock of
Jermyn in exchange for common stock of Upper Valley outstanding
on the closing date (the foregoing, collectively, referred to
herein as the "Merger").
First Jermyn has required, as a condition to its execution
and delivery to Upper Valley of the Agreement, that the
undersigned, being directors, executive officers and major
shareholders of Upper Valley, execute and deliver to First Jermyn
this Letter Agreement.
Each of the undersigned, in order to induce First Jermyn to
execute and deliver to Upper Valley the Agreement, hereby
irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of shareholders of Upper Valley called to vote for
approval of the Merger so that all shares of common stock of
Upper Valley then owned by the undersigned will be counted for
the purpose of determining the presence of a quorum at such
meetings and to vote all such shares in favor of approval and
adoption of the Agreement and the transactions contemplated
thereby (including any amendments or modifications of the terms
thereof approved by the Board of Directors of Upper Valley);
(b) Agrees not to vote or execute any written consent
to rescind or amend in any manner any prior vote or written
consent, as a shareholder of Upper Valley, to approve or adopt
the Agreement;
(c) Agrees not to take any actions that would prevent
or hinder the Merger from being consummated;
(d) Agrees not to solicit or initiate any negotiations
or discussions with any party other than First Jermyn with
respect to any offer, sale, transfer or other disposition of, any
shares of common stock of Upper Valley now or hereafter owned by
the undersigned;
(e) Agrees not to offer, sell, transfer or otherwise
dispose of any shares of common stock of First Jermyn received in
the Merger, except (i) at such time as a registration statement
under the Securities Act of 1933, as amended ("Securities Act")
covering sales of such First Jermyn common stock is effective and
a prospectus is made available under the Securities Act,
(ii) within the limits, and in accordance with the applicable
provisions of, Rule 145(d) under the Securities Act, or (iii) in
a transaction which, in the opinion of counsel satisfactory to
First Jermyn or as described in a "no-action" or interpretive
letter from the staff of the Securities and Exchange Commission
("SEC"), is not required to be registered under the Securities
Act; and acknowledges and agrees that First Jermyn is under no
obligation to register the sale, transfer or other disposition of
First Jermyn common stock by the undersigned or on behalf of the
undersigned, or to take any other action necessary to make an
exemption from registration available;
(f) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative
to, any shares of common stock of Upper Valley or of common stock
of First Jermyn, during the period commencing thirty days prior
to the effective date of the Merger and ending on the date on
which financial results covering at least thirty days of post-
Merger combined operations of First Jermyn and Upper Valley have
been published within the meaning of Section 201.01 of the SEC's
Codification of Financial Reporting Policies;
(g) Agrees that First Jermyn shall not be bound by any
attempted sale of any shares of First Jermyn common stock, and
First Jermyn's transfer agent shall be given an appropriate stop
transfer order and shall not be required to register any such
attempted sale, unless the sale has been effected in compliance
with the terms of this Letter Agreement; and further agrees that
the certificate representing shares of First Jermyn common stock
owned by the undersigned may be endorsed with a restrictive
legend consistent with the terms of this Letter Agreement;
(h) Acknowledges and agrees that the provisions of
subparagraphs (f), (g) and (h) hereof also apply to shares of
First Jermyn common stock received in the Merger (or any shares
of Upper Valley common stock or of First Jermyn common stock,
whether or not received in the Merger, for the period referred to
in subparagraph (g) above) owned by (i) his or her spouse,
(ii) any of his or her relatives or relatives of his or her
spouse occupying his or her home, (iii) any trust or estate in
which he or she, his or her spouse, or any such relative owns at
least a 10% beneficial interest or of which any of them serves as
trustee, executor or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, any
affiliate of the undersigned, his or her spouse, or any such
relative owns at least 10% of any class of equity securities or
of the equity interest;
(i) Represents that the undersigned has no plan or
intention to sell, exchange, or otherwise dispose of any shares
of common stock of First Jermyn to be received in the Merger
prior to expiration of the time period referred to in
subparagraph (g) hereof; and
(j) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate
concurrently with any termination of the Agreement.
________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
________________________
The undersigned intend to be legally bound hereby.
Sincerely,
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
<PAGE>
Exhibit 2
October 15, 1997
Upper Valley Bancorp, Inc.
114-116 Lackawanna Avenue
Olyphant, Pennsylvania 18447-0010
Ladies and Gentlemen:
The First Jermyn Corp. ("First Jermyn") and Upper Valley
Bancorp, Inc. ("Upper Valley") desire to enter into an agreement
dated October 15, 1997 ("Agreement"), pursuant to which, subject
to the terms and conditions set forth therein, (a) Upper Valley
will merge with and into Jermyn with Jermyn surviving the merger,
and (b) shareholders of Upper Valley will receive common stock of
Jermyn in exchange for common stock of Upper Valley outstanding
on the closing date (the foregoing, collectively, referred to
herein as the "Merger").
Upper Valley has required, as a condition to its execution
and delivery to First Jermyn of the Agreement, that the
undersigned, being directors, executive officers and major
shareholders of First Jermyn, execute and deliver to Upper Valley
this Letter Agreement.
Each of the undersigned, in order to induce Upper Valley to
execute and deliver to First Jermyn the Agreement, hereby
irrevocably:
(a) Agrees to be present (in person or by proxy) at
all meetings of shareholders of First Jermyn called to vote for
approval of the Merger so that all shares of common stock of
First Jermyn then owned by the undersigned will be counted for
the purpose of determining the presence of a quorum at such
meetings and to vote all such shares in favor of approval and
adoption of the Agreement and the transactions contemplated
thereby (including any amendments or modifications of the terms
thereof approved by the Board of Directors of First Jermyn);
(b) Agrees not to vote or execute any written consent
to rescind or amend in any manner any prior vote or written
consent, as a shareholder of First Jermyn, to approve or adopt
the Agreement;
(c) Agrees to use reasonable best efforts to cause the
Merger to be consummated;
(d) Notwithstanding the foregoing, agrees not to sell,
or in any other way reduce the risk of the undersigned relative
to, any shares of common stock of First Jermyn, during the period
commencing thirty days prior to the effective date of the Merger
and ending on the date on which financial results covering at
least thirty days of post-Merger combined operations of First
Jermyn and Upper Valley have been published within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting
Policies;
(e) Agrees that First Jermyn shall not be bound by any
attempted sale of any shares of First Jermyn common stock, and
First Jermyn's transfer agent shall be given an appropriate stop
transfer order and shall not be required to register any such
attempted sale, unless the sale has been effected in compliance
with the terms of this Letter Agreement.
(f) Acknowledges and agrees that the provisions of
subparagraphs (d), (e) and (f) hereof also apply to shares of
First Jermyn common stock for the period referred to in
subparagraph (e) above) owned by (i) his or her spouse, (ii) any
of his or her relatives or relatives of his or her spouse
occupying his or her home, (iii) any trust or estate in which he
or she, his or her spouse, or any such relative owns at least a
10% beneficial interest or of which any of them serves as
trustee, executor or in any similar capacity, and (iv) any
corporation or other organization in which the undersigned, any
affiliate of the undersigned, his or her spouse, or any such
relative owns at least 10% of any class of equity securities or
of the equity interest;
(g) Represents that the undersigned has no plan or
intention to sell, exchange, or otherwise dispose of any shares
of common stock of First Jermyn prior to expiration of the time
period referred to in subparagraph (e) hereof; and
(h) Represents that the undersigned has the capacity
to enter into this Letter Agreement and that it is a valid and
binding obligation enforceable against the undersigned in
accordance with its terms, subject to bankruptcy, insolvency and
other laws affecting creditors' rights and general equitable
principles.
The obligations set forth herein shall terminate
concurrently with any termination of the Agreement.
________________________
This Letter Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an
original, but all of which together shall constitute one and the
same Letter Agreement.
________________________
This Letter Agreement shall terminate concurrently with any
termination of the Agreement in accordance with its terms.
________________________
The undersigned intend to be legally bound hereby.
Sincerely,
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
<PAGE>
Exhibit 3
BANK PLAN OF MERGER
THIS BANK PLAN OF MERGER ("Plan of Merger") dated
October 15, 1997, is by and between THE FIRST NATIONAL BANK OF
JERMYN, a national banking association ("FNBJ"), and NBO NATIONAL
BANK, a national banking association ("NBO").
BACKGROUND
1. FNBJ is a national bank and a wholly-owned
subsidiary of The First Jermyn Corp., a Pennsylvania corporation
("First Jermyn"). The authorized capital stock of FNBJ consists
of 128,496 shares of common stock, par value $6.25 per share
("FNBJ Common Stock"), all of which at the date hereof are issued
and outstanding.
2. NBO is a national bank and a wholly-owned
subsidiary of Upper Valley Bancorp, Inc., a Pennsylvania
corporation ("Upper Valley"). The authorized capital stock of
NBO consists of 5,000 shares of common stock, par value $20.00
per share ("NBO Common Stock"), of which at the date hereof
__________ shares are issued and outstanding.
3. The respective Boards of Directors of FNBJ and NBO
deem the merger of NBO with and into FNBJ, pursuant to the terms
and conditions set forth or referred to herein, to be desirable
and in the best interests of the respective corporations and
their respective shareholders.
4. The respective Boards of Directors of FNBJ and NBO
have adopted resolutions approving this Plan of Merger. The
respective Boards of Directors of First Jermyn and Upper Valley
have adopted resolutions approving an Agreement dated October 15,
1997 (the "Agreement") between First Jermyn and Upper Valley,
pursuant to which this Plan of Merger is being executed by FNBJ
and NBO.
AGREEMENT
In consideration of the premises and of the mutual
covenants and agreements herein contained, and in accordance with
the applicable laws and regulations of the United States of
America, FNBJ and NBO, intending to be legally bound hereby,
agree:
ARTICLE I
MERGER; BUSINESS
1.1 Merger. Subject to the terms and conditions of
this Plan of Merger and in accordance with the applicable laws
and regulations of the United States of America, on the Effective
Date (as that term is defined in Article V hereof): NBO shall
merge with and into FNBJ; the separate existence of NBO shall
cease; and FNBJ shall be the surviving corporation (such
transaction referred to herein as the "Merger" and FNBJ, as the
surviving corporation in the Merger, referred to herein as the
"Surviving Bank").
1.2 Business. The business of the Surviving Bank
shall be conducted at its main office, which shall be located at
645 Washington Avenue, Jermyn, Pennsylvania 18433, and at its
legally established branches, which shall include all of the
branch office of FNBJ and NBO, and the main office of NBO prior
to the Effective Date.
ARTICLE II
CHARTER AND BYLAWS
On and after the Effective Date, the Articles of
Association and Bylaws of FNBJ, as in effect immediately prior to
the Effective Date, shall automatically be and remain the
Articles of Association and Bylaws of the Surviving Bank, until
altered, amended or repealed. Said Articles of Association are
set forth in an Appendix attached hereto and made a part hereof.
ARTICLE III
BOARD OF DIRECTORS AND OFFICERS
3.1 Board of Directors. On and after the Effective
Date, the directors of the Surviving Bank shall consist of the
following persons, who shall serve as such until their successors
have been elected and qualified: Michael A. Barbetti; Edmund J.
Biancharelli; Joseph P. Coviello; William M. Davis; David M.
Epstein; Fred J. Gentile; Harold S. Kaplan; Saul Kaplan;
Robert T. Kelly; Kuzma Leschak, Jr.; I. Leo Moskowvitz;
William K. Nasser, Jr.; Peter A. Sabia; Thomas G. Speicher;
Garfield G. Thomas; Steven R. Tokach; and Norman E. Woodworth.
Such persons shall continue to serve as directors, subject to any
applicable legal restrictions, during such time as they serve as
members of the Board of Directors of First Jermyn.
3.2 Officers. On and after the Effective Date, the
officers of the Surviving Bank shall consist of the officers of
FNBJ duly elected and holding office immediately prior to the
Effective Date, and John R. Adonizio shall be elected as an
Executive Vice President of the Surviving Bank effective as of
the Effective Date.
ARTICLE IV
CONVERSION OF SHARES
4.1 Stock of FNBJ. Each share of FNBJ Common Stock
issued and outstanding immediately prior to the Effective Date
shall, on and after the Effective Date, continue to be issued and
outstanding as a share of common stock of the Surviving Bank.
4.2 Stock of NBO. Each share of NBO Common Stock
issued and outstanding immediately prior to the Effective Date,
and each share of NBO Common Stock issued and held in the
treasury of Upper Valley as of the Effective Date, if any, shall,
on the Effective Date, be cancelled, and no cash, stock or other
property shall be delivered in exchange therefor.
ARTICLE V
EFFECTIVE DATE OF THE MERGER
The Merger shall be effective on the date and at the
time specified in the certificate to be issued by the Comptroller
of Currency approving this Merger (the "Effective Date").
ARTICLE VI
EFFECT OF THE MERGER
On the Effective Date: the separate existence of NBO
shall cease; and all of the property (real, personal and mixed),
rights, powers, duties and obligations of NBO shall be taken and
deemed to be transferred to and vested in the Surviving Bank,
without further act or deed, as provided by applicable laws and
regulations.
ARTICLE VII
CONDITIONS PRECEDENT
The obligations of FNBJ and NBO to effect the Merger
shall be subject to satisfaction, unless duly waived by the party
permitted to do so, of the conditions precedent set forth in the
Agreement.
ARTICLE VIII
TERMINATION
This Plan of Merger shall terminate upon any
termination of the Agreement in accordance with its terms;
provided, however, that any such termination of this Plan of
Merger shall not relieve any party hereto from liability on
account of a breach by such party of any of the terms hereof or
thereof.
ARTICLE IX
AMENDMENT
Subject to applicable law, this Plan of Merger may be
amended, by action of the respective Boards of Directors of the
parties hereto, at any time prior to consummation of the Merger,
but only by an instrument in writing signed by duly authorized
officers on behalf of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Extensions; Waivers. Each party, by a written
instrument signed by a duly authorized officer, may extend the
time for the performance of any of the obligations or other acts
of the other party hereto and may waive compliance with any of
the covenants, or performance of any of the obligations, of the
other party contained in this Plan of Merger.
10.2 Notices. Any notice or other communication
required or permitted under this Plan of Merger shall be given,
and shall be effective, in accordance with the provisions of
Section 7.06 of the Agreement.
10.3 Captions. The headings of the several Articles
and Sections herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning
or interpretation of, this Plan of Merger.
10.4 Counterparts. For the convenience of the parties
hereto, this Plan of Merger may be executed in several
counterparts, each of which shall be deemed the original, but all
of which together shall constitute one and the same instrument.
10.5 Governing Law. This Plan of Merger shall be
governed by and construed in accordance with the laws of the
United States of America and, in the absence of controlling
federal law, in accordance with the laws of the Commonwealth of
Pennsylvania.
IN WITNESS WHEREOF, FNBJ and NBO have caused this Bank
Plan of Merger to be executed by their duly authorized officers
and their corporate seals to be hereunto affixed on the date
first written above.
THE FIRST NATIONAL BANK OF JERMYN
By________________________________
NBO NATIONAL BANK
By________________________________
<PAGE>
Exhibit 4
RESTATED
ARTICLES OF INCORPORATION
OF
____________________________
"See Annex B"
<PAGE>
RESTATED
BYLAWS
OF
_________________________
"See Annex C"
<PAGE>
Exhibit 5
Form of Agreement Re: Benefits
October 15, 1997
The First Jermyn Corp.
645 Washington Avenue
Jermyn, Pennsylvania 18433
Gentlemen:
I, the undersigned, hereby acknowledge and agree that an
amount not to exceed $__________ is the maximum amount that I
would be entitled to receive from Upper Valley Bancorp, Inc.
("Upper Valley"), any Upper Valley subsidiary or any of their
respective successors or assigns pursuant to any employment
agreement, special termination agreement, supplemental executive
retirement plan, deferred compensation plan, salary continuation
plan, or any other benefit or welfare plan assuming that my
employment with Upper Valley or any Upper Valley subsidiary (or
any of their respective successors or assigns) is terminated for
any reason, whether voluntarily or involuntarily, on December 31,
1997, and following the Closing Date of the transaction described
in the Agreement and Plan of Merger dated as of October 15, 1997
between The First Jermyn Corp. and Upper Valley (the
"Agreement"). The amount shown above represents the total of all
amounts available for payment in an immediate lump-sum upon
termination and the present value, as of December 31, 1997 (based
on a 6% per annum discount factor) of all payments to be made on
a date or dates subsequent to the date of termination.
Sincerely,
<PAGE>
EXHIBIT 6
FORM OF OPINION OF COUNSEL TO FIRST JERMYN
Upper Valley shall have received from counsel to First
Jermyn, an opinion, dated as of the Closing Date, substantially
to the effect that, subject to customary exceptions and
qualifications:
(a) First Jermyn and FNBJ have full corporate power to
carry out the transactions contemplated in the Agreement and the
Plan of Merger, respectively. The execution and delivery of the
Agreement and the Plan of Merger and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of First
Jermyn and FNBJ, and the Agreement and the Plan constitute valid
and legally binding obligations of First Jermyn and FNBJ,
respectively, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium, receivership, conservatorship, and
other laws affecting creditors' rights generally and institutions
the deposits of which are insured by the FDIC, and as may be
limited by the exercise of judicial discretion in applying
principles of equity. Subject to satisfaction of the conditions
set forth in the Agreement, neither the transactions contemplated
in the Agreement or the Plan, nor compliance by First Jermyn and
FNBJ with any of the respective provisions thereof, will
(i) conflict with or result in a breach or default under (A) the
articles of incorporation or bylaws of First Jermyn or the
articles of association or bylaws of FNBJ, or, (B) based solely
on certificates of officers and without independent verification,
to the knowledge of such counsel, any note, bond, mortgage,
indenture, license, agreement or other material instrument or
obligation to which First Jermyn or FNBJ is a party; or
(ii) based solely on certificates of officers and without
independent verification, to the knowledge of such counsel,
result in the creation or imposition of any material lien or
encumbrance upon the property of First Jermyn or FNBJ, except
such material lien, instrument or obligation that has been
disclosed pursuant to the Agreement or the Plan; or (iii) violate
in any material respect any order, writ, injunction or decree
known to such counsel, or any federal or Pennsylvania statute,
rule or regulation applicable to First Jermyn or FNBJ.
(b) FNBJ is a validly existing national bank organized
and in good standing under the laws of the United States of
America. The deposits of FNBJ are insured to the maximum extent
provided by law by the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which First Jermyn or FNBJ
is a party which would, if determined adversely to First Jermyn
or FNBJ, have a material adverse effect on the financial
condition or results of operation of First Jermyn and FNBJ taken
as a whole, or which presents a claim to restrain or prohibit the
transactions contemplated by the Agreement and the Plan,
respectively.
(d) To the knowledge of such counsel, no consent,
approval, authorization or order of any federal or state court or
federal or state governmental agency or body is required for the
consummation by First Jermyn or FNBJ of the transactions
contemplated by the Agreement and the Plan, except for such
consents, approvals, authorizations or orders as have been
obtained.
(e) Upon the filing and effectiveness of the Articles
of Merger with the PDS with respect to the Merger, and Articles
of Merger with the OCC with respect to the Bank Merger in
accordance with the Agreement and the Plan, the mergers of First
Jermyn and Upper Valley and of FNBJ and NBO contemplated by the
Agreement and the Plan, respectively, will have been effected in
compliance with all applicable federal and Pennsylvania laws and
regulations in all material respects.
(f) The shares of First Jermyn Common Stock to be
issued in connection with the merger of Upper Valley and First
Jermyn contemplated by the Agreement have been duly authorized
and will, when issued in accordance with the terms of the
Agreement, be validly issued, fully paid and nonassessable, free
and clear of any mortgage, pledge, lien, encumbrance or claim
(legal or equitable).
Such counsel shall also provide a statement to the
following effect:
By way of supplemental information, such counsel
advises that, on the sole basis of such counsel's participation
in conferences with officers and employees of First Jermyn in
connection with the Proxy Statement/Prospectus, and without other
independent investigation or inquiry, such counsel has no reason
to believe that the Proxy Statement/Prospectus, including any
amendments or supplements thereto (except for the financial
information, financial schedules and other financial or
statistical data contained therein and except for any information
supplied by Upper Valley or NBO for inclusion therein, as to
which counsel need express no belief), as of the date of mailing
thereof, contained any untrue statement of a material fact with
respect to First Jermyn or omitted to state any material fact
with respect to First Jermyn necessary to make any statement
therein with respect to First Jermyn, in light of the
circumstances under which it was made, not misleading. Counsel
may state in delivering such opinion, that such counsel has not
independently verified and does not assume the responsibility for
the accuracy, completeness or fairness of any information or
statements contained in the Proxy Statement/Prospectus, except
with respect to identified statements of law or regulations or
legal conclusions relating to First Jermyn or the transactions
contemplated in the Agreement and the Plan.
<PAGE>
EXHIBIT 7
FORM OF TAX OPINION OF STEVENS & LEE
First Jermyn and Upper Valley shall have received an opinion
of Stevens & Lee substantially to the effect that, under the
provisions of the IRC:
1. Provided the Merger qualifies as a statutory merger
under applicable law, the transfer by Upper Valley of all of its
assets to First Jermyn in exchange for First Jermyn Common Stock
(including fractional share interests) and the assumption by
First Jermyn of all of Upper Valley's liabilities will constitute
a reorganization within the meaning of Section 368(a)(1)(A) of
the IRC.
2. Upper Valley and First Jermyn will each be "a party to
a reorganization" within the meaning of Section 368(b) of the
IRC.
3. Neither Upper Valley nor First Jermyn will recognize
any gain or loss upon the transfer of Upper Valley's assets to
First Jermyn in exchange solely for First Jermyn Common Stock
(including fractional share interests) and the assumption by
First Jermyn of the liabilities of Upper Valley.
4. The basis of the Upper Valley assets in the hands of
First Jermyn will be the same as the basis of such assets in the
hands of Upper Valley immediately prior to the Merger.
5. The holding period of the assets of Upper Valley to be
received by First Jermyn will include the period during which the
assets were held by Upper Valley.
6. No gain or loss will be recognized by the shareholders
of Upper Valley on the receipt of First Jermyn Common Stock
(including fractional share interests) solely in exchange for
their shares of Upper Valley Common Stock.
7. The basis of the First Jermyn Common Stock (including
fractional share interests) to be received by the Upper Valley
shareholders in the Merger will be the same as the basis of the
Upper Valley Common Stock surrendered in exchange therefor.
8. The holding period of the First Jermyn Common Stock
(including fractional share interests) to be received by the
Upper Valley shareholders in the Merger will include the period
during which the Upper Valley shareholders held their Upper
Valley Common Stock, provided the shares of Upper Valley Common
Stock are held as a capital asset on the Effective Date.
9. The payment of cash in lieu of fractional share
interests of First Jermyn Common Stock will be treated as if the
fractional share interests were distributed as part of the Merger
and then redeemed by First Jermyn. Such cash payments will be
treated as having been received as distribution in full payment
in exchange for the fractional share interests redeemed, as
provided in Section 302(a) of the IRC.
10. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, First Jermyn will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of Upper Valley as of the Effective Date. Any deficit
in the earnings and profits of First Jermyn or Upper Valley will
be used only to offset the earnings and profits accumulated after
the Merger.
11. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, First Jermyn will succeed to and take into
account the items of Upper Valley described in Section 381(c) of
the IRC. Such items will be taken into account by First Jermyn
subject to the conditions and limitations of Sections 381, 382,
383, and 384 of the IRC and the Treasury regulations thereunder.
12. Provided the Bank Merger constitutes a statutory merger
under applicable law, the Bank Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the
IRC.
13. NBO and FNBJ will each be "a party to a reorganization"
within the meaning of Section 368(b) of the IRC.
14. Neither NBO nor FNBJ will recognize any gain or loss
upon the transfer of NBO's assets to FNBJ in constructive
exchange solely for FNBJ common stock and the assumption by FNBJ
of the liabilities of NBO.
15. The basis of the NBO assets in the hands of FNBJ will
be the same as the basis of such assets in the hands of NBO
immediately prior to the Bank Merger.
16. The holding period of the NBO assets in the hands of
FNBJ will include the period during which such assets were held
by NBO.
17. No gain or loss will be recognized by First Jermyn, as
the shareholder of NBO, upon the constructive receipt of shares
of FNBJ common stock in exchange for the NBO common stock
surrendered in exchange therefor in the Bank Merger.
18. The basis of the FNBJ common stock to be held by First
Jermyn after the Bank Merger will equal the basis of such stock
immediately before the Bank Merger, increased by the basis of the
NBO common stock surrendered in the constructive exchange.
19. As provided in Section 381(c)(2) of the IRC and related
Treasury regulations, FNBJ will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of
NBO as of the effective date of the Bank Merger. Any deficit in
the earnings and profits of FNBJ or NBO will be used only to
offset the earnings and profits accumulated after the Bank
Merger.
20. Pursuant to Section 381(a) of the IRC and related
Treasury regulations, FNBJ will succeed to and take into account
the items of NBO described in Section 381(c) of the IRC. Such
items will be taken into account by FNBJ subject to the
conditions and limitations of Sections 381, 382, 383, and 384 of
the IRC and the Treasury regulations thereunder.
<PAGE>
EXHIBIT 8
FORM OF OPINION OF COUNSEL TO UPPER VALLEY
First Jermyn shall have received from counsel to Upper
Valley, an opinion, dated as of the Closing Date, substantially
to the effect that, subject to customary exceptions and
qualifications:
(a) Upper Valley and NBO have full corporate power to
carry out the transactions contemplated in the Agreement and the
Plan of Merger, respectively. The execution and delivery of the
Agreement and the Plan of Merger and the consummation of the
transactions contemplated thereunder have been duly and validly
authorized by all necessary corporate action on the part of Upper
Valley and NBO, and the Agreement and the Plan constitute a valid
and legally binding obligation, in accordance with their
respective terms, of Upper Valley and NBO, respectively, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship, and other laws
affecting creditors' rights generally and institutions the
deposits of which are insured by the FDIC, and as may be limited
by the exercise of judicial discretion in applying principles of
equity. Subject to satisfaction of the conditions set forth in
the Agreement, neither the transactions contemplated in the
Agreement and the Plan, nor compliance by Upper Valley and NBO
with any of the respective provisions thereof, will (i) conflict
with or result in a breach or default under (A) the articles of
incorporation or bylaws of Upper Valley or the articles of
association or bylaws of NBO, or (B) based solely on certificates
of officers and without independent verification, to the
knowledge of such counsel, any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which
Upper Valley or NBO is a party; or (ii) based solely on
certificates of officers, to the knowledge of such counsel,
result in the creation or imposition of any material lien,
instrument or encumbrance upon the property of Upper Valley or
NBO, except such material lien, instrument or obligation that has
been disclosed to First Jermyn pursuant to the Agreement and the
Plan, or (iii) violate in any material respect any order, writ,
injunction, or decree known to such counsel, or any statute, rule
or regulation applicable to Upper Valley or NBO.
(b) NBO is a validly existing national bank organized
and in good standing under the laws of the United States of
America. The deposits of NBO are insured to the maximum extent
provided by law by the Federal Deposit Insurance Corporation.
(c) There is, to the knowledge of such counsel, no
legal, administrative, arbitration or governmental proceeding or
investigation pending or threatened to which Upper Valley or NBO
is a party which would, if determined adversely to Upper Valley
or NBO, have a material adverse effect on the business,
properties, results of operations, or condition, financial or
otherwise, of Upper Valley or NBO taken as a whole or which
presents a claim to restrain or prohibit the transactions
contemplated by the Agreement and the Plan, respectively.
(d) To the knowledge of such counsel, no consent,
approval, authorization, or order of any federal or state court
or federal or state governmental agency or body, or of any third
party, is required for the consummation by Upper Valley or NBO of
the transactions contemplated by the Agreement and the Plan,
except for such consents, approvals, authorizations or orders as
have been obtained.
Such counsel shall also provide a statement to the
following effect:
By way of supplemental information, such counsel
advises that on the sole basis of such counsel's participation in
conferences with officers and employees of Upper Valley in
connection with the preparation of the Prospectus/Proxy Statement
and without other independent investigation or inquiry, such
counsel has no reason to believe that the Prospectus/Proxy
Statement, including any amendments or supplements thereto
(except for the financial information, financial statements,
financial schedules and other financial or statistical data
contained therein and except for any information supplied by
First Jermyn for inclusion therein, as to which counsel need
express no belief), as of the date of mailing thereof, contained
any untrue statement of a material fact or omitted to state a
material fact necessary to make any statement therein, in light
of the circumstances under which it was made, not misleading.
Counsel may state in delivering such opinion, that such counsel
has not independently verified and does not assume any
responsibility for the accuracy, completeness or fairness of any
information or statements contained in the Prospectus/Proxy
Statement, except with respect to identified statements of law or
regulations or legal conclusions relating to Upper Valley or NBO
or the transactions contemplated in the Agreement and the Plan.
<PAGE>
ANNEX B
RESTATED
ARTICLES OF INCORPORATION
OF
____________________________
FIRST. The name of the Corporation is __________________.
SECOND. The location and post office address of its
registered office in this Commonwealth is 645 Washington Avenue,
Jermyn, Pennsylvania 18433.
THIRD. The Corporation is incorporated under the provisions
of the Business Corporation Law of 1988, as amended. The
purpose of the Corporation is and it shall have unlimited power
to engage in and to do any lawful act concerning any or all
lawful business for which corporations may be incorporated under
such Act.
FOURTH. The term of the Corporation's existence is
perpetual.
FIFTH. The aggregate number of shares of capital stock
which the Corporation shall have authority to issue is Ten
Million (10,000,000) shares of common stock, par value $1.25 per
share ("Common Stock"). The issuance of shares of Common Stock
by the Corporation, or securities convertible into shares of
Common Stock, for cash consideration shall require the
affirmative vote of 80% of the total number of directors then in
office (rounding up to the nearest whole number); provided,
however, that this voting requirement shall not apply to the
issuance of shares of Common Stock pursuant to any employee
benefit or similar plan of the Corporation, including stock
options.
SIXTH: The directors of the Corporation shall be divided
into three classes: Class I, Class II, and Class III. Each
Class shall be as nearly equal in number as possible. If the
number of Class I, Class II or Class III directors is fixed for
any term of office it shall not be increased during that term,
except by (i) a vote of 80% of the total number of directors then
in office (rounding up to the nearest whole number) at any time
on or prior to January 1, 2004 or (ii) a vote of 66-2/3% of the
total number of directors then in office (rounding up to the
nearest whole number) at any time after January 1, 2004. Except
for the Board of Directors to be effective upon the filing of
these Restated Articles of Incorporation as provided for in this
ARTICLE SIXTH, the term of office of each Class shall be three
(3) years; provided, however, that the term of office of the
initial Class I directors shall expire at the annual election of
directors by the shareholders of the Corporation in 1999; the
term of office of the initial Class II directors shall expire at
the annual election of directors by the shareholders of the
Corporation in 2000; and the term of office of the initial Class
III directors shall expire at the annual election of directors by
the shareholders of the Corporation in 1998, so that, after the
expiration of each such initial term, the terms of office of one
class of directors shall expire each year when their respective
successors have been duly elected by the shareholders and
qualified. At each annual election of directors of the
Corporation held during and after 1998, the directors chosen to
succeed those whose terms then expire shall be identified as
being of the same class as the directors they succeed.
The names and Class designations of the Board of Directors
of the Corporation to be effective upon the filing of these
Restated Articles of Incorporation, who shall sit until the first
annual election of directors for the Class in which such
directors are serving are as follows:
Class I (serving until the 1999 Annual Meeting of Shareholders)
Name
Kuzma Leschak, Jr.
I. Leo Moskowvitz
Garfield G. Thomas
Fred J. Gentile
Michael A. Barbetti
Norman E. Woodworth
Class II (serving until the 2000 Annual Meeting of Shareholders)
Name
William M. Davis
Peter A. Sabia
Edmund J. Biancharelli
Thomas G. Speicher
Steven R. Tokach
William K. Nasser, Jr.
Class III (serving until the 1998 Annual Meeting of Shareholders)
Name
David M. Epstein
Robert T. Kelly
Saul Kaplan
Harold S. Kaplan
Joseph P. Coviello
SEVENTH: Each holder of record of Common Stock shall have
the right to one vote for each share of Common Stock standing in
his name on the books of the Corporation. Shareholders shall not
be entitled to cumulate votes for the election of directors.
EIGHTH: The management, control and government of the
Corporation shall be vested in a Board of Directors consisting of
not less than five (5) nor more than twenty-five (25) members in
number, as fixed by the Board of Directors of the Corporation
from time to time.
NINTH: The affirmative vote of both directors and
shareholders of the Corporation as set forth in this ARTICLE
NINTH shall be required to approve any of the following (each a
"Transaction"):
(a) any merger or consolidation of the Corporation
with or into any other corporation or any division involving
the Corporation;
(b) any share exchange in which a corporation, person
or entity acquires the issued or outstanding shares of
capital stock of the Corporation pursuant to a vote of
shareholders;
(c) any sale, lease, exchange or other transfer of
all, or substantially all, of the assets of the Corporation
to any other corporation, person or entity;
(d) a liquidation or dissolution involving the
Corporation; or
(e) any transaction similar to, or having similar
effect as, any of the foregoing transactions.
In the event of any proposed Transaction, then the following
voting requirements shall apply during the following applicable
time periods: (A) on or before January 1, 2004, the affirmative
vote of both (i) 80% of the total number of directors then in
office (rounding up to the nearest whole number) and (ii) 80% of
the total votes which all shareholders of the Corporation are
entitled to cast, and if any class of shares is entitled to vote
as a separate class, the affirmative vote of at least a majority
of the votes entitled to be cast by the outstanding shares of
such class shall be required to approve any Transaction; and
(B) after January 1, 2004, the affirmative vote of both (i) 66-
2/3% of the total number of directors then in office (rounding up
to the nearest whole number) and (ii) 66-2/3% of the total votes
which all shareholders are entitled to cast, and if any class of
shares is entitled to vote as a separate class, the affirmative
vote of at least a majority of the votes entitled to be cast by
the outstanding shares of such class shall be required to approve
any Transaction.
The provisions of this ARTICLE NINTH shall not apply to
(A) any Transaction occurring prior to January 1, 2004 in which
(i) members of the Corporation's Board of Directors immediately
prior to the Transaction continue to constitute at least a
majority of the Board of Directors of the resulting or surviving
corporation upon completion thereof and (ii) shareholders of the
Corporation immediately prior to the Transaction continue to own
at least a majority of the outstanding voting securities or
interests of the resulting or surviving corporation outstanding
upon completion thereof provided the transaction is approved by
both (i) 80% of the total number of directors then in office
(rounding up to the nearest whole number) and (ii) 66-2/3% of the
total vote which all shareholders are entitled to cast, and if
any class of shares is entitled to vote as a separate class, the
affirmative vote of at least a majority of the votes entitled to
be cast by the outstanding shares of such class or (B) any
Transaction approved in advance by the unanimous vote of all
directors of the Corporation then in office.
An affirmative vote as provided in the foregoing provisions
shall be in addition to any vote of the shareholders otherwise
required by law.
The Board of Directors of the Corporation shall have the
power and duty to determine, for purposes of this ARTICLE NINTH,
if any transaction is similar to, or has a similar effect as, any
of the Transactions identified above in this ARTICLE NINTH. Any
such determination shall be conclusive and binding for all
purposes of this ARTICLE NINTH.
TENTH: No action required to be taken or which may be taken
at any annual or special meeting of shareholders of the
Corporation may be taken without a meeting, and the power of the
shareholders of the Corporation to consent in writing to action
without a meeting is specifically denied.
ELEVENTH: Except as otherwise specially required by the
Bylaws of the Corporation, the authority to make, amend, alter,
change or repeal the bylaws of the Corporation is hereby
expressly and solely granted to and vested in the Board of
Directors of the Corporation by a vote of 66-2/3% of the total
number of directors then in office (rounding up to the nearest
whole number), subject always to the power of the shareholders to
make, amend, alter, change or repeal the bylaws of the
Corporation by the following votes during the following time
periods: (A) on or before January 1, 2004, the affirmative vote
of 80% of the total votes which all shareholders of the
Corporation are entitled to cast, and if any class of shares is
entitled to vote as a separate class, the affirmative vote of at
least a majority of the votes entitled to be cast by the
outstanding shares of such class; and (B) after January 1, 2004,
the affirmative vote of 66-2/3% of the total votes which all
shareholders of the Corporation are entitled to cast, and if any
class of shares is entitled to vote as a separate class, the
affirmative vote of at least a majority of the votes entitled to
be cast by the outstanding shares of such class.
TWELFTH: (a) The provisions of Subchapter E (relating to
Control Transactions), Chapter 25 of Title 15, known as the
Associations Code of the Commonwealth of Pennsylvania, or any
amendment or restatement of such Subchapter, shall not apply to
the Corporation.
(b) If any corporation, person, entity or group
becomes the beneficial owner, directly or indirectly, of shares
of capital stock of the Corporation having the right to cast in
the aggregate 25% or more of all votes entitled to be cast by all
issued and outstanding shares of capital stock of the Corporation
entitled to vote, such corporation, person, entity or group shall
within 30 days thereafter offer to purchase all shares of capital
stock of the Corporation, issued, outstanding and entitled to
vote. Such offer to purchase shall be at a price per share equal
to the higher of (a) the highest price paid for a share of the
respective class or series of capital stock of the Corporation
purchased by such corporation, person, entity or group within the
preceding twelve months or (b), if the Board of Directors so
elects, the fair market value of a share of the Corporation's
outstanding capital stock, determined in writing by an investment
banking firm selected by the Board of Directors and experienced
in the valuation of financial institutions, as of the date on
which such corporation, person, entity or group becomes the
beneficial owner, directly or indirectly, of shares of capital
stock of the Corporation having the right to cast in the
aggregate 25% or more of all votes entitled to be cast by all
issued and outstanding shares of capital stock of the Corporation
entitled to vote, including an increment representing a
proportion of any value payable for acquisition of control of the
Corporation. Such offer shall provide that the purchase price
for such shares shall be payable in cash. The provisions of this
Article Twelfth shall not apply if 80% or more of the total
number of directors then in office (rounding up to the nearest
whole number) approve in advance the acquisition of beneficial
ownership by such corporation, person, entity or group of shares
of capital stock of the Corporation having the right to cast in
the aggregate 25% or more of all votes entitled to be cast by all
issued and outstanding shares of capital stock of the
Corporation.
THIRTEENTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Articles
of Incorporation in the manner now or hereafter prescribed by
statute and all rights conferred upon shareholders and directors
herein are hereby granted subject to this reservation; provided,
however, that the provisions set forth in ARTICLES SIXTH,
SEVENTH, and EIGHTH of these Articles of Incorporation may not be
repealed, altered or amended, in any respect whatsoever, unless
such repeal, alteration or amendment is approved by either
(a) the affirmative vote of shareholders of the Corporation
entitled to cast at least 66-2/3% of all votes which shareholders
of the Corporation are then entitled to cast, and if any class of
shares is entitled to vote as a separate class, the affirmative
vote of at least a majority of the votes entitled to be cast by
the outstanding shares of such class, or (b) the affirmative vote
of 66-2/3% of the total number of directors then in office
(rounding up to the nearest whole number) and the affirmative
vote of shareholders of the Corporation entitled to cast at least
a majority of all votes which shareholders of the Corporation are
then entitled to cast, and if any class of shares is entitled to
vote as a separate class, the affirmative vote of at least a
majority of the votes entitled to be cast by the outstanding
shares of such class; and further provided, that the provisions
set forth in this ARTICLE THIRTEENTH and in ARTICLES EIGHTH,
NINTH, TENTH, ELEVENTH and TWELFTH of these Articles of
Incorporation may not be repealed, altered or amended, in any
respect whatsoever, unless such repeal, alteration or amendment
is approved by the following votes during the following time
periods: (A) on or before January 1, 2004, the affirmative vote
of both (i) 80% of the total number of directors then in office
(rounding up to the nearest whole number) and (ii) 80% of the
total votes which all shareholders of the Corporation are
entitled to cast, and if any class of shares is entitled to vote
as a separate class, the affirmative vote of at least a majority
of the votes entitled to be cast by the outstanding shares of
such class; and (B) after January 1, 2004, the affirmative vote
of both (i) 66-2/3% of the total number of directors then in
office (rounding up to the nearest whole number) and (ii) 66-2/3%
of the total votes which all shareholders are entitled to cast,
and if any class of shares is entitled to vote as a separate
class, the affirmative vote of at least a majority of the votes
entitled to be cast by the outstanding shares of such class.
<PAGE>
ANNEX C
RESTATED
BYLAWS
OF
_________________________
ARTICLE I. MEETINGS OF SHAREHOLDERS.
Section 101. Place of Meetings. All meetings of the
shareholders shall be held at such place or places, within or
without the Commonwealth of Pennsylvania, as shall be determined
by the Board of Directors from time to time.
Section 102. Annual Meetings.
(a) Time and Date. The annual meeting of the
shareholders for the election of Directors and the transaction of
such other business as may properly come before the meeting shall
be held at such date or hour as may be fixed by the Board of
Directors. At each annual meeting of shareholders, directors
shall be elected, reports of the affairs of the Corporation shall
be considered, and any other business may be transacted which is
within the power of the shareholders.
(b) Agenda for Annual Meeting. Matters to be placed
on the agenda for consideration at annual meetings of
shareholders may be determined by the Board of Directors or by
any shareholder entitled to vote for the election of directors.
Matters proposed for the agenda by shareholders entitled to vote
for the election of directors shall be made by notice in writing,
delivered or mailed by first-class United States mail, postage
prepaid, to the Secretary of the Corporation not less than sixty
(60) days prior to any annual meeting of shareholders; provided,
however, that if less than twenty-one (21) days' notice of the
meeting is given to shareholders, such written notice shall be
delivered or mailed, as prescribed, to the Secretary of the
Corporation not later than the close of the seventh day following
the day on which notice of the meeting was mailed to
shareholders. Notice of matters which are proposed by the Board
of Directors shall be given at any time by the Chairman of the
Board or any other appropriate officer. Each notice made by
shareholders shall set forth a brief description of the business
desired to be brought before the annual meeting. The chairman of
the meeting may determine and declare to the meeting that a
matter proposed for the agenda was not made in accordance with
the foregoing procedure, and if the chairman should so determine,
the chairman shall so declare to the meeting and the matter shall
be disregarded.
Section 103. Special Meetings. Special meetings of the
shareholders may be called at any time by the Board of Directors
in the manner provided herein. Shareholders shall not have the
right to call special meetings of shareholders, except as
specifically provided by law.
Section 104. Conduct of Shareholders' Meetings. At every
meeting of the shareholders, the Chairman of the Board or, in the
Chairman's absence, the President or, in the President's absence,
a chairman (who shall be one of the officers, if any is present)
chosen by a majority of the members of the Board of Directors
shall act as chairman of the meeting. The chairman of the
meeting shall have any and all powers and authority necessary in
the chairman's sole discretion to conduct an orderly meeting and
preserve order and to determine any and all procedural matters,
including imposing reasonable limits on the amount of time at the
meeting taken up in remarks by any one shareholder or group of
shareholders. In addition, until the business to be completed at
a meeting of the shareholders is completed, the chairman of a
meeting of the shareholders is expressly authorized to
temporarily adjourn and postpone the meeting from time to time.
The Secretary of the Corporation or in the Secretary's absence,
an assistant secretary, shall act as secretary of all meetings of
the shareholders. In the absence at such meeting of the
Secretary or assistant secretary, the chairman of the meeting may
appoint another person to act as secretary of the meeting.
Section 105. Determination of Record Date. The Board of
Directors may fix a time prior to the date of any meeting of
shareholders as a record date for the determination of the
shareholders entitled to notice of, or to vote at, the meeting,
which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of
shareholders. Only shareholders of record on the date fixed
shall be so entitled notwithstanding any transfer of shares on
the books of the Corporation after any record date fixed as
provided in this section. The Board of Directors may similarly
fix a record date for the determination of shareholders of record
for any other purpose. When a determination of shareholders of
record has been made as provided in this section for purposes of
a meeting, the determination shall apply to any adjournment
thereof unless the Board of Directors fixes a new record date for
the adjourned meeting.
Section 106. Voting List. The officer or agent having
charge of the transfer books for shares of the Corporation shall
make a complete list of the shareholders entitled to vote at any
meeting of shareholders, arranged in alphabetical order, with the
address of and the number of shares held by each. The list shall
be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any shareholder during
the whole time of the meeting for the purposes thereof.
Failure to comply with the requirements of this section
shall not affect the validity of any action taken at a meeting
prior to a demand at the meeting by any shareholder entitled to
vote thereat to examine the list. The original share register or
transfer book, or a duplicate thereof kept in Pennsylvania, shall
be prima facie evidence as to who are the shareholders entitled
to examine the list or share register or transfer book or to vote
at any meeting of shareholders.
Section 107. Judges of Election. In advance of any meeting
of shareholders of the Corporation, the Board of Directors may
appoint judges of election, who need not be shareholders, to act
at the meeting or any adjournment thereof. If judges of election
are not so appointed, the presiding officer of the meeting may,
and on the request of any shareholder shall, appoint judges of
election at the meeting. The number of judges shall be one (1)
or three (3). No person who is a candidate for office to be
filled at the meeting shall act as a judge of election.
In the event any person appointed as a judge fails to appear
or fails or refuses to act, the vacancy may be filled by
appointment made by the Board of Directors in advance of
convening the meeting or at the meeting by the presiding officer
thereof.
The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented
at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes or ballots, hear
and determine all challenges and questions in any way arising in
connection with the right to vote, count and tabulate all votes,
determine the result and do such acts as may be proper to conduct
the election or vote with fairness to all shareholders. The
judge or judges of election shall perform their duties
impartially, in good faith, to the best of their ability and as
expeditiously as is practical. If there are three judges of
election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of
all.
On request of the presiding officer of the meeting, or of
any shareholder, the judge or judges shall make a report in
writing of any challenge or question or matter determined by
them, and execute a certificate of any fact found by them. Any
report or certificate made by them shall be prima facie evidence
of the facts stated therein.
Section 108. No Consent of Shareholders in Lieu of Meeting.
No action required to be taken or which may be taken at any
annual or special meeting of shareholders of the Corporation may
be taken without a meeting, and the power of the shareholders to
consent in writing to action without a meeting is specifically
denied.
ARTICLE II. DIRECTORS AND BOARD MEETINGS.
Section 201. Management by Board of Directors. The
business and affairs of the Corporation shall be managed by a
Board of Directors consisting of not less than five (5) nor more
than twenty-five (25) members, as fixed by the Board of Directors
from time to time. The Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things
as are not by statute, regulation, the Articles of Incorporation
or these Bylaws directed or required to be exercised or done by
the shareholders.
Section 202. Nominations for Directors. Nominations by
shareholders for directors to be elected at an annual meeting of
shareholders must be submitted to the Secretary of the
Corporation in writing not later than the close of business on
the twentieth (20th) day immediately preceding the date of the
meeting. Such notification shall contain the following
information: (a) name and address of each proposed nominee;
(b) the principal occupation of each proposed nominee; (c) the
total number of shares of capital stock of the Corporation that
will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the
number of shares of capital stock of the Corporation owned by the
notifying shareholder. Nominations not made in accordance
herewith may, in the discretion of the chairman of the meeting,
be disregarded and, upon instruction, the judges of election may
disregard all votes cast for any such proposed nominee.
Section 203. Qualifications of Directors.
(a) Share Ownership. Every Director must be a
shareholder of the Corporation and shall own in his/her own right
the number of shares (if any) required by law in order to qualify
as such Director. Any Director shall forthwith cease to be a
Director when he/she no longer holds such shares, which fact
shall be reported to the Board of Directors by the Secretary,
whereupon the Board of Directors shall declare the seat of such
Director vacated.
(b) Retirement. No person shall be eligible for
election as a member of the Board of Directors of the Corporation
following such person's attainment of the age of seventy-five
(75); provided, however, that this provision shall not apply to
any person serving on the Board of Directors of the Corporation
on _________________, 1998. Any person elected to the Board of
Directors of the Corporation prior to attainment of age seventy-
five (75) shall not be required to resign by reason of such
person's attainment of such age.
Section 204. Classification of Directors. The Board of
Directors of the Corporation shall be divided into three (3)
classes, as nearly equal in number as possible, as provided in
the Corporation's Articles of Incorporation.
Section 205. Compensation of Directors. No Director shall
be entitled to any salary as such; but the Board of Directors may
fix, from time to time, reasonable fees or other compensation,
payable in cash, stock or other property, for acting as a
Director and reasonable fees to be paid each Director for his/her
services in attending meetings of the Board and meetings of
committees appointed by the Board. The Corporation may reimburse
Directors for expenses related to their duties as members of the
Board of Directors.
Section 206. Regular Meetings. Regular meetings of the
Board of Directors shall be held on such day, at such hour, and
at such place, consistent with applicable law, as the Board of
Directors shall from time to time designate or as may be
designated in any notice from the Secretary calling the meeting.
The Board of Directors shall meet for reorganizational purposes
at the first regular meeting following the annual meeting of
shareholders at which the Directors are elected. Notice need not
be given of regular meetings of the Board of Directors which are
held at the time and place designated by the Board of Directors.
If a regular meeting is not to be held at the time and place
designated by the Board of Directors, notice of such meeting,
which need not specify the business to be transacted thereat and
which may be either verbal or in writing, shall be given by the
President to each member of the Board of Directors at least
twenty-four (24) hours before the time of the meeting.
A majority of the members of the Board of Directors shall
constitute a quorum for the transaction of business. If at the
time fixed for the meeting, including the meeting to organize the
new Board following the annual meeting of shareholders, a quorum
is not present, the directors in attendance may adjourn the
meeting from time to time until a quorum is present.
Except as otherwise provided in Section 209 or as otherwise
provided herein, a majority of Directors present and voting at
any meeting of the Board of Directors at which a quorum is
present, shall decide each matter considered. A Director cannot
vote by proxy, or otherwise act by proxy at a meeting of the
Board of Directors.
Section 207. Special Meetings. Special meetings of the
Board of Directors may be called by the Chairman of the Board,
the President or at the request of a majority of Directors then
in office. A special meeting of the Board of Directors shall be
deemed to be any meeting other than a regular meeting of the
Board of Directors. Notice of the time and place of every
special meeting, which need not specify the business to be
transacted thereat, shall be given by the President to each
member of the Board at least twenty-four (24) hours before the
time of such meeting.
Section 208. Reports and Records. The reports of officers
and Committees and the records of the proceedings of all
Committees shall be filed with the Secretary of the Corporation
and presented to the Board of Directors, if practicable, at its
next regular meeting. The Board of Directors shall keep complete
records of its proceedings in a minute book kept for that
purpose. When a Director shall request it, the vote of each
Director upon a particular question shall be recorded in the
minutes.
Section 209. Special Director Voting Requirements.
Notwithstanding anything contained herein to the contrary, until
January 1, 2004, approval of any of the following actions shall
require a vote of 80% of the total number of directors of the
Corporation then in office (rounding up to the nearest whole
number):
(i) adopting a motion or resolution to study sale
of the Corporation as a strategic alternative, or engaging a
financial advisor with respect thereto;
(ii) adopting a motion or resolution approving a
fundamental transaction (a "Fundamental Transaction")
involving the Corporation within the meaning of Chapter 19
of Title 15 of the Pennsylvania Business Corporation Law of
1988, as amended, or any successor provisions (whether by
merger, consolidation, share exchange or otherwise), or
calling a special meeting of shareholders of the Corporation
to consider any such proposal or placing any such proposal
on the agenda for an annual meeting of shareholders of the
Corporation;
(iii) recommending that shareholders of the
Corporation (A) accept a transaction or tender their shares
of the Corporation's voting securities in connection with a
tender or exchange offer for the Corporation's voting
securities or (B) cast votes with respect to their voting
securities in a proxy solicitation conducted by a party
other than the Corporation's Board of Directors contrary to
the recommendation of the Board of Directors;
(iv) soliciting indications of interest or
responding to proposals relating to a Fundamental
Transaction in which the Corporation, upon completion of
such Fundamental Transaction, would not be the surviving or
controlling entity; or
(v) amending or repealing Sections 203 or 209 of
these Bylaws.
ARTICLE III. COMMITTEES.
Section 301. Committees. The following two (2) Committees
of the Board of Directors shall be established by the Board of
Directors in addition to any other Committee the Board of
Directors may in its discretion establish: Executive and Audit
Section 302. Executive Committee. The Executive Committee
shall consist of five (5) Directors. A majority of the members
of the Executive Committee shall constitute a quorum, and actions
of a majority of those present at a meeting at which a quorum is
present shall be the actions of the Committee. Meetings of the
Committee may be called at any time by the Chairman of the
Committee or his designee. A majority of the members of the
Committee shall constitute a quorum for the transaction of
business, and the actions of a majority of those present at a
meeting at which a quorum is present shall be the actions of the
Committee. The Executive Committee shall have and exercise the
authority of the Board of Directors in the management of the
business of the Corporation between the dates of regular meetings
of the Board of Directors.
Section 303. Audit Committee. The Audit Committee shall
consist of at least four (4) Directors, none of whom shall be
officers of the Corporation. Meetings of the Committee may be
called at any time by the Chairman of the Committee or his
designee. A majority of the members of the Committee shall
constitute a quorum for the transaction of business, and the
actions of a majority of those present at a meeting at which a
quorum is present shall be the actions of the Committee. The
Committee shall, among other things, supervise the audit of the
books of the Corporation and recommend for approval by the Board
the services of a reputable Certified Public Accounting firm to
perform such audit.
Section 304. Appointment of Committee Members. The Board
of Directors shall elect the members of the Committees and the
Chairman of each such Committee to serve until the next annual
meeting of shareholders. The President shall appoint or shall
establish a method of appointing, subject to the approval of the
Board of Directors, the members of any other Committees
established by the Board of Directors, and the Chairman of such
Committee, to serve until the next annual meeting of
shareholders. The Board of Directors may appoint, from time to
time, other committees, for such purposes and with such powers as
the Board may determine.
Section 305. Organization and Proceedings. Each Committee
of the Board of Directors shall effect its own organization by
the appointment of a Secretary and such other officers, except
the Chairman, as it may deem necessary. A record of proceedings
of all Committees shall be kept by the Secretary of such
Committee and filed and presented as provided in Section 208 of
these Bylaws.
ARTICLE IV. OFFICERS.
Section 401. Chairman of the Board. The Board of Directors
shall appoint one of its members to be the Chairman of the Board
to serve at the pleasure of the Board. He shall be a voting
member of the Board of Directors and shall preside at all
meetings of the Board of Directors and shareholders. The
Chairman of the Board shall supervise the carrying out of the
policies adopted or approved by the Board. He shall have general
executive powers, as well as the specific powers conferred by
these Bylaws. He shall also have and may exercise such further
powers and duties as from time to time may be conferred upon,or
assigned to him by the Board of Directors.
Section 402. President. The Board of Directors shall
appoint one of its members to be President of the Corporation.
In the absence of the Chairman, he shall preside at any meeting
of the Board. The President shall have general executive powers,
and shall have and may exercise any and all other powers and
duties pertaining by law, regulation, or practice, to the office
of President, or imposed by these Bylaws. He shall also have and
may exercise such further powers and duties as from time to time
may be conferred upon or assigned to him by the Board of
Directors.
Section 403. Vice Presidents. The Board of Directors may
appoint an Executive Vice President and one or more Vice
Presidents. The Executive Vice President and each Vice President
shall have such powers and duties as may be assigned to him by
the Board of Directors. The Executive Vice President shall, in
the absence of the President, perform all the duties of the
President.
Section 404. Secretary. The Board of Directors shall
appoint a Secretary, who shall be Secretary of the Board and of
the Corporation, and shall keep accurate minutes of all meetings.
He shall attend to the giving of all notices required by these
Bylaws to be given. He shall be custodian of the corporate seal,
records, documents and papers of the Corporation. He shall
provide for the keeping of proper records of all transactions of
the Corporation. He shall have and may exercise any and all
other powers and duties pertaining by law, regulation or
practice, to the office of Secretary, or imposed by these Bylaws.
He shall also perform such other duties as may be assigned to
him, from time to time, by the Board of Directors.
Section 405. Treasurer. The Treasurer shall act under the
supervision of the President or such other Officer as the
President may designate. The Treasurer shall have custody of the
Corporation's funds and such other duties as may be prescribed by
the Board of Directors, President or such other Supervising
Officer as the President may designate.
Section 406. Assistant Officers. Unless otherwise provided
by the Board of Directors, each Assistant Officer shall perform
such duties as shall be prescribed by the Board of Directors, the
President or the Officer to whom he/she is an Assistant. In the
event of the absence or disability of an Officer or his/her
refusal to act, his/her Assistant Officer shall, in the order of
their rank, and within the same rank in the order of their
seniority, have the powers and authorities of such Officer.
Section 407. Compensation. Unless otherwise provided by
the Board of Directors, the salaries and compensation of all
Officers and Assistant Officers, except the President and the
Executive Vice President, shall be fixed in accordance with the
general salary administration programs and guidelines established
by the Board.
Section 408. General Powers. The Officers are authorized
to do and perform such corporate acts as are necessary in the
carrying on of the business of the Corporation, subject always to
the direction of the Board of Directors.
ARTICLE V. SHARES OF CAPITAL STOCK.
Section 501. Authority to Sign Share Certificates. Every
share certificate of the Corporation shall be signed by the
President and by the Executive Vice President or one of the Vice
Presidents. Certificates may be signed by facsimile signature.
Section 502. Lost or Destroyed Certificates. Any person
claiming a share certificate to be lost, destroyed or wrongfully
taken shall receive a replacement certificate if such person
shall have: (a) requested such replacement certificate before the
Corporation has notice that the shares have been acquired by a
bona fide purchaser; (b) provided the Corporation with an
indemnity agreement satisfactory in form and substance to the
President or the Executive Vice President; and (c) satisfied any
other reasonable requirements (including providing an affidavit
and a surety bond) fixed by the President or the Executive Vice
President.
ARTICLE VI. GENERAL.
Section 601. Fiscal Year. The fiscal year of the
Corporation shall begin on the first (1st) day of January in each
year and end on the thirty-first (31st) day of December in each
year.
Section 602. Emergency Bylaws. In the event of any
emergency resulting from a nuclear attack or similar disaster,
and during the continuance of such emergency, the following Bylaw
provisions shall be in effect, notwithstanding any other
provisions of the Bylaws:
(a) A meeting of the Board of Directors or of any
Committee thereof may be called by any Officer or Director upon
one (1) hour's notice to all persons entitled to notice whom, in
the sole judgment of the notifier, it is feasible to notify;
(b) The Director or Directors in attendance at the
meeting of the Board of Directors or of any Committee thereof
shall constitute a quorum; and
(c) These Bylaws may be amended or repealed, in whole
or in part, by a majority vote of the Directors attending any
meeting of the board of Directors, provided such amendment or
repeal shall only be effective for the duration of such
emergency.
Section 603. Severability. If any provision of these
Bylaws is illegal or unenforceable as such, such illegality or
unenforceability shall not affect any other provision of these
Bylaws and such other provisions shall continue in full force and
effect.
ARTICLE VII. LIABILITY OF DIRECTORS: INDEMNIFICATION.
Section 701. Elimination of Liability. To the fullest
extent permitted by the laws of the Commonwealth of Pennsylvania,
a Director of the Corporation shall not be personally liable for
monetary damages for any action taken or any failure to take any
action unless the Director has breached or failed to perform the
duties of his or her office under the Pennsylvania Business
Corporation Law of 1988, as amended, or any successor statute,
and such breach or failure constitutes self-dealing, willful
misconduct or recklessness. The provisions of this Section 701
shall not apply with respect to the responsibility or liability
of a Director under any criminal statute or the liability of a
director for the payment of taxes pursuant to local, state or
federal law.
Section 702. Indemnification. The Corporation shall
indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative by reason of the fact that such person is or was a
Director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses
(including attorneys' fees), amounts paid in settlement,
judgments, and fines actually and reasonably incurred by such
person in connection with such action, suit, or proceeding;
provided, however, that no indemnification shall be made in any
case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted
willful misconduct or recklessness.
Section 703. Expenses. Expenses (including attorneys'
fees) incurred in defending a civil or criminal action, suit, or
proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of the Director,
officer, employee, or agent to repay such amount if it shall be
ultimately determined that he/she is not entitled to be
indemnified by the Corporation as authorized in this Article VII.
Section 704. Non-Exclusive. The indemnification and
advancement of expenses provided by this Article VII shall not be
deemed exclusive of any other right to which persons seeking
indemnification and advancement of expenses may be entitled under
any agreement, vote of shareholders or disinterested directors,
or otherwise, both as to actions in such persons' official
capacity and as to their actions in another capacity while
holding office, and shall continue as to a person who has ceased
to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors, and administrator of such
person.
Section 705. Insurance, Etc. The Corporation may purchase
and maintain insurance on behalf of any person, may enter into
contracts of indemnification with any person, may create a fund
of any nature (which may, but need not be, under the control of a
trustee) for the benefit of any person, and may otherwise secure
in any manner its obligations with respect to indemnification and
advancement of expenses, whether arising under this Article IX or
otherwise, to or for the benefit of any person, whether or not
the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VII.
Section 706. Amendment. Notwithstanding anything herein
contained or contained in the Articles of Incorporation to the
contrary, this Article VII may not be amended or repealed, and a
provision inconsistent herewith may not be adopted, except by the
affirmative vote of 80% of the members of the entire Board of
Directors or by the affirmative vote of shareholders of the
corporation entitled to cast at least 80% of all votes which
shareholders of the corporation are then entitled to cast, except
that, if the laws of the Commonwealth of Pennsylvania are amended
or any other statute is enacted so as to decrease the exposure of
directors to liability or to increase the indemnification rights
available, this Article VII and any other provision of these
Bylaws inconsistent with such decreased exposure or increased
indemnification rights shall be amended, automatically and
without any further action on the part of shareholders or
directors, to reflect such decreased exposure or to include such
increased indemnification rights, unless such legislation
expressly otherwise requires. Any repeal or modification of this
Article VII by the directors or shareholders of the Corporation
shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the
Corporation or any right to indemnification for any action taken
or any failure to take any action occurring prior to the time of
such repeal or modification.
Section 707. Severability. If, for any reason, any
provision of this Article VII shall be held invalid, such
invalidity shall not affect any other provision not held so
invalid, and each such other provision shall, to the full extent
consistent with law, continue in full force and effect. If any
provision of this Article VII shall be held invalid in part, such
invalidity shall in no way affect the remainder of such
provision, and the remainder of such provision, together with all
other provisions of this Article VII shall, to the full extent
consistent with law, continue in full force and effect.
ARTICLE VIII. AMENDMENT OR REPEAL.
Section 801. Amendment or Repeal by the Board of Directors.
These Bylaws may be amended or repealed, in whole or in part, in
the manner set forth in the Articles of Incorporation.
<PAGE>
ANNEX D
[LETTERHEAD OF BERWIND FINANCIAL, L.P.]
[Date]
Board of Directors
The First Jermyn Corp.
645 Washington Avenue
P.O. Box 39
Jermyn, PA 18433
Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to the shareholders of The First Jermyn
Corp. ("First Jermyn") of the financial terms of the proposed
merger by and between First Jermyn and Upper Valley Bancorp, Inc.
("Upper Valley"). The terms of the proposed merger (the
"Proposed Merger") between First Jermyn and Upper Valley are set
forth in the Agreement and Plan of Merger dated October 15, 1997
(the "Merger Agreement") and provides that each outstanding
common share of Upper Valley will be converted into the right to
receive .6890 shares of First Jermyn Common Stock, with cash to
be paid in lieu of any fractional shares.
Berwind Financial, L.P., as part of its investment banking
business, regularly is engaged in the valuation of assets,
securities and companies in connection with various types of
asset and security transactions, including mergers, acquisitions,
private placements and valuations for various other purposes, and
in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things:
(i) reviewed the historical financial performance, current
financial position and general prospects of First Jermyn and
Upper Valley, (ii) reviewed the Merger Agreement, (iii) reviewed
and analyzed the stock market performance of First Jermyn and
Upper Valley, (iv) studied and analyzed the consolidated
financial and operating data of First Jermyn and Upper Valley,
(v) considered the terms and conditions of the Proposed Merger
between First Jermyn and Upper Valley as compared with the terms
and conditions of comparable bank and bank holding company
mergers and acquisitions, (vi) met and/or communicated with
certain members of First Jermyn's and Upper Valley's senior
management to discuss their operations, historical financial
statements, and future prospects, and (vii) reviewed the Joint
Proxy Statement/Prospectus, and (viii) conducted such other
financial analyses, studies and investigations as we deemed
appropriate.
Our opinion is given in reliance on information and
representations made or given by First Jermyn and Upper Valley
and their respective officers, directors, auditors, counsel and
other agents, and on filings, releases and other public
information issued by First Jermyn and Upper Valley including
financial statements, financial projections, and stock price data
as well as certain information from recognized independent
sources. We have not independently verified the information
concerning First Jermyn and Upper Valley nor other data which we
have considered in our review and, for purposes of the opinion
set forth below, we have assumed and relied upon the accuracy and
completeness of all such information and data. Additionally, we
assume that the Proposed Merger is, in compliance with and legal
under applicable law.
With regard to financial and other information relating to
the general prospects of First Jermyn and Upper Valley, we have
assumed that such information has been reasonably prepared and
reflects the best currently available estimates and judgments of
the managements of First Jermyn and Upper Valley as to First
Jermyn's and Upper Valley's most likely future performance.For
First Jermyn and Upper Valley, we have assumed the allowance for
loan losses indicated on the balance sheets of each entity is
adequate to cover such losses; we have not reviewed the credit
files of either First Jermyn or Upper Valley. Also, in rendering
our opinion, we have assumed that in the course of obtaining the
necessary regulatory approvals for the Proposed Merger, no
conditions will be imposed that will have a material adverse
effects on the contemplated benefits of the Proposed Merger to
First Jermyn.
Our opinion is based upon information provided to us by the
managements of First Jermyn and Upper Valley, as well as market,
economic, financial, and other conditions as they exist and can
be evaluated only as of the date hereof and speaks to no other
period. Our opinion pertains only to the financial consideration
of the Proposed Merger and does not constitute a recommendation
to the Board of First Jermyn and does not constitute a
recommendation to First Jermyn's shareholders as to how such
shareholders should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the
date hereof, the Proposed Merger between First Jermyn and Upper
Valley is fair, from a financial point of view, to the
shareholders of First Jermyn.
Sincerely,
BERWIND FINANCIAL, L.P.
<PAGE>
ANNEX E
[LETTERHEAD OF FOX-PITT, KELTON, INC.]
[DATE]
Board of Directors
Upper Valley Bancorp, Inc.
128 Lackawanna Avenue
Olyphant, PA 18447
Ladies and Gentlemen:
Fox-Pitt, Kelton, Inc. ("Fox-Pitt, Kelton") understands that
Upper Valley Bancorp, Inc. ("Upper Valley") and The First Jermyn
Corp. ("First Jermyn") propose to enter into an Agreement and
Plan of Merger, dated October 15, 1997 (the "Merger Agreement"),
which provides, among other things, for the merger of Upper
Valley with and into First Jermyn (the "Merger"). Pursuant to
the Merger Agreement and subject to certain exceptions set forth
therein, at the effective time of the Merger, each issued and
outstanding share of common stock of Upper Valley, par value
$0.50 per share (the "Upper Valley Common Stock"), shall be
converted into the right to receive 0.689 shares (the "Exchange
Ratio") of common stock of First Jermyn, par value $1.25 per
share (the "First Jermyn Common Stock"). The terms and
conditions of the Merger are more fully set forth in the Merger
Agreement.
You have asked for Fox-Pitt, Kelton's opinion as to whether
the Exchange Ratio is fair, from a financial point of view, to
Upper Valley.
In arriving at the opinion set forth below, Fox-Pitt, Kelton
has, among other things:
(a) reviewed and analyzed certain publicly available
financial statements for Upper Valley and First Jermyn
and financial information made available to us by the
managements of Upper Valley and First Jermyn;
(b) analyzed certain internal financial statements,
including financial projections, and other financial
and operating data prepared by the managements of Upper
Valley and First Jermyn; and
(c) discussed the past, present and future operations,
financial condition and prospects of Upper Valley and
First Jermyn with that of certain other comparable
publicly traded companies;
(e) reviewed and discussed with the senior management of
Upper Valley and First Jermyn the strategic objectives
of the Merger and certain other benefits of the Merger;
(f) reviewed the Merger Agreement draft dated September 29,
1997; and
(g) performed such other analyses as we have deemed
appropriate.
Fox-Pitt, Kelton has assumed and relied upon, without
independent verification, the accuracy and completeness of all of
the financial and other information it has reviewed for the
purposes of providing this opinion, and we have not assumed any
responsibility for independent verification of such information.
Fox-Pitt, Kelton has not assumed any responsibility for
independent valuation of the assets and liabilities of Upper
Valley or First Jermyn nor does it assume any responsibility for
reviewing loan files or visiting branch locations. With respect
to the financial projections, Fox-Pitt, Kelton has assumed that
they have been reasonably prepared by the respective managements
of Upper Valley and First Jermyn on bases reflecting the best
currently available estimates and judgments of the future
financial performance of Upper Valley and First Jermyn. We
express no view as to such projections or the assumptions on
which they are based. We have evaluated this Merger as a merger
of equals, which may or may not result in a premium over market,
rather than as an outright sale. Fox-Pitt, Kelton's opinion is
based upon economic, market and other conditions as they exist
and can be evaluated on October 14, 1997.
In the normal course of its investment banking business,
Fox-Pitt, Kelton is regularly engaged in the valuation of
banking, thrift and finance company securities in connection with
acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and
valuations for various other purposes. As specialists in the
securities of banking, thrift and finance companies, Fox-Pitt,
Kelton has experience in, and knowledge of, the valuation of such
enterprises.
In the normal course of its business, Fox-Pitt, Kelton may
trade equity securities of Upper Valley and First Jermyn for its
own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
We have been retained by Upper Valley in the past to provide
financial advice and received a fee for this service. In
addition, we have acted as financial advisor to Upper Valley in
connection with this Merger and will be receiving an additional
fee upon rendering our opinion in connection with the Merger.
It is understood that this letter is for the information of
the Board of Directors of Upper Valley and may not be used for
any other purpose without our prior written consent.
Based upon and subject to the foregoing, Fox-Pitt, Kelton is
of the opinion on the date hereof that the Exchange Ratio is
fair, from a financial point of view, to Upper Valley.
Very truly yours,
<PAGE>
ANNEX F
SECTION 1930 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
Section 1930. Dissenters rights.
(a) General rule.--If any shareholder of a domestic
business corporation that is to be a party to a merger or
consolidation pursuant to a plan of merger or consolidation
objects to the plan of merger or consolidation and complies with
the provisions of Subchapter D of Chapter 15 [FN 1] (relating to
dissenters rights), the shareholder shall be entitled to the
rights and remedies of dissenting shareholders therein provided,
if any. See also section 1906(c) (relating to dissenters rights
upon special treatment).
(b) Plans adopted by directors only.--Except as otherwise
provided pursuant to section 1571(c) (relating to grant of
optional dissenters rights), Subchapter D of Chapter 15 shall not
apply to any of the shares of a corporation that is a party to a
merger or consolidation pursuant to section 1924(b)(1)(i)
(relating to adoption by board of directors).
(c) Cross references.--See sections 1571(b) (relating to
exceptions) and 1904 (relating to de facto transaction doctrine
abolished).
____________________
1 15 Pa. C.S.A. Section 1571 et seq.
<PAGE>
SUBCHAPTER D OF CHAPTER 15 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
Subchapter D.-Dissenters Rights
Section 1571. Application and effect of subchapter.
(a) General rule.--Except as otherwise provided in
subsection (b), any shareholder of a business corporation shall
have the right to dissent from, and to obtain payment of the fair
value of his shares in the event of, any corporate action, or to
otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and
remedies provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon
special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share
exchanges).
Section 1932(c) (relating to dissenters rights in asset
transfers).
Section 1952(d) (relating to dissenters rights in
division).
Section 1962(c) (relating to dissenters rights in
conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a
restriction on transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon
election).
Section 2705(d) (relating to dissenters rights upon
renewal of election).
Section 2907(a) (relating to proceedings to terminate
breach of qualifying conditions).
Section 7104(b)(3) (relating to procedure).
(b) Exceptions.--
(1) Except as otherwise provided in paragraph (2), the
holders of the shares of any class or series of shares that, at
the record date fixed to determine the shareholders entitled to
notice of and to vote at the meeting at which a plan specified in
any of section 1930, 1931(d), 1932(c) or 1952(d) is to be voted
on, are either:
(i) listed on a national securities exchange; or
(ii) held of record by more than 2,000
shareholders;
shall not have the right to obtain payment of the fair value of
any such shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters
rights shall be available without regard to the exception
provided in that paragraph in the case of:
(i) Shares converted by a plan if the shares are
not converted solely into shares of the acquiring,
surviving, new or other corporation or solely into such
shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class
unless the articles, the plan or the terms of the
transaction entitle all shareholders of the class to vote
thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a
majority of the votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under
section 1906(c) (relating to dissenters rights upon special
treatment).
(3) The shareholders of a corporation that acquires by
purchase, lease, exchange or other disposition all or
substantially all of the shares, property or assets of another
corporation by the issuance of shares, obligations or otherwise,
with or without assuming the liabilities of the other corporation
and with or without the intervention of another corporation or
other person, shall not be entitled to the rights and remedies of
dissenting shareholders provided in this subchapter regardless of
the fact, if it be the case, that the acquisition was
accomplished by the issuance of voting shares of the corporation
to be outstanding immediately after the acquisition sufficient to
elect a majority or more of the directors of the corporation.
(c) Grant of optional dissenters rights.--The bylaws or a
resolution of the board of directors may direct that all or a
part of the shareholders shall have dissenters rights in
connection with any corporate action or other transaction that
would otherwise not entitle such shareholders to dissenters
rights.
(d) Notice of dissenters rights.--Unless otherwise provided
by statute, if a proposed corporate action that would give rise
to dissenters rights under this subpart is submitted to a vote at
a meeting of shareholders, there shall be included in or enclosed
with the notice of meeting:
(1) a statement of the proposed action and a statement
that the shareholders have a right to dissent and obtain
payment of the fair value of their shares by complying with
the terms of this subchapter; and
(2) a copy of this subchapter.
(e) Other statutes.--The procedures of this subchapter
shall also be applicable to any transaction described in any
statute other than this part that makes reference to this
subchapter for the purpose of granting dissenters rights.
(f) Certain provisions of articles ineffective.--This
subchapter may not be relaxed by any provision of the articles.
(g) Cross references.--See sections 1105 (relating to
restriction on equitable relief), 1904 (relating to de facto
transaction doctrine abolished) and 2512 (relating to dissenters
rights procedure).
Section 1572. Definitions.
The following words and phrases when used in this subchapter
shall have the meanings given to them in this section unless the
context clearly indicates otherwise:
"Corporation." The issuer of the shares held or owned
by the dissenter before the corporate action or the
successor by merger, consolidation, division, conversion or
otherwise of that issuer. A plan of division may designate
which of the resulting corporations is the successor
corporation for the purposes of this subchapter. The
successor corporation in a division shall have sole
responsibility for payments to dissenters and other
liabilities under this subchapter except as otherwise
provided in the plan of division.
"Dissenter." A shareholder or beneficial owner who is
entitled to and does assert dissenters rights under this
subchapter and who has performed every act required up to
the time involved for the assertion of those rights.
"Fair value." The fair value of shares immediately
before the effectuation of the corporate action to which the
dissenter objects taking into account all relevant factors,
but excluding any appreciation or depreciation in
anticipation of the corporate action.
"Interest." Interest from the effective date of the
corporate action until the date of payment at such rate as
is fair and equitable under all of the circumstances, taking
into account all relevant factors including the average rate
currently paid by the corporation on its principal bank
loans.
Section 1573. Record and beneficial holders and owners.
(a) Record holders of shares.--A record holder of shares of
a business corporation may assert dissenters rights as to fewer
than all of the shares registered in his name only if he dissents
with respect to all the shares beneficially owned by any one
person and discloses the name and address of the person or
persons on whose behalf he dissents. In that event, his rights
shall be determined as if the shares as to which he has dissented
and his other shares were registered in the names of different
shareholders.
(b) Beneficial owners of shares.--A beneficial owner of
shares of a business corporation who is not the record holder may
assert dissenters rights with respect to shares held on his
behalf and shall be treated as a dissenting shareholder under the
terms of this subchapter if he submits to the corporation not
later than the time of the assertion of dissenters rights a
written consent of the record holder. A beneficial owner may not
dissent with respect to some but less than all shares of the same
class or series owned by the owner, whether or not the shares so
owned by him are registered in his name.
Section 1574. Notice of intention to dissent.
If the proposed corporate action is submitted to a vote at a
meeting of shareholders of a business corporation, any person who
wishes to dissent and obtain payment of the fair value of his
shares must file with the corporation, prior to the vote, a
written notice of intention to demand that he be paid the fair
value of his shares if the proposed action is effectuated, must
effect no change in the beneficial ownership of his shares from
the date of such filing continuously through the effective date
of the proposed action and must refrain from voting his shares in
approval of such action. A dissenter who fails in any respect
shall not acquire any right to payment of the fair value of his
shares under this subchapter. Neither a proxy nor a vote against
the proposed corporate action shall constitute the written notice
required by this section.
Section 1575. Notice to demand payment.
(a) General rule.--If the proposed corporate action is
approved by the required vote at a meeting of shareholders of a
business corporation, the corporation shall mail a further notice
to all dissenters who gave due notice of intention to demand
payment of the fair value of their shares and who refrained from
voting in favor of the proposed action. If the proposed
corporate action is to be taken without a vote of shareholders,
the corporation shall send to all shareholders who are entitled
to dissent and demand payment of the fair value of their shares a
notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be
sent and certificates for certificated shares must be
deposited in order to obtain payment.
(2) Inform holders of uncertificated shares to what
extent transfer of shares will be restricted from the time
that demand for payment is received.
(3) Supply a form for demanding payment that includes
a request for certification of the date on which the
shareholder, or the person on whose beneficial shareholder
dissents, acquired beneficial ownership of the shares.
(4) Be accompanied by a copy of this subchapter.
(b) Time for receipt of demand for payment.--The time set
for receipt of the demand and deposit of certificated shares
shall be not less than 30 days from the mailing of the notice.
Section 1576. Failure to comply with notice to demand payment,
etc.
(a) Effect of failure of shareholder to act.--A shareholder
who fails to timely demand payment, or fails (in the case of
certificated shares) to timely deposit certificates, as required
by a notice pursuant to section 1575 (relating to notice to
demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) Restriction on uncertificated shares.--If the shares
are not represented by certificates, the business corporation may
restrict their transfer from the time of receipt of demand for
payment until effectuation of the proposed corporate action or
the release of restrictions under the terms of section 1577(a)
(relating to failure to effectuate corporate action).
(c) Rights retained by shareholder.--The dissenter shall
retain all other rights of a shareholder until those rights are
modified by effectuation of the proposed corporate action.
Section 1577. Release of restrictions or payment for shares.
(a) Failure to effectuate corporate action.--Within 60 days
after the date set for demanding payment and depositing
certificates, if the business corporation has not effectuated the
proposed corporate action, it shall return any certificates that
have been deposited and release uncertificated shares from any
transfer restrictions imposed by reason of the demand for
payment.
(b) Renewal of notice to demand payment.--When uncertified
shares have been released from transfer restrictions and
deposited certificates have been returned, the corporation may at
any later time send a new notice conforming to the requirements
of section 1575 (relating to notice to demand payment), with like
effect.
(c) Payment of fair value of shares.--Promptly after
effectuation of the proposed corporate action, or upon timely
receipt of demand for payment if the corporate action has already
been effectuated, the corporation shall either remit to
dissenters who have made demand and (if their shares are
certificated) have deposited their certificates the amount that
the corporation estimates to be the fair value of the shares, or
give written notice that no remittance under this section will be
made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income
of the issuer of the shares held or owned by the dissenter
for a fiscal year ending not more than 16 months before the
date of remittance or notice together with the latest
available interim financial statements.
(2) A statement of the corporation's estimate of the
fair value of the shares.
(3) A notice of the right of the dissenter to demand
payment or supplemental payment, as the case may be,
accompanied by a copy of this subchapter.
(d) Failure to make payment.--If the corporation does not
remit the amount of its estimate of the fair value of the shares
as provided by subsection (c), it shall return any certificates
that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for
payment. The corporation may make a notation on any such
certificate or on the records of the corporation relating to any
such uncertificated shares that such demand has been made. If
shares with respect to which notation has been so made shall be
transferred, each new certificate issued therefor or the records
relating to any transferred uncertificated shares shall bear a
similar notation, together with the name of the original
dissenting holder or owner of such shares. A transferee of such
shares shall not acquire by such transfer any rights in the
corporation other than those which the original dissenter had
after making demand for payment of their fair value.
Section 1578. Estimate by dissenter of fair value of shares.
(a) General rule.--If the business corporation gives notice
of its estimate of the fair value of the shares, without
remitting such amount, or remits payment of its estimate of the
fair value of a dissenter's shares as permitted by
section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less
than the fair value of his shares, he may send to the corporation
his own estimate of the fair value of the shares, which shall be
deemed a demand for payment of the amount or the deficiency.
(b) Effect of failure to file estimate.--Where the
dissenter does not file his own estimate under subsection (a)
within 30 days after the mailing by the corporation of its
remittance or notice, the dissenter shall be entitled to no more
than the amount stated in the notice or remitted to him by the
corporation.
Section 1579. Valuation proceedings generally.
(a) General rule.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under
section 1575 (relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to
section 1578 (relating to estimate by dissenter of fair
value of shares);
if any demands for payment remain unsettled, the business
corporation may file in court an application for relief
requesting that the fair value of the shares be determined by the
court.
(b) Mandatory joinder of dissenters.--All dissenters,
wherever residing, whose demands have not been settled shall be
made parties to the proceeding as in an action against their
shares. A copy of the application shall be served on each such
dissenter. If a dissenter is a nonresident, the copy may be
served on him in the manner provided or prescribed by or pursuant
to 42 Pa.C.S. Ch. 53 (relating to bases of jurisdiction and
interstate and international procedure).
(c) Jurisdiction of the court.--The jurisdiction of the
court shall be plenary and exclusive. The court may appoint an
appraiser to receive evidence and recommend a decision on the
issue of fair value. The appraiser shall have such power and
authority as may be specified in the order of appointment or in
any amendment thereof.
(d) Measure of recovery.--Each dissenter who is made a
party shall be entitled to recover the amount by which the fair
value of his shares is found to exceed the amount, if any,
previously remitted, plus interest.
(e) Effect of corporation's failure to file application.--
If the corporation fails to file an application as provided in
subsection (a), any dissenter who made a demand and who has not
already settled his claim against the corporation may do so in
the name of the corporation at any time within 30 days after the
expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to
file an application shall be paid the corporation's estimate of
the fair value of the shares and no more, and may bring an action
to recover any amount not previously remitted.
Section 1580. Costs and expenses of valuation proceedings.
(a) General rule.--The costs and expenses of any proceeding
under section 1579 (relating to valuation proceedings generally)
including the reasonable compensation and expenses of the
appraiser appointed by the court, shall be determined by the
court and assessed against the business corporation except that
any part of the costs and expenses may be apportioned and
assessed as the court deems appropriate against all or some of
the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by
dissenter of fair value of shares) the court finds to be
dilatory, obdurate, arbitrary, vexatious or in bad faith.
(b) Assessment of counsel fees and expert fees where lack
of good faith appears.--Fees and expenses of counsel and of
experts for the respective parties may be assessed as the court
deems appropriate against the corporation and in favor of any or
all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed
against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the
fees and expenses arc assessed acted in bad faith or in a
dilatory, obdurate, arbitrary or vexatious manner in respect to
the rights provided by this subchapter.
(c) Award of fees for benefits to other dissenters.--If the
court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and
should not be assessed against the corporation, it may award to
those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefitted.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pennsylvania law provides that a Pennsylvania corporation
may indemnify directors, officers, employees and agents of the
corporation against liabilities they may incur in such capacities
for any action taken or any failure to act, whether or not the
corporation would have the power to indemnify the person under
any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful
misconduct. Pennsylvania law also permits the adoption of a
bylaw amendment, approved by shareholders, providing for the
elimination of a director's liability for monetary damages for
any action taken or any failure to take any action unless (1) the
director has breached or failed to perform the duties of his
office and (2) the breach or failure to perform constitutes self-
dealing, willful misconduct or recklessness.
The bylaws of First Jermyn provide for (1) indemnification
of directors, officers, employees and agents of the registrant
and its subsidiaries and (2) the elimination of a director's
liability for monetary damages, to the fullest extent permitted
by Pennsylvania law.
Directors and officers are also insured against certain
liabilities for their actions, as such, by an insurance policy
obtained by First Jermyn.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Merger dated as of
October 15, 1997, between The First Jermyn Corp.
and Upper Valley Bancorp Inc. (included as Annex A
to the Proxy Statement Prospectus).
3.1 Articles of Incorporation, as amended, of The
First Jermyn Corp. (Incorporated by reference to
Exhibit 3.1 of First Jermyn's Form 10-K for the
year ended December 31, 1997.)
3.2 Bylaws of The First Jermyn Corp. (Incorporated by
reference to Exhibit 3.2 of First Jermyn's
Form 10-K for the year ended December 31, 1997.)
5.1 Opinion of Stevens & Lee, P.C. re: Validity.
8.1 Form of opinion of Stevens & Lee, P.C. re: tax
matters.
10.1 Lease Agreement, Option Agreement and Memorandum
of Lease dated August 29, 1974 by and between
Sterling Industrial Corp. and The First National
Bank of Jermyn for the Bank's office buildings
located in Jermyn and the Keyser Oak section of
Scranton, Pennsylvania, filed with the Form 10-K
for the year ended December 31, 1993 and
incorporated herein by reference.
10.2 Agreement dated as of June 9, 1993, between The
First Jermyn Corp. and William M. Davis
(Incorporated by reference to Exhibit 10.2 of
First Jermyn's Form 10-K for the year ended
December 31, 1997).
10.3 Agreement dated as of June 9, 1993, between The
First Jermyn Corp. and Steven R. Tokach
(Incorporated by reference to Exhibit 10.3 of
First Jermyn's Form 10-K for the year ended
December 31, 1997).
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Kronick Kalada Berdy & Co., P.C.
23.3 Consent of Stevens & Lee, P.C. (contained in
Exhibit 5).
23.4 Consent of Stevens & Lee, P.C. re: tax opinion.
23.5 Consent of Berwind Financial, L.P.*
23.6 Consent of Fox-Pitt, Kelton, Inc.*
24.1 Powers of Attorney of Directors and Officers
(included on signature page hereof).
99.1 Form of Proxy for the Annual Meeting of
Shareholders of The First Jermyn Corp.
99.2 Form of Proxy for the Special Meeting of
Shareholders of Upper Valley Bancorp, Inc.
99.3 Opinion of Berwind Financial, L.P. dated
_______________, 1998 (included as Annex D to
Proxy Statement/Prospectus).
99.4 Opinion of Fox-Pitt, Kelton, Inc. dated
____________________, 1998 (included as Annex E to
Proxy Statement/Prospectus).
____________________
* To be filed by amendment.
(b) Financial Statement Schedules.
None required.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any fact or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent
a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes to deliver
or cause to be delivered with the prospectus, to each person to
whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the
prospectus and furnished pursuant to and meeting the requirements
of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the
prospectus, to deliver, or cause to be delivered to each person
to whom the prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(c) (1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the
securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called
for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and
that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(d) 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 bylaws of the registrant, 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.
(e) The undersigned registrant hereby undertakes to respond
to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of 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.
(f) The undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information concerning
a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the Borough of Jermyn, Commonwealth of
Pennsylvania, on March 25, 1998.
THE FIRST JERMYN CORP.
(Registrant)
By: /s/ William M. Davis
William M. Davis,
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints William M.
Davis, and Steven R. Tokach, and each of them, his true and
lawful attorney-in-fact, as agent with full power of substitution
and resubstitution for him and in his name, place and stead, in
any and all capacity, to sign any or all amendments to this
Registration Statement and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorney-
in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all intents and purposes as
they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute
or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ Kuzma Leschak, Jr. Director March 25, 1998
Kuzma Leschak, Jr.
/s/ William M. Davis Director, President March 25, 1998
William M. Davis and Chief Executive
Officer (Principal
Executive Officer)
/s/ Edmund J. Biancarelli Director March 25, 1998
Edmund J. Biancarelli
_________________________ Director March 25, 1998
David M. Epstein
/s/ Robert T. Kelly Director March 25, 1998
Robert T. Kelly
__________________________ Director March 25, 1998
I. Leo Moskovitz
/s/ Harold T. McGovern Director March 25, 1998
Harold T. McGovern
/s/ William K. Nasser, Jr. Director March 25, 1998
William K. Nasser, Jr.
__________________________ Director March 25, 1998
Peter A. Sabia
/s/ Thomas G. Speicher Director March 25, 1998
Thomas G. Speicher
/s/ Garfield G. Thomas Director March 25, 1998
Garfield G. Thomas
/s/ Steven R. Tokach Director March 25, 1998
Steven R. Tokach
/s/ Donald R. Gibbs Chief Financial March 25, 1998
Donald R. Gibbs and Accounting
Officer
EXHIBIT 5.1
[Letterhead of Stevens & Lee]
April 2, 1998
Board of Directors
The First Jermyn Corp.
345 Washington Avenue
Jermyn, Pennsylvania 18433
Re: Registration Statement on Form S-4
Upper Valley Bancorp, Inc.
Gentlemen:
In connection with the proposed offering of up to 727,308
shares of common stock, $1.25 par value (the "Common Stock"), by
The First Jermyn Corp. (the "Company"), covered by the Company's
Registration Statement on Form S-4 (the "Registration Statement")
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, with respect to such Common
Stock, we, as special counsel to the Company, have reviewed:
(1) the Articles of Incorporation of the Company;
(2) the Bylaws of the Company;
(3) resolutions adopted by the Board of Directors of the
Company relating to the Registration Statement, certified by the
Secretary of the Company;
(4) a subsistence certificate with respect to the Company
issued by the Pennsylvania Department of State;
(5) the Registration Statement; and
(6) copies of the certificates representing shares of the
Common Stock.
Based upon our review of the foregoing, it is our opinion
that:
(a) the Company has been duly incorporated under the laws
of the Commonwealth of Pennsylvania and is validly existing and
in good standing under the laws of such Commonwealth; and
(b) the Common Stock covered by the Registration Statement
has been duly authorized and, when issued pursuant to the terms
described in the Registration Statement, will be legally issued
by the Company and fully paid and nonassessable.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under the
heading "LEGAL MATTERS" in the related Prospectus. In giving
this consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ STEVENS & LEE
EXHIBIT 8.1
[LETTERHEAD OF STEVENS & LEE, P.C.]
__________, 1998
Board of Directors
The First Jermyn Corp.
645 Washington Avenue
Jermyn, PA 18433
Board of Directors
Upper Valley Bancorp, Inc.
114-116 Lackawanna Avenue
Olyphant, PA 18447
Re: Merger of Upper Valley Bancorp, Inc. with and into
The First Jermyn Corp.; Merger of NBO National Bank
with and into The First National Bank of Jermyn
Gentlemen:
You have requested our opinion in connection with the
transaction contemplated by the Agreement and Plan of Merger (the
"Holding Company Merger Agreement"), dated as of October 15,
1997, between The First Jermyn Corp., a Pennsylvania corporation
("First Jermyn"), and Upper Valley Bancorp, Inc., a Pennsylvania
corporation ("Upper Valley"), pursuant to which Upper Valley will
be merged with and into First Jermyn, which will be the surviving
corporation. At the Effective Date of such merger (the
"Merger"), each share of Upper Valley Common Stock issued and
outstanding immediately prior to such date will, by virtue of the
Merger and without any action on the part of the holder thereof,
be converted into the right to receive such number of shares of
First Jermyn Common Stock as is provided in Section 1.02(e) of
the Holding Company Merger Agreement. No fractional shares of
First Jermyn Common Stock will be issued. In lieu thereof,
shareholders of Upper Valley will receive cash in an amount
determined pursuant to Section 1.02(e) of the Holding Company
Merger Agreement. Upper Valley shareholders will be entitled to
exercise dissenters' rights in connection with the Merger. All
shares of Upper Valley Common Stock held as treasury shares by
Upper Valley or held by an Upper Valley Subsidiary, First Jermyn,
or a First Jermyn Subsidiary on the Effective Date of the Merger
will be cancelled, and no shares of First Jermyn Common Stock or
other property will be delivered in exchange therefor.
You have also requested our opinion in connection with the
transaction contemplated by the Bank Plan of Merger, dated as of
October 15, 1997, between The First National Bank of Jermyn, a
national banking association ("FNBJ"), and NBO National Bank, a
national banking association ("NBO"), pursuant to which NBO will,
concurrently with or as soon as practicable after the closing of
the Merger of Upper Valley with and into First Jermyn, be merged
with and into FNBJ, which will be the surviving institution. At
the effective date of such merger (the "Bank Merger"), all of the
issued and outstanding shares of NBO Common Stock and all shares
of NBO Common Stock held as treasury shares will be cancelled,
and no shares of FNBJ Common Stock will be delivered in exchange
therefor.
This opinion is being furnished pursuant to Sections 5.01(j)
and 5.02(j) of the Holding Company Merger Agreement. All
capitalized terms herein, unless otherwise specified, have the
meanings assigned thereto in the Holding Company Merger Agreement
and its exhibits.
In connection with our opinion, we have examined and are
familiar with originals or copies, certified or otherwise
identified to our satisfaction, of the Holding Company Merger
Agreement, the exhibits thereto, and such other documents as we
have deemed necessary or appropriate for the opinions set forth
below. In our examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and
the authenticity of such latter documents. As to any facts
material to this opinion which we did not independently establish
or verify, we have relied upon the foregoing documents and upon
statements and representations of officers and other
representatives of Upper Valley and First Jermyn, including
certain written representations of the managements of Upper
Valley and First Jermyn annexed hereto. The opinions expressed
herein are conditioned on the initial and continuing accuracy of
the facts, information, and representations contained in the
aforesaid documents or otherwise referred to above.
In preparing our opinion, we have considered applicable
provisions of the IRC, Treasury regulations, pertinent judicial
authorities, interpretive rulings of the Internal Revenue
Service, and such other authorities as we have deemed relevant.
Based solely upon the foregoing and upon the assumptions set
forth herein, and subject to the qualifications and caveats set
forth herein, we are of the opinion that, under present law, for
federal income tax purposes:
1. The transfer by Upper Valley of all its assets to First
Jermyn in exchange for First Jermyn Common Stock (including
fractional share interests) and the assumption by First Jermyn of
all of Upper Valley's liabilities will constitute a
reorganization within the meaning of IRC Section 368(a)(1)(A).
2. Upper Valley and First Jermyn will each be "a party to
a reorganization" within the meaning of IRC Section 368(b).
3. Neither Upper Valley nor First Jermyn will recognize
any gain or loss upon the transfer of Upper Valley's assets to
First Jermyn in exchange solely for First Jermyn Common Stock
(including any fractional share interests) and the assumption by
First Jermyn of the liabilities of Upper Valley.
4. The basis of the Upper Valley assets in the hands of
First Jermyn will be the same as the basis of such assets in the
hands of Upper Valley immediately prior to the Merger.
5. The holding period of the assets of Upper Valley to be
received by First Jermyn will include the period during which the
assets were held by Upper Valley.
6. No gain or loss will be recognized by the shareholders
of Upper Valley on the receipt of First Jermyn Common Stock
(including any fractional share interests) solely in exchange for
their shares of Upper Valley Common Stock.
7. The basis of the First Jermyn Common Stock (including
any fractional share interests) to be received by the Upper
Valley shareholders in the Merger will be the same as the basis
of the Upper Valley Common Stock surrendered in exchange
therefor.
8. The holding period of the First Jermyn Common Stock
(including any fractional share interests) to be received by the
Upper Valley shareholders in the Merger will include the period
during which the Upper Valley shareholders held their Upper
Valley Common Stock, provided the shares of Upper Valley Common
Stock are held as a capital asset on the Effective Date of the
Merger.
9. The payment of cash in lieu of fractional share
interests of First Jermyn Common Stock will be treated as if the
fractional share interests were distributed as part of the Merger
and then redeemed by First Jermyn. Such cash payments will be
treated as having been received as distributions in full payment
in exchange for the fractional share interests redeemed, as
provided in IRC Section 302(a). Any gain or loss recognized by
an Upper Valley shareholder will be a capital gain or loss,
provided the shares of Upper Valley Common Stock are held as a
capital asset on the Effective Date of the Merger.
10. As provided in IRC Section 381(c)(2) and related
Treasury regulations, First Jermyn will succeed to and take into
account the earnings and profits, or deficit in earnings and
profits, of Upper Valley as of the Effective Date of the Merger.
Any deficit in the earnings and profits of First Jermyn or Upper
Valley will be used only to offset the earnings and profits
accumulated after the Merger.
11. Pursuant to IRC Section 381(a) and related Treasury
regulations, First Jermyn will succeed to and take into account
the items of Upper Valley described in IRC Section 381(c). Such
items will be taken into account by First Jermyn subject to the
conditions and limitations of IRC Sections 381, 382, 383, and 384
and the Treasury regulations thereunder.
12. The Bank Merger will constitute a reorganization within
the meaning of IRC Section 368(a)(1)(A).
13. NBO and FNBJ will each be "a party to a reorganization"
within the meaning of IRC Section 368(b).
14. Neither NBO nor FNBJ will recognize any gain or loss
upon the transfer of NBO's assets to FNBJ in constructive
exchange solely for FNBJ Common Stock and the assumption by FNBJ
of the liabilities of NBO.
15. The basis of the NBO assets in the hands of FNBJ will
be the same as the basis of such assets in the hands of NBO
immediately prior to the Bank Merger.
16. The holding period of the NBO assets in the hands of
FNBJ will include the period during which such assets were held
by NBO.
17. No gain or loss will be recognized by First Jermyn, as
the shareholder of NBO, upon the constructive receipt of shares
of FNBJ Common Stock in exchange for the NBO Common Stock
surrendered in exchange therefor in the Bank Merger.
18. The basis of the FNBJ Common Stock to be held by First
Jermyn after the Bank Merger will equal the basis of such stock
immediately before the Bank Merger, increased by the basis of the
NBO Common Stock surrendered in the constructive exchange.
19. As provided in IRC Section 381(c)(2) and related
Treasury regulations, FNBJ will succeed to and take into account
the earnings and profits, or deficit in earnings and profits, of
NBO as of the effective date of the Bank Merger. Any deficit in
the earnings and profits of FNBJ or NBO will be used only to
offset the earnings and profits accumulated after the Bank
Merger.
20. Pursuant to IRC Section 381(a) and related Treasury
regulations, FNBJ will succeed to and take into account the items
of NBO described in IRC Section 381(c). Such items will be taken
into account by FNBJ subject to the conditions and limitations of
IRC Sections 381, 382, 383, and 384 and the Treasury regulations
thereunder.
We call your attention to the fact that certain portions of
this opinion relating to the federal income tax treatment of
Upper Valley shareholders may not be applicable to persons who
received their Upper Valley Common Stock pursuant to the exercise
of employee stock options or otherwise as compensation, or to
foreign persons or persons who, because of their circumstances or
status, are subject to special federal income tax treatment.
Except as set forth above, we express no other opinion as to
the tax consequences of the mergers and related transactions to
any party under federal, state, local or foreign laws.
Very truly yours,
STEVENS & LEE, P.C.
<PAGE>
THE FIRST JERMYN CORP.
OFFICER'S CERTIFICATE
The undersigned authorized officer of The First Jermyn
Corp., a Pennsylvania corporation ("First Jermyn"), in connection
with the opinion to be delivered by Stevens & Lee, P.C., as to
certain of the federal income tax consequences of (i) the
proposed merger (the "Merger") of Upper Valley Bancorp, Inc., a
Pennsylvania corporation ("Upper Valley"), with and into First
Jermyn pursuant to the Agreement and Plan of Merger, dated as of
October 15, 1997, between First Jermyn and Upper Valley, and
(ii) the subsequent merger (the "Bank Merger") of NBO National
Bank, a national banking association ("NBO"), with and into The
First National Bank of Jermyn, a national banking association
("FNBJ"), pursuant to the Bank Plan of Merger, dated as of
October 15, 1997, between FNBJ and NBO, and recognizing that such
law firm will rely on this Certificate in delivering such
opinion, hereby certifies on behalf of First Jermyn and FNBJ, to
the best knowledge and belief of the management of First Jermyn
and FNBJ, at all times up to and including the respective
effective dates of the mergers, that:
1. The fair market value of the First Jermyn common stock
to be received by each Upper Valley shareholder will be
approximately equal to the fair market value of the Upper Valley
common stock exchanged therefor.
2. There is no plan or intention on the part of the Upper
Valley shareholders to sell, exchange, or otherwise dispose of a
number of shares of First Jermyn common stock to be received in
the Merger that would reduce such shareholders' ownership of
First Jermyn common stock to a number of shares having a value,
as of the effective date of such Merger, of less than 50% of the
value of all of the formerly outstanding Upper Valley common
stock as of the same date. For purposes of this representation,
shares of Upper Valley common stock exchanged for cash in lieu of
fractional shares of First Jermyn common stock will be treated as
outstanding Upper Valley common stock on the effective date of
such Merger. Moreover, shares of Upper Valley common stock and
shares of First Jermyn common stock held by Upper Valley
shareholders and otherwise sold, redeemed, or disposed of prior
or subsequent to such Merger (including shares surrendered
pursuant to the exercise of dissenters' rights) will be
considered in making this representation.
3. First Jermyn has no plan or intention to reacquire any
of its common stock issued in the Merger.
4. First Jermyn has no plan or intention to sell or
otherwise dispose of any of the assets of Upper Valley acquired
in the Merger, except for dispositions made in the ordinary
course of business, transfers described in Section 368(a)(2)(C)
of the Internal Revenue Code of 1986, as amended (the "IRC"), and
the transfer contemplated by the Bank Merger.
5. The liabilities of Upper Valley assumed by First Jermyn
and the liabilities to which the transferred assets of Upper
Valley are subject were incurred by Upper Valley in the ordinary
course of its business.
6. Following the Merger, First Jermyn will continue the
historic business of Upper Valley or use a significant portion of
Upper Valley's historic business assets in a business.
7. First Jermyn, Upper Valley, and the shareholders of
Upper Valley will pay their respective expenses, if any, incurred
in connection with the Merger.
8. There is no intercorporate indebtedness existing
between Upper Valley and First Jermyn that was issued, acquired,
or will be settled at a discount.
9. No two parties to the Merger are "investment companies"
as defined in IRC Section 368(a)(2)(F)(iii) and (iv).
10. Upper Valley is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of IRC Section
368(a)(3)(A).
11. The fair market value of the assets of Upper Valley
transferred to First Jermyn will equal or exceed the sum of the
liabilities assumed by First Jermyn plus the amount of the
liabilities, if any, to which the transferred assets are subject.
12. The payment of cash in lieu of fractional shares of
First Jermyn common stock is solely for the purpose of avoiding
the expense and inconvenience to First Jermyn of issuing
fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the transaction to the Upper Valley shareholders of record
instead of issuing fractional shares of First Jermyn common stock
will not exceed 1% of the total consideration that will be issued
in the Merger to the shareholders of Upper Valley in exchange for
their shares of Upper Valley common stock. The fractional share
interests of each Upper Valley shareholder of record will be
aggregated, and no Upper Valley shareholder will receive cash in
an amount equal to or greater than the value of one full share of
First Jermyn common stock.
13. None of the compensation received by any shareholder-
employees of Upper Valley will be part of the consideration for
Upper Valley common stock. The compensation to be paid to
shareholder-employees under any employment agreement will be for
services actually rendered and will be commensurate with amounts
paid by third parties bargaining at arm's length for similar
services. None of the stock to be received by any shareholder-
employee of Upper Valley is separate consideration for any
compensation owed to such shareholder-employee.
14. The fair market value of the FNBJ common stock to be
constructively received by First Jermyn will be approximately
equal to the fair market value of the NBO common stock exchanged
therefor.
15. First Jermyn has no plan or intention to sell,
exchange, or otherwise dispose of a number of shares of FNBJ
common stock that would reduce its ownership of FNBJ common stock
constructively received in the Bank Merger to a number of shares
having a value, as of the effective date of such merger, of less
than 50% of the value of all of the formerly outstanding NBO
common stock as of the same date.
16. First Jermyn has no plan or intention to sell or
otherwise dispose of the assets of NBO acquired in the Bank
Merger, except for (i) dispositions made in the ordinary course
of business and (ii) transfers described in IRC Section
368(a)(2)(C).
17. The liabilities of NBO assumed by FNBJ and the
liabilities to which the transferred assets of NBO are subject
were incurred by NBO in the ordinary course of its business.
18. Following the Bank Merger, FNBJ will continue the
historic business of NBO or use a significant portion of NBO's
historic business assets in a business.
19. First Jermyn, FNBJ, and NBO will pay their respective
expenses, if any, incurred in connection with the Bank Merger.
20. There is no intercorporate indebtedness existing
between FNBJ and NBO that was issued, acquired, or will be
settled at a discount.
21. No two parties to the Bank Merger are "investment
companies" as defined in IRC Section 368(a)(2)(F)(iii) and (iv).
22. NBO is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of IRC Section
368(a)(3)(A).
23. The fair market value of the assets of NBO transferred
to FNBJ will equal or exceed the sum of the liabilities assumed
by FNBJ plus the amount of the liabilities, if any, to which the
transferred assets are subject.
24. The total adjusted basis of the assets of NBO
transferred to FNBJ will equal or exceed the sum of the
liabilities assumed by FNBJ plus the amount of the liabilities,
if any, to which the transferred assets are subject.
IN WITNESS WHEREOF, I have, on behalf of First Jermyn and
FNBJ, signed this certificate as of the _____ day of ________,
1998.
THE FIRST JERMYN CORP.
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
UPPER VALLEY BANCORP, INC.
OFFICER'S CERTIFICATE
The undersigned authorized officer of Upper Valley Bancorp,
Inc., a Pennsylvania corporation ("Upper Valley"), in connection
with the opinion to be delivered by Stevens & Lee, P. C., as to
certain of the federal income tax consequences of (i) the
proposed merger (the "Merger") of Upper Valley with and into The
First Jermyn Corp., a Pennsylvania corporation ("First Jermyn"),
pursuant to the Agreement and Plan of Merger, dated as of
October 15, 1997, between First Jermyn and Upper Valley, and
(ii) the subsequent merger (the "Bank Merger") of NBO National
Bank, a national banking association ("NBO"), with and into The
First National Bank of Jermyn, a national banking association
("FNBJ"), pursuant to the Bank Plan of Merger, dated as of
October 15, 1997, between FNBJ and NBO, and recognizing that such
law firm will rely on this Certificate in delivering such
opinion, hereby certifies on behalf of Upper Valley and NBO, to
the best knowledge and belief of the management of Upper Valley
and NBO, at all times up to and including the respective
effective dates of the mergers, that:
1. The fair market value of the First Jermyn common stock
to be received by each Upper Valley shareholder will be
approximately equal to the fair market value of the Upper Valley
common stock exchanged therefor.
2. There is no plan or intention on the part of the Upper
Valley shareholders to sell, exchange, or otherwise dispose of,
to First Jermyn, Upper Valley and/or any person related to either
of them, as determined under Treasury Regulation 1.368-1(e), a
number of shares of First Jermyn common stock to be received in
the Merger that would reduce such shareholders' ownership of
First Jermyn common stock to a number of shares having a value,
as of the effective date of such Merger, of less than 50% of the
value of all of the formerly outstanding Upper Valley common
stock as of the same date. Shares of Upper Valley common stock
exchanged for cash in lieu of fractional shares of First Jermyn
common stock will be considered in making this representation.
Moreover, shares of Upper Valley common stock and shares of First
Jermyn common stock held by Upper Valley shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to
such Merger (including shares surrendered pursuant to the
exercise of dissenters' rights) will be considered in making this
representation.
3. The liabilities of Upper Valley assumed by First Jermyn
and the liabilities to which the transferred assets of Upper
Valley are subject were incurred by Upper Valley in the ordinary
course of its business.
4. First Jermyn, Upper Valley, and the shareholders of
Upper Valley will pay their respective expenses, if any, incurred
in connection with the Merger.
5. There is no intercorporate indebtedness existing
between Upper Valley and First Jermyn that was issued, acquired,
or will be settled at a discount.
6. No two parties to the Merger are "investment companies"
as defined in Section 368(a)(2)(F)(iii) and (iv) of the Internal
Revenue Code of 1986, as amended (the "IRC").
7. Upper Valley is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of IRC Section
368(a)(3)(A).
8. The fair market value of the assets of Upper Valley
transferred to First Jermyn will equal or exceed the sum of the
liabilities assumed by First Jermyn plus the amount of the
liabilities, if any, to which the transferred assets are subject.
9. The payment of cash in lieu of fractional shares of
First Jermyn common stock is solely for the purpose of avoiding
the expense and inconvenience to First Jermyn of issuing
fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the transaction to the Upper Valley shareholders of record
instead of issuing fractional shares of First Jermyn common stock
will not exceed 1% of the total consideration that will be issued
in the Merger to the shareholders of Upper Valley in exchange for
their shares of Upper Valley common stock. The fractional share
interests of each Upper Valley shareholder of record will be
aggregated, and no Upper Valley shareholder will receive cash in
an amount equal to or greater than the value of one full share of
First Jermyn common stock.
10. None of the compensation received by any shareholder-
employees of Upper Valley will be part of the consideration for
Upper Valley common stock. The compensation to be paid to
shareholder-employees under any employment agreement will be for
services actually rendered and will be commensurate with amounts
paid by third parties bargaining at arm's length for similar
services. None of the stock to be received by any shareholder-
employee of Upper Valley is separate consideration for any
compensation owed to such shareholder-employee.
11. The liabilities of NBO assumed by FNBJ and the
liabilities to which the transferred assets of NBO are subject
were incurred by NBO in the ordinary course of its business.
12. There is no intercorporate indebtedness existing
between FNBJ and NBO that was issued, acquired, or will be
settled at a discount.
13. No two parties to the Bank Merger are "investment
companies" as defined in IRC Section 368(a)(2)(F)(iii) and (iv).
14. NBO is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of IRC Section
368(a)(3)(A).
15. The fair market value of the assets of NBO transferred
to FNBJ will equal or exceed the sum of the liabilities assumed
by FNBJ plus the amount of the liabilities, if any, to which the
transferred assets are subject.
16. The total adjusted basis of the assets of NBO
transferred to FNBJ will equal or exceed the sum of the
liabilities assumed by FNBJ plus the amount of the liabilities,
if any, to which the transferred assets are subject.
IN WITNESS WHEREOF, I have, on behalf of Upper Valley and
NBO, signed this certificate as of the _____ day of ________,
1998.
UPPER VALLEY BANCORP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
EXHIBIT 23.1
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
The Board of Directors
The First Jermyn Corp.:
We consent to the use of our reports incorporated herein by
reference and to the reference to our firm under the heading
"Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
March 27, 1998
Exhibit 23.2
[Letterhead of Kronick Kalada
Berdy & Co. P.C.]
The Board of Directors
Upper Valley Bancorp, Inc.
We consent to the use in this registration of First Jermyn Corp.
of our report dated January 16, 1998 included herein and to the
reference to our firm under the heading "Experts" in the
registration statement.
/s/ Kronick Kalada Berdy & Co. P.C.
Kingston, Pennsylvania
April 2, 1998
EXHIBIT 23.4
[LETTERHEAD OF STEVENS & LEE, P.C.]
April __, 1998
Board of Directors
Sovereign Bancorp, Inc.
P.O. Box 12646
Reading, Pennsylvania 19612
Ladies and Gentlemen:
We are acting as counsel to Sovereign Bancorp, Inc.
("Sovereign") in connection with the proposed merger of Bankers
Corp., a New Jersey corporation, with and into Sovereign. In
that regard, our tax opinions are as set forth under the section
entitled "The Merger--Tax Consequences" in the Proxy Statement/
Prospectus relating to the above-described transactions (the
"Proxy Statement/Prospectus").
We hereby consent to the filing of this opinion as an
Exhibit to Sovereign's Registration Statement on Form S-4 of
which the Proxy Statement/Prospectus is a part and to the use of
our name under the above-referenced section of the Proxy
Statement/Prospectus.
Very truly yours,
/s/ STEVENS & LEE
EXHIBIT 99.1
PRELIMINARY COPY - For the Information of the Securities
and Exchange Commission Only.
THE FIRST JERMYN CORP.
Special Meeting of Shareholders -
____________, 1998 at _____ _.m., Local Time
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of The First Jermyn Corp.
("First Jermyn") hereby appoints
[______________________________________ and
__________________________________________] the proxies of the
undersigned (each with power of substitution and with all powers
the undersigned would possess if personally present) to vote at
the Annual Meeting of Shareholders of First Jermyn to be held on
____________________________, 1998, and at any adjournment or
postponement thereof (the "Meeting"), all the shares of Common
Stock of First Jermyn which the undersigned would be entitled to
vote on the following proposals more fully described in the Joint
Proxy Statement/Prospectus dated ____________________________,
1998 for the Meeting in the manner specified and in the
discretion of the named proxies on any other business that may
properly come before the Meeting.
___________________
Please indicate on the reverse side of this card how your
stock is to be voted. Unless you specifically direct otherwise,
the shares represented by this proxy will be voted "FOR" the
following proposals.
(continued and to be signed on reverse side)
The DIRECTORS recommend a vote "FOR"
Approval of the proposal to fix the number of directors at
twelve (12).
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Election of Class II Directors.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed below (except to vote for all
as marked to the nominees listed below
contrary below)
William K. Nasser, Jr.; Steven R. Tokach
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NAME IN THE
LIST ABOVE.)
Election of Class III Directors.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed below (except to vote for all
as marked to the nominees listed below
contrary below)
David M. Epstein, Esq.,; Robert T. Kelly; Harold P. McGovern
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH THE NAME IN THE
LIST ABOVE.)
Approval and adoption of the Agreement and Plan of Merger,
dated October 15, 1997 (the "Merger Agreement"), relating to
the merger of Upper Valley Bancorp, Inc. with and into First
Jermyn.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the proposal to adjourn the Meeting, if
necessary, in the event there are not sufficient votes at
the time of the Meeting to approve the Merger Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Your signature should appear
as your name appears hereon. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Please sign, date and return the
proxy card promptly using the
enclosed envelope.
Dated:______________________, 1998
___________________________________
(Signature)
___________________________________
(Signature if held jointly)
EXHIBIT 99.2
PRELIMINARY COPY - For the Information of the Securities
and Exchange Commission Only.
UPPER VALLEY BANCORP, INC.
Special Meeting of Shareholders -
May __, 1998 at __:00 _.m., Local Time
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned shareholder of Upper Valley Bancorp, Inc.
("Upper Valley") hereby appoints [______________________________
and _______________________________] the proxies of the
undersigned (each with power of substitution and with all powers
the undersigned would possess if personally present] to vote at
the Special Meeting of Shareholders of Upper Valley to be held on
______________________________, 1998, at and at any adjournment
or postponement thereof (the "Meeting"), all the shares of Common
Stock of Upper Valley which the undersigned would be entitled to
vote on the following proposals more fully described in the Joint
Proxy Statement/Prospectus dated _____________________, 1998 for
the Meeting in the manner specified and in the discretion of the
named proxies on the other business that may properly come before
the Meeting.
__________________
Please indicate on the reverse side of this card how your
stock is to be voted. Unless you specifically direct otherwise,
the shares represented by this proxy will be voted "FOR" the
following proposals.
(continued and to be signed on reverse side)
The DIRECTORS recommend a vote "FOR"
Approval and adoption of the Agreement and Plan of Merger,
dated October 15, 1997 (the "Merger Agreement"), relating to
the merger of Upper Valley with and into The First Jermyn
Corp.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Approval of the proposal to adjourn the Meeting, if
necessary, in the event there are not sufficient votes at
the time of the Meeting to approve the Merger Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
NOTE: Your signature should appear
as your name appears hereon. When
shares are held by joint tenants,
both should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such. If a
corporation, please sign in full
corporate name by the President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Please sign, date and return the
proxy card promptly using the
enclosed envelope.
Dated:______________________, 1998
___________________________________
(Signature)
___________________________________
(Signature if held jointly)
